Final Results
RNS Number : 7892A
JPMorgan European Invest Tst PLC
03 June 2021
 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EUROPEAN INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED
31ST MARCH 2021

The Directors of JPMorgan European Investment Trust plc announce the Company's results

for the year ended 31st March 2021

 

Legal Entity Identifier: 549300D8SPJFHBDGXS57

Information disclosed in accordance with DTR 4.1.

 

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that the performance of both the Company's Growth and Income shares have improved significantly in the reporting period.

The markets we invest in have had a buoyant year. The Benchmark return for both share classes (MSCI Europe ex UK Index in sterling terms) was up 33.5% the year under review and both of the Company's share classes comfortably outperformed the benchmark.

Throughout the year, with the ongoing disruption caused by Covid-19, I am pleased to report that the operations and control environment of the Company continued to work well despite the unprecedented change to working practices.

Performance

Growth Portfolio

Return to shareholders and return on net assets

The total return to shareholders for the Company's Growth shares was +53.9% representing a sharp increase from the previous year. This measurement of performance takes into account share price movements and income received by way of dividend.

The total return on net assets for the Company's Growth shares was +40.9% (debt at par). The main reason for higher performance than the benchmark is stock selection, helped by the return to favour of the Fund's investment style. Shareholders will be aware of the protracted period where the investment style has not produced results and so we are heartened to see results coming through at last.

Dividends

For the Company's Growth shares, the Board's aim is that annual dividend payments are sufficient to maintain the Company's investment trust status. In the period the dividend paid per Growth share was 4.45 pence (2020: 8.85 pence). On the year-end share price of 326.0 pence (2020: 215.0 pence), this represents a yield of 1.4% (2020: 4.1%). The reduction of the Growth share dividend in the reporting period reflects the decline in dividend income experienced across equity markets in the reporting period.

Income Portfolio

Return to shareholders and return on net assets

The total return to shareholders for the Company's Income shares was 51.7% representing a sharp increase from the previous year.

The total return on net assets for the Company's Income shares was 38.7% (debt at par).

The investment style related to the Income portfolio staged a recovery during the latter part of the reporting period after being severely hit by the market turmoil during the Covid-19 pandemic.

Dividends

For the Company's Income shares, the Board's aim is to provide a regular stream of dividend income on a quarterly basis, subject to the availability of distributable reserves. In the period under review, the dividend paid per Income share was 6.70 pence (2020: 6.70 pence) which is regarded as an attractive level relative to peers. On the year-end share price of 143.5 pence (2020: 99.8 pence) this represents a yield of 4.7% (2020: 6.7%). In order to maintain the dividend on the Income share, approximately 20% of the dividend was paid from brought forward revenue reserves. If necessary, the Company has brought forward revenue reserves that may be used to support the Income share dividend in the current year end. The Company's Articles also permit the Company's dividends to the paid from distributable capital reserves, although this power has not been utilised.

In their Report on pages 10 to 14 of the Company's Annual Report and Financial Statements, the Investment Managers comment in more detail on some of the factors underlying the performance of the two portfolios including performance against the benchmark over the Company's financial year, as well as commenting on the economic and market background.

General Performance

In my Chairman's Statement in the Annual Report and Accounts 2020 I reported that your Board were very disappointed with the results. As market sentiment towards value investment style changed, as expected the portfolios were able to benefit. Further detail is provided in the Investment Managers' Report.

We are charged with ensuring that the overall strategy of the Company to meet its objectives is appropriate and overseeing that implementation. The objectives, quite rightly reflect a desire to provide an attractive longer term investment opportunity in European Equities. We continue to work with the Investment manager in determining, despite the strong performance this year, that we are on track to provide a model which will provide a sustainable attractive return for the longer term.

Enhancements to the investment process for the Company's Income shares were announced on 7th December 2020 and the Board continue the work to ensure that the Company is best positioned to deliver its objectives.

Gearing

There has been no change in the Investment Manager's permitted gearing range, as previously set by the Board, of between 10% net cash to 20% geared. At 31st March 2021 the Growth portfolio was 0.0% geared and the Income portfolio was 6.5% geared. These levels of gearing as quoted in this Annual Report and Financial Statements are before the application of derivatives, such as futures, which can be used by the Investment Managers to either increase or decrease the effective rate of the Company's gearing, according to market conditions. The Company's net gearing including derivatives is included with the Company's daily published net asset value.

Conversion between the two share Classes

Annually, the shareholders in either of the two Company's share classes are able to convert some or all of their shares into shares of the other class without such disposal being treated as a disposal for capital gains purposes.

The Company's annual share conversion on 15th March 2021 resulted in a relatively small shift out of Income shares and into Growth shares. See page 39 of the Company's Annual Report and Financial Statements for further details. The Company's next share conversion will be in March 2022. Details are also available from the Company's website.

Discounts, Share Issuance and Repurchase

At the forthcoming Annual General Meeting (AGM) on 8th July 2021 as referred to below, the Company will seek to renew its permission to allot new equity in order to manage the balance between the supply and demand for its shares, subject to the requirements and conditions as detailed in the notice to the AGM on page 102 of the Company's Annual Report and Financial Statements. Such allotments benefit all shareholders not least by increasing the liquidity of the Company's shares. The Board has a proactive approach to the use of its share issuance and repurchase powers in normal markets.

The Board remains of the view that it is important to seek to address imbalances in the supply and demand for the Company's shares and to thereby minimise the volatility and absolute level of the discount to net asset value at which the Company's shares currently trade. The Board does not wish to see the discounts widen beyond 10% under normal market conditions (using the cum-income NAV) on an ongoing basis. The precise level and timing of repurchases pursuant to this policy depend upon prevailing market conditions. As markets were so disrupted during this reporting period, active buy back of shares were not used as a tool to control the discount for a number of months as it was felt that this would be ineffective. Over the year under review the discount levels have averaged 13.3% for the Growth shares and 13.2% for the Income Shares (both at fair value and on a cum-income NAV basis). Accordingly, over the 12 month period the Company repurchased a total of 1,942,730 Growth shares and 2,180,618 Income shares.

The discount at which the Growth shares were trading below the prevailing net asset value decreased during the financial year, reflecting the improved market conditions.

Environmental, Social and Governance Considerations

The recent appointment of Guy Walker as a non-Executive Director of the Company illustrates the Company's intent regarding ESG, as he was former Global Head of ESG Investment at Schroders. As detailed in the Investment Managers' report, Environmental, Social and Governance ('ESG') considerations are integrated into the Investment Managers' investment process. The Board shares the Investment Managers' view of the importance of ESG factors when making investments for the long term and of the necessity of continued engagement with investee companies throughout the duration of the investment. Further information on the Manager's ESG process and engagement is set out in the ESG Report on pages 15 to 16 of the Company's Annual Report and Financial Statements.

Board of Directors

During the reporting period the Board implemented its Board Succession Plan in order that suitable replacements could be found to replace the Company's two longest serving Directors, Stephen Russell and Stephen Goldman, who would be retiring in 2021. An independent search agency was recruited to undertake a search and after undergoing a thorough selection and interview process the Board were pleased to announce the appointment of Guy Walker as a Director of the Company on 15th February 2021 with immediate effect. Stephen Russell retired as a Director on the same day, and we thank him for his valuable contribution during his years of dedicated service to the Company.

In the second stage of its Board Succession Plan, the Board are pleased to announce that, following the same independent and rigorous selection and recruitment process as detailed above, Alexander Lennard will be appointed as a Director of the Company after the Company's Annual General Meeting (AGM). Stephen Goldman will retire before the end of the Company's financial year, in order to help ensure an orderly handover period for the new Director.

During the year, the Board evaluation process reviewed Directors, the Chairman, the Committees and the working of the Board as a whole. It was concluded that all aspects of the Board and its procedures were operating effectively. In accordance with corporate governance best practice, all of the Directors retire by rotation at this year's AGM and will offer themselves for re-election.

The Directors fees remain unchanged since they were last increased on 1st April 2018.

Investment Managers

As referred to in the my Chairman's Statement of the Company's Half Year Report and Financial Statements to 30th September 2020, the Board announced changes to the Company's Investment Management team on 19th October 2020. It was detailed that Stephen Macklow-Smith would be retiring and new co-managers will be joining the team. With effect from 31st October 2020, Matt Jones joined Michael Barakos and Thomas Buckingham as co-manager of the Income portfolio and Alexander Fitzalan Howard has been joined by Zenah Shuhaiber and Timothy Lewis as co-managers of the Growth portfolio.

The performance of the Investment Managers is formally evaluated by the Board annually. The evaluation of the Manager was undertaken in January 2021 and based on the data available at that time; the Board concluded that the performance of the Manager had been satisfactory and that their services should be retained.

Change of Auditors

The current audit firm Ernst & Young LLP has audited the Company's financial statements for many years. As required under regulations requiring the rotation of audit firms, a formal audit tender was undertaken during the year and PwC has been selected as the new auditor on the basis of the experience demonstrated of the investment trust business and the strength of the audit team. Approval of the new audit firm will be put to shareholders at the forthcoming AGM. I thank Ernst & Young LLP for their work over the period they have been the Company's auditors.

 

Transfer of Reserves between the Growth and Income Portfolios

During the period the Board exercised its power to approve transfers of retained revenue reserves from the Growth portfolio to the Income portfolio in exchange for the equivalent amount of capital reserves from the Income portfolio to the Growth portfolio. This transfer is reflected in these Report and Financial Statements.

Annual General Meeting

The Company's ninety second AGM will take place at J.P.Morgan's offices at 60 Victoria Embankment, London EC4Y 0JP on Thursday, 8th July 2021 at 2.30 p.m.

The format of the Company's 2021 AGM has unfortunately had to be adapted again. Given the uncertainty about the course of Covid-19 and due to ongoing public health concerns, the Board intends to limit physical attendance at the AGM to the minimum quorum required to allow the formal business to proceed.

Despite these restrictions, the Board is keen to ensure shareholders have the opportunity to hear from the Manager and, accordingly, at the time of the AGM a webinar will be organised, to include a presentation from the Investment Managers, which may be viewed at the time by registered participants. This will be followed by a live question and answer session. Shareholders are invited to register as participants to join the webinar and address any questions they have either by submitting questions during the webinar or in advance of the AGM via the 'Ask a Question' link on the Company's website or via email to [email protected]. Details on how to register as a participant for this event will be posted on the Company's website, or by requesting the details via the email address above.

The Board strongly encourages all shareholders to submit their votes in advance of the meeting, so that these are registered and recorded at the AGM. Proxy votes can be lodged in advance of the AGM either by post or electronically: detailed instructions are included in the Notes to the Notice of Annual General Meeting on pages 102 to 104 of the Company's Annual Report and Financial Statements.

If there are any changes to the above AGM arrangements, the Company will update shareholders through the Company's website and, as appropriate, through an announcement on the London Stock Exchange.

The Board would like to thank shareholders for their understanding and co-operation at this difficult time. We very much hope that you and your families are safe and well and look forward to meeting with you in the not too distant future.

Outlook

The vaccine rollout around the world has fuelled optimism for a strong economic recovery later in the year as national 'lockdowns' abate and some form of economic normality resumes. The very significant stimulus packages introduced by central governments, in addition to record levels of household savings should help to further boost economic recovery.

Conversely, there are fears of the return of inflation, high or excessive debt levels and recurring trade tensions. Furthermore, the scale and longevity of Covid-19 remains unknown, with the impact of new variants and the possibility of further waves an imponderable.

Whilst we are in unchartered waters there remain significant investment opportunities in Europe and we support the manager's approach to address those in achieving our long term objectives.

 

For and on behalf of the Board

Josephine Dixon

Chairman                                                                                                                                               3rd June 2021

 

INVESTMENT MANAGERS' REPORT

Market Background

Continental European markets rallied sharply in the year to 31st March 2021 with the MSCI Europe ex UK index finishing the year up 33.5%. The recovery from the Covid-19 induced sell off in early 2020 was driven largely by the rapid and extensive measures taken by both governments and central banks globally to avert any systemic threat to the financial system and to alleviate pressure on incomes and jobs. In Europe specifically European Union members agreed a Euro 1.8 trillion spending package and recovery fund with a particular emphasis on green and sustainable measures. From a monetary policy perspective, the European Central Bank increased the size of its planned asset purchases substantially and expanded the horizon over which it will make these purchases to March 2022. Despite the economic damage caused by the pandemic and the lockdown measures to counteract it, equity markets looked through this to the prospect of an eventual recovery well before the economic data troughed.

Sectors such as pharmaceutical manufacturers and consumer staples which had proved defensive in the initial market decline actually peaked, relative to the market, in the spring of 2020. Instead sectors with more cyclical exposure, such as autos, materials and capital goods, as well as technology, took up the running despite the economic news still being poor. This process accelerated in the autumn despite Covid-19 infection rates rising again across Europe and new lockdown measures being imposed with an inevitable impact on economic activity. Investors welcomed the positive news around multiple Covid-19 vaccines, the eventual outcome of the US Presidential election and towards the end of the year the UK and the European Union successfully negotiated a Brexit trade deal outlining future arrangements just in time for the year-end deadline. As bond yields started to rise, reflecting the return of economic growth and some concerns about inflationary pressures, financial sectors particularly banks and insurance companies joined the rally too.

In a welcome contrast to the previous few years the Value side of the market, which included many cyclical and financial companies, therefore started to outperform. Valuation spreads had become even more stretched than in the dot-com bubble and while some sort of reversion seemed likely shareholders will know that it has been painful waiting for this to happen. At the same time the understandable decision by both regulators and some companies to restrict dividend payments during the crisis has started to ease. Although both portfolios have benefited from these changes of trend the Income portfolio in particular is positioned to reap the rewards as companies join the dividend list again.

Growth Portfolio performance

FOR THE YEAR ENDED 31ST MARCH 2021


%

%

Contributions to total returns



Benchmark return


33.5

  Asset allocation

0.4


  Stock selection

7.6


  Currency

0.1


  Gearing/cash

-0.2


Investment manager contribution


7.9

Portfolio return


41.4

  Management fee/other expenses

-0.9


  Share buyback

0.4


Other effects


-0.5

Return on net assets with debt at par valueA


40.9

Impact of debt at fair value1


3.2

Return on net assets with debt at fair valueA


44.1

Effect of movement in discount


9.8

Return to shareholdersA


53.9

Source: B-One/JPMAM/AIC/Morningstar.

All figures are on a total return basis. Performance attribution analyses how the Growth portfolio achieved its recorded performance relative to its benchmark.

1     See note 14 on page 82 of the Company's Annual Report and Financial Statements for reference to fair value of debt.

A     Alternative Performance Measure ('APM').

A glossary of terms and APMs is provided on page 105 of the Company's Annual Report and Financial Statements.

Cyclicals in general were a positive area for the portfolio. Within the auto sector Peugeot, prior to its merger with Fiat Chrysler, and Volkswagen rallied strongly with the latter being seen as well positioned for the increasingly clear switch to electric vehicles over time. The trend towards reducing the production of carbon emissions and the resulting growth in electrification is a theme that has become increasingly prominent. Schneider Electric, which manufactures a broad array of products for energy management and industrial automation, was a top contributor to performance. Elsewhere construction and building materials was another sector to benefit from the anticipated reopening of economies around the world. The portfolio held positions in Compagnie de Saint-Gobain and Wienerberger both of which doubled during the year.

Many of our most successful investments were in the technology sectors. ASM International is (ASMI) the global leader in atomic layer deposition (ALD), a semiconductor technology that has been a key enabler of Moore's law in the last decade. As semi manufacturers are investing into smaller nodes and more complex production processes, this deposition technique is taking a greater share: ALD has grown 28% annually over the past 10 years and is expected to continue to grow faster than the rest of the semiconductor equipment industry. ASMI has pioneered this technology and is the clear market leader with more than 50% market share. The stock rose 165% last year. Elsewhere in technology Capgemini, the largest European IT services company, derives nearly 40% of its revenue from outside Europe and has benefited from the global economic recovery. Further down the market cap spectrum SESA is an Italian distributor of IT solutions and Crayon Group is a Norwegian IT consultant and reseller. Both have consistently beaten expectations and seen analysts raising their forecasts leading to strong share price performance. Crayon more than tripled in the year under review.

Growth Portfolio positioning

The portfolio started the year quite defensively positioned being overweight Healthcare and Utilities for example. However by the early summer we started to move towards a more cyclical bias as the share price reaction on the downside had been extreme in many instances and there were signs of real value emerging. Purchases were made in the Auto, Capital Goods, Semiconductor and Transport sectors. By the second half of the year, when bond yields started to rise and the yield curve steepened, we started to add positions in the Banks and Insurance sectors. This change was funded by taking money out of the more defensive areas of the market, especially Pharmaceutical and Consumer Staples, which had held up much better during the initial Covid-19 sell off.

Income Portfolio performance

FOR THE YEAR ENDED 31ST MARCH 2021


%

%

Contributions to total returns



Benchmark return


33.5

  Asset allocation

2.1


  Stock selection

4.2


  Currency

0.0


  Gearing/cash

-0.4


Investment manager contribution


5.9

Portfolio total return


39.4

  Management fee/other expenses

-1.0


  Share buy-back

0.3


Other effects


-0.7

Return on net assets with debt at par valueA


38.7

Impact of debt at fair value1


2.5

Return on net assets with debt at fair valueA


41.2

Effect of movement in discount


10.5

Return to shareholdersA


51.7

Source: B-One/JPMAM/AIC/Morningstar.

All figures are on a total return basis. Performance attribution analyses how the Growth portfolio achieved its recorded performance relative to its benchmark.

1     See note 14 on page 82 of the Company's Annual Report and Financial Statements for reference to fair value of debt.

A     Alternative Performance Measure ('APM').

A glossary of terms and APMs is provided on page 105 of the Company's Annual Report and Financial Statements.

Within the Income Portfolio, the most positive driver of performance was an overweight position, aided by positive stock selection within the banks sector. The positive impact from the sector came primarily in the latter half of the period, after the positive Covid vaccine announcements in early November, followed swiftly by a market-friendly US election outcome and a Brexit deal at the very end of the year. These events cleared the path for a strong economic recovery, lending top down support for the sector through steepening yield curves and falling cost of risk, to supplement the already positive bottom up signals that had been in place for some time (strong capital positions, cheap valuations, de-risking of loan books). This led to strong outperformance from most names in the sector, including the likes of ING and DNB.

The portfolio also benefitted materially from some of its underweight positions, particularly in the defensive areas of the market that lagged significantly from early November onwards. Underweights in pharmaceuticals giants Novartis and Novo Nordisk for example benefitted returns as investors aggressively rotated into more cyclical areas of the market, while being underweight SAP, the German software company, also added value as the company announced disappointing performance within its cloud and licensing businesses.

Income Portfolio positioning

As a portfolio management team, we are continually striving to ensure that our process is robust and effective at delivering alpha. As part of this continual drive to deliver better returns to shareholders, we have recently made evolutionary enhancements to the investment process, spanning stock selection, portfolio construction and risk control. We believe with confidence that this evolution, which includes placing a greater emphasis on the capital return prospects of businesses, alongside their dividend yield generation, will allow us to deliver increased alpha through the cycle, in a more risk controlled manner, without sacrificing the level of income that we generate.

Recent changes in the portfolio have included increases in cash generative, cyclically exposed sectors such as materials, capital goods and banks. Stocks that we have added to the portfolio include Linde, the German industrial gas and engineering business which we see benefitting from an uplift in demand as economies and industrial operations reopen. We have also purchased Volvo, where we are very positive on the ongoing transition to electric vehicles as well as the strong recovery in the trucks business which we see continuing to drive strong cash flow and hence dividends. We also added Spanish bank BBVA where we see very attractive shareholder return potential after the company announced the sale of their US business.

We have funded these purchases through reductions in some of the more defensively positioned stocks in the portfolio. We have materially reduced our exposure to the utilities sector, where returns look less attractive when compared to more cyclical areas of the market, particularly in less ESG positive stocks. We have also materially reduced exposure to the pharmaceuticals space, where pricing pressure, potential tax increases and regulatory risk remain front and centre following the US election.

Outlook

Given the scale of the equity market recovery last year it would be optimistic to expect a similar advance this year. Concerns remain about the speed with which vaccines have been rolled out across Europe and this has delayed the recovery, at least for domestic companies. Nevertheless the concerted efforts of governments and central banks, coupled with pent up consumer demand, have fuelled a rapid bounce back.

The equity market has already discounted at least part of this and gains may be harder to come by as we get further into the recovery and year on year comparisons become tougher. At some stage the market will need to factor in the need for both governments and central banks to scale back the extraordinary measures that have been in place during the height of the crisis. It is possible that the combination of the global economic recovery and some signs of inflation may see bond yields rise faster than the equity market is comfortable with.

However it is clear, in the immediate future at least, that corporate earnings are recovering rapidly and that we are in the early stages of a new upgrade cycle driven in particular by high operating leverage in those companies that are most exposed to the upturn. This, coupled with the fact that the disparity between company valuations remains wide, suggests that there will still be attractive opportunities for investment.

 

Investment Managers                                                                                                                                3rd June 2021

 

PRINCIPAL RISKS

Principal and Emerging Risks

The Directors have carried out a robust assessment of the principal and emerging risks facing the Company, including climate change and those that would threaten its business model, future performance, solvency or liquidity. With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key and emerging risks to the Company. Emerging risks include climate change. The key risks fall broadly under the following categories:

•        Investment

The Board recognises that performance of the trust's investment portfolio is fundamental to the success of the Company. In order to achieve the objectives given the risks inherent in investment such as market, gearing, currency and interest rates, investment guidelines, policies and processes are in place which aim to mitigate these risks. They are designed to ensure that the portfolios are managed in a way which is aimed at identifying the best stocks and diversifying risk. Regular reports are received by the Board from the Manager on stock selection, asset allocation, gearing, hedging and costs of running the Company and these are reviewed at each Board meeting in detail. Compliance with investment guidelines and policies are reviewed by the Manager and the Board, and discussed at each board meeting in detail together with an analysis of market parameters affecting the business.

Investment includes market risk and this arises from uncertainty about the future prices of the Company's investments. It represents the potential loss the Company might suffer through holding investments in the face of negative market movements. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set Investment Restrictions and Guidelines which are monitored and reported on by JPMF. The Board monitors the implementation and results of the investment process with the Manager.

Further details regarding financial instruments are disclosed in note 22 on pages 86 to 92 of the Company's Annual Report and Financial Statements.

•        Operational

In common with most investment trusts the Board delegates the operation of the business to third parties, the principal delegate being the Manager JPFM. Disruption to, failure of, or fraud in JPMF's accounting, dealing or payments systems or the Depositary or Custodian's records could prevent timely implementation of investment decisions, and potentially shortfalls in the accuracy of reporting and monitoring of the Company's financial position and loss. Cyber crime is a threat to businesses continuity and security. The Board has received the cyber security policies of its key third party service providers and JPMF has provided assurance to the Directors that the Company benefits directly or indirectly from all elements of JPMorgan's cyber security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and trading applications are tested and reported on every six months against the AAF standard. Details of how the Board monitors the services provided by JPMF and its associates and the Depositary and Custodian and the key elements designed to provide effective internal control are included within the Internal Control section of the Corporate Governance report on page 50 of the Company's Annual Report and Financial Statements.

•        Regulatory

The Company operates in an environment with significant regulation including the FCA Listing Rules, The UK Companies Act, the Corporation Taxes Act, Market Abuse Regulation, Disclosure Guidance and Transparency Regulations and the Alternative Investment Fund Managers Directive (AIFMD).

There has been no significant change to this risk during the year though the environment as a whole is considered to be one of increasing costs for compliance. The Company also operates under the requirements of the Bribery Act 2010 as referred to in the Directors Report on page 48 of the Company's Annual Report and Financial Statements.

•        Discount premium to NAV

Share price discount or premium to net asset value per share could lead to high levels of uncertainty and reduced shareholder confidence. For further details of the Company's action in addressing this risk and its buyback activity and discount, please see the Share Issuance and Repurchase section of the Chairman's Statement on page 6 of the Company's Annual Report and Financial Statements.

•        Strategy

The Board reviews the overall strategy and structure of the Company in comparison to performance against benchmark, peer group and share activity. The Board holds a separate meeting devoted to strategy each year which includes consideration of whether the Company's objectives and structures are appropriate for the long term interests of shareholders.

•        Pandemic Risk

Covid-19 has developed rapidly to become a pandemic which has delivered a major shock to the global economy and become a principal risk. The Company is exposed to the risk of market volatility and falling equity markets brought about by the pandemic. The resilience of the operational services to the Company could be reduced as a result of the effects of the pandemic, representing a risk to the Company. The Board regularly reviews the mitigation measures which JPMorgan Asset Management and other key service providers have in place to maintain operational resilience and is satisfied that these are appropriate even in the current conditions. Relevant business continuity plans have been invoked at those service providers and the Board had been given updates. Working from home arrangements have been implemented where appropriate and government guidance is being followed. The Board does not anticipate a fall in the level of service.

The pandemic has triggered a sharp fall in global stock markets and created uncertainty around future dividend income. However, the Board notes the Investment Managers' investment process is unaffected by the Covid-19 pandemic and they continue to focus on long-term company fundamentals and detailed analysis of current and future investments.

Further information on Covid-19 is set out in the Chairman's statement on page 5, the Investment Managers' report on page 10 and Note 1 (a) on page 73 of the Company's Annual Report and Financial Statements.

 

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors' Report on page 46 of the Company's Annual Report and Financial Statements. The management fee payable to the Manager for the year was £2,998,000 (2020: £3,402,000), of which £nil (2020: £nil) was outstanding at the year end.

During the year £nil (2020: £48,000) was payable to the Manager for the administration of savings scheme products, of which £nil (2020: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 77 of the Company's Annual Report and Financial Statements are safe custody fees amounting to £44,000 (2020: £57,000) payable to JPMorgan Chase of which £16,000 (2020: £15,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. Commission amounting to £1,000 (2020: £nil) was payable to JPMorgan Securities Limited for the year of which £nil (2020: £nil) was outstanding at the year end.

The Company holds investments in funds managed by JPMAM. At 31st March 2021 these were valued at £15.5 million (2020: £10.6 million) and represented 5.6% (2020: 3.3%) of the Company's investment portfolio. During the year the Company made £nil purchases of such investments (2020: £nil) and sales with a total value of £2,526,000 (2020: £nil).

Income amounting to £204,000 (2020: £244,000) was receivable from these investments during the year of which £nil (2020: £nil) was outstanding at the year end.

The Company also holds cash in the JPMorgan Euro Liquidity Fund, managed by JPMF. At the year end this was valued at £20.5 million (2020: £9.5 million). Interest amounting to £nil (2020: £nil) was payable during the year of which £nil (2020: £nil) was outstanding at the year end.

Stock lending income amounting to £257,000 (2020: £130,000) was receivable by the Company during the year. JPMAM commissions in respect of such transactions amounted to £28,000 (2020: £15,000).

Handling charges on dealing transactions amounting to £71,000 (2020: £59,000) were payable to JPMorgan Chase Bank N.A. during the year of which £17,000 (2020: £13,000) was outstanding at the year end.

At the year end, total cash of £9.8 million (2020: £36.7 million) was held with JPMorgan Chase Bank N.A. A net amount of interest of £2,000 (2020: £5,000) was receivable by the Company during the year from JPMorgan Chase of which £nil (2020: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found on page 56 and in note 6 on page 77 of the Company's Annual Report and Financial Statements.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and applicable law. Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

•        select suitable accounting policies and then apply them consistently;

•        make judgements and estimates that are reasonable and prudent;

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

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

and the Directors confirm that they have done so.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The annual report and financial statements are published on the www.jpmeuropean.co.uk website, which is maintained by the Company's Manager, JPMorgan Funds Limited. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The annual report and financial statements are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report and a Directors' Remuneration Report that comply with that law. The Strategic Report and the Directors' report include a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

Each of the Directors, whose names and functions are listed on page 45 of the Company's Annual Report and Financial Statements confirm that, to the best of their knowledge the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return or loss of the Company.

The Board confirms that it is satisfied that the annual report and financial statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the strategy and business model of the Company.

 

For and on behalf of the Board

Josephine Dixon

Chairman

3rd June 2021

 

 

 

 

 

 

 

 

 

STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) - GROWTH

FOR THE YEAR ENDED 31ST MARCH 2021


2021

2020


Revenue

Capital

Total

Revenue

Capital

Total


£'000

£'000

£'000

£'000

£'000

£'000

Gains/(losses) on investments and derivatives







  held at fair value through profit or loss

-

 76,524

76,524

-

(35,487)

 (35,487)

Foreign exchange (losses)/gains on liquidity fund

-

 (808)

(808)

-

 584

584

Net foreign currency gains/(losses)

-

1,021

1,021

-

 (1,283)

(1,283)

Income from investments

6,249

-

6,249

 7,887

-

7,887

Interest receivable and similar income

 219

-

219

 45

-

 45

Gross return/(loss)

6,468

76,737

83,205

7,932

(36,186)

 (28,254)

Management fee

(576)

 (1,344)

(1,920)

(571)

 (1,334)

(1,905)

Other administrative expenses

 (373)

-

 (373)

(439)

-

 (439)

Net return/(loss) before finance costs and







  taxation

 5,519

75,393

80,912

 6,922

(37,520)

 (30,598)

Finance costs

(248)

(577)

(825)

(222)

 (517)

 (739)

Net return/(loss) before finance costs







  and taxation

5,271

74,816

80,087

 6,700

(38,037)

 (31,337)

Taxation

 401

-

 401

(527)

-

 (527)

Net return/(loss) after taxation

 5,672

 74,816

 80,488

 6,173

(38,037)

 (31,864)

Return/(loss) per Growth share

7.66p

101.01p

108.67p

8.77p

(54.03)p

(45.26)p

 

STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) - INCOME

FOR THE YEAR ENDED 31ST MARCH 2021


2021

2020


Revenue

Capital

Total

Revenue

Capital

Total


£'000

£'000

£'000

£'000

£'000

£'000

Gains/(losses) on investments and derivatives







  held at fair value through profit or loss

-

 38,732

 38,732

-

(41,837)

 (41,837)

Foreign exchange (losses)/gains on liquidity fund

-

 (68)

 (68)

-

43

 43

Net foreign currency (losses)/gains

-

 (519)

 (519)

-

2,159

2,159

Income from investments

 4,999

-

 4,999

 7,853

-

7,853

Interest receivable and similar income

 40

-

 40

90

-

 90

Gross return/(loss)

 5,039

 38,145

 43,184

 7,943

(39,635)

 (31,692)

Management fee

 (431)

 (647)

 (1,078)

(599)

 (898)

(1,497)

Other administrative expenses

 (202)

-

 (202)

(283)

-

 (283)

Net return/(loss) before finance costs







  and taxation

 4,406

 37,498

 41,904

 7,061

(40,533)

 (33,472)

Finance costs

 (181)

 (271)

 (452)

(203)

 (305)

 (508)

Net return/(loss) before taxation

 4,225

 37,227

 41,452

6,858

(40,838)

 (33,980)

Taxation

176

-

 176

(608)

-

 (608)

Net return/(loss) after taxation

4,401

 37,227

 41,628

 6,250

(40,838)

 (34,588)

Return/(loss) per Income share

4.95p

41.88p

46.83p

6.25p

(40.86)p

(34.61)p

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31ST MARCH 2021


2021

2020


Revenue

Capital

Total

Revenue

Capital

Total


£'000

£'000

£'000

£'000

£'000

£'000

Gains/(losses) on investments and







  derivatives held at fair value through







  profit or loss

-

 115,256

 115,256

-

(77,324)

 (77,324)

Foreign exchange (losses)/gains on







  liquidity fund

-

 (876)

 (876)

-

 627

627

Net foreign currency gains

-

 502

 502

-

 876

876

Income from investments

 11,248

-

 11,248

 15,740

-

15,740

Interest receivable and similar income

 259

-

 259

 135

-

135

Gross return/(loss)

 11,507

 114,882

 126,389

15,875

(75,821)

 (59,946)

Management fee

(1,007)

 (1,991)

 (2,998)

 (1,170)

 (2,232)

(3,402)

Other administrative expenses

 (575)

-

 (575)

 (722)

-

(722)

Net return/(loss) before finance costs







  and taxation

 9,925

 112,891

 122,816

 13,983

(78,053)

 (64,070)

Finance costs

 (429)

 (848)

 (1,277)

 (425)

 (822)

(1,247)

Net return/(loss) before taxation

 9,496

 112,043

 121,539

 13,558

(78,875)

 (65,317)

Taxation

577

-

 577

 (1,135)

-

(1,135)

Net return/(loss) after taxation

 10,073

 112,043

 122,116

 12,423

(78,875)

 (66,452)

Return/(loss) per share:







Growth share

7.66p

101.01p

108.67p

8.77p

(54.03)p

(45.26)p

Income share

4.95p

41.88p

46.83p

6.25p

(40.86)p

(34.61)p

 

 

 

 

STATEMENT OF CHANGES IN EQUITY


Called up


Capital





share

Share

redemption

Capital

Revenue



capital

premium

reserve

reserves1

reserve1

Total


£'000

£'000

£'000

£'000

£'000

£'000

At 31st March 2019

4,975

 103,826

 15,149

271,714

 12,166

 407,830

Repurchase and cancellation of the







  Company's own shares (note 15)

 (164)

-

164

 (11,807)

-

(11,807)

Share conversions during the year







  (note 15)

 (7)

24,001

300

 (24,294)

-

-

Net (loss)/return

-

-

-

 (78,875)

 12,423

(66,452)

Dividends paid in the year (note 10)

-

-

-

-

(13,034)

(13,034)

At 31st March 2020

4,804

 127,827

 15,613

156,738

11,555

 316,537

Repurchase and cancellation of the







  Company's own shares (note 15)

(131)

-

 131

 (9,127)

-

 (9,127)

Share conversions during the year







  (note 15)

 (6)

 3,701

 47

 (3,742)

-

-

Net return

-

-

-

 112,043

 10,073

 122,116

Dividends paid in the year (note 10)

-

-

-

-

 (9,923)

 (9,923)

At 31st March 2021

 4,667

 131,528

 15,791

 255,912

 11,705

 419,603

1     These reserves form the distributable reserve of the Company and may be used to fund distribution of profits to investors.

 

STATEMENT OF FINANCIAL POSITION (UNAUDITED) - GROWTH

AT 31ST MARCH 2021


2021

2020


£'000

£'000

Fixed assets



Investments held at fair value through profit or loss

275,871

196,186

Current assets



Derivative financial assets

30

345

Debtors

2,142

1,957

Cash and cash equivalents

25,295

42,155


27,467

44,457

Current liabilities



Creditors: amounts falling due within one year

(332)

(8,676)

Derivative financial liabilities

(47)

 (120)

Net current assets

 27,088

35,661

Total assets less current liabilities

302,959

231,847

Creditors: amounts falling due after more than one year

 (27,101)

 (28,144)

Net assets

 275,858

203,703

Net asset value per Growth share

379.2p

274.3p

 

STATEMENT OF FINANCIAL POSITION (UNAUDITED) - INCOME

AT 31ST MARCH 2021


2021

2020


£'000

£'000

Fixed assets



Investments held at fair value through profit or loss

 153,087

121,013

Current assets



Derivative financial assets

79

242

Debtors

2,119

1,700

Cash and cash equivalents

5,737

12,477


7,935

14,419

Current liabilities



Creditors: amounts falling due within one year

(1,641)

(4,859)

Derivative financial liabilities

(319)

(1,832)

Net current assets

5,975

7,728

Total assets less current liabilities

159,062

128,741

Creditors: amounts falling due after more than one year

(15,317)

 (15,907)

Net assets

143,745

112,834

Net asset value per Income share

167.1p

126.5p

 

 

 

STATEMENT OF FINANCIAL POSITION

AT 31ST MARCH 2021



2021




Growth

Income


2020


(unaudited)

(unaudited)

Total

Total


£'000

£'000

£'000

£'000

Fixed assets





Investments held at fair value through profit or loss

 275,871

 153,087

 428,958

317,199

Current assets





Derivative financial assets

 30

 79

 109

 587

Debtors

 2,142

 2,119

 4,261

3,657

Cash and cash equivalents

 25,295

 5,737

 31,032

 54,632


 27,467

 7,935

 35,402

 58,876

Current liabilities





Creditors: amounts falling due within one year

 (332)

 (1,641)

 (1,973)

(13,535)

Derivative financial liabilities

 (47)

 (319)

 (366)

 (1,952)

Net current assets

 27,088

 5,975

 33,063

 43,389

Total assets less current liabilities

 302,959

 159,062

 462,021

360,588

Creditors: amounts falling due after more than one year

 (27,101)

 (15,317)

 (42,418)

(44,051)

Net assets

 275,858

 143,745

 419,603

316,537

Capital and reserves





Called up share capital

 2,888

 1,779

 4,667

4,804

Share premium

 38,126

 93,402

 131,528

127,827

Capital redemption reserve

 14,000

 1,791

 15,791

 15,613

Capital reserves

 216,072

 39,840

 255,912

156,738

Revenue reserve

 4,772

 6,933

 11,705

11,555

Total shareholders' funds

 275,858

 143,745

 419,603

316,537

Net asset values





Net asset value per Growth share



379.2p

274.3p

Net asset value per Income share



167.1p

126.5p

 

STATEMENT OF CASH FLOWS


2021

2020


£'000

£'000

Net cash outflow from operations before dividends and interest

(3,090)

(3,663)

Dividends received

9,105

14,613

Interest received

2

 5

Overseas tax recovered

883

988

Net cash inflow from operating activities

6,900

11,943

Purchases of investments

(184,765)

(250,538)

Sales of investments

192,149

281,685

Settlement of future contracts

(2,390)

5,696

Settlement of foreign currency contracts

(1,109)

2,225

Net cash inflow from investing activities

3,885

39,068

Dividends paid

(9,923)

 (13,034)

Repayment of bank loans

(13,439)

 (3,354)

Drawdown of bank loans

-

3,354

Interest paid

 (1,275)

(1,230)

Repurchase and cancellation of the Company's own shares

(8,809)

 (11,807)

Net cash outflow from financing activities

(33,446)

(26,071)

(Decrease)/Increase in cash and cash equivalents

(22,661)

24,940

Cash and cash equivalents at the start of the year

54,632

29,187

Exchange movements

(939)

505

Cash and cash equivalents at the end of the year

31,032

54,632

(Decrease)/Increase in cash and cash equivalents

(22,661)

24,940

Cash and cash equivalents consist of:



Cash and short term deposits

10,520

45,155

JPMorgan Euro Liquidity Fund

20,512

9,477

Total

31,032

54,632

 

NOTES TO THE FINANCIAL STATEMENTS

1.       Accounting policies

(a)     Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including 'the Financial Reporting Standard applicable in the UK and Republic of Ireland' ('FRS 102') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in October 2019.

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

The financial statements have been prepared on a going concern basis. In forming this opinion, the directors have considered as part of its risk assessment: the nature of the Company, its business model and related risks including where relevant the impact of Brexit, the impact of the Covid-19 pandemic, the requirements of the applicable financial reporting framework, the covenants in respect of the Company's private placement debt and the system of internal control.

The Directors believe that, having considered the Company's investment objectives, future cash flow projections, risk management policies, liquidity risk, principal and emerging risks, capital management policies and procedures, nature of the portfolios and expenditure projections, the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence to 30th June 2022, being at least 12 months from approving this annual report and financial statements.

For these reasons, they consider that there is reasonable evidence to continue to adopt the going concern basis in preparing the report.

2.  Dividends

(a)     Dividends paid and declared


2021

2020


£'000

£'000

Dividends paid



Unclaimed Growth dividends refunded to the Company

-

(17)

Growth 2020 second interim dividend of 4.00p (2019: 4.00p) per share

2,750

2,879

Growth first interim dividend of 1.25p (2020: 4.85p) per share

928

3,413

Income 2020 fourth quarterly dividend of 2.50p (2019: 2.50p) per share

2,498

2,538

Income first quarterly dividend of 1.40p (2020: 1.40p) per share

1,249

1,413

Income second quarterly dividend of 1.40p (2020: 1.40p) per share

1,249

1,409

Income third quarterly dividend of 1.40p (2020: 1.40p) per share

1,249

1,399

Total dividends paid in the year

9,923

13,034

Dividends declared



Growth second interim dividend of 3.20p (2020: 4.00p) per share

 2,348

2,750

Income fourth quarterly dividend of 2.50p (2020: 2.50p) per share

 2,211

2,498

Total dividends declared1

 4,559

5,248

1     In accordance with the accounting policy of the Company, these dividends will be reflected in the financial statements of the following year.

All dividends paid and declared in the period have been funded from the Revenue Reserve.

(b)    Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year, as follows:

The revenue available for distribution by way of dividend for the year is £10,073,000 (2020: £12,423,000).


2021

2020


£'000

£'000

Growth first interim dividend of 1.25p (2020: 4.85p) per share

928

3,413

Growth second interim dividend of 3.20p (2020: 4.00p) per share

2,348

2,750

Income first interim dividend of 1.40p (2020: 1.40p) per share

1,249

1,413

Income second interim dividend of 1.40p (2020: 1.40p) per share

1,249

1,409

Income third interim dividend of 1.40p (2020: 1.40p) per share

1,249

1,399

Income fourth interim dividend of 2.50p (2020: 2.50p) per share

2,211

2,498

Total

9,234

12,882

The revenue reserve after payment of the Growth second interim dividend and Income fourth interim dividend amounts to £7,146,000 (2020: £6,307,000).

 

 

 

3.       Return/(Loss) per share


2021

2020


£'000

£'000

Growth share



Return per share is based on the following:



Revenue return

5,672

6,173

Capital return/(loss)

74,816

(38,037)

Total return/(loss)

 80,488

(31,864)

Weighted average number of shares in issue

74,068,960

70,394,443

Revenue return per share

7.66p

8.77p

Capital loss per share

101.01p

(54.03)p

Total loss per share

108.67p

(45.26)p

Income share



Return per share is based on the following:



Revenue return

4,401

6,250

Capital loss

37,227

(40,838)

Total return/(loss)

 41,628

(34,588)

Weighted average number of shares in issue

88,892,127

99,944,665

Revenue return per share

4.95p

6.25p

Capital loss per share

41.88p

(40.86)p

Total return/(loss) per share

46.83p

(34.61)p

4.       Net asset value per share


2021

2020

Growth share



Ordinary shareholders' funds (£'000)

275,858

203,703

Number of shares in issue

72,741,224

74,259,820

Net asset value per share

379.2p

274.3p

Income share



Ordinary shareholders' funds (£'000)

143,745

112,834

Number of shares in issue

86,020,045

89,181,557

Net asset value per share

167.1p

126.5p

 

5.  Status of announcement

2020 Financial Information

The figures and financial information for 2020 are extracted from the published Annual Report and Financial Statements for the year ended 31st March 2020 and do not constitute the statutory accounts for that year.  The Annual Report and Financial Statements has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2021 Financial Information

The figures and financial information for 2021 are extracted from the Annual Report and Financial Statements for the year ended 31st March 2021 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Financial Statements will be delivered to the Registrar of Companies in due course.

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

 

 

Annual Report and Financial Statements  

The Annual Report  and Financial Statements will be posted to shareholders on or around 11th June 2021 and will shortly be available on the Company's website www.jpmeuropean.co.uk or in hard copy format from the Company's Registered Office, 60 Victoria Embankment  London EC4Y 0JP.

A copy of the annual report will shortly be submitted to the FCA's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

 

Up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found on the Company's website at www.jpmeuropean.co.uk

For further information:

Paul Winship,

JPMorgan Funds Limited, Secretary - 020 7742 4000

 

3rd June 2021 

 

 

 

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