Source - RNS
RNS Number : 5878K
Jupiter UK Growth Inv Trust PLC
22 September 2016
 

Jupiter UK Growth Investment Trust plc (the 'Company')

 

Annual Report & Accounts for the year ended 30 June 2016

 

This announcement contains regulated information

 

Chairman's Statement

It is with pleasure that I present the Annual Report for Jupiter UK Growth Investment Trust PLC for the twelve months to 30 June 2016. This was a year of change for the company, during which the board took the decision to amend the investment strategy and appoint a new portfolio manager, Steve Davies - the head of Jupiter's UK equities team - with the aim of securing the company's future by improving the marketability of the shares, while maintaining our record of distinctive investment performance. These changes took effect in April 2016 after being approved by a clear majority of shareholders.

 

The UK's unexpected decision to vote to leave the European Union, announced just six days before our year end, could not have provided our new portfolio manager, Steve Davies, with a more unfavourable market environment in which to start his tenure. Despite the short term negative impact on performance of the market's initial reaction to the referendum vote, however, we remain optimistic that his high conviction investment approach will help us meet the objectives that we have set for the years ahead.

 

Investment strategy

Following the change in mandate, the company is, as its new name suggests, pursuing a growth strategy in the UK equity market, in contrast to the mixed global/UK and fund of funds/direct equities strategy that we pursued before. The company has moved from the 'Global Growth' to the 'UK All Companies' sector in the AIC's investment trust classifications.

 

Since 18 April the company has been managed by Steve Davies with a bottom-up approach that focuses on two specific types of opportunity. The first of these are 'recovery' stocks, meaning those that have been written off or deemed uninvestible by the market. These should be well-placed to benefit from specific catalysts such as industry restructuring or management change, combined with the expectation of substantial valuation upside given the inherent volatility of such situations. The second kind of opportunities that we are seeking are 'growth' stocks that can generate above average rates of growth over an extended time period. The portfolio manager applies a strict free cash flow screen to such stocks to ensure that they are acquired at what he considers reasonable prices.

 

Index weightings are not a primary consideration for Mr. Davies's portfolio construction. Indeed, he is quite content to hold zero weightings in big index constituents if the relevant company's shares do not meet the criteria of either 'recovery' or 'growth'. He also uses the flexibility available to the company to diversify geographically through holding a small number of overseas stocks, which provide the Company with a means of exposure to investment themes where he deems there to be no suitable UK listed alternatives. This can lead to periods of higher volatility relative to the index and also introduces a limited degree of currency risk. Over time, the expectation is that this higher volatility will be compensated for by higher returns, with the extent of such gains being dependent on the stock selection skills of the portfolio manager.

 

Investment performance

The new strategy began to be implemented immediately following the general meeting of shareholders on 18 April and most of the changes in the company's investment portfolio were accomplished by the beginning of May. The more recent performance of the portfolio needs to be assessed in this context.

 

The net asset value per share reached 297.76p on 18 April, being the last day of Richard Curling's tenure as our former portfolio manager. The net asset value per share (with dividends added back) had fallen by 3.3 per cent. since the beginning of the financial year under review, which compares with a total return of 2.2 per cent. in the Company's then composite benchmark (comprising 75 per cent. FTSE All-Share Index and 25 per cent. FTSE World ex-UK index) over the same period.

 

We believe that this performance should be seen in the context of Richard Curling's longer term track record, insofar as the net asset value per share had returned 93.5 per cent (with dividends reinvested) between Richard's appointment on 30 September 2008 and 18 April 2016, which compares with a total return of 91.2 per cent on the then composite benchmark index over the same period. The board would like to reiterate its thanks to Richard for his contribution to the company during his tenure as our portfolio manager.

 

Over the full twelve months to 30 June 2016 the net asset value per share in your company fell by 13.1 per cent (with dividends reinvested) to 265.40p (reflecting, in part, the immediate sell-off that followed the Brexit referendum vote on 23 June 2016). This compared with a total return on the company's composite benchmark of 5.5 per cent. over the same period. Because of the change in investment strategy part way through the financial year under review any benchmark comparisons can mislead, but there is no disguising that the handover of the portfolio was unfortunate in its timing, given the outcome of the referendum vote. The year's performance therefore can only be described as disappointing, and the observation that the outcome would have been very different had the referendum result gone the other way is scant consolation.

 

In reality, however, we do not know yet what the lasting impact of the Brexit decision will be, and whether the market's initial adverse reaction, which disproportionately marked down some of our current holdings, particularly in banks and retailers, will be sustained into the future. It is encouraging that the company's net asset value rebounded strongly in July, as did both the FTSE 100 and FTSE 250 indices. The board reviewed the portfolio in the detail with the portfolio manager in July and again in September. He remains confident, notwithstanding the Brexit shock, that the stocks he owns are still attractively priced. We believe that it is premature to draw any enduring conclusions on the basis of such a short and exceptionally volatile period.

 

What we can say is that historically our new portfolio manager's style of investing has produced significant outperformance and we are confident that it is more than capable of doing so again. You can read more about the portfolio and the reasoning that lies behind his current positioning in the Investment Adviser's Review overleaf.

 

Since the financial year end the net asset value per share had increased by 11.6 per cent. (with dividends reinvested) up to 31 August 2016, to 296.22p, which compares with a total return of 5.9 per cent. from the company's new benchmark, the FTSE All Share Index, during the same period. The market price of your Company's shares had also increased by 12.4 per cent. to 295.75p as at 31 August 2016.

 

Discount management and growing your company

 

The board implements a discount and premium policy under which it will use share buy backs and new issues of shares with the intention of ensuring that, in normal market conditions, the market price of the company's shares will track their underlying net asset value. The board believes that this commitment to the active removal of discount and premium risk will improve liquidity for both buyers and sellers of the company's shares.

 

Over the 12 months the company has repurchased a total of 2,525,734 shares. As a result the company's shares have continued to trade at close to net asset value on the London Stock Exchange. The company has also issued a total of 327,681 shares from treasury under its block-listing authority since the end of the first quarter at a modest premium to their then net asset value.

 

The board believes that improved investment performance, combined with its dividend and the adoption of this nil discount control policy will enhance the attraction of the company to investors and improve the company's ability to grow over time. Shareholders should note there can be no guarantee that any discount control mechanism implemented by the board will necessarily have its desired effect. The making and timing of share buy backs are subject to a number of legal and regulatory regulations and, subject to these, will always remain at the discretion of the board.

 

A fifth interim dividend for the year ended 30 June 2016 and future dividend policy

 

As was noted in the circular to shareholders, the change in strategy also has implications for the timing and frequency of dividend payments to shareholders. Having reviewed the portfolio and discussed the issue with the portfolio manager, the board has resolved to replace the current regular quarterly dividends with a single annual dividend, payable shortly after the annual general meeting in each year.

 

Due, in part, to a £40,000 rebate of management fees by the manager (given within the context of the change in portfolio manager in April) and, in part, to the reduction in the total cost to the company of dividends paid arising from the repurchase of the company's own shares during the year under review, the board has declared a fifth interim dividend in relation to the year ended 30 June 2016 of 0.60p which will be paid on 20 October 2016. The company is obliged to distribute no less than 85 per cent. of its distributable revenues in any given financial year in order to preserve its favourable tax status as an investment trust under applicable UK legislation.

 

The total of all five interim dividends declared in relation to the year ended 30 June 2016 will therefore have amounted to 7.00p. This amount should not, however, be considered to be indicative of the likely future yield on the company's shares pursuant to the company's new investment strategy.

 

Gearing

 

In September 2015 your company renewed its flexible loan agreement with Scotiabank Europe PLC which was again extended for the current financial year in September 2016 in a maximum drawable amount of £12 million. One of the advantages of investment trusts is that we can take advantage of lower share prices by gearing. As at 30 June 2016 the company's net gearing level (being the amount of drawn down bank debt of £9.5 million less the £12.4 million in cash held on the balance sheet pending investment on that date) was negative.

 

Mr. Davies anticipates that he will tend to increase gearing at times of low valuations while decreasing gearing in strong markets. This approach has added value over the course of your company's history and we continue to consider the use of gearing as a tactical tool to improve returns.

 

 

Annual General Meeting

The company's AGM will be held at 11.30 am on 9 November 2016 at the new offices of Jupiter Asset Management Limited at The Zig Zag Building, 70 Victoria Street, London SW1E 6SQ.

 

In addition to the formal business, our portfolio manager will provide a short presentation to shareholders on the performance of the company over the past year as well as an outlook for the future. The board would welcome your attendance at the AGM as it provides shareholders with an opportunity to ask questions of the board and portfolio manager.

 

Outlook

The outlook for the rest of 2016 and into 2017 is particularly uncertain, given the many questions that still need to be answered about the trade and other arrangements that will follow Brexit, an event which is still more than two years away. The UK has seen a large amount of political upheaval in a short period and how the new Prime Minister and her Cabinet go about their 'Brexit' negotiations - and how the European Union nations and global markets will respond - remains to be determined.

 

The Bank of England has, meanwhile, moved quickly to introduce a range of monetary stimulus measures in response to the referendum vote and the chancellor is expected to announce further fiscal steps to stabilise the economy in his Autumn Statement later this year. For what it is worth, our assessment is that the referendum result creates both opportunities and challenges for UK companies. Some of our holdings are in companies which have significant revenues and earnings overseas, which will benefit from sterling's fall. The company's performance cannot be immune from wider changes in the economy, but its success will turn on how successful the portfolio manager is in identifying correctly those businesses which have the potential to grow their earnings in this more challenging environment. Despite the early setback, we remain optimistic that this remains achievable.

 

Tom H Bartlam

Chairman

22 September 2016

 

Financial Highlights

 

Capital performance

 

30 June

30 June

 

 

2016

2015

% change

 

 

 

 

Total Assets less current liabilities (£'000)

40,052

54,099

-26.0

 

Ordinary share performance

 

30 June

30 June

 

 

2016

2015

% change

 

 

 

 

Net Asset Value per Share (pence)

265.4

312.9

-15.2

 

 

 

 

Net Asset Value per share (with dividends reinvested on payment date)

 

 

-14.7

 

 

 

 

Mid Market price (pence)

263.0

314.1

-16.3

 

 

 

 

Mid Market price (with dividends reinvested on payment date)

 

 

-14.6

 

 

 

 

(Discount)/premium to Net Asset Value (%)

(0.9)

0.4

 

 

 

 

 

FTSE All-Share Index total return (Bloomberg: ASXTR)

5,737.47

5,613.54

+2.2

 

 

 

 

FTSE World ex UK Index total return (Bloomberg: FTRSWXUK)

995.85

862.02

+15.5

 

 

 

 

Composite Benchmark Index*

 

 

+5.5

 

*    The Company's composite Benchmark Index comprised 75 per cent. FTSE All-Share Index (Total Return) and 25 per cent. FTSE World ex UK Index (Total Return). With effect from 1 July 2016 the Company's benchmark was changed to 100 per cent. the FTSE All-Share Index (Total Return).

 

Revenue Performance

 

Year ended

Year ended

 

 

30 June

30 June

 

 

2016

2015

% change

 

 

 

 

Revenue after taxation (£'000)

1,324

+8.8

 

 

 

Revenue earnings per Ordinary share (pence)

8.27

+24.0

 

 

 

Net dividend per Ordinary share (pence)

7.0

-

 

 

 

Net dividend yield per Ordinary share (%)*

2.6

 

 

* As a function of the closing middle market price of an Ordinary share at the relevant financial year end.

 

Dividends declared during the period under review

 

 

Announcement

 

Payment

 

Rate/p net

Date

XD Date

Date

 

 

 

 

 

Interim - for year ended 30 June 2015

1.60

10 August 2015

20 August 2015

11 September 2015

 

 

 

 

 

Interim

1.60

10 November 2015

19 November 2015

10 December 2015

 

 

 

 

 

Interim

1.60

9 February 2016

25 February 2016

17 March 2016

 

 

 

 

 

Interim

1.60

11 May 2016

26 May 2016

16 June 2016

 

 

 

 

 

Interim

1.60

15 July 2016

25 August 2016

15 September 2016

 

 

 

 

 

Interim

0.60

20 September 2016

29 September 2016

20 October 2016

 

Ten Year History to 30 June 2016

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

return

 

 

 

 

 

 

 

(net asset

 

 

 

 

 

 

Net**

value with

 

 

Total

 

 

 

Asset

dividends

Total

 

assets

 

 

Dividend

Value

reinvested)

return on

 

less

 

 

per

per

per

composite

 

current

Gross

Net

Ordinary

Ordinary

Ordinary

benchmark

Year ended

liabilities

revenue

revenue

Share

Share

Share

Index*

30 June

£'000

£'000

£'000

p

p

%

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

55,985

1,825

1,211

3.60

241.06

+36.6

+17.7

 

 

 

 

 

 

 

 

2008

49,415

2,072

1,521

4.10

221.27

-6.6

-11.8

 

 

 

 

 

 

 

 

2009

37,868

2,127

1,706

5.50

173.51

-19.3

-18.6

 

 

 

 

 

 

 

 

2010

43,187

1,968

1,505

7.75

203.40

+21.0

+21.7

 

 

 

 

 

 

 

 

2011

50,552

2,801

2,165

8.35

250.60

+27.5

+24.8

 

 

 

 

 

 

 

 

2012

46,032

1,289

877

8.35

227.80

-5.8

-3.2

 

 

 

 

 

 

 

 

2013 (restated)*

54,683

2,081

1,650

8.35

274.30

+24.0

+19.1

 

 

 

 

 

 

 

 

2014

56,603

1,725

1,190

4.80

297.10

+9.7

+12.3

 

 

 

 

 

 

 

 

2015

54,099

1,812

1,217

6.40

312.90

+9.1

+4.6

 

2016

40,052

1,757

1,324

7.00

265.35

-13.1

+5.5

 

*     Previously consolidated, restated to Company figures to reflect the impact of the liquidation of Pitchwell Ltd in 2013 comparative figures.

**   Adjusted for five for one stock split in 2013.

 

 

Investment Adviser's Review

 

Market Background

The first half of the Company's financial year (from 30 June to 31 December 2015) proved to be a volatile period for global equity markets, as fears over China's slowing economy, the continued slump in commodities prices and their combined effects on global growth dampened investor sentiment. As a result, in local currency terms, most major equity indices ended the period lower.

 

In the UK, the domestic economy continued on its improving trend, with encouraging levels of employment and wage growth. However, hopes of an interest rate hike proved unfounded as the gloomy global outlook led the Bank of England to keep rates on hold during the year, emphasising instead the risks presented by the global economy. The pound weakened against the dollar and the euro over the period. The impact of China on UK equities could be gauged in terms of relative sector performance. Global and cyclical sectors such as household and personal care, mining and oil and gas performed poorly, while domestic plays such as real estate, construction and consumer goods were more resilient.

 

The UK economy continued to perform well during the second half of the Company's financial year (1 January to 30 June 2016). GDP grew in the first three months of 2016, but at a slower rate of 0.4 per cent.; unemployment has fallen to its lowest level since 2005 (5 per cent.); real wages continued to rise, which was reflected in consumer spending as retail sales surpassed expectations in May; and the UK service sector, the economy's primary driver of growth, expanded. That said, economic growth may slow from here due to the uncertainty posed by Brexit, while the significant drop in sterling could result in inflationary pressures from overseas (as the UK is a net importer). However it should also have the positive effects of bolstering exports and inbound tourism.

 

UK equity markets rose slightly in the second quarter of 2016, however this masked some large swings in June following the UK's decision to leave the EU. The news caused a sharp fall in global equities and a substantial drop in the value of sterling. Markets have since rebounded for the time being, helped by the belief that central banks will have to loosen monetary policy further, and indeed the Bank of England decided to cut base rates and extend its QE programme in early August.

 

Performance Review

Over the year to 30 June 2016 the Company's share price returned -14.6 per cent. with dividends reinvested, compared to a rise of 5.5 per cent. for the Company's Composite Benchmark Index. In NAV terms the Company's portfolio saw a fall of 14.7 per cent. over the year with dividends reinvested. Over three years the Company's share price is up 12.9 per cent. versus 18.6 per cent. for the Index, while over 5 years it is up 33.2 per cent. versus 35.5 per cent. for the Index.

 

The Company's return up until April 2016 - during which period it was managed as a mixed investment portfolio of UK stocks and global funds - was impacted by uncertainty over the health of the global economy, a factor which weighed on asset prices across the world. In particular, the sluggish performance of the UK equity market was a significant headwind to the Company's performance. Despite this, the portfolio benefited during this early period from the performance of Dixons Carphone, Direct Line Insurance and DFS, companies which were able to take advantage of the improved UK consumer outlook.

 

The Company's overseas exposure during this period of the financial year contributed positively to performance. The Jupiter European Opportunities Trust was once again the top performer as the company's concentrated portfolio of growth-oriented companies added significant value in a challenging environment. Meanwhile, the Findlay Park American Fund also contributed positively to performance, as did the M&G North American Value Fund. Both were aided by the robust performance of the US economy and the appreciation of the dollar against the pound.

 

In April 2016 there was a change in the Company's investment strategy and Investment Adviser. Following a proposal from the board, the company transitioned from a mixed investment portfolio of UK stocks and global funds to a new, more focused UK growth strategy which substantially mirrors that of the Jupiter UK Growth Fund, but in a geared, closed-ended format.

 

The period following this change until the end of the Company's financial year was an especially challenging time in UK equities, following the surprise result in the EU referendum and the strong negative reaction by the market towards domestic UK stocks. The Company had a disappointing period as a result and underperformed the FTSE All-Share by a substantial amount - with the bulk of this underperformance coming in the few days between 24 and 30 June 2016. This was largely because of the sharp and often indiscriminate moves in the market, which had an especially big impact on the Company's positions in general retailers (eg Dixons Carphone), travel companies (IAG and Thomas Cook) and financials, particularly UK banks (Lloyds, Barclays and RBS). Although it falls outside the review period, it is worth noting that many of these stocks continued to rebound during July from their post referendum lows.

 

 

Following the sharp market correction after the vote, I increased exposure to a mixture of UK names like ITV, Legal & General, IAG, Taylor Wimpey, Sky, Hays, Countrywide and Howden (many of which could become M&A targets if their share prices stay low for long enough) and global growth stocks such as Merlin, Carnival and Inchcape which should be beneficiaries of the fall in sterling.

 

Strategy

My stockpicking approach focuses on two specific types of opportunity. Firstly 'recovery' stocks, meaning those that have been written off or deemed uninvestible by the market. These should be well-placed to benefit from specific catalysts such as industry restructuring or management change, combined with the expectation of substantial valuation upside given the inherent volatility of such situations. Secondly, 'growth' stocks that can generate above-average rates of growth over an extended time period. I apply a strict free cash-flow screen to such stocks to ensure that they are acquired at what I consider reasonable prices.

 

Initial position sizes are determined by a mixture of conviction, upside to target price and liquidity, generally aiming for a starting position size of 2-3 per cent. This is based on the view that all positions should meaningfully contribute to the performance of the Company while still allowing for a sensible level of diversification.

 

Index weightings are not a primary consideration during portfolio construction. Indeed, I am quite happy to hold zero weightings in big index constituents if the stock does not meet the criteria of either 'recovery' or 'growth'. This also uses the flexibility available to diversify geographically through holding a small number of overseas stocks, which provide the Company with a means of exposure to investment themes where I deem there to be no suitable UK-listed alternatives. This can lead to periods of higher volatility relative to the index and also introduces an element of currency risk.

 

I am aware of the general tendency for investors to 'fall in love' with a stock and keep holding it past the point that it fulfilled its potential. I therefore take each stock's 2 year price target seriously. When a stock reaches its price target the original investment case will be reappraised. If the story has materially changed for the better then the price target could be revised upwards. If not, the position will be sold and reinvested in a fresh idea.

 

Outlook

I used to manage a portfolio called Jupiter Undervalued Assets and that is certainly how I feel about the Company's portfolio at the moment. My investment process and analytical approach is exactly the same one that worked very well from 2009 to 2015, and was particularly helpful in spotting the market bottoms in March 2009 and at the end of 2011. The current turmoil should eventually present a similar opportunity: I have taken the knife to my profit forecasts on the basis that UK GDP growth grinds to a halt from here, but many UK domestic names now look extremely cheap even after these downgrades with potential upsides of 50 per cent. or more in many cases on my usual two-year time horizon. These should provide some exciting recovery opportunities to sit alongside the Company's structural growth themes of digital winners such as Zoopla and Inmarsat, as well as global brands and leisure leaders like Adidas and Merlin Entertainments.

 

Steve Davies

Jupiter Asset Management Limited

Investment Adviser

22 September 2016

 

Investment Portfolio as at 30 June 2016

 

 

30 June 2016

 

30 June 2015

 

Value

Percentage

Value

Percentage

Company

£'000

of investments

£'000

of investments

 

 

 

 

 

Lloyds Banking Group

2,587

6.7

1,619

2.5

Legal & General Group

2,065

5.3

1,493

2.3

Dixons Carphone

2,009

5.2

1,054

1.6

Barclays

1,956

5.1

1,091

1.7

Talk Talk Telecom Group

1,715

4.4

956

1.5

Experian

1,490

3.9

-

-

WH Smith

1,442

3.7

-

-

Merlin Entertainments

1,340

3.5

-

-

ITV

1,332

3.4

-

-

Apple

1,330

3.4

-

-

Inmarsat

1,282

3.3

-

-

Zoopla Property Group

1,143

3.0

-

-

International Consolidated Airlines Group

1,106

2.9

-

-

Pitchwell *

1,077

2.8

1,077

1.7

Thomas Cook Group

1,050

2.7

890

1.4

Booker Group

1,040

2.7

1,262

2.0

Royal Bank of Scotland Group

1,024

2.6

562

0.9

Sky

1,001

2.6

-

-

Inchcape

980

2.5

-

-

Bayerische Motoren Werke

964

2.5

-

-

Manchester United

913

2.4

-

-

adidas

890

2.3

-

-

Taylor Wimpey

869

2.2

-

-

Sirius Minerals

844

2.2

-

-

Carnival

800

2.1

-

-

Howden Joinery Group

721

1.9

-

-

Arrow Global Group

669

1.7

-

-

Impellam Group

620

1.6

715

1.1

Countrywide

617

1.6

-

-

DFS Furniture

608

1.6

522

0.8

Hays

587

1.4

                -

-

Gloo Networks

496

1.3

-

-

PureTech Health

472

1.2

-

-

CityFibre Infrastructure

462

1.2

-

-

AO World

377

1.0

-

-

Consort Medical

246

0.6

-

-

Ludgate 181 (Jersey)

235

0.6

246

0.4

Tissue Regenix Group

143

0.4

-

-

Angle

122

0.3

-

-

Virgin Money

77

0.2

-

-

Total investments

38,701

100.0

 

 

 

* This is the fair value of the Company's investment in Pitchwell Ltd as at 30 June 2016 based on the net assets of Pitchwell Ltd at 30 June 2016, less any liquidation costs. At the general meeting of the shareholders of Pitchwell Limited held on 30 August 2016, shareholders approved the proposal that the company be dissolved.

† Unquoted.

 

The changes in the portfolio are the result of the transition from a mixed investment portfolio of UK stocks and global funds to a new, more focused UK growth strategy.

 

 

Cross holdings in other Investment Companies

As at 30 June 2016, none of the Company's total assets were invested in other listed closed-ended investment funds. It is the Company's stated policy that no more than 10 per cent., in aggregate, of the Company's total assets may be invested in the securities of other listed closed-ended investment funds (including listed investment trusts) other than those which themselves have stated investment policies to invest no more than 15 per cent. of their total assets in other listed closed-ended investment funds. The Company does not anticipate that the Investment Adviser will make any new investments in other collective investment schemes, investment companies or investment trusts.

Classification of Investments as at 30 June 2016

 

 

 

2016

 

 

 

 

 

 

 

 

FTSE

 

 

 

 

Other

North &

 

 

All-

 

 

 

 

Asia

Latin

2015

2016

Share

Equities

UK

Europe

Japan

Pacific

America

%

%

 

 

%

%

%

%

%

 

 

 

 

 

 

 

 

 

6.8

-

12.37

Oil & Gas

 

 

 

 

 

6.3

-

12.00

Oil & Gas Producers

-

-

-

-

-

0.5

-

0.37

Oil Equipment, Services & Distribution

-

-

-

-

-

 

 

 

 

 

 

 

 

 

2.8

2.2

5.44

Basic Materials

 

 

 

 

 

-

-

0.61

Chemicals

-

-

-

-

-

-

-

0.25

Forestry & Paper

-

-

-

-

-

-

-

0.03

Industrial Metals & Mining

-

-

-

-

-

2.8

2.2

4.55

Mining

2.18

-

-

-

-

 

 

 

 

 

 

 

 

 

12.4

8.8

10.32

Industrials

 

 

 

 

 

-

-

1.16

Construction & Materials

-

-

-

-

-

2.4

-

1.84

Aerospace & Defence

-

-

-

-

-

1.8

-

0.74

General Industrials

-

-

-

-

-

0.8

-

0.44

Electronics & Electrical Equipment

-

-

-

-

-

1.8

-

0.65

Industrial Engineering

-

-

-

-

-

-

-

0.42

Industrial Transportation

-

-

-

-

-

5.6

8.8

5.07

Support Services

8.83

-

-

-

-

 

 

 

 

 

 

 

 

 

5.1

7.0

17.84

Consumer Goods

 

 

 

 

 

-

2.5

0.22

Automobile & Parts

-

2.49

-

-

-

0.5

-

4.78

Beverages

-

-

-

-

-

-

-

0.79

Food Producers

-

-

-

-

-

2.2

2.2

3.38

Household Goods & Home Construction

2.25

-

-

-

-

-

-

0.01

Leisure Goods

-

-

-

-

-

-

2.3

2.44

Personal Goods

-

2.30

-

-

-

2.4

-

6.22

Tobacco

-

-

-

-

-

 

 

 

 

 

 

 

 

 

3.8

1.3

9.90

Health Care

 

 

 

 

 

-

0.6

0.94

Health Care Equipment & Services

       0.64

-

-

-

-

3.8

0.7

8.96

Pharmaceuticals & Biotechnology

0.68

-

-

-

-

 

 

 

 

 

 

 

 

 

11.6

42.1

11.25

Consumer Services

 

 

 

 

 

2.0

2.7

1.27

Food & Drug Retailers

2.69

-

-

-

-

6.4

16.8

2.13

General Retailers

16.78

-

-

-

-

1.8

9.0

3.74

Media

8.98

-

-

-

-

1.4

13.6

4.11

Travel & Leisure

11.10

-

-

-

2.36

 

 

 

 

 

 

 

 

 

1.5

8.9

4.84

Telecommunications

 

 

 

 

 

1.5

5.6

1.76

Fixed Line Telecommunications

5.63

-

-

-

-

-

3.3

3.08

Mobile Telecommunications

3.30

-

-

-

-

 

 

 

 

 

 

 

 

 

1.1

-

4.19

Utilities

 

 

 

 

 

-

-

0.81

Electricity

-

-

-

-

-

1.1

-

3.38

Gas, Water & Multiutilities

-

-

-

-

-

 

 

 

 

 

 

 

 

 

3.6

3.4

1.60

Information Technology

 

 

 

 

 

3.6

-

0.73

Software & Computer Services

-

-

-

-

-

-

3.4

0.87

Technology Hardware & Equipment

-

-

-

-

3.44

 

 

 

 

 

 

 

 

 

48.7

73.7

77.75

Total Non-Financials

63.06

4.79

-

-

5.80

 

 

 

 

 

 

 

 

 

51.3

26.3

22.25

Financials

 

 

 

 

 

8.2

14.6

8.47

Banks

14.58

-

-

-

-

0.8

-

1.08

Non-life Insurance

-

-

-

-

-

2.3

5.3

3.94

Life Insurance

5.34

-

-

-

-

2.7

1.6

0.52

Real Estate Investment & Services

1.59

-

-

-

-

-

-

2.01

Real Estate Investment Trusts

-

-

-

-

-

8.1

3.5

2.41

Financial Services

3.56

-

-

-

-

18.3

-

3.82

Equity Investment Instruments

-

-

-

-

-

10.9

1.3

-

Non-equity Investment Instruments

1.28

-

-

-

-

 

 

 

 

 

 

 

 

 

 

100.0

22.25

2016 Totals

89.41

4.79

-

-

5.80

 

 

 

 

 

 

 

 

 

100.0

 

100.0

2015 Totals

66.40

8.30

5.40

5.70

14.20

 

 

Strategic Report

 

The Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.

 

The Strategic Report seeks to provide shareholders with the relevant information to enable them to assess the performance of the Directors of the Company during the period under review.

 

Business and Status

During the year the Company carried on business as an investment trust with its principal activity being portfolio investment. The Company has been approved by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the eligibility conditions of sections 1158 and 1159 of the Corporation Taxes Act 2010 and the ongoing requirements for approved companies as detailed in Chapter 3 of Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011. In the opinion of the Directors, the Company has conducted its affairs in the appropriate manner to retain its status as an investment trust.

 

The Company is an investment company within the meaning of section 833 of the Companies Act 2006.

 

The Company is not a close company within the meaning of the provisions of the Corporation Tax Act 2010 and has no employees.

 

The Company was incorporated in England & Wales and launched on 1 January 1972.

 

Reviews of the Company's activities are included in the Chairman's Statement and Investment Adviser's Review.

 

Investment Objective and Benchmark

The Company's investment objective is to concentrate on capital appreciation from holding predominantly listed investments.

 

Performance during the year under review was measured against a composite benchmark comprising 75 per cent. FTSE All-Share Index Total Return and 25 per cent. FTSE World ex UK Index Total Return.

 

Strategy

The Board has not set an objective of a specific portfolio yield for the Investment Adviser as the level of such yield is expected to vary with the sectors and geographical regions to which the Company's portfolio is exposed at any given time. However, substantially all distributable revenues that are generated from the Company's investment portfolio will be paid out in the form of interim dividends.

 

Investment Policy

The Directors have instructed the Investment Adviser to invest the Company's assets in accordance with the Investment Policy.

 

It is the Company's policy to invest no more than 10 per cent., in aggregate, of the total assets in the securities of other listed closed-ended investment funds (including listed investment trusts) other than those which themselves have stated investment policies to invest no more than 15 per cent. of their total assets in other listed closed-ended

investment funds. At the year end, none of the Company's assets were invested in the securities of other UK Listed investment companies.

 

Dividend Policy

Interim dividends were paid in December 2015, March, June and September and a further one which will be paid in October 2016 in relation to the financial year ended 30 June 2016. In future years the board anticipates that it will make a single annual dividend payment following the AGM of the Company.

 

Gearing

Gearing is defined as the ratio of a company's long term debt less cash held compared to its equity capital, expressed as a percentage. The effect of gearing is that, in rising markets, the Company tends to benefit from any outperformance of the Company's investment portfolio above the cost of payment of the prior ranking entitlements of any lenders and other creditors. Conversely, in falling markets the Company suffers more if the Company's investment portfolio underperforms the cost of those prior entitlements.

 

In order to improve the potential for capital returns to shareholders the Company has access to a flexible loan facility with Scotiabank Europe PLC for amounts up to £12 million.

 

The Directors consider it a priority that the Company's level of gearing should be maintained at appropriate levels with sufficient flexibility to enable the Company to adapt at short notice to changes in market conditions.

 

The Board has not set any limits or restrictions on the Company's loan facility other than the limit of the Company's current loan facility with Scotiabank Europe PLC. The Board regularly reviews the Company's level of gearing which is currently set at a maximum level of 20 per cent. of the Company's total assets.

 

Derivative transactions

The Company may take short positions (using contracts for difference) in respect of a small number of larger capital securities. The Directors have set limits to the overall exposures and performance is monitored on a regular basis.

 

Key Performance Indicators

At their quarterly Board meetings the Directors consider a number of performance indicators to help assess the Company's success in achieving its objectives. The key performance indicators used to measure the performance of the Company over time are as follows:

 

·        Net Asset Value changes over time;

 

·        Share price movement;

 

·        A comparison of the Ordinary share price and NAV to the composite Benchmark;

 

·        Discount over varying periods;

 

·        Peer Group comparative performance;

 

·        Yield - changes over time and when compared to the Company's peers; and

 

·        Fund in/outflows of the retail investment wrapper products managed by the Investment Adviser.*

 

*The Jupiter ISA/Savings Scheme closed on 30 November 2015.

 

A history of the NAV, Ordinary share price, dividend and benchmark are shown on the monthly factsheets which can be viewed on the Company's page of the Investment Adviser's website www.jupiteram.com/JUKG and which are available on request from the Company Secretary.

 

Discount to Net Asset Value

The Directors review the level of the discount between the middle market price of the Company's Ordinary shares and their NAV on a regular basis.

 

The Directors have powers granted to them at the last AGM to purchase Ordinary shares and either cancel or hold them in treasury as a method of influencing the discount to NAV and enhancing shareholder value.

 

The Board is proposing that its authority to repurchase up to approximately 14.99 per cent. of its issued share capital should be renewed at the AGM. Unless renewed earlier, the new authority to repurchase will last until the conclusion of the AGM of the Company in 2017. For the avoidance of doubt, repurchases will always be at the absolute discretion of the Board in light of prevailing market conditions and within guidelines set from time to time by the Board, the Companies Act and the Listing Rules. Any purchases will be made only through the market at prices below the prevailing estimated NAV per Ordinary share and where the Directors believe such purchases will enhance shareholder value and assist in narrowing any discount to NAV at which the Ordinary shares may trade.

 

In February 2014 the Board decided to implement a new discount policy under which it would use share buy backs and new issues of shares with the intention of ensuring that, in normal market conditions, the market price of the Company's shares would track their underlying net asset value.

 

The Board considered that this commitment to the active removal of discount risk would in due course provide materially improved liquidity for both buyers and sellers of the Company's shares, although there could be no guarantee that any discount control mechanism implemented by the Board would have its desired effect.

 

During the year, 2,525,734 Ordinary shares representing 16.7 per cent. of the total Ordinary shares in issue at 30 June 2016, were bought back.

 

Treasury Shares

In accordance with the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (the 'Regulations') which came into force on 1 December 2003 any Ordinary shares bought back pursuant to the above authority may be held in Treasury. These Ordinary shares may be subsequently cancelled or sold for cash. This gives the Company the ability to reissue shares quickly and cost effectively and provides the Company with additional flexibility in the management of its capital. The Company may hold in Treasury any of its Ordinary shares that it purchases pursuant to the share buy back authority granted by shareholders.

 

On 22 June 2016, the Company issued 327,681 Ordinary shares from Treasury at 290.27p per share.

 

As at 30 June 2016 there were 6,805,873 Ordinary shares held in Treasury.

 

Risks and Uncertainties

The principal risk factors that may affect the Company and its business can be divided into the following areas:

 

Investment policy and process - inappropriate investment policies and processes may result in under performance against the prescribed Benchmark Index and the company's peer group.

 

The Board manages these risks by ensuring a diversification of investments and regularly reviewing the portfolio asset allocation and investment process.  In addition, certain investment restrictions have been set and these are monitored as appropriate.

 

Investment Strategy and Share Price Movement

The Company is exposed to the effect of variations in the price of its investments. A fall in the value of its portfolio will have an adverse effect on shareholders' funds. It is not the aim of the Board to eliminate entirely the risk of capital loss, rather it is its aim to seek capital growth. The Board reviews the Company's investment strategy and the risk of adverse share price movements at its quarterly board meetings taking into account the economic climate, market conditions and other factors that may have an effect on the sectors in which the Company invests.

 

Interest rates - The Company has exposure to cash which generates interest through interest bearing accounts. The Board is mindful of interest rates when reviewing the Company's exposure to cash.

 

The interest rate on the loan facility is reviewed at regular intervals.

 

Liquidity Risk -This risk can be viewed as the liquidity of the securities in which the Company invests and the liquidity of the Company's shares. The Company may invest in securities that have a very limited market which will affect the ability of the Company's Investment Adviser to dispose of securities when he no longer feels they offer the potential for future returns. Likewise the Company's shares may experience liquidity problems when shareholders are unable to realise their investment in the Company because there is a lack of demand for the Company's shares. At its quarterly meetings the Board considers the current liquidity in the Company's investments when setting restrictions on the Company's exposure. The Board also reviews, on a quarterly basis, the Company's buy back programme and in doing so is mindful of the liquidity in the Company's shares.

 

Gearing Risk - The Company's gearing can impact the Company's performance by accelerating the decline in value of the Company's Total Assets at a time when the Company's portfolio is declining. Conversely gearing can have the effect of accelerating the increase in the value of the Company's Total Assets at a time when the Company's portfolio is rising. At its quarterly meetings the Board is mindful of the outlook for equity markets when reviewing the Company's gearing.

 

Discount to Net Asset Value - discount in the price at which the Company's shares trade to Net Asset Value would mean that shareholders would be unable to realise the true underlying value of their investment. The Directors have powers granted to them at the last. Annual General Meeting to purchase Ordinary shares as a method of controlling the discount to Net Asset Value and enhancing shareholder value.

 

Regulatory Risk - The Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of section 1158 of the CTA 2010 could result in the Company being subject to capital gains tax on portfolio movements. Breaches of other regulations such as the UKLA Listing rules, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers such as the Investment Adviser could also lead to reputational damage or loss. The Board monitors regulatory risks at its quarterly board meetings and relies on the services of its Company Secretary, Jupiter Asset Management Limited, and its professional advisers to ensure compliance with, amongst other regulations, the Companies Act 2006, the UKLA Listing Rules and the Alternative Investment Fund Managers Directive.

 

Credit and Counterparty Risk - The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

 

Loss of Key Personnel - The day to day management of the Company has been delegated to the Investment Adviser. Loss of the Investment Adviser's key staff members could affect investment return. The Board is aware that Jupiter Asset Management Limited recognises the importance of its employees to the success of its business. Its remuneration policy is designed to be market competitive in order to motivate and retain staff and succession planning is regularly reviewed. The Board also believes that suitable alternative experienced personnel could be employed to manage the Company's portfolio in the event of an emergency.

 

Operational Risk - failure of the outsourced administrator's core accounting systems, or a disastrous disruption to its business, could lead to an inability to provide accurate reporting and monitoring. The Investment Adviser is contractually obliged to ensure that its conduct of business conforms to applicable laws and regulations.

 

Financial - inadequate financial controls could result in misappropriation of assets, loss of income and debtor receipts and inaccurate reporting of Net Asset Value per share. The Board annually reviews the Investment Adviser's and the Administrator's statements on its internal controls and procedures.

 

Employees, Environmental, Social and Human Rights issues

The Company has no employees as the Board has delegated the day to day management and administration functions to Jupiter Unit Trust Managers Limited, Jupiter Asset Management Limited and other third parties. There are therefore no disclosures to be made in respect of employees.

 

The Board has noted the Investment Adviser's policy on Environmental, Social and Human Rights issues as detailed below:

 

The Investment Adviser considers various factors when evaluating potential investments. While an investee company's policy towards the environmental and social responsibility, including with regard to human

rights, is considered as part of the overall assessment of risk and suitability for the portfolio, the Investment Adviser does not necessarily decide to, or not to, make an investment on environmental and social grounds alone.

 

All of the Company's activities are outsourced to third parties.

 

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from its operations as its day-to-day management and administration functions have been outsourced to third parties and it neither owns physical assets, property nor has employees of its own. It therefore does not have responsibility for any other emissions producing sources under

the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

 

Approved and authorised by the Board and signed on its behalf by:

 

Tom H Bartlam

Chairman

22 September 2016

 

Statement of Directors' Responsibilities in Relation to the Financial Statements

 

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards ('IFRS') as adopted by the European Union.

 

Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the return or loss of the Company for that period. In preparing the financial statements, the Directors are required to:

 

(a)        select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

 

(b)        present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

 

(c)        provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance;

 

(d)        state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and

 

(e)        make judgements and estimates that are reasonable and prudent.

 

The Directors are responsible for keeping adequate 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 enable them to ensure that the Company 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.

 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. The work carried out by the Auditor does not include consideration of the maintenance and integrity of the website and accordingly the Auditor accepts no responsibility for any changes that have occurred to the financial statements when they are presented on the website.

 

The financial statements are published on www.jupiteram.com/JUKG which is a website maintained by Jupiter Asset Management Limited.

 

Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Each of the Directors, confirms to the best of their knowledge that:

 

(a)        the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

 

(b)        the report includes a fair view 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 the Company faces; and

 

(c)        that in the opinion of the Board, the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the company's performance, business model and strategy

 

So far as each of the Directors is aware at the time the report is approved:

 

(a)        there is no relevant audit information of which the Company's auditors are not aware; and

 

(b)        the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

 

 

 

 

By Order of the Board

Tom H Bartlam

Chairman

 

22 September 2016

 

 

Statement of Comprehensive Income for the year ended 30 June 2016

 

 

Year ended 30 June 2016

Year ended 30 June 2015

 

Revenue

Capital

Total

Revenue

Capital

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

(Loss)/gain on investments at fair value

-

(8,482)

(8,482)

-

3,484

3,484

 

 

 

 

 

 

 

Income

1,717

-

1,717

1,799

-

1,799

 

Other Income

40

-

40

13

-

13

 

 

 

 

 

 

 

Foreign exchange gain

-

1,007

1,007

-

30

30

 

 

 

 

 

 

 

Gross return

1,757

(7,475)

(5,718)

1,812

3,514

5,326

 

 

 

 

 

 

 

Investment management fee

(45)

(192)

(237)

(158)

(198)

(356)

 

 

 

 

 

 

 

Performance fee

-

-

-

-

         (285)

(285)

 

 

 

 

 

 

 

Other administrative expenses

(338)

(111)

(449)

(368)

(127)

(495)

 

 

 

 

 

 

 

Total expenses

(383)

(303)

(686)

(526)

(610)

(1,136)

 

 

 

 

 

 

 

Net return/(loss) before finance costs and taxation

1,374

(7,778)

(6,404)

1,286

2,904

4,190

 

 

 

 

 

 

 

Finance costs

(34)

(91)

(125)

(64)

(64)

(128)

 

 

 

 

 

 

 

Return/(loss) on ordinary activities

 

 

 

 

 

 

before taxation

1,340

(7,869)

(6,529)

1,222

2,840

4,062

 

 

 

 

 

 

 

Taxation

(16)

-

(16)

(5)

-

(5)

 

 

 

 

 

 

 

Net return/(loss) after taxation

1,324

(7,869)

(6,545)

1,217

2,840

4,057

 

 

 

 

 

 

 

Return/(loss) per Ordinary share

8.27p

(49.16)p

(40.89)p

6.67p

15.56p

22.23p

 

The total column of this statement is the income statement of the Company, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance produced by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations.

 

No operations were acquired or discontinued during the year.

 

All net income is attributable to the equity holders of Jupiter UK Growth Investment Trust PLC. There are no minority interests.

 

Statement of Financial Position as at 30 June 2016

 

 

2016

2015

 

£'000

£'000

Net Current Assets

 

 

 

 

 

Investments held at fair value through profit or loss

38,701

64,350

 

 

 

Current assets

 

 

 

 

 

Other receivables

163

833

 

 

 

Cash and cash equivalents

12,376

765

 

 

 

 

12,539

1,598

 

 

 

Total assets

51,240

65,948

 

 

 

Current liabilities

 

 

 

 

 

Other payables

(11,188)

(11,849)

 

 

 

Total assets less current liabilities

40,052

54,099

 

 

 

Capital and reserves

 

 

 

 

 

Called up share capital

1,095

1,095

 

 

 

Share premium

26,136

26,136

 

 

 

Capital redemption reserve

683

683

 

 

 

Retained earnings

12,138

26,185

 

 

 

Total equity shareholders' funds

40,052

54,099

 

 

 

Net Asset Value per Ordinary share

265.4p

312.9p

 

Statement of Changes in Net Equity for the year ended 30 June 2016

 

 

 

 

Capital

 

 

 

Share

Share

Redemption

Retained

 

 

Capital

Premium

Reserve

Earnings

Total

For the year ended 30 June 2016

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

30 June 2015

1,095

26,136

683

26,185

54,099

 

 

 

 

 

 

Ordinary shares reissued from Treasury

-

-

-

956

956

 

 

 

 

 

 

Ordinary shares repurchased

-

-

-

(7,435)

(7,435)

 

 

 

 

 

 

Net loss for the year

-

-

-

(6,545)

(6,545)

 

Equity dividends paid and declared

-

-

-

(1,023)

(1,023)

 

 

 

 

 

 

Balance at 30 June 2016

1,095

26,136

683

12,138

40,052

 

Dividends paid during the period were paid out of revenue reserves.

 

 

 

 

Capital

 

 

 

Share

Share

Redemption

Retained

 

 

Capital

Premium

Reserve

Earnings

Total

For the year ended 30 June 2015

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

30 June 2014

1,095

26,136

683

28,689

56,603

 

 

 

 

 

 

Net return for the year

-

-

-

4,057

4,057

 

 

 

 

 

 

Equity dividends paid and declared

-

-

-

(1,166)

(1,166)

 

 

 

 

 

 

Ordinary shares repurchased

-

-

-

(5,395)

(5,395)

 

 

 

 

 

 

Balance at 30 June 2015

1,095

26,136

683

26,185

54,099

 

Dividends paid during the period were paid out of revenue reserves.

 

Cash Flow Statement for the year ended 30 June 2016

 

 

Year ended

Year ended

 

30 June

30 June

 

2016

2015

 

£'000

£'000

Cash flows from operating activities

 

 

 

 

 

Investment income received

1,696

1,780

 

 

 

Investment management fee paid

(338)

(344)

 

 

 

Performance fee paid

(285)

-

 

 

 

Other cash receipts

43

13

 

 

 

Other cash expenses

(502)

(501)

 

 

 

Payments from/(to) Contracts for Difference (CFD) counterparty

-

(151)

 

 

 

Net cash inflow from operating activities before taxation

614

797

 

 

 

Interest paid

(125)

(124)

 

 

 

Taxation

(22)

(5)

 

 

 

Net cash inflow from operating activities

467

668

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of investments

(38,967)

(12,342)

 

 

 

Sales of investments

56,606

18,612

 

 

 

Net cash inflow from investing activities

17,639

6,270

 

 

 

Cash flows from financing activities

 

 

 

 

 

Shares reissued

956

-

 

 

 

Shares repurchased 

(7,435)

(5,395)

 

 

 

Equity dividends paid

(1,023)

(1,166)

 

 

 

Cash paid* to subsidiaries

-

(19)

 

 

 

Net cash outflow from financing activities

(7,502)

(6,580)

 

 

 

Increase in cash

10,604

358

 

 

 

Change in cash and cash equivalents

 

 

 

 

 

Cash and cash equivalents at start of year

765

377

 

 

 

Realised gain on foreign currency

1,007

30

 

 

 

Cash and cash equivalents at end of year

12,376

765

 

*Post-liquidation expenses paid on behalf of Pitchwell Ltd (In Members' voluntary liquidation).

 

Notes to the Accounts for the year ended 30 June 2016

 

1.   Accounting policies

The Accounts comprise the financial results of the Company for the year to 30 June 2016. The Accounts are presented in pounds sterling, as this is the functional currency of the Company.

 

The Accounts were authorised for issue in accordance with a resolution of the Directors of the Directors on 22 September 2016. All values are rounded to the nearest thousand pounds (£'000) except where indicated. The Accounts have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union (EU).

 

Where presentational guidance set out in the Statement of Recommended Practice (SORP) for Investment Trusts issued by the Association of Investment Companies (AIC) is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations

of the SORP.

 

The Company continues to adopt the going concern basis in the preparation of the financial statements.

 

(a)  Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business.

 

Revenue includes dividends from investments quoted ex-dividend on or before the date of the Statement of Financial Position.

 

Dividends receivable from equity shares are taken to the revenue return column of the Statement of Comprehensive Income.

 

Deposit and other interest receivable, expenses and interest payable are accounted for on an accruals basis. These are classified within operating activities in the cash flow statement.

 

Underwriting commission is taken to income and recognised when the issue takes place, except where the Company is required to take up all or some of the shares underwritten, in which case an appropriate proportion of the commission received is deducted from the cost of those shares.

 

(b)  Presentation of Statement of Comprehensive Income

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the Association of Investment Companies (AIC), supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the statement. In accordance with the Company's Articles of Association, net capital returns may not be distributed by way of dividend.

 

An analysis of retained earnings broken down into revenue (distributable) items and capital (non-distributable) items is given in the Annual Financial Report. Investment Management fees and finance costs are charged 75 per cent. (2015: 50 per cent.) to capital and 25 per cent. (2015: 50 per cent.) to revenue. The annual management fee reduction, in place until 18 April 2016, was credited 100 per cent. to revenue. The April 2016 reconstruction reduction to the management fee was credited 100 per cent. to capital. Saving scheme administration and transaction handling charges are charged to capital. All other operational costs including administration expenses (but with the exception of any investment performance fees which are charged to capital) are charged to revenue.

 

(c)  Basis of valuation of investments

Investments are recognised and derecognised on a trade date where a purchase and sale of an investment is under contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, being the consideration given.

 

All investments are classified as held at fair value through profit or loss. All investments are measured at fair value with changes in their fair value recognised in the Statement of Comprehensive Income in the period in which they arise. The fair value of listed investments is based on their quoted bid price at the reporting date without any deduction for estimated future selling costs.

 

Foreign exchange gains and losses on fair value through profit and loss investments are included within the changes in the fair value of the investments.

 

For investments that are not actively traded and/or where active stock exchange quoted bid prices are not available, fair value is determined by reference to a variety of valuation techniques. These techniques may draw, without limitation, on one or more of: the latest arm's length traded prices for the instrument concerned; financial modelling based on other observable market data; independent broker research; or the published accounts relating to the issuer of the investment concerned.

 

Fair Value of Pitchwell Ltd

Following its liquidation, Pitchwell Ltd is valued at fair value based on its net assets as at 30 June 2016, less any liquidation costs.

 

(d) Finance costs

Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the Statement of Comprehensive Income using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

 

(e) Cash and cash equivalents

Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risks of changes in value. 

 

(f)  Bank Interest

Bank interest is recognised in the Statement of Comprehensive Income in the period in which they are incurred. Bank interest is directly charged 25 per cent (2015: 50 per cent.) to revenue and 75 per cent. (2015: 50 per cent.) to capital.

 

(g) Foreign Currencies

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At the date of each Statement of Financial Position, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on that date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in net profit or loss for the year, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly in equity.

 

(h) Treasury Shares

In accordance with the relevant provisions of the Companies Act 2006 any Ordinary shares repurchased, pursuant to the above authority, may be held in treasury. These Ordinary shares may subsequently be cancelled or sold for cash. This would give the Company the ability to reissue shares quickly and cost effectively and provide the Company with additional flexibility in the management of its capital. The Company may hold in treasury any of its Ordinary shares that it purchases pursuant to the share buy-back authority granted by shareholders.

 

(i)   Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

 

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the date of the Statement of Financial Position.

 

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised. Investment trusts which have approval under Section 1158 of the Income and Corporation Taxes Act 2010 ('ICTA') are not liable for taxation of capital gains.

 

(j)   Accounting developments

The following standards, amendments and interpretations have been published by IASB but are not yet effective for year ended 30 June 2016:

 

International Accounting Standards (IAS/IFRS's)

IFRS 9 Financial Investments Classification and Measurement

 

2.   Significant accounting judgements, estimates and assumptions

The preparation of the Company's Financial Statements on occasion requires management to make judgements, estimates and assumptions that affect the reported amounts in the primary financial statements and the accompanying disclosures. These assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in the current and future periods, depending on circumstance. Management do not believe that any significant accounting judgements have been applied to this set of Financial Statements other than the allocations between capital and revenue.

 

3.   Income

 

 

2016

2015

 

£'000

£'000

Income from fixed asset investments:

 

 

 

 

 

Dividends from UK companies

1,363

1,325

 

 

 

Property income distribution from UK REITS

39

16

 

 

 

Dividends from overseas companies

315

458

 

 

 

 

1,717

1,799

 

 

 

Other income:

 

 

 

 

 

Fee rebate

29

-

 

 

 

Options

-

3

 

 

 

Underwriting Commission

11

10

 

 

 

 

1,757

1,812

 

 

 

Income from fixed asset investments is derived:

 

 

 

 

 

Listed on the UK Stock Exchange

1,402

1,341

Listed on overseas Stock Exchange

315

458

 

1,717

1,799

 

 

4.   Investment management and performance fees

 

 

 

 

2016

 

 

2015

 

Revenue

Capital

Total

Revenue

Capital

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Investment management fee*

45

192

237

158

198

356

 

 

 

 

 

 

 

Investment performance fee

-

-

-

-

285

285

 

 

 

 

 

 

 

 

45

192

237

158

483

641

 

*During the year, an amount of £32,000 (pro-rated to 17 April 2016) (2015: £40,000) was waived by the Investment Adviser from the total management fee payable and as directed by the Board, this was wholly applied to Revenue. An additional amount of £40,000 was waived from the management fee payable being a contribution to the costs of the April 2016 reconstruction of the Company. This was allocated wholly to capital.

 

5.   Other administrative expenses

 

2016

2015

 

£'000

£'000

 

 

 

Directors' remuneration

88

96

 

 

 

Auditors' remuneration - audit

28

32

 

 

 

Auditors' remuneration - other services

1

1

 

 

 

Savings scheme administration (charged to capital)*

54

132

 

 

 

Transaction handling charges (charged to capital)

2

(5)

 

 

 

Reconstruction legal fees (charged to capital)

55

-

 

 

 

Other

221

239

 

 

 

 

449

495

 

 

 

 

* The Jupiter ISA/Savings Scheme closed on 30 November 2015.

 

 

6.   Dividends

 

 

2016

2015

Amounts recognised as distributions to equity holders in the period:

£'000

£'000

 

 

 

2015 Fourth interim of 1.6p per Ordinary share (2015: 1.6p)

273

303

 

 

 

First Interim of 1.6p per Ordinary share (2015: 1.6p)

258

296

 

 

 

Second Interim of 1.6p per Ordinary share (2015: 1.6p)

253

289

 

 

 

Third Interim of 1.6p per Ordinary share (2015: 1.6p)

239

278

 

 

 

 

1,023

1,166

 

Set out below is the total dividend payable in respect of the financial year under review, which is the basis on which the requirements of Section 1158 of the Corporation Tax Act 2010 are considered:

 

 

2016

2015

Dividends on equity shares:

£'000

£'000

 

 

 

First Interim of 1.6p per Ordinary share (2015: 1.6p)

258

296

 

 

 

Second Interim of 1.6p per Ordinary share (2015: 1.6p)

253

289

 

 

 

Third Interim of 1.6p per Ordinary share (2015: 1.6p)

239

278

 

 

 

Fourth interim of 1.6p per Ordinary share (2015: 1.6p)

241

277

 

 

 

Fifth interim of 0.6p per Ordinary share (2015:- n/a)

88

-

 

 

 

 

1,079

1,140

 

 

7.   Earnings per Ordinary share

 

The earnings per Ordinary share figure is based on the net loss for the year of £6,545,000 (2015: gain of £4,057,000) and on 16,008,175 (2015: 18,249,164) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year excluding shares held in Treasury.

 

The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below.

 

 

Year ended

Year ended

 

30 June

30 June

 

2016

2015

 

£'000

£'000

 

 

 

Net revenue return

1,324

1,217

 

 

 

Net capital (loss)/return

(7,869)

2,840

 

 

 

Net total (loss)/return

(6,545)

4,057

 

 

 

Weighted average number of Ordinary shares in issue during the year

16,008,175

18,249,164

 

 

 

Revenue earnings per Ordinary share

8.27p

6.67p

 

 

 

Capital (losses)/earnings per Ordinary share

(49.16)p

15.56p

 

 

 

Total (losses)/earnings per Ordinary share

(40.89)p

22.23p

 

8.   Net Asset Value per Ordinary share

The Net Asset Value per Ordinary share is based on the net assets attributable to the equity shareholders of £40,052,000 (2015: £54,099,000) and on 15,094,092 (2015: 17,292,145) Ordinary shares, being the number of Ordinary shares in issue at the year end, (excluding Ordinary shares held in Treasury).

 

9.   Transactions with the Manager

 

Jupiter Unit Trust Managers Limited ('JUTM'), the Alternative Investment Fund Manager, is a company within the same group as Jupiter Asset Management Limited, the Investment Adviser. JUTM receives an investment management fee as set out below.

 

JUTM is contracted to provide investment management services to the Company, subject to termination by not less than twelve months' notice by either party. Up to 17 April 2016 the base management fee charged to the Company was 0.80 per cent. of net assets per annum less a waiver of £40,000 per annum. With effect from 18 April 2016 the base management fee was reduced to 0.50 per cent.of Adjusted Net Assets (net assets before deducting or making provision for any Performance Fee which may be due and after deduction of the value of any Jupiter Managed Investments). This fee reduces to 0.45 per cent. for Adjusted Net Assets over £150 million and up to £250 million, and reducing further to 0.40 per cent. for Adjusted Net Assets over £250 million).

 

The management fee payable to JUTM for the period 1 July 2015 to 30 June 2016 was £309,000 less the annual deduction of £40,000 pro-rated at £32,000 to 17 April 2016 and less an additional reduction of £40,000 being a contribution to the costs of the Proposals for the Company as approved at the general meeting of the shareholders held on 18 April 2016. (2015: £396,000 less £40,000) with £95,000 (2015: £196,000) outstanding at year end.

 

JUTM in the year was also entitled to an investment performance fee which is based on the outperformance of the Net Asset Value per Ordinary share over the total return on the Benchmark Index, 75 per cent. FTSE All-Share Index Total Return and 25 per cent. FTSE World ex UK Index Total Return) in an accounting period. Any performance fee payable will equal the time weighted average number of Ordinary shares in issue during the period multiplied by 15 per cent. of the amount by which the increase in the Net Asset Value per Ordinary share (plus any dividends per Ordinary share paid or payable and any accrual for unpaid performance fees for the period) exceeds the total return on the Benchmark Index. The performance fee will only be payable if the Net Asset Value per Ordinary Share (adjusted as described above) exceeds the highest of (i) the Net Asset Value per Ordinary Share on the last business day of the previous performance period; (ii) the Net Asset Value per Ordinary share on the last day of a performance period in respect of which a performance fee was last paid: and (iii) 100p. The total amount of management fees and any performance fee payable in respect of one accounting period is limited to 5 per cent. of the Net Assets of the Company on the last business day of the relevant performance period. There was no performance fee payable for the year ended 30 June 2016 (2015: £285,000).

 

With effect from 1 July 2016, the total return on the FTSE All-Share Index will be adopted as the new benchmark for measuring the Company's performance for the purpose of setting a hurdle above which the Manager may be entitled to a performance fee.

 

In addition, a new hurdle will be introduced so that a performance fee will only be payable to the extent that performance exceeds the total return on the benchmark index plus 2 per cent. in any measurement period.

 

Given the change in investment strategy, as detailed in the Chairman's statement, the Board has agreed that the high watermark used to calculate any performance fee should be reset in order to fairly incentivise the Manager. The current high watermark is 312.85p per Share. This will be reset to the NAV per Share as at 30 June 2016. Notwithstanding the reset, in order to earn a performance fee the Manager will need to achieve performance above the benchmark and hurdle described above. Although the amended Investment Management Agreement provides for the high watermark to be adjusted each year to reflect the performance of the benchmark plus the 2 per cent. hurdle, it also establishes the NAV per Share as at 30 June 2016 as an absolute floor below which no performance fee may be earned.

 

The existing cap on the total amount of fees payable to the Manager under the Management Agreement in any financial year of the Company shall be reduced from 4.99 per cent. of the net assets of the Company to 2 per cent. of Adjusted Net Assets as at the relevant year end.

 

The Company had invested from time to time in funds managed by Jupiter Investment Management Group Limited or its subsidiaries. At 30 June 2016 there were no such investments (2015: Two investments with aggregate value of £5,271,000).

 

No investment management fee is payable by the Company to Jupiter Asset Management Limited in respect of the Company's holdings in investment trusts, open-ended funds and investment companies in respect of which Jupiter Investment Management Group Limited, or any subsidiary undertaking of Jupiter Investment Management Group Limited, receives fees as investment manager or investment adviser.

 

10.  Contingent liabilities

As at 30 June 2016 and 30 June 2015 there were no potential contingent liabilities.

 

11.  Post balance sheet event

 

Since the year end an additional 393,050 Ordinary shares were repurchased to be held in treasury for prices between 258.71p and 302.68p per share.

 

At the general meeting of the shareholders of the Company held on 18 April 2016, shareholders approved the proposal to amend, with effect from 1 July 2016, the benchmark index, the performance fee calculation and the cap on total fees paid to the Manager were changed.

 

At the same meeting the proposal was approved that the current quarterly dividend policy will be changed to pay a single annual dividend in respect of the new financial year beginning 1 July 2016.

 

On 1 September 2016, the formal liquidation of Pitchwell Ltd was completed by the appointed liquidator, EY.

 

Availability of Annual Report

A copy of the Annual Report & Accounts will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM.

 

The Annual Report & Accounts will also be available for download from the Company's section of Jupiter Asset Management's website www.jupiteronline.com/JUKG.

 

Hard copies of the Annual Report & Accounts will also be available upon request from the registered office of the Company at The Zig Zag Building, 70 Victoria Street, London SW1E 6SQ.

 

 

 

For further information, please contact:

 

Richard Pavry

Head of Investment Trusts

Jupiter Asset Management Limited, Company Secretary

[email protected]

020 3817 1496

 

22 September 2016

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR SEDFEEFMSESU

Related Charts

Jupiter Uk Growth Investment Trust (JUKG)

-1.00p (-0.35%)
delayed 18:15PM