LONDON
STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN
EUROPEAN DISCOVERY TRUST PLC
ANNUAL REPORT AND FINANCIAL
STATEMENTS
FOR THE YEAR ENDED 31ST MARCH 2024
The information communicated
within this announcement is deemed to constitute inside information
as stipulated under the Market Abuse Regulations (EU) No 596/2014
which is part of UK law by virtue of the European Union
(Withdrawal) Act 2018. Upon publication of this announcement, this
inside information is now considered to be in the public
domain.
Legal Entity Identifier:
54930049CEWDI46Y3U28
Information disclosed in accordance
with DTR 4.1.3
JPMorgan European Discovery Trust
plc ("JEDT" or the "Company"), the FTSE 250
investment trust investing in European smaller companies, announces
its annual results for the year ended 31st March 2024 (the
"Reporting Period").
The outlook for European small cap
companies is considerably brighter as the underlying economic and
financial conditions improve, along with real wages. There is also
further momentum and interest in the sector this year, given the
expectation of at least a couple of rate cuts by the European
Central Bank. These positive market conditions, along with the
important enhancements to the process and risk management that the
new portfolio managers are implementing, have had a positive impact
on performance, resulting in JEDT outperforming the
benchmark.
Financial highlights for the Reporting Period
include:
·
NAV per Ordinary Share of 520.7 pence (as at 31
March 2024), up 19.8% since 30th September 2023 and 4.5% from 31st
March 2023.
·
Total return on net assets was 6.8%, outperforming
the benchmark index, the MSCI Europe (ex UK) Small Cap Index in
GBP, which returned 5.9% over the same period.
·
Shareholder total return of 13.0%, better than
reported total return on NAV of +6.8% with the Company's discount
narrowing from -15.1% to -10.6%.
·
Full year dividend increased to 10.5p per share
(2023: 9.0p).
o Final
dividend of 8.0p per share to be paid on 2nd August 2024 to
shareholders on the register as at 28th June 2024
·
During the year, the Company repurchased 9,782,472
shares at an average discount of 11.8%.
Operational highlights for the
Reporting Period include:
·
Enhancements to investment process and risk
management, seeking to minimise downside risk during periods of
volatility and capture upside risk when volatility
reduces.
o Resulted
in a positive impact on performance, with the net asset value total
return outperforming the benchmark.
·
Jon Ingram, Jack Featherby and Jules Bloch
appointed as named portfolio managers of the Company with effect
from 1st March 2024 following internal review of the portfolio
management team and its investment process.
·
James Will to be appointed as an independent
non-executive director with effect from the conclusion of the 2024
AGM.
·
Nicholas Smith is to retire from the Board, with
the Board's sincere thanks for his contribution, having served as a
Director since 2015.
Tender Offer:
·
Following a period of encouraging performance and
after consultation with a number of the Company's largest
shareholders, the Board has decided to undertake a tender offer for
up to 15% of the issued share capital (excluding shares held in
Treasury) of the Company.
·
The Tender Offer, which is subject to shareholder
approval, will be made at a tender price equal to a 2% discount to
the prevailing net asset value per share as at the calculation
date, less the costs of implementing the Tender Offer.
·
In addition, the Board intends to introduce a
performance related tender offer for up to 15% of the issued share
capital (excluding shares held in Treasury) of the Company, should
the Company's NAV total return not equal or exceed the benchmark
total return over a five year period, ending 31st March
2029.
Outlook:
·
Outlook for European small cap companies is
considerably brighter than six months ago as economic and financial
conditions have improved, and real wage increases should give the
recovery further momentum.
·
It seems very likely that the European Central
Bank will cut interest rates at least a couple of times this year
which will further improve economic conditions in the
region.
·
These positive developments have already had a
favourable impact on investor sentiment.
·
European small and mid-cap companies tend to
outperform as the broader market rallies and based on history, the
Company's carefully selected, high quality, investments should do
even better in such markets.
·
Looking further ahead, nimble businesses that
germinate in the small cap and mid cap space are positioned to
benefit significantly from the emerging trends we are seeing, such
as the Artificial Intelligence (AI) and research in certain areas
in pharmaceuticals.
·
The new portfolio management team and the ongoing
support of JPMorgan's extensive research resources position the
Company to benefit from this supportive environment and deliver
strong results to shareholders over the rest of 2024 and
beyond.
CHAIRMAN'S STATEMENT
Investment Performance
Over the year to 31st March 2024
(FY24) the total return on net assets was 6.8%, outperforming the
Company's benchmark index, the MSCI Europe (ex UK) Small Cap Index,
which returned 5.9% over the same period. The total return to
shareholders was 13.0%, as a result of a significant narrowing of
the discount at which the Company's shares trade relative to NAV,
from 15.1% to 10.6% over the year.
The explanation for this performance
is in the Portfolio Managers' report which can be found in the full
Annual Report available on the website of the Company. This also
provides a detailed commentary on portfolio positioning and the
investment outlook.
Whilst the past year's performance
is pleasing, the Company adopts a long-term investment strategy, so
it is important to also consider performance over a longer
timeframe. On this basis, the Company has underperformed the market
over three and five years, returning 3.0% and 41.0% respectively
over these periods, compared to benchmark returns of 6.4% and
46.7%, although its longer-term performance remains strong in both
absolute and relative terms. Over the ten years to the end of March
2024, its total return on net assets was 121.0%, ahead of the
benchmark total return of 115.2%.
Enhancements and Change
The Board has been very mindful of
this mixed long-term performance. As I reported in the interim
results, over the five years to 30th September 2023 the net asset
value total return was 2.0%, compared to the benchmark total return
of 20.1%. This followed a period of underperformance in the six
months to 30th September 2023 of -11.4% with the Company's
benchmark returning -5.7%. The Portfolio Managers noted in their
report that the Company's investment process tended to struggle
during periods of high volatility. During the year, they therefore
implemented some important enhancements to their process and risk
management, seeking to minimise downside risk during periods of
volatility and capture upside risk when volatility
reduces.
I am pleased to be able to report
that these changes have had a positive impact on performance, with
the net asset value total return up 6.8% for the year to 31st March
2024, outperforming the benchmark total return of 5.9%. A
significant amount of performance came in the last six months of
the financial year, with the net asset value total return up 20.5%
against the benchmark return of 12.4%.
As announced earlier this year, in
light of the Company's longer-term performance, the Board of
Directors and J.P. Morgan Asset Management ('JPMAM') undertook an
internal review of the portfolio management team and its investment
process. This led to Jon Ingram, Jack Featherby and
Jules Bloch being appointed as named Portfolio Managers of the
Company with effect from 1st March 2024, replacing Francesco Conte
and Edward Greaves. The Board is delighted to welcome Jon, Jack and
Jules and looks forward to working with the new investment team to
deliver strong, long-term returns for all shareholders. Since 1st
March, the new Portfolio Managers have continued to refine the
investment process; the changes they have made are set out in their
Report
Francesco Conte is retiring and the
Board and I would like to take this opportunity to recognise his
immense contribution to the Company for over the 25 years since he
has been at the helm. Since 1998 the fund has provided a share
price total return of some 1,666% through several market cycles and
shocks. We would like to thank him for his commitment and efforts
during this period, as well as to Edward Greaves who has been
a named Portfolio Manager since 2016.
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. During the year, the revolving credit facility with Scotia
Bank (EUR125m) expired. This facility was renewed for a further
two-year term. During the year gearing varied between 10.0% geared
and 0.5% cash. At the end of the financial year, gearing stood at
7.9%.
Revenue and Dividends
The Board's dividend policy is to
pay out the majority of revenue available each year to its
shareholders. This is set against the Company's objective of
maximising capital growth, and the Portfolio Managers are therefore
not constrained to deliver income in any one financial
year.
An interim dividend of 2.5 pence per
share was paid on 5th February 2024, higher than the previous
year's interim dividend of 1.2 pence, reflecting the increased
income received by the Company during the first six months of the
financial year, compared to the previous 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 8.0 pence per share
will be paid on 2nd August 2024 to shareholders on the register as
at the close of business on 28th June 2024 (ex-dividend date 27th
June 2024). This will take the total dividend for the year to 10.5
pence, compared to a total dividend of 9.0 pence for the previous
year.
Discounts and Share Repurchases
The Company's share price discount
relative to net asset value narrowed during the Company's financial
year, from 15.1% as at the end of March 2023 to 10.6% as at 31st
March 2024. The average discount over the period was 13.0%. As at
14th June 2024, the discount was 10.76%. 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.
During the year, the Company
repurchased 9,782,472 shares at an average discount of
11.8%.
Manager Evaluation
During the year, the Management
Engagement Committee undertook a formal review of the Manager,
facilitated by an independent board evaluation firm. The review
covered the investment management, company secretarial,
administrative and marketing services provided to the Company. The
review took account of the Manager's investment performance record,
management processes, investment style, resources and risk control
mechanisms. Apart from the changes in the Portfolio Management team
as described above, the Board agreed with the Committee's
recommendation that the continued appointment of the Manager was in
the best interests of shareholders.
The
Board
Nicholas Smith will be retiring from
the Board at the end of the forthcoming Annual General Meeting
('AGM'), having served as a Director since 2015. The Board
would like to thank Nicholas for his significant contribution to
the Company during his tenure as Audit Chair and Senior Independent
Director and wish him well for the future.
Sarah Watters took over the role of
the Senior Independent Director of the Company during the year and
Arun Sarwal will succeed Nicholas as Audit Chair following the
AGM.
In anticipation of Nicholas's
impending retirement, the Board initiated a search earlier this
year to identify a new Director. As announced on 13th June 2024,
James Will has been appointed as an independent non-executive
director with effect from the conclusion of the 2024 AGM. James has
extensive investment company experience and my fellow Board members
and I look forward to working with him.
Environmental, Social and Governance ('ESG')
The Board shares the Investment
Manager's view of the significance of financially material
environmental, social and governance ('ESG') factors when making
long term investments. The Portfolio Managers regularly discuss
financially material ESG issues with the management teams of
potential and current investee companies on an ongoing basis.
Further information on the Manager's ESG process and engagement is
set out in the ESG Report in the full Annual Report.
Shareholder Engagement
The Board believes that shareholder
interactions are very helpful in assisting it with the management
of the Company's affairs. Over the course of the year, we have
engaged with a number of our largest shareholders to listen to
their thoughts and views. The Board values the feedback it has
received and insights it has gained through the engagement process
and we thank the shareholders for their support.
We remain committed to continued
engagement over the coming year; in particular, Board members
welcome and seek such meetings as and when such opportunities
arise.
During the year, the Board also
undertook an Asset Reunification Programme, conducted by the
Company's registrar, which ultimately traced and reunited
shareholders with unclaimed shares and dividends in the Company
valued at approximately £230,000.
Tender Offer
Following a consultation with a
number of the Company's largest shareholders, the Board has decided
to undertake a tender offer for up to 15% of the issued share
capital (excluding shares held in Treasury) of the Company (the
'Tender Offer'). The Tender Offer, which is subject to shareholder
approval, will be made at a tender price equal to a 2% discount to
the prevailing net asset value per share as at the calculation
date, less the costs of implementing the Tender Offer.
In addition, the Board intends to
introduce a performance related tender offer for up to 15% of the
issued share capital (excluding shares held in Treasury) of the
Company (the 'Conditional Tender Offer'). If the Company's net
asset value total return does not equal or exceed the benchmark
total return (MSCI Europe ex UK Small Cap Index (net)) over the
five-year period beginning 1st April 2024 and ending on 31st March
2029. The Conditional Tender Offer will be held as soon as
practicable following the conclusion of the 2029 Annual General
Meeting. The Conditional Tender Offer, which is subject to
shareholder approval, will be made at a tender price equal to
a 2% discount to the prevailing net asset value per share as at the
calculation date, less the costs of implementing the Conditional
Tender Offer.
Further announcements in relation to
the Tender Offer and Conditional Tender Offer will be made
following the conclusion of the Company's upcoming Annual General
Meeting.
Annual General Meeting
The Company's Annual General Meeting
will be held on Wednesday, 24th July 2024 at 12.30 p.m. at
60 Victoria Embankment, London EC4Y 0JP.
The Portfolio Managers' will give a
presentation to shareholders, reviewing the past year and
commenting on the outlook for the current year. The meeting 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 in person, 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 invtrusts.cosec@jpmorgan.com.
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 in person,
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. Shareholders who are unable to attend the AGM are
encouraged to use their proxy votes.
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.
Stay Informed
The Company delivers email updates
with regular news and views, as well as the latest performance. If
you have not already signed up to receive these communications and
you wish to do so, you can opt in via https://web.gim.jpmorgan.com/emea_investment_trust_subscription/welcome?targetFund=JEDT
Outlook
The outlook for European small cap
companies seems considerably brighter than when I wrote my last
statement to shareholders for the Half Year Report six months ago.
Since then, economic and financial conditions have improved, and
real wage increases should give the recovery further momentum. It
seems very likely that the European Central Bank ('ECB') will cut
interest rates at least a couple of times this year which will
further improve economic conditions in the region.
These positive developments have
already had a favourable impact on investor sentiment. European
small and mid-cap companies tend to outperform as the broader
market rallies and based on history your Company's carefully
selected, high quality, investments should do even better in such
markets. Looking further ahead, as you will read in the Portfolio
Managers' report, the innovative, nimble businesses that germinate
in the small cap and mid cap space are positioned to benefit
significantly from the emerging trends we are seeing, such as the
Artificial Intelligence (AI) and research in certain areas in
pharmaceuticals.
These macro and structural
developments all bode well for the sector and your Company.
Together with a new investment team and the ongoing support of
JPMorgan's extensive research resources, the Board is confident
that the Company is well positioned to make the most of this
supportive environment to deliver strong results to shareholders
over the rest of 2024 and beyond.
Marc
van Gelder
Chairman
INVESTMENT MANAGERS'
REPORT
This year was a major one for the
Company as the decision was made in February to transition the
investment management team to a new team consisting of Jon Ingram,
Jack Featherby and Jules Bloch - three experienced portfolio
managers with a collective history of 40 years of investing in
European Small Caps.
Through this time, especially
following a period of tough absolute and relative performance, we
appreciate the continued support of all our shareholders. We
believe that the change in management team, alongside the continued
commitment to the existing investment process, should be positive
for our shareholders. As we, the new managers, step in, we would
like to thank both Francesco Conte and Edward Greaves for their
many years of stewardship and we wish them well going
forward.
As to the Company, we are very
excited about the current investment opportunity in European Small
Caps. It is an asset class with a fantastic long-term track
record. As we write in our outlook below, we firmly believe that
the current set up of the asset class, one supported by multiple
tailwinds, align the Company in a good position to deliver strong
returns for you, our shareholders.
Review
The financial year ended 31st March
2024 was marked by dramatic shifts in investor sentiment and market
performance. At the start of the period, global markets were still
reverberating from the collapse of Silicon Valley Bank (SVB) and
Credit Suisse in March 2023.
As concerns around a banking crisis
receded, markets were swayed by inflation figures and the
corresponding reactions of central banks. As the year progressed,
investors welcomed confirmation that inflation rates were falling.
Nonetheless, central banks continued to raise rates, motivated by
concerns that inflation would otherwise become
entrenched.
There was almost universal consensus
amongst forecasters that Europe was heading into recession, induced
by the compounding effects of a regional energy crisis, Russia's
invasion of Ukraine, double-digit inflation and monetary tightening
that pushed interest rates to their highest level in well over
a decade.
This recession failed to
materialise, but these macroeconomic fears still had a significant
impact on European Small Cap stocks which are typically more
levered to the economic performance of their national home
markets.
Inflation rates around the world
cooled as the year progressed, and central bankers started to
recognise the progress made on the inflation front. In late October
2023, Federal Reserve Chairman Powell adopted a more dovish stance,
marking a significant turning point in investor sentiment. Global
equity markets began a recovery that continued through to the end
of the review period.
Though European smaller companies
did benefit from the improvement in market sentiment in the second
half of 2023, they have now underperformed European large companies
by more than 25% since September 2021. This is the longest and
sharpest period of underperformance in the past 20 years.
These periods have historically been followed by strong
outperformance of European smaller companies.
Table 1: Periods of European Small Cap underperformance and
the corresponding performance rebound
|
|
Under-
|
5Y forward
|
Period
|
Number of
months
|
performance
|
outperformance
|
September 2021 - March
2024
|
30
|
-29%
|
Still
within period
|
March 2007 - December 2008
|
22
|
-15%
|
95%
|
March 2018 - September
2019
|
19
|
-10%
|
Still
within period
|
January 2011 - December
2011
|
12
|
-10%
|
53%
|
March 2014 - October 2014
|
8
|
-7%
|
19%
|
Source:
J.P. Morgan Asset Management, Bloomberg. Large Caps: MSCI Europe,
Small Caps: MSCI Europe Small Caps
Portfolio Performance
Despite the
volatility induced by macroeconomic factors, the Net Asset Value of
the Company increased by 6.8% during the year, outperforming the
benchmark by 0.9%.
Performance attribution
Year ended 31st March
2024
|
%
|
%
|
Contributions to total returns
|
|
|
Benchmark return
|
|
+5.9%
|
Asset allocation
|
-1.6%
|
|
Stock selection
|
1.5%
|
|
Gearing/cash effect
|
1.1%
|
|
Currency effect
|
0.1%
|
|
Investment Managers' added contribution
|
|
1.1%
|
Portfolio return
|
|
7.0%
|
Management fees/other
expenses
|
-0.9%
|
|
Share Buy-Back
|
0.7%
|
|
Other effects
|
|
-0.2%
|
Return on net assetsA
|
|
6.8%
|
Return to shareholdersA
|
|
13.0%
|
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')
A
glossary of terms and APMs is provided in the Annual
Report.
The relative performance of the
Company has been volatile during the year. Performance was
adversely impacted in periods where macroeconomic themes dominated.
For instance, the portfolio underperformed in the last quarter of
2023, when expectations of significant interest rate cuts fuelled a
substantial rally in low-quality and high-risk
companies.
However, since the start of 2024,
company fundamentals have become the main driver of share price
performance again. In the first three months of 2024, the NAV
increased 10.4% compared to 2.1% for the MSCI Europe ex-UK Small
Cap index.
Sector contribution
Table 2: Sector performance - Top 3 and Bottom 3 sectors
contributing to performance
|
Account (%)
|
Benchmark
(%)
|
Attribution
(%)
|
|
Group
|
Avg Wgt
|
Return
|
Avg Wgt
|
Return
|
Selection
|
Allocation
|
Total
|
Communication
|
|
|
|
|
|
|
|
Services
|
6.28
|
21.78
|
4.77
|
8.67
|
0.84
|
0.03
|
0.87
|
Materials
|
5.17
|
7.32
|
7.91
|
-4.08
|
0.51
|
0.20
|
0.71
|
Financials
|
14.01
|
35.30
|
13.92
|
26.16
|
0.88
|
-0.22
|
0.67
|
Utilities
|
0.82
|
-4.28
|
2.78
|
3.18
|
-0.25
|
-0.04
|
-0.29
|
Consumer
|
|
|
|
|
|
|
|
Discretionary
|
17.42
|
0.23
|
8.22
|
0.41
|
-0.03
|
-0.76
|
-0.79
|
Information
|
|
|
|
|
|
|
|
Technology
|
12.70
|
-13.25
|
10.48
|
-6.29
|
-1.30
|
-0.01
|
-1.31
|
Source: J.P. Morgan Asset
Management
Our overweight to Communication
Services contributed positively to performance during the year. Our
large overweight in CTS Eventim, the German online ticketing
platform, delivered strong performance; the cost of live
entertainment skyrocketed in 2023 due to increased demand as
consumers returned to the experiences they missed out on during the
pandemic. Ticketing platforms benefitted from this 'revenge
spending' which shows no sign of abating.
The positive attribution from
Materials is the result of our underweight to companies that have
been hurt by energy prices, have structurally low returns on
invested capital or were delivering earnings that we thought were
not maintainable. Our focus on defensive companies with strong
balance sheets and high cash flow conversion allowed us to
outperform the sector. This includes the German producer of
industrial lubricants Fuchs Petrolub, which has a robust
medium-term volume growth potential because of recent capacity
investments, while the deflation in base oils is a tailwind to its
margins and cash flows.
Despite the volatility induced by
the collapse of SVB and Credit Suisse at the start of the period,
the Financial sector was one of the largest contributors to returns
at the sectoral level. After it became clear that these bank
failures were isolated events, this undervalued sector stabilised
and reaped the benefits from high interest rates and low bankruptcy
rates. Our investment in BPER Banca, the Italian banking group,
performed particularly strongly for these reasons.
The largest sectoral detractor from
performance was the portfolio's stock selection in Information
Technology. Our exposure to automotive semiconductor companies such
as Melexis and Elmos suffered from the sharp slowdown in the
electric vehicle market and fears of a broad-based destocking from
automotive OEMs. Our overweight to IT consulting companies such as
Alten, Reply and Tietoevry also contributed negatively as clients
postponed some IT and innovation projects due to macroeconomic
uncertainty.
The portfolio's overweight to
Consumer Discretionary also contributed negatively. Elevated rates
of inflation and increasing interest rates eroded consumer
confidence in 2023. Our overweight to auto suppliers such as Forvia
and Plastic Omnium contributed negatively as they were hit by
significant cost inflation, leaving their levered balance sheets
under pressure. Other companies related to construction such as JM
(a Swedish housing developer) or Ariston (an Italian manufacturer
of heating solutions) also suffered from the impact of tightening
monetary policies.
Stock contribution
Table 3: Investment performance - Top 3 and Bottom 3
investments contributing to performance
Account (%)
|
Benchmark
(%)
|
|
Security Name
|
Avg Wgt
|
Return
|
Avg Wgt
|
Return
|
Wgt Diff
|
Total
Effect
|
Top
3 Contributors
|
|
|
|
|
|
|
SPIE
|
3.45
|
30.07
|
0.49
|
29.28
|
2.96
|
0.71
|
Arcadis
|
2.18
|
48.14
|
0.39
|
48.56
|
1.78
|
0.57
|
CTS Eventim
|
2.49
|
41.69
|
0.47
|
41.46
|
2.02
|
0.56
|
Bottom 3 Contributors
|
|
|
|
|
|
|
Bravida
|
2.26
|
-21.71
|
0.20
|
-22.25
|
2.06
|
-0.85
|
Melexis
|
1.90
|
-28.42
|
0.21
|
-29.25
|
1.69
|
-0.78
|
Forvia
|
0.81
|
-44.14
|
0.37
|
-31.44
|
0.44
|
-0.76
|
Source: J.P. Morgan Asset
Management
During the
year our biggest contributors to performance at the stock level
were: SPIE, the French technical services company, as demand for
installation of electrical systems was boosted by the ongoing
energy transition towards electrification; Arcadis, the Dutch
engineering and architecture services company, which has benefitted
from strong infrastructure investments in the US and in Europe; and
CTS Eventim, as demand for live events continued to grow
significantly post-COVID.
The biggest detractors to
performance were Bravida, the Swedish multi-technical services
company, as the sharp slowdown in Swedish residential construction
led to significant pricing pressure for installers; Melexis, the
Belgian manufacturer of automotive chips, as automotive
manufacturers who over-ordered chips due to post-COVID supply chain
constraints now have to reduce their inventories in a slowing
demand environment; and Forvia, the French automotive supplier, as
the company did not manage to increase prices enough, while
increasing interest rates put pressure on a stretched balance
sheet.
Portfolio Changes
During the review period, we aimed
to position the Company to take best advantage of the opportunities
available.
We acquired several Healthcare
companies with strong innovation pipelines, thereby increasing our
allocation to the Healthcare sector. These included Zealand Pharma,
a Danish biotech company with interesting weight-loss assets. We
believe the development of anti-obesity drugs has become a key
structural driver of the Healthcare sector, and Zealand Pharma
offers exposure via its long-acting amylin petrelintide. This drug
could have a better tolerability profile than existing weight-loss
drugs, and thus offer a superior patient experience. We also
purchased Bonesupport, a Swedish biotechnology company with a
unique and innovative bone graft technology platform which is
perceived as vastly superior to current standards of care, with
lower deep infection rates and a higher rate of bone union.
Bonesupport's offering is now approved for various applications,
which will allow the company to grow very rapidly.
We also identified several
attractive investment opportunities in the Energy sector. After
years of underinvestment in energy infrastructure, recent changes
in the geopolitical landscape are reshaping energy supply chains.
This has been positive for European companies in the sector, which
still trade at attractive valuations. One such company is
Vallourec, a French producer of premium pipes for oil & gas
drilling and distribution. In the past 18 months, a new management
team has cut debt, closed loss-making operations across Europe, and
re-focused commercial efforts on high-margin applications. As a
result, Vallourec is now a profitable and cash-flow generative
business, trading at an appealing valuation. We also purchased GTT,
a French engineering company specialising in the design of
cryogenic membrane containment systems for liquid natural gas (LNG)
shipping and storage. LNG's share of the world's energy consumption
is increasing as the world strives to cut its dependence on energy
sources with higher carbon emissions. The war in Ukraine has
accelerated investments in liquefaction and LNG transportation,
which materially improved GTT's growth prospects.
Real Estate is the other area to
which we increased exposure. With inflation under control, and
interest rates set to decline, we expect real estate companies with
strong balance sheets to start trading closer to the net asset
value (NAV) of their underlying assets. We purchased TAG
Immobilien, a German residential company. TAG's stock trades
at a significant discount to NAV despite a low-risk leverage ratio,
high occupancy rates, increasing rents and an attractive growth
pipeline in the Polish market. We also bought Merlin Properties,
which owns diversified real estate assets in Spain. Merlin has a
strong balance sheet and will use its financial firepower to invest
in data centres, which are expected to see sustained demand from
the rapidly rising appetite for data processing and storage. We
expect this growth to be value accretive for Merlin, but the stock
still trades at a significant discount to the portfolio's
NAV.
To fund these purchases, we reduced
overweights to IT and Industrials. Within the Technology sector, we
adopted a more cautious stance on automotive semiconductors. In the
post-pandemic recovery, automotive component companies struggled to
source chips due to supply chain disruptions. This benefited chip
manufacturers, as availability became more important than price.
However, automotive component makers now have adequate levels of
chip inventories and demand for electric vehicles is slowing. The
earnings growth prospects for automotive chip manufacturers are
therefore less attractive and we have reduced exposure accordingly.
We sold Elmos Semiconductors and Melexis due to their deteriorating
operating momentum.
Within Industrials, we reduced our
exposure to companies with high exposure to construction; activity
in the sector has suffered due to the rapid rise in interest rates.
Building permits in Germany are down almost 50% from the peak
levels of 2021. During the year, we sold industrial companies such
as Georg Fischer (which produces piping systems), Ariston (a
supplier of heating systems), Aalberts (which makes flow control
devices) and AFRY (an architectural services company). Other names
in the Industrial sector such as Prysmian, Trelleborg and d'Ieteren
were sold because they left our investment universe following
strong performance.
Despite the disposal of these
companies, Industrials remain the portfolio's most significant
overweight. Any recovery in manufacturing activity would provide a
tailwind for many of the industrial companies we own, but our
holdings have company-specific drivers that should help them
perform regardless of the economic environment. Do&Co for
example is an Austrian airline catering company taking market share
from struggling peers thanks to its unique 'premium fresh cuisine'
branding. An economic slowdown is unlikely to slow the pace at
which the company opens new locations and signs new airlines.
Another holding, Bilfinger, is a German industrial services company
whose new management is implementing better risk controls and
pricing mechanisms, which should significantly increase their
operating margin. Although an improvement in economic conditions
would help, the stock's performance will depend mainly on these
internal reforms.
The same is true for our overweight
to Consumer Discretionary. Consumer confidence, growth in real
disposable income and the unemployment rate are all significant
drivers of consumer spending. With inflation and energy prices
falling, consumer sentiment in Europe has rebounded from the lows
of September 2022. This should help the businesses we own in the
sector, but their strong brands and exposure to structurally
growing categories are more significant drivers of stock
performance. For example, De'Longhi, an Italian manufacturer of
home appliances, has built a solid reputation for 'premium quality
at the press of a button' coffee machines, allowing it to benefit
from the significant growth in global coffee consumption.
Sanlorenzo's tailor-made and exclusive superyachts are recognised
for their exceptional Italian design, which makes them appealing to
a growing population of ultra-high-net-worth
individuals.
Materials continues to be the
portfolio's largest sectoral underweight. Many companies in the
sector are commoditised, capital intensive, cyclical businesses,
with a poor track record of shareholder value creation. Strong
post-pandemic demand and the sharp increase in energy prices after
the invasion of Ukraine significantly boosted the price of
materials. However, the subsequent rapid fall in gas and
electricity prices will at some point turn into a headwind for
earnings in the sector. During the year we sold our position in
Verallia, the French glassmaker. The shortage of glass in 2022 and
early 2023 gave glassmakers exceptional pricing power. We doubt
these earnings will be maintainable.
Despite some sectoral over and
underweights, our sector allocation is balanced relative to
benchmark, as every sector is offering attractive investment
propositions. Investors' focus on macroeconomic variables and their
implications for monetary policy has led to a raft of valuation
dislocations. Not only are small cap valuations extremely
attractive compared to history, but we think the opportunity set
for alpha creation through stock-picking is also wider than
usual.
Our ability to use gearing to
increase market exposure has the potential to further enhance
returns in a rising market. Gearing stood at 7.9% at the end March
2024 and has since remained stable.
Outlook
Because of the attractive valuations
European smaller companies currently trade at, we think the
expected return for the asset class is higher than usual. In
addition, the macroeconomic headwinds the asset class faced over
recent years are now fading. The market expects the ECB to cut
interest rates during 2024 and this should boost investor
sentiment, thereby benefitting small cap companies.
Furthermore, the latest data points
suggest that global and European economies are more resilient than
anticipated. Indicators such as Purchasing Managers' Index ('PMI')
appeared to have bottomed. And for the first time in years, major
European economies are seeing growth in real wages, which should
continue to improve consumer confidence.
The asset class should receive
further support from the resurgence of mergers and acquisitions
(M&A) activity. There has been a lull in deal flow within the
European Small Caps space in recent years, but attractive
valuations and the prospect of lower rates could drive a marked
pick-up in M&A activity.
Small cap companies are also likely
to be supported over the longer-term by emerging themes such as
Artificial Intelligence (AI) and drug-assisted weight loss. To
date, both these themes have mostly played out in the mega cap
space. However, the main point for small cap investors is that most
of tomorrow's winners might be today's small caps. For example,
Amazon and ASML were small caps back in 2000, while Tesla and Meta
were not even founded.
It is our strong conviction that
many of the companies which will be most successful in capitalising
on the AI revolution, pharmaceutical breakthroughs and other
emergent structural trends over the coming years are yet to be
identified, or even conceived, and are thus most likely to emerge
from the small cap space.
We expect this confluence of
attractive valuations, favourable macroeconomic trends, and
long-term thematic developments to act as key drivers for small
caps, which have outperformed every asset class globally over the
past 25 years.
All this leaves us feeling positive
about the prospects for the portfolio. In fact, in our view, the
outlook has rarely been brighter, and we expect our shareholders to
benefit accordingly.
Jon
Ingram
Jack
Featherby
Jules Bloch
Investment
Managers
PRINCIPAL AND EMERGING
RISKS
The Directors confirm that they
conduct a robust assessment of the principal and emerging risks
facing the Company. It is with a focus on those risks that
could materially adversely impact the Company's performance, share
price, reputation or the viability of its business. The reviews are
based on a risk matrix developed by the Audit Committee with the
assistance of the Manager.
During the year, the Board discussed
the risks and identified those that merit particular attention. At
the current time these are - investment performance, discount
control and the impact of geopolitical events. At the same time,
they viewed that the threat of a recession and the adverse impact
of further pandemics as having declined over the year.
The AIC Code of Corporate Governance
requires the Audit Committee to put in place procedures to identify
emerging risks facing the Company. The Committee has conducted
horizon scanning and other than the exacerbation of geopolitical
events in Ukraine & the Middle East, growing usage of
Artificial Intelligence and continuing Climate Change, it does not
believe that there are any new emerging risks.
The risks together with how these
are mitigated and managed, as far as practicable, are set out in
the table below.
RISK & DESCRIPTION
|
MITIGATION &
MANAGEMENT
|
Investment Performance and Strategy
Performance of the Company's
investment portfolio is fundamental to the success of the
company.
An inappropriate investment
strategy, or poor implementation of the strategy, for example
relating to concentration of investments, asset allocation, the
level of gearing or the degree of portfolio risk.
|
Ongoing performance measurement of
the portfolio computed independently of the investment managers.
This is shared within Investment Managers teams for ongoing
oversight as well as to the Board.
The Board reviews the overall
strategy and structure of the Company and reports of comparison of
the 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.
Regular reports prepared by the
Manager are received by the Board on stock selection, asset
allocation, gearing, hedging and costs of running the Company and
these are reviewed at each Board meeting.
|
Discount/Premium Control
Share price premium volatility and
deep discount to net asset value per share leads to a sense of
uncertainty reducing shareholder confidence. Potentially triggering
shareholder intervention.
|
The Board continuously monitors the
level of the discount. Where deemed it prudent, seeks to address
the imbalances in the supply of and demand for the Company's shares
through share repurchases.
|
Geopolitical
Market instability and declining
investment opportunities from escalation of geopolitical conflicts
such as in Ukraine and the
|
The Company monitors global
developments with the Manager and external experts on an ongoing
basis.
The Board can, with shareholder
approval, amend the investment policy and objectives of the Company
to mitigate the risks arising from geopolitical
instability.
|
Market and Currency
Uncertainty about the future prices
and liquidity of the Company's investments arising from economic,
social, fiscal, climate, inflationary and regulatory changes. This
covers the impact of holding investments in the face of negative
market movements.
The company has an inherent risk
exposure to the Euro/Sterling exchange rate. The majority of the
Company's assets, liabilities and income are denominated in Euros,
rather than in Sterling which is the Company's functional currency
and in which it reports performance.
|
The Board manages these risks by
diversification of investments and monitoring compliance with
investment guidelines and policies with the Investment
Manager.
The Board includes an assessment of
these risk factors at meetings and has placed investment
restrictions and guidelines to limit these risks. The Board also
reviews the level of liquidity in the portfolio.
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.
|
Loss of Key Personnel
Loss of one or more of the
investment management team, particularly key
individuals.
|
The Manager ensures appropriate
performance reviews and benchmarked incentivisation and
compensation. In addition, ongoing succession planning through a
team-based approach.
The Board also takes a keen interest
in getting to know the individuals through attendance at Board
meetings and their participation at the off-site Strategy
meetings.
|
Shareholder Relations
Failure to communicate effectively
and regularly and appropriately with the different shareholder
constituencies.
|
The Manager has a programme of
visiting major institutional holders and providing presentations
via various platforms to communicate more widely with its
investors. Extensive range of investor information and nation-wide
presentations are done by the Sales teams and feedback via brokers
is reviewed for improvements.
In addition, the Board arranges
regular meetings with major institutional holders and responds to
questions and matters raised at AGMs or in the interim by
shareholders.
|
Operational and Cyber Crime
In common with most investment
trusts the Board delegates the operation of the business to third
parties, the principal delegate being the Manager.
Disruption to, failure of, or fraud
in the Manager's accounting, dealing or payments systems or at its
service providers (Custodian, Depositary or Registrar) preventing
timely implementation of investment decisions, and potentially
shortfalls in the accuracy of reporting and monitoring of the
Company's financial position.
Cyber-attack impacting business
continuity, breaches of information security and integrity of
data.
|
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 in the Annual
Report.
The Board Is kept up to date with
the Manager's cyber security defences and its cyber security
programme. The information technology controls around the physical
security of data centres, security of its networks and trading
applications are tested and reported on every.
|
Accounting, Legal and Regulatory
Failure to comply with existing and
emerging accounting, fiscal regulatory rules. 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).
An example is the breach of Section
1158 which would lead to a loss of investment trust status and, as
a consequence, gains within the Company's portfolio would be
subject to capital gains tax.
|
The Board
relies on the services of its Company Secretary, the Manager (JPMF)
and its service providers and professional advisers to ensure
compliance. Relying on relevant processes reviewed on a regular
basis including by Internal Audit and Risk & Operational audits
together with regular consultation with External Auditors and
meetings of the Audit Committee.
Specifically, the Section 1158
compliance is continually monitored by the Manager and the results
reported to the Board each month.
|
Artificial Intelligence (AI)
AI has become a powerful tool that
will impact a huge range of areas. It could be a significant driver
for new business as well as a disrupter to current business models
and processes leading to emerging uncertainty in corporate
valuations. There is also an increased potential risk from cyber
related crime.
|
The Manager's investment process
integrates financially material considerations of the impact of AI
when taking investment decisions.
The Board works with the Manager to
monitor the developments concerning AI and its potential impact on
the portfolio, our service providers and the wider
market.
|
Climate Change
Climate change has an increasingly
significant impact on the business models, sustainability and even
viability of individual companies, sectors and asset classes,
impacting investment performance and valuations in the short and
longer term.
|
The Manager's investment process
integrates financially material considerations of environmental,
social and governance (ESG) factors when taking investment
decisions. This includes considering the approach investee
companies take to recognising and mitigating climate change
risks.
This is outlined in Investment
Manager's Report.
The Board reviews ESG reports from
the Manager on the way ESG considerations are integrated into the
investment decision making.
It also considers, where relevant,
the direct impact on climate change from the nature of operations
of the Manager and other service providers. 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.
|
TRANSACTIONS WITH THE MANAGER AND
RELATED PARTIES
Details of the management contract
are set out in the Directors' Report in the Annual Report. The
management fee payable to the Manager for the year was £5,773,000
(2023: £6,416,000), of which £nil (2023: £nil) was outstanding at
the year end.
Included in administration expenses
in note 6 in the Annual Report are safe custody fees payable
to JPMorgan Chase amounting to £79,000 (2023: £86,000) excluding
VAT of which £8,000 (2023: £30,000) 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 £44,000
(2023: £67,000) of which £nil (2023: £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 £7.2 million (2023: £46.6 million).
Interest amounting to £683,000 were payable (2023: £nil) during the
year of which £53,000 (2023: £nil) was outstanding at the year
end.
Securities lending income amounting
to £131,000 (2023: £113,000) were receivable by the Company during
the year. JPMAM commissions in respect of such transactions
amounted to £15,000 (2023: £13,000).
Handling charges on dealing
transactions amounting to £49,000 (2023: £59,000) were payable to
JPMorgan Chase during the year of which £17,000 (2023: £29,000) was
outstanding at the year end.
At the year end, the Company held
cash of £311,000 and an overdraft of £394,000, resulting in net
overdrawn amount of £83,000 (2022: cash held of £445,000 and £nil
overdraft) with JPMorgan Chase Bank N.A. A net amount of interest
of £118,000 (2023: £2,000) was receivable by the Company during the
year from JPMorgan Chase of which £nil (2023: £1,000) was
outstanding at the year end.
Full details of Directors'
remuneration and shareholdings can be found in 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 in the Annual Report 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
STATEMENT OF COMPREHENSIVE
INCOME
For
the year ended 31st March
|
2024
|
2023
|
|
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
|
-
|
25,759
|
25,759
|
-
|
(45,535)
|
(45,535)
|
Foreign exchange (losses)/gains on
liquidity fund
|
-
|
(172)
|
(172)
|
-
|
2,265
|
2,265
|
Net foreign currency
gains/(losses)
|
-
|
2,225
|
2,225
|
-
|
(2,366)
|
(2,366)
|
Income from investments
|
23,050
|
-
|
23,050
|
22,389
|
-
|
22,389
|
Interest receivable and similar
income
|
932
|
-
|
932
|
113
|
-
|
113
|
Gross return/(loss)
|
23,982
|
27,812
|
51,794
|
22,502
|
(45,636)
|
(23,134)
|
Management fee
|
(1,732)
|
(4,041)
|
(5,773)
|
(1,925)
|
(4,491)
|
(6,416)
|
Other administrative
expenses
|
(860)
|
-
|
(860)
|
(690)
|
-
|
(690)
|
Net
return/(loss) before finance costs and taxation
|
21,390
|
23,771
|
45,161
|
19,887
|
(50,127)
|
(30,240)
|
Finance costs
|
(1,227)
|
(2,861)
|
(4,088)
|
(530)
|
(1,237)
|
(1,767)
|
Net
return/(loss) before taxation
|
20,163
|
20,910
|
41,073
|
19,357
|
(51,364)
|
(32,007)
|
Taxation
|
(1,493)
|
-
|
(1,493)
|
(1,845)
|
-
|
(1,845)
|
Net
return/(loss) after taxation
|
18,670
|
20,910
|
39,580
|
17,512
|
(51,364)
|
(33,852)
|
Return/(loss) per share
|
12.04p
|
13.49p
|
25.53p
|
11.11p
|
(32.60)p
|
(21.49)p
|
A final dividend of 8.0p per share
(2023: 7.8p per share) is proposed in respect of the year ended
31st March 2024, costing £11,815,000 (2023: £12,283,000). More
details can be found in note 10(a) on page 78 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 Income.
The notes on pages 73 to 90 of the
Annual Report form an integral part of these financial
statements.
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 2022
|
7,924
|
1,312
|
7,712
|
805,617
|
11,154
|
833,719
|
Repurchase and cancellation of the
Company's
|
|
|
|
|
|
|
own shares
|
(50)
|
-
|
50
|
(4,254)
|
-
|
(4,254)
|
Net return on ordinary
activities
|
-
|
-
|
-
|
(51,364)
|
17,512
|
(33,852)
|
Dividends paid in the year (note
2)
|
-
|
-
|
-
|
-
|
(10,551)
|
(10,551)
|
At
31st March 2023
|
7,874
|
1,312
|
7,762
|
749,999
|
18,115
|
785,062
|
Repurchase of shares into
Treasury
|
-
|
-
|
-
|
(40,278)
|
-
|
(40,278)
|
Proceeds from unclaimed shares
forfeited2
|
-
|
-
|
-
|
658
|
-
|
658
|
Net return on ordinary
activities
|
-
|
-
|
-
|
20,910
|
18,670
|
39,580
|
Dividends paid in the year (note
2)
|
-
|
-
|
-
|
-
|
(15,976)
|
(15,976)
|
At
31st March 2024
|
7,874
|
1,312
|
7,762
|
731,289
|
20,809
|
769,046
|
1 These reserves form the distributable
reserves of the Company and may be used to fund distribution of
profits to investors via dividend payments.
2 During the year the Company undertook
an Asset Reunification Program for its shareholders. As a result,
shares that could not be traced to shareholders for more than 12
years, were forfeited. In accordance with the Company's Articles of
Association, these shares were sold in the open market and the
proceeds returned to the Company.
STATEMENT OF FINANCIAL
POSITION
At
31st March
|
2024
|
2023
|
|
£'000
|
£'000
|
Fixed assets
|
|
|
Investments held at fair value through profit or
loss
|
829,738
|
839,582
|
Current assets
|
|
|
Debtors
|
6,815
|
16,100
|
Cash and cash equivalents
|
7,554
|
47,000
|
|
14,369
|
63,100
|
Current liabilities
|
|
|
Creditors: amounts falling due
within one year
|
(2,391)
|
(117,620)
|
Net
current assets/(liabilities)
|
11,978
|
(54,520)
|
Total assets less current liabilities
|
841,716
|
785,062
|
Current liabilities
|
|
|
Creditors: amounts falling due
after more than one year
|
(72,670)
|
-
|
Net
assets
|
769,046
|
785,062
|
Capital and reserves
|
|
|
Called up share capital
|
7,874
|
7,874
|
Share premium
|
1,312
|
1,312
|
Capital redemption reserve
|
7,762
|
7,762
|
Capital reserves
|
731,289
|
749,999
|
Revenue reserve
|
20,809
|
18,115
|
Total shareholders' funds
|
769,046
|
785,062
|
Net
asset value per share
|
520.7p
|
498.5p
|
Included in the investments held at
fair valuation through profit or loss are investments of
£52,989,000 (2023: £41,510,000) that are on loan under securities
lending arrangements.
STATEMENT OF CASH FLOWS
For
the year ended 31st March
|
2024
|
2023
|
|
£'000
|
£'000
|
Cash
flows from operating activities
|
|
|
Net return/(loss) before finance
costs and taxation
|
45,161
|
(30,240)
|
Adjustment for:
|
|
|
Net (gains)/losses on investments
held at fair value through profit or loss
|
(25,759)
|
45,535
|
Foreign exchange losses/(gains) on
liquidity fund
|
172
|
(2,265)
|
Net foreign currency
(gains)/losses
|
(2,225)
|
2,366
|
Dividend income
|
(23,050)
|
(22,201)
|
Interest income
|
(801)
|
-
|
Scrip dividends received as
income
|
-
|
(188)
|
Realised loss on foreign exchange
transactions
|
(486)
|
(567)
|
Realised foreign exchange
(losses)/gains on JPMorgan Euro Liquidity Fund
|
(267)
|
2,897
|
Increase in accrued income and other
debtors
|
(37)
|
(40)
|
(Decrease)/increase in accrued
expenses
|
(31)
|
17
|
Net
cash outflow from operating activities before dividends and
interest
|
(7,323)
|
(4,686)
|
Dividends received
|
23,751
|
21,467
|
Interest received
|
748
|
1
|
Overseas withholding tax
recovered/(paid)
|
(2,881)
|
(2,841)
|
Net
cash inflow from operating activities
|
14,295
|
13,941
|
Purchases of investments and
derivatives
|
(683,947)
|
(733,345)
|
Sales of investments and
derivatives
|
723,852
|
675,882
|
Settlement of forward foreign
currency contracts
|
-
|
2
|
Net
cash inflow/(outflow) from investing activities
|
39,905
|
(57,461)
|
Dividends paid (note 2)
|
(15,976)
|
(10,551)
|
Repurchase and cancellation of the
Company's own shares
|
-
|
(4,412)
|
Repurchase of shares into
Treasury
|
(39,592)
|
-
|
Proceeds from unclaimed shares
forfeited
|
658
|
-
|
Repayment of Bank loan
|
-
|
(42,528)
|
Drawdown of Bank loan
|
(34,447)
|
74,509
|
Interest paid
|
(4,770)
|
(1,184)
|
Net
cash (outflow)/inflow from financing activities
|
(94,127)
|
15,834
|
Decrease in cash and cash equivalents
|
(39,927)
|
(27,686)
|
Cash and cash equivalents at start of
year
|
47,000
|
75,318
|
Exchange movements
|
87
|
(632)
|
Cash
and cash equivalents at end of year
|
7,160
|
47,000
|
Cash
and cash equivalents consist of:
|
|
|
Cash and short term
deposits
|
312
|
447
|
Cash held in JPMorgan Euro Liquidity
Fund
|
7,242
|
46,553
|
Cash and cash equivalents per the
Statement of Financial Position
|
7,554
|
47,000
|
Bank overdraft
|
(394)
|
-
|
Total cash, cash equivalents and bank overdraft per the
Statement of Cash Flows
|
7,160
|
47,000
|
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 July 2022. In
preparing these financial statements the Directors have considered
the impact of climate change risk as a principal risk as set out in
the Annual Report 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 31st
March 2024 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 exacerbation of geopolitical events in Ukraine and
the Middle East, arising from geopolitical risks, including the
crisis in Ukraine and Russia and the Middle East, 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 and believe the adverse impact of further
pandemics has declined. The Directors have reviewed income and
expense projections to 30th June 2025 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. Dividends
(a) Dividends paid and
declared
|
2024
|
2023
|
|
Pence
|
£'000
|
Pence
|
£'000
|
Dividends paid
|
|
|
|
|
Unclaimed dividends returned to the
Company
|
-
|
(120)
|
-
|
-
|
Final dividend in respect of the
prior year
|
7.8
|
12,283
|
5.5
|
8,661
|
Interim dividend
|
2.5
|
3,813
|
1.2
|
1,890
|
Total dividends paid in the year
|
10.3
|
15,976
|
6.7
|
10,551
|
Dividend proposed
|
|
|
|
|
Final dividend
|
8.0
|
11,815
|
7.8
|
12,283
|
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 2024 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 2025.
(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 £18,670,000 (2023:
£17,512,000). The revenue reserve after payment of the final
dividend will amount to £8,994,000 (2023: £5,832,000).
|
2024
|
2023
|
|
Pence
|
£'000
|
Pence
|
£'000
|
Interim dividend
|
2.5
|
3,813
|
1.2
|
1,890
|
Final dividend
|
8.0
|
11,815
|
7.8
|
12,283
|
Total
|
10.5
|
15,628
|
9.0
|
14,173
|
3. Return/(loss) per share
|
2024
|
2023
|
|
£'000
|
£'000
|
Revenue return
|
18,670
|
17,512
|
Capital return/(loss)
|
20,910
|
(51,364)
|
Total return/(loss)
|
39,580
|
(33,852)
|
Weighted average number of shares in
issue during the year
|
155,063,487
|
157,569,054
|
Revenue return per share
|
12.04p
|
11.11p
|
Capital return/(loss) per
share
|
13.49p
|
(32.60)p
|
Total return/(loss) per share
|
25.53p
|
(21.49)p
|
4. Net asset value per share
|
2024
|
2023
|
Net assets (£'000)
|
769,046
|
785,062
|
Number of shares in issue
|
147,692,459
|
157,474,931
|
Net
asset value per share
|
520.7p
|
498.5p
|
5.
Non-statutory accounts
2023 Financial
Information
The figures and financial
information for 2023 are extracted from the published Annual Report
and Financial Statements for the year ended 31st March 2023 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.
2024 Financial
Information
The financial information set out
above does not constitute the Company's statutory accounts for the
year ended 31st March 2024 but is derived from those accounts.
Statutory accounts for the year ended 31st March 2024 will be
delivered to the Registrar of Companies in due course. 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
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.
19th June 2024
For further information:
Priyanka Vijay Anand
JPMorgan Funds
Limited
0800 20 40 20 (or +44 1268 44 44 70)
ENDS
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
The Annual Report will be available
on the Company's website at www.jpmeuropeandiscovery.co.uk.where
up-to-date information on the Company, including daily NAV and
share prices, factsheets and portfolio information can also be
found.
JPMORGAN FUNDS LIMITED