t
| TIDM | JEDT |
| Share Price | 633.00p0.80% |
| Market Cap | £862.87m |
JPMorgan European Discovery Trust PLC announced its Final Results for the year ended 31st March 2023 on 16 June 2023, reporting a total return on net assets of -3.8% and a total return to shareholders of -4.3%. The Company paid an interim dividend of 1.2 pence per share on 3rd February 2023 and proposed a final dividend of 7.8 pence per share, payable on 4th August 2023, having repurchased 995,000 shares during the year. Director Ashok Gupta will retire at the Annual General Meeting on 19th July 2023, and Arun Sarwal was appointed as an independent non-executive director effective from its conclusion.
| Date | 16 Jun 2023 |
| Time | 08:00:03 |
| Category | Results |
| ID | 9208C |
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN EUROPEAN DISCOVERY TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED
31st MARCH 2023
Legal Entity Identifier: 54930049CEWDI46Y3U28
Information disclosed in accordance with DTR 4.1.3
CHAIRMAN'S STATEMENT
I present the Company's results for the year ended 31st March 2023.
Investment Performance
This has been a very challenging year for the market and for our Company. Global themes of rising inflation, central bank tightening and recession concerns dominated for much of the year. Inflationary pressures and subsequent monetary tightening by central banks increased the cost of capital globally. In addition, the war in Ukraine, continuing after-effects of the pandemic, rising tensions with China and the failure of Credit Suisse and some regional banks in the USA, have led to an increasingly uncertain environment. The Company's relative under performance of 0.6 percent for the year is disappointing.
Over the year to 31st March 2023 total return on net assets was -3.8%, slightly underperforming the Company's benchmark index, the MSCI Europe (ex UK) Small Cap Net Total Return Index, which returned -3.2% over the same period. The total return to shareholders was -4.3%, reflecting a slight widening of the discount at which the Company's shares trade from 14.5% to 15.1% over the year.
The basis for this performance is explained in the Investment Managers' report below which provides a detailed commentary on the portfolio positioning and the outlook for investing.
The Company's longer term performance remains strong, with the 3, 5 and 10 year total return on net assets at 60.3%, 22.2% and 191.1%, respectively, whilst the benchmark total return was 58.7%, 33.5% and 169.8%.
Gearing
Gearing can be a differentiator for an investment trust and the Board believes that it can be beneficial to performance. The Board sets the overall strategic gearing policy and guidelines and reviews these at each Board meeting. Borrowings during the year consisted of a EUR 125 million revolving credit facility, which was completely drawn down at the year end. During the year, gearing varied between 10.4% geared and 6.6% cash.
Revenue and Dividends
The Board's dividend policy is to pay out the majority of the revenue available each year. This is set against the Company's objective of maximising capital growth and the Investment Managers are therefore not constrained to deliver income in any one financial year.
An interim dividend of 1.2 pence per share was paid on 3rd February 2023, the same as last year. After taking into account the income received and the level of the Company's revenue reserves, and subject to shareholder approval at the forthcoming Annual General Meeting, a final dividend of 7.8 pence per share will be paid on 4th August 2023 to shareholders on the register as at the close of business on 30th June 2023 (ex-dividend date 29th June 2023).
Discounts and Share Repurchases
The discount of the Company's share price to net asset value widened during the Company's financial year, from nearly 14.5% as at the end of March 2022 to 15.1% at 31st March 2023, with an average discount over the 12 months of 15.3%. As at 14th June 2023 the discount was 15.2%. 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 when appropriate. The Company repurchased 995,000 shares during the year. There have been no buybacks since the year end.
Manager Evaluation
During the year, the Management Engagement Committee undertook a formal review of the Manager, facilitated by an independent board evaluation firm, covering the investment management, company secretarial, administrative and marketing services provided to the Company. The review took into account the Manager's investment performance record, management processes, investment style, resources and risk control mechanisms. In addition, during the period of market volatility, the Board continued to meet more frequently to ensure support was available to the Investment Managers. The Board agreed with the Committee's recommendation that the continued appointment of the Manager is in the interests of shareholders as a whole.
Environmental, Social and Governance ('ESG')
The Board has continued to engage with the Manager on the integration of ESG factors into its investment process which are considered at every stage of the investment decision. The Board shares the Investment Managers' view of the significance of ESG factors both when making long term investments and the requirement of sustained engagement with investee companies throughout the period of the investment. Further information on the Manager's ESG process and engagement is set out in the ESG Report on pages 23 to 26 of the Annual Report with stock specific examples included in the Investment Managers' Report below.
The Board
As planned and announced previously, Ashok Gupta will be retiring from the Board at the end of the forthcoming AGM, having served as a Director since 2013. The Board would like to thank Ashok for his significant contribution to the Company during his tenure and wish him well for the future.
Given Ashok's retirement, the Board undertook a search exercise to identify a new Director in the early part of this year. Following successful conclusion of the search exercise and as announced on 9th May 2023, Arun Sarwal has been appointed as an independent non-executive director, his appointment will take effect from the conclusion of the forthcoming Annual General Meeting. Arun brings extensive industry experience of global equities and fund management gained over some 30 years in the UK, Europe, and Asia. Building on his chartered accountancy background, he also has an understanding of the European business environment having worked in Amsterdam, Dublin and Paris, in addition to London.
Annual General Meeting
The Company's Annual General Meeting ('AGM') will be held on Wednesday, 19th July 2023 at 12.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP.
The Investment Managers will give a presentation to shareholders, reviewing the past year and commenting on the outlook for the current year. The AGM will be followed by lunch, providing shareholders with the opportunity to meet the Directors and representatives of the Manager. We look forward to seeing as many shareholders as possible at the AGM.
For shareholders wishing to follow the AGM proceedings but choosing not to attend, we will be able to welcome you through conferencing software. Details on how to register, together with access details, will be available shortly on the Company's website: www.jpmorganeuropeandiscovery.co.uk, or by contacting the Company Secretary at [email protected].
As is normal practice, all voting on the resolutions will be conducted by a poll. Due to technological reasons, shareholders viewing the meeting via conferencing software will not be able to vote on the poll and we therefore encourage all shareholders, and particularly those who cannot attend physically, to exercise their votes in advance of the meeting by completing and submitting their form of proxy.
If you have any detailed or technical questions, it would be helpful if you could raise them in advance with the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP or via the 'Ask a Question' link on the Company's website.
If there are any changes to the arrangements for the Annual General Meeting, the Company will update shareholders through the Company's website and, if appropriate, through an announcement on the London Stock Exchange.
Outlook
Whilst it is futile to predict the market environment and how the rest of the year will look, there are signs that many of the inflationary forces seen are now reversing along with growing signs of wage inflation normalising. The supply chain issues that many corporates faced are now clearing, which should help drive recovery and dampen inflation's larger impacts. The end of China's 'zero-covid' policy should further help improve the flow of global trade in due course. We believe that inflation has peaked, but will be a bit more persistent than we were accustomed to prior to the pandemic. Against this backdrop, the outlook for European small and mid-cap companies looks positive.
The Board retains its confidence in the Investment Manager's vast industry experience to navigate through these turbulent times and their high conviction and unconstrained approach leads the Board to believe that it can look forward with a degree of tentative optimism.
Marc van Gelder
Chairman 15th June 2023
INVESTMENT MANAGERS' REPORT
Investment Scope and Process
The objective of the Company is to achieve capital growth from a portfolio of smaller Continental European companies. The investment universe is defined at the time of purchase by the countries and market capitalisation range of the constituents of the benchmark, the MSCI Europe (ex UK) Small Cap Index. At the end of March 2023, the benchmark index consisted of 735 companies with a free float adjusted market capitalisation range of GBP 62 million to GBP 5.6 billion. This universe of potential investments is screened using a proprietary multi-factor model, the results of which we apply fundamental analysis.
The investment process is driven by bottom-up stock selection with a focus on identifying market leading growth companies with a catalyst for outperformance. Stock position sizing is determined by investment conviction and trading liquidity. Investments are sold when there is a fundamental deterioration in business prospects, the valuation becomes unattractive, the market capitalisation has significantly outgrown the benchmark index or to raise cash for a more attractive investment.
The Board has set a liquidity range of between 20 per cent cash and 20 per cent gearing within which the Investment Managers may operate. The policy is not to hedge the currency exposure of the portfolio's assets.
Market Review
Equity markets fell for the first half of the Company's financial year as persistent inflation weighed on consumer confidence and valuation multiples. Several factors contributed to inflation including the Russian invasion of Ukraine, continued supply chain disruptions exacerbated by China's Zero-Covid policy, and a normalisation of demand post Covid-19 related lockdowns.
Markets rebounded in the second half of the financial year as data releases appeared to show a peak in headline inflation numbers globally. Easing of supply chain constraints, the impact of recent central monetary tightening, and a fall in energy and materials prices all contributed to reduced concerns around inflation. However, the rebound in the Company's benchmark was not enough to offset early falls with the MSCI Europe (ex UK) Small Cap Index down 3.2 per cent for the year to end March 2023. Small capitalisation companies significantly underperformed their larger peers with the MSCI Europe (ex UK) Index rising 8.6 per cent for the year. As a result, small caps ended the year looking very cheap versus their own history and versus large caps.
Portfolio Performance
Over the financial year, the net asset value of the Company fell by 3.8 per cent, underperforming its benchmark by 0.6 per cent.
Top performers over the period include the French market research company IPSOS, which saw strong demand for market intelligence as brands and governments try to understand how consumer behaviour has changed in a post pandemic world; SPIE, the French technical services company, as demand for installation of electrical systems was boosted by the ongoing energy transition towards electrification; Melexis, the Belgian designer of automotive semiconductors, due to the continued increase in semiconductor content per vehicle, boosted by the growth of electric vehicles; Prysmian, the Italian cable manufacturer, as investments into the European electricity grid accelerated to cope with the current energy crisis; Elis, the French commercial laundry service provider, as demand for hospitality quickly rebounded once the COVID-related lockdowns were lifted; and Sanlorenzo, the Italian luxury yacht manufacturer, as the design and quality of its yachts continue to attract orders from wealthy clients.
Stock detractors from performance included the German manufacturer of warehouse automation solutions and forklift trucks, Kion, which struggled to increase prices on some projects while their input costs were rising significantly; VGP, the Belgian developer of warehouses, due to rising construction costs and higher interest rates putting pressure on real estate valuations and increasing financing costs; GN Store Nord, the Danish manufacturer of audio equipment and hearing aids, as their business suffered from falling consumer confidence and high debt following a recent acquisition; Banco de Sabadell, the Spanish banking group, which suffered from the concerns around the banking sector following the collapse of SVB and the takeover of Credit Suisse; and Virbac, the French animal health specialist, as demand normalised following the end of lockdowns.
PERFORMANCE ATTRIBUTION
YEAR ENDED 31ST MARCH 2023
|
|
% |
% |
|
Contributions to total returns |
|
|
|
Benchmark return |
|
-3.2% |
|
Asset allocation |
0.8% |
|
|
Stock selection |
-2.8% |
|
|
Gearing/cash effect |
1.9% |
|
|
Currency effect |
0.3% |
|
|
Investment Managers' added contribution |
|
0.2% |
|
Portfolio return |
|
-3.0% |
|
Management fee/other expenses |
-0.9% |
|
|
Share Buy-Back/issuance |
0.1% |
|
|
Other effects |
|
-0.8% |
|
Return on net assetsA |
|
-3.8% |
|
Return to shareholdersA |
|
-4.3% |
Source: JPMAM/Morningstar.
All figures are on a total return basis.
Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.
A Alternative Performance Measure ('APM')
Portfolio Positioning
Industrials remained the largest sector overweight during the financial year. The Company continues to have high exposure to investments into energy efficiency and electrification. Within this theme, the Company owns companies that are enabling the transition to a low carbon economy such as the high voltage cable manufacturer, Prysmian, technical installation and services company, Bravida, which has a key role in refurbishing buildings to meet higher energy standards, and Aalberts, the Dutch manufacturer of piping systems for buildings which are pioneering increasingly energy efficient solutions.
The Consumer Discretionary sector became the second largest overweight. This increase occurred through the purchase of positions in the French household appliance maker, SEB, the Italian gym equipment manufacturer, Technogym, and the
German fashion brand Hugo Boss, as the reopening Chinese economy has started to release a considerable amount of consumer spending.
Health Care and Real Estate were the most underweight sectors. Healthcare is impacted by the disruptions caused by the Covid-19 pandemic and Real Estate faces headwinds from both rising financing costs and pressure on valuations due to high bond yields.
During the period Italy grew to be the Company's largest country overweight. This was achieved through the addition of Brembo, the manufacturer of premium automotive brake discs and callipers, and Technogym, both of which we believe will benefit as economies around the world continue to reopen and supply chain disruptions normalise.
After being the largest underweight at the end of the previous financial year, the Company's allocation to German companies rose due to the purchase of companies involved in the automotive supply chain. These companies who should benefit from automotive volumes recovering to pre-Covid 19 levels. They include Stabilus, the manufacture of gas spring and power rise solutions, Fuchs Petrolub, the producer of automotive lubricants, and Elmos Semiconductor, an automotive semiconductor manufacture supplier.
Switzerland dropped to become the Company's second largest underweight as we reduced exposure to local names with defensive business profiles such as the insurance companies Baloise and Helvetia, where we saw their valuations as less attractive following outperformance. We also reduced exposure to PSP, a Swiss focused property company with prime location only office exposure, on worries around general real estate valuations.
Due to our increase in German exposure, Norway dropped to become the Company's largest underweight, despite a small increase in the Company's exposure to the country over the period.
At the end of the financial year, the Company was 6.9 per cent geared.
Outlook
We began 2022 believing that inflation would prove to be transient. However, the tragic events in the Ukraine followed by Covid-19 lockdowns in China resulted in the risk of more persistent inflation. As a result, we transitioned the portfolio towards companies that can continue to perform well in such an inflationary environment. We focused on companies with high barriers to entry and pricing power. We also added to Insurance and Banks which are positively correlated with rising bond yields.
More recently there have been signs that we have passed peak inflation, although inflation could stay elevated above Central Bank targets for some time. Markets feel much more optimistic than at any time since inflation began increasing mid-way through 2021. Sentiment is supported by falling energy prices and China reopening paving the way for a boost to European manufacturing exporters.
Nevertheless, the economic outlook is uncertain. Some leading economic indicators are under pressure and the US yield curve remains inverted which has historically led recessions, albeit with an unpredictable delay. There is a risk that earnings downgrades are coming for more cyclically exposed companies although there are no signs of this yet in order books. As a result, active management and thorough fundamental research will be paramount, and quality - of both management and balance sheets - will be imperative in a more uncertain environment.
2022 was a difficult year in absolute and relative performance. However, 2023 looks much more encouraging. While the last decade has been all about the US and technology, Europe looks extremely attractive in this new cycle as it starts with compelling valuations and, unlike China which also looks cheap, seems to be in a period of relatively harmonious internal politics, although Russia remains a wildcard.
Another uncertainty is how Artificial Intelligence ("AI") will impact companies and sectors in the future. Just like the internet, AI will have a profound impact. But, like the internet it is difficult to predict the exact consequences. Nevertheless, it is likely that AI will have an overall positive impact on economies and equity markets due to efficiency gains. Companies will need to adapt; those that do not, risk being fatally disrupted. However, companies that take advantage of AI will reap the rewards. Understanding these consequences will be an important focus for the Investment Managers.
In relative terms, 2022 was very macro driven - such periods do not last forever and eventually bottom-up fundamentals reassert themselves. We expect this to be the case in 2023 and so we are optimistic that 2023 will be a good year for the Company.
Francesco Conte
Edward Greaves
Investment Managers 15th June 2023
PRINCIPAL AND EMERGING RISKS
The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company, as well as emerging risks. In assessing the risks and how they can be mitigated, the Board has given particular attention to those risks that might threaten the viability of the Company. The AIC Code of Corporate Governance requires the Audit Committee to put in place procedures to identify emerging risks. The Committee
has looked at this area and has conducted horizon scanning. It does not believe that currently there are any emerging risks facing the Company. These key risks fall broadly under the following categories:
• Underperformance and inappropriate Strategy
An inappropriate investment strategy, or poor implementation of the strategy, for example excessive concentration of investments, asset allocation, the level of gearing or the degree of portfolio risk, may lead to underperformance against the Company's benchmark index and peer companies.
The Board manages these risks by diversification of investments and through its investment restrictions and guidelines which are monitored and reported on by the Manager. JPMF provides the Directors with timely and accurate management information. The Board monitors the implementation and results of the investment process with the Investment Managers, who attend all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Board sets strategic guidelines for gearing as well as investments; decisions on levels of gearing are delegated to the investment managers, whose decisions are subject to challenge by the Board. The Board holds a separate meeting devoted to strategy each year.
• Loss of Manager:
Investment performance could be adversely affected by the loss of one or more of the investment management team.
To reduce the likelihood of such an event, the Manager ensures appropriate succession planning and adopts a team-based approach as well as efforts to retain key personnel.
• Market and Currency:
Market risk arises from uncertainty about the future prices of the Company's investments which may reflect underlying uncertainties arising from economic, social, fiscal, climate, inflationary and regulatory changes. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. Investing in smaller companies is inherently more risky and volatile, partly due to the potential lack of liquidity in some shares.
The majority of the Company's assets, liabilities and income are denominated in Euros rather than in the Company's functional currency of Sterling (in which it reports). As a result, movements in the Euro: Sterling exchange rate may affect the sterling value of those items. Therefore, there is an inherent risk from these exchange rate movements.
The Board manages these risks by diversification of investments and monitoring of the implementation and results of the investment process with the investment manager. The Board includes an assessment of these risk factors at Board meetings and has placed investment restrictions and guidelines to limit these risks.
The Company borrows in Euros in order to hedge the currency risk in respect of the geared portion of the portfolio. The Company does not hedge the foreign currency exposure of the remainder of the portfolio.
• Discount Control Risk:
Investment trust shares often trade at discounts to their underlying NAVs, although they can also trade at a premium. Discounts and premiums can fluctuate considerably leading to volatile returns for shareholders.
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, when appropriate.
• Accounting, Legal and Regulatory Market and Currency:
In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Business of the Company' on page 27. Were the Company to breach Section 1158, it may lose investment trust status and, as a consequence, gains within the Company's portfolio would be subject to capital gains tax. In addition, changes to relevant regulations and legislation, such as financial or tax legislation, may have a negative impact on the Company.
The Section 1158 qualification criteria are continually monitored by JPMF and the results reported to the Board each month. The Board relies on the support of the services of its Company Secretary, the Manager and its professional advisers to ensure compliance with the Companies Act, the FCA Listing Rules, the Market Abuse Regulations ('MAR'), Disclosure Guidance and Transparency Rules ('DTRs'), the Alternative Investment Fund Managers Directive ('AIFMD') and all other relevant legislation. The Manager takes specialist advice, where necessary, to review the impact of new legislation on the Company.
• Operational:
Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary or Custodian's records may prevent accurate reporting and monitoring of the Company's financial position. The risk of fraud or other control failures or weaknesses within the Manager or other service providers could result in losses to the Company.
The Audit Committee receives independently audited reports on the Managers and other service providers' internal controls, as well as a report from the Manager's Compliance function. The Company's management agreement obliges the Manager to report on the detection of fraud relating to the Company's investments and the Company is afforded protection through its various contracts with suppliers, of which one of the key protections is the Depositary's indemnification for loss or misappropriation of the Company's assets held in custody. Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective risk management and internal control are included within the Risk Management and Internal Control section of the Corporate Governance Statement on page 45.
• Cyber Crime:
The threat of cyber-attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security.
The Board has received the cyber security policies for 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 security of its trading applications are tested and reported on every six months against the AAF Standard.
• Corporate Governance and Shareholder Relations:
The Board considers failure to communicate effectively with investors and inappropriate sales and marketing strategy to be a risk to the Company.
The Board relies on the Manager to arrange regular meetings with major institutional holders and effective communication. Marketing Strategy and practices are regularly reviewed by the Board. Details of the Company's compliance with corporate governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement on page 42.
• Pandemic Risk:
The global reach and disruption to markets caused by Covid-19 highlighted the speed and extent of economic damage that can arise from a pandemic, both on global stock markets and more widely. It also introduced risks, particularly in terms of controls, resulting from changes to works practices (including working from home).
The Board regularly reviews the mitigation measures and business continuity plans which JPMorgan Asset Management and other key service providers have in place to maintain operational resilience. It is satisfied that these are appropriate as demonstrated even during the worst extremes of the Covid-19 pandemic.
• Climate Change:
Climate change has become a critical issue confronting portfolio companies and their investors. Climate change can have a significant impact on the business models, sustainability and even viability of individual companies, sectors and asset classes.
The Board receives ESG reports from the Manager on the portfolio and the way ESG considerations are integrated into the investment decisions making so as to mitigate risk at the level of stock selection and portfolio construction. At the level of the Company, as extreme weather events become more common, the resiliency, business continuity planning and location strategies of the Company's service providers will come under greater scrutiny.
• Artificial Intelligence (AI)
Advances in computing power means that AI has become a powerful tool that will impact a huge range of areas. AI could be a significant driver for new business as well as a disrupter to current business and processes leading to added volatility and uncertainty in corporate valuations.
The Board will work with the Manager to monitor the developments concerning AI and its potential impact on the portfolio, our service providers and the wider market.
• Geopolitical:
There is an increasing risk to market stability and investment opportunities from geopolitical conflicts, such as between Russian and Ukraine, and China and Taiwan.
The Company discusses global developments with the Manager and will continue to monitor these issues.
• Global recession:
Government/Central Banks fiscal or monetary responses to the debt burden from Covid-19 stimulus packages results in inflation and/or stagflation. These, together with the consequences of the war in Ukraine, could result in regional and/or global recession leading to material adverse movements in asset prices.
The Manager's market strategists are available to the Board and can discuss market trends. The Board can, with shareholder approval, look to amend the investment policy and objectives of the Company, if required, to enable investment in companies or assets which offer more appealing risk/return characteristics in prevailing economic conditions.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors' Report on page 39. The management fee payable to the Manager for the year was £6,416,000 (2022: £7,867,000) of which £nil (2022: £nil) was outstanding at the year end.
Included in administration expenses in note 6 on page 70 are safe custody fees payable to JPMorgan Chase amounting to £86,000 (2022: £122,000) excluding VAT of which £30,000 (2022: £20,000) 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. The commission payable to JPMorgan Securities Limited for the year was £67,000 (2022: £nil) of which £nil (2022: £nil) was outstanding at the year end.
The Company also holds cash in JPMorgan Euro Liquidity Fund, which is managed by JPMF. At the year end, this was valued at £46.6 million (2022: £74.9 million). Interest amounting to £nil were payable (2022: £nil) during the year of which £nil (2022: £nil) was outstanding at the year end.
Securities lending income amounting to £113,000 (2022: £136,000) were receivable by the Company during the year. JPMAM commissions in respect of such transactions amounted to £13,000 (2022: £15,000).
Handling charges on dealing transactions amounting to £59,000 (2022: £33,000) were payable to JPMorgan Chase during the year of which £29,000 (2022: £6,000) was outstanding at the year end.
At the year end, a bank balance of £447,000 (2022: £430,000) was held with JPMorgan Chase Bank N.A. A net amount of interest of £nil (2022: £2,000) was receivable by the Company during the year from JPMorgan Chase of which £nil (2022: £1,000) was outstanding at the year end.
Full details of Directors' remuneration and shareholdings can be found on page 51 of the Annual Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and Accounts 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 and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the Annual Report and Accounts are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. 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 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 financial statements are published on the www.jpmeuropeandiscovery.co.uk website, which is maintained by the Company's Manager. 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 financial statements since they were initially presented on the website. The 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 Directors' Report, Strategic Report, Statement of Corporate Governance and Directors' Remuneration Report that comply with that law and those regulations.
Each Director, whose names and functions are listed on page 38 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; and
• the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
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
Marc Van Gelder
Chairman
15th June 2023
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31ST MARCH 2023
|
|
|
2023 |
2022 |
||||
|
|
Notes |
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Losses on investments held at fair value |
|
- |
(45,535) |
(45,535) |
- |
(1,046) |
(1,046) |
|
Foreign exchange gains/(losses) on |
|
- |
2,265 |
2,265 |
- |
(860) |
(860) |
|
Net foreign currency losses |
|
- |
(2,366) |
(2,366) |
- |
(253) |
(253) |
|
Income from investments |
|
22,389 |
- |
22,389 |
16,360 |
- |
16,360 |
|
Interest receivable and similar income |
|
113 |
- |
113 |
138 |
- |
138 |
|
Gross return/(loss) |
|
22,502 |
(45,636) |
(23,134) |
16,498 |
(2,159) |
14,339 |
|
Management fee |
|
(1,925) |
(4,491) |
(6,416) |
(2,360) |
(5,507) |
(7,867) |
|
Other administrative expenses |
|
(690) |
- |
(690) |
(719) |
- |
(719) |
|
Net return/(loss) before finance costs |
|
19,887 |
(50,127) |
(30,240) |
13,419 |
(7,666) |
5,753 |
|
Finance costs |
|
(530) |
(1,237) |
(1,767) |
(271) |
(633) |
(904) |
|
Net return/(loss) before taxation |
|
19,357 |
(51,364) |
(32,007) |
13,148 |
(8,299) |
4,849 |
|
Taxation |
|
(1,845) |
- |
(1,845) |
(1,994) |
- |
(1,994) |
|
Net return/(loss) after taxation |
|
17,512 |
(51,364) |
(33,852) |
11,154 |
(8,299) |
2,855 |
|
Return/(loss) per share |
2 |
11.11p |
(32.60)p |
(21.49)p |
7.00p |
(5.21)p |
1.79p |
A final dividend of 7.8p per share (2022: 5.5p per share) is proposed in respect of the year ended 31st March 2023, costing £12,283,000 (2022: 8,716,000). More details can be found in note 10(a) on page 72 of the Annual Report.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.
The 'Total' column of this statement is the profit and loss account of the Company and the revenue and capital columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.
The net return/(loss) on ordinary activities after taxation represents the profit for the year and also Total Comprehensive In-come.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31ST MARCH 2023
|
|
Called up |
Share |
Capital redemption reserve |
Capital |
Revenue reserve1 |
Total |
|
At 31st March 2021 |
7,974 |
1,312 |
7,662 |
820,196 |
9,160 |
846,304 |
|
Repurchase and cancellation of the |
(50) |
- |
50 |
(4,760) |
- |
(4,760) |
|
Net return on ordinary activities |
- |
- |
- |
(8,299) |
11,154 |
2,855 |
|
Dividends paid in the year (note 3) |
- |
- |
- |
(1,520) |
(9,160) |
(10,680) |
|
At 31st March 2022 |
7,924 |
1,312 |
7,712 |
805,617 |
11,154 |
833,719 |
|
Repurchase and cancellation of the |
(50) |
- |
50 |
(4,254) |
- |
(4,254) |
|
Net return on ordinary activities |
- |
- |
- |
(51,364) |
17,512 |
(33,852) |
|
Dividends paid in the year (note 3) |
- |
- |
- |
- |
(10,551) |
(10,551) |
|
At 31st March 2023 |
7,874 |
1,312 |
7,762 |
749,999 |
18,115 |
785,062 |
1 These reserves form the distributable reserves of the Company and may be used to fund distribution of profits to investors via dividend payments. The dividend payment for the year ended 31st March 2022 was split between revenue reserve and capital reserve as the revenue reserve opening balance was entirely exhausted.
STATEMENT OF FINANCIAL POSITION
AT 31ST MARCH 2023
|
Notes |
2023 |
2022 |
|
|
Fixed assets |
|
|
|
|
Investments held at fair value through profit or loss |
|
839,582 |
834,018 |
|
Current assets |
|
|
|
|
Derivative financial instruments |
|
- |
2 |
|
Debtors |
|
16,100 |
2,266 |
|
Cash and cash equivalents |
|
47,000 |
75,318 |
|
|
|
63,100 |
77,586 |
|
Current liabilities |
|
|
|
|
Creditors: amounts falling due within one year |
|
(117,620) |
(77,885) |
|
Net current liabilities |
|
(54,520) |
(299) |
|
Total assets less current liabilities |
|
785,062 |
833,719 |
|
Net assets |
|
785,062 |
833,719 |
|
Capital and reserves |
|
|
|
|
Called up share capital |
|
7,874 |
7,924 |
|
Share premium |
|
1,312 |
1,312 |
|
Capital redemption reserve |
|
7,762 |
7,712 |
|
Capital reserves |
|
749,999 |
805,617 |
|
Revenue reserve |
|
18,115 |
11,154 |
|
Total shareholders' funds |
|
785,062 |
833,719 |
|
Net asset value per share |
|
498.5p |
526.1p |
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31ST MARCH 2023
|
|
2023 |
20221 |
|
|
Cash flows from operating activities |
|
|
|
|
Net (loss)/return before finance costs and taxation |
(30,240) |
5,753 |
|
|
Adjustment for: |
|
|
|
|
Net loss on investments held at fair value through profit or loss |
45,535 |
1,046 |
|
|
Foreign exchange (gains)/losses on liquidity fund |
(2,265) |
860 |
|
|
Net foreign currency losses |
2,366 |
253 |
|
|
Dividend income |
(22,201) |
(16,360) |
|
|
Scrip Dividends received as income |
(188) |
- |
|
|
Realised loss on foreign exchange transactions |
(567) |
(804) |
|
|
Realised exchange losses/(gains) on Liquidity |
2,897 |
(1,413) |
|
|
Increase in accrued income and other debtors |
(40) |
(9) |
|
|
Increase/(decrease) in accrued expenses |
17 |
(1) |
|
|
|
(4,686) |
(10,675) |
|
|
Dividends received |
21,467 |
13,119 |
|
|
Interest received |
1 |
1 |
|
|
Overseas withholding tax recovered |
(2,841) |
215 |
|
|
Net cash inflow from operating activities |
13,941 |
2,660 |
|
|
Purchases of investments and derivatives |
(733,345) |
(620,647) |
|
|
Sales of investments and derivatives |
675,882 |
707,608 |
|
|
Settlement of forward currency contracts |
2 |
118 |
|
|
Net cash outflow/(inflow) from investing activities |
(57,461) |
87,079 |
|
|
Equity dividends paid |
(10,551) |
(10,680) |
|
|
Repurchase and cancellation of the Company's own shares |
(4,412) |
(4,602) |
|
|
Repayment of bank loans |
(42,528) |
- |
|
|
Drawdown of bank loans |
74,509 |
- |
|
|
Interest paid |
(1,184) |
(919) |
|
|
Net cash inflow/(outflow) from financing activities |
15,834 |
(16,201) |
|
|
(Decrease)/increase in cash and cash equivalents |
(27,686) |
73,538 |
|
|
Cash and cash equivalents at start of year |
75,318 |
1,407 |
|
|
Exchange movements |
(632) |
373 |
|
|
Cash and cash equivalents at end of year |
47,000 |
75,318 |
|
|
Cash and cash equivalents consist of: |
|
|
|
|
Cash and short term deposits |
447 |
430 |
|
|
Cash held in JPMorgan Euro Liquidity Fund |
46,553 |
74,888 |
|
|
Total |
47,000 |
75,318 |
|
Reconciliation of net debt
|
|
As at 31st March 2022 £'000 |
Cash flows £'000 |
Other non-cash charges £'000 |
As at 31st March 2023 £'000 |
|
Cash and cash equivalents: |
|
|
|
|
|
Cash |
430 |
17 |
- |
447 |
|
Cash equivalents |
74,888 |
(27,703) |
(632) |
46,553 |
|
|
75,318 |
(27,686) |
(632) |
47,000 |
|
Borrowings |
|
|
|
|
|
Debt due within one year |
(76,056) |
(31,981) |
(1,799) |
(109,836) |
|
Net debt |
(738) |
(59,667) |
(2,431) |
(62,836) |
1 The presentation of the Cash Flow Statement, as permitted under FRS 102, has been changed so as to present the reconciliation of 'net (loss)/return before finance costs and taxation' to 'net cashflow from operating activities' on the face of the Cash Flow Statement. Previously, this was shown by way of note. Other than consequential changes in the presentation of the certain cash flow items, there is no change to the cash flows as presented in previous periods.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
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 July 2022. In preparing these financial statements the Directors have considered the impact of climate change risk as a principal risk as set out on page 32, and have concluded that it does not have a material impact on the Company's investments. In line with FRS 102 investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the 31 March 2023 and therefore reflect market participants view of climate change risk.
All of the Company's operations are of a continuing nature.
The financial statements have been prepared on a going concern basis. The Board has, in particular, considered the impact of market volatility with the ongoing conflict between Ukraine and Russia, rising tension in China and the after effects of Covid-19 outbreak, and does not believe the Company's going concern status is affected. They have considered the potential impact and the mitigation measures which key service providers including Managers, have in place to maintain operational resilience particularly in light of a pandemic. The Directors have reviewed income and expense projections to 30th June 2024 and the liquidity of the investment portfolio in making their assessment. Further details of Directors' considerations regarding this are given in the Chairman's Statement, Investment Managers' report, Going Concern Statement , Viability Statement and Principal Risks section of this Annual Report.
The policies applied in these financial statements are consistent with those applied in the preceding year.
2. Return/(loss) per share
|
|
2023 |
2022 |
|
|
£'000 |
£'000 |
|
Revenue return |
17,512 |
11,154 |
|
Capital (loss)/return |
(51,364) |
(8,299) |
|
Total return/(loss) |
(33,852) |
2,855 |
|
Weighted average number of shares in issue during the year |
157,569,054 |
159,257,259 |
|
Revenue return per share |
11.11p |
7.00p |
|
Capital loss per share |
(32.60)p |
(5.21)p |
|
Total (loss)/return per share |
(21.49)p |
1.79p |
3. Dividends
(a) Dividends paid and proposed
|
|
2023 |
2022 |
|
|
£'000 |
£'000 |
|
Dividends paid |
|
|
|
2022 final dividend of 5.5p (2021: 5.5p) per share |
8,661 |
8,770 |
|
2023 Interim dividend of 1.2p (2022: 1.2p) per share |
1,890 |
1,910 |
|
Total dividends paid in the year |
10,551 |
10,680 |
|
Dividend proposed |
|
|
|
2023 final dividend of 7.8p (2022: 5.5p) per share |
12,283 |
8,716 |
All dividends paid and declared in the period have been funded from the revenue reserve.
The final dividend has been proposed in respect of the year ended 31st March 2023 and is subject to approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 31st March 2024.
(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, shown below. The revenue available for distribution by way of dividend for the year is £17,512,000 (2022: £9,160,000). The revenue reserve after payment of the final dividend will amount to £5,832,000 (2022: £2,438,000).
|
|
2023 |
2022 |
|
|
£'000 |
£'000 |
|
Interim dividend of 1.2p (2022: 1.2p) per share |
1,890 |
1,910 |
|
Final dividend of 7.8p (2022: 5.5p) per share |
12,283 |
8,716 |
|
|
14,173 |
10,626 |
4. Net asset value per share
|
|
2023 £'000 |
2022 £'000 |
|
Net assets (£'000) |
785,062 |
833,719 |
|
Number of shares in issue |
157,474,931 |
158,469,931 |
|
Net asset value per share |
498.5p |
526.1p |
Status of results announcement
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 include 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.
2022 Financial Information
The figures and financial information for 2022 are extracted from the published Annual Report and Financial Statements for the year ended 31st March 2022 and do not constitute the statutory accounts for that year. The Annual Report and Accounts include 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. The Annual Report and Financial Statements will be delivered to the Register 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.
For further information, please contact:
Priyanka Vijay Anand
For and on behalf of JPMorgan Funds Limited,
Company 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.
JPMORGAN FUNDS LIMITED
ENDS
A copy of the annual report will be submitted to the FCA's National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The annual report will shortly be available on the Company's website at www.jpmindian.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.