Source - RNS
RNS Number : 7007K
Jupiter US Smaller Companies PLC
23 September 2016
 

Jupiter US Smaller Companies plc (the 'Company')

 

Annual Financial Report for the year ended 30 June 2016

 

This announcement contains regulated information

 

Chairman's Statement

 

Dear fellow shareholders

Over the last year to 30 June 2016, the US smaller company market fell sharply, although it recovered somewhat towards the end of the period. Net Asset Value ('NAV') per share rose helped by a strong US dollar. The Company actively repurchased its own shares during the year in line with the Board's policy of limiting any discount over the longer term to around 10%. This policy will continue.

Performance

I am pleased to report that the NAV per share increased by 8.7% to 787.3p in the twelve months to 30 June 2016. This compared to a gain of 8.1% in our benchmark, the sterling adjusted Russell 2000 Index. Since the Company's formation in March 1993, the NAV per share has risen 716.0%, compared with a gain of 437.3% for the sterling adjusted Russell 2000 Index. 

Market review

During the year under review, in dollar terms, the Russell 2000 Index of smaller companies lost 8.1% and the Standard & Poor's 500 Index gained 1.7%. The more technology oriented NASDAQ Composite Index declined by 2.9%.

Sterling investors received a boost from the strength of the US dollar, which gained 17.7% in the year. The Company's investments are denominated in dollars but are valued in the portfolio in sterling. The majority of this gain followed the UK's Brexit vote.

In the twelve month period equities suffered a series of setbacks, culminating in a sharp fall in January, before partially recovering. Several developments undermined investor confidence: further weakness in oil prices; a widening of corporate bond spreads (i.e. the difference between the yield on corporate bonds and that on US Treasury bonds: a widening usually indicates that investors think corporate profits will decline); a slowdown in US manufacturing; and an increase in interest rates by the Federal Reserve ('Fed'). In addition there were concerns about slowing Chinese growth and the impact a strong dollar might have on emerging economies that had borrowed heavily in the currency.

Market nerves were settled when the Fed delayed further interest rate rises, causing the dollar to fall against a range of currencies.

The slowdown in manufacturing activity during the year lasted longer than many expected. It seems that the collapse in the energy sector had a larger impact than was initially thought. As a result of this, growth in corporate profits slowed during the period and in the first quarter of 2016 profits declined.

Discount to Net Asset Value

The price of the shares rose by 5.4% to 698p over the year. The discount to NAV per share was 11.3% at the end of the period compared to 8.6% on 30 June 2015. The average during the year was 12.1% and over the last three years 9.6%. At 19 September 2016 the price stood at a discount of 7.5%.

Corporate Governance

Four of your directors (myself, Norman Bachop, Peter Barton and Clive Parritt) have now served on your Board for more than nine years. We believe, as does the Association of Investment Companies ('AIC'), that length of service, of itself, has no bearing on our independence or ability to fulfil our fiduciary duties towards our fellow shareholders.

Evidence of the Board's independence is illustrated by its replacement of the management company in 2013 which had been in place since the incorporation of the company in 1993.

Your Board consists of two investment professionals, two corporate lawyers (one of whom also has many years of investment banking and banking experience) and a chartered accountant, which we believe represents a good balance of expertise to hold the manager to account.

The Board's policy on refreshment is to add directors, with similar expertise, in anticipation of retirements. We believe however, that five directors is adequate for the size of our company.

Recognising the need to refresh the Board, Lisa Booth was appointed as a new director in the last year. She is an experienced corporate lawyer whose past experience includes a specialist practice focusing on private equity and investment fund transactions.

 As in previous years, all our directors are putting themselves forward for re-election at the Annual General Meeting and we would welcome your support for the resolutions.

Annual General Meeting

The Annual General Meeting will be held at 11.30am on Tuesday 15 November 2016 and I hope that you will attend. The meeting will be held in the offices of Jupiter Asset Management Limited at The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ. In addition to the formal business, the Investment Adviser will provide a short presentation to shareholders.

Outlook

Uncertainties remain about international economies. However the US economy has proved to be quite resilient. Developments on the political front are usually of less relevance to the US stock market but this year's Presidential election raises uncertainties. In general the outlook for the US is significantly better than for many other economies.

The US smaller company sector is an attractive and interesting one for long term investors. It is generally under-researched and offers areas of undiscovered value. Shareholders should benefit from the Company's conservative investment approach that focuses on buying good companies when their shares are out of favour.

 

Gordon Grender

Chairman

23 September 2016

 

Financial Highlights

 

Performance

 

 

 

30 June

30 June

 

 

 

2016

2015

% change

 

 

 

 

 

Net Assets (£'000)

 

174,163

174,033

+0.1

 

 

 

 

 

Ordinary Share Performance

 

 

 

 

 

 

 

 

 

 

 

30 June

30 June

 

 

 

2016

2015

% change

 

 

 

 

 

Net Asset Value (pence)

 

787.33

724.11

+8.7

 

 

 

 

 

Middle Market Price (pence)

 

698.00

662.00

+5.4

 

 

 

 

 

Russell 2000 Index (sterling adjusted)

 

861.70

797.32

+8.1

 

 

 

 

 

Discount to Net Asset Value (%)

 

(11.3)

(8.6)

-

 

 

 

 

 

Ten year record

 

 

 

 

 

 

 

 

 

 

 

 

Year-

 

 

 

Net

on-year

 

 

 

Asset

change in

Year-

 

 

Value

Net Asset

on-year

 

 

per

Value per

change in

 

Net

Ordinary

Ordinary

Benchmark

 

Assets

Share

Share

Index

Year ended 30 June

£'000

p

%

%

 

 

 

 

 

2006

75,464

318.5

-

-

 

 

 

 

 

2007

73,177

336.1

+5.5

+6.1

 

 

 

 

 

2008

55,982

269.3

-19.9

-16.6

 

 

 

 

 

2009

60,607

292.7

+8.7

-10.9

 

 

 

 

 

2010

77,298

373.3

+27.5

+32.0

 

 

 

 

 

2011

96,201

464.6

+24.5

+26.5

 

 

 

 

 

2012

99,248

468.3

+0.8

-1.2

 

 

 

 

 

2013

147,688

618.4

+32.1

+26.6

 

 

 

 

 

2014

164,957

686.3

+11.0

+8.3

 

 

 

 

 

2015

174,033

724.1

+5.5

+14.3

 

 

 

 

 

2016

174,163

787.3

+8.7

+8.1

 

Investment Adviser's Review

 

Net Asset Value ('NAV') per share rose in the year and performance was modestly better than the benchmark. Two takeovers of portfolio companies contributed strongly, whereas most of the poorer contributors were turnaround stocks. New investments were made mainly in agriculture and manufacturing stocks that offered recovery potential, as well as in compounders (see below) in consumer, health and transport sectors.

 

Investment approach

 

The Company takes a conservative investment approach that aims to preserve capital rather than to chase growth aggressively. The approach is not particularly fashionable and does not necessarily produce good results every year but over time it should lead to superior long term returns. This approach emphasises taking a long term view of company business prospects and buying shares when they are cheap and have substantial appreciation potential. As a result, the portfolio tends to emphasise areas of the market that are out of favour or where companies have lower risk businesses. Conversely, popular market sectors tend to be shunned and stocks that can offer steady, if unspectacular, returns are preferred. An example of this is companies that can compound growth in book value per share, such as disciplined insurance underwriters.

 

Performance

 

NAV per share rose and modestly beat the benchmark. The two best contributions to performance came from takeovers: IPC Healthcare accepted a bid from Team Health, a health care services outsourcing company; and Monarch Financial agreed to a takeover by its larger neighbour, Towne Bank, making the combined entity the largest bank in the Hampton Roads area of Virginia. Other strong contributions came from the following: Sanderson Farms (a chicken producer) in which shares recovered strongly after purchase this year as margins began to recover; Acxiom (consumer database marketing) which saw a return to growth in its legacy off-line data business; finally HMS Holdings (health care audit and cost analytics), which fought off new competition in its Medicaid business and experienced good growth in its developing commercial operations.

 

Poor contributions came mainly from turnarounds that struggled in the face of headwinds. Pernix Therapeutics (an acquirer and marketer of niche branded drugs), one of those turnarounds, saw disappointing results from the relaunch of a migraine drug and was sold. CAI International (a lessor of shipping containers), bought as a recovery stock, was hit by a "perfect storm": falling steel prices, which drive the marginal price of containers and lease rates, led to pressure on prices just as weakening international trade hurt container utilisation and the market worried about stocks with higher financial leverage. It was sold on a bounce. Sotheby's, another turnaround, was hit by declining art sales and was sold: the manager takes the view that turnarounds require a following wind to be successful. Kindred Care (a provider of a full range of health care services), a turnaround, faced cuts in hospital reimbursement. As the shares are quite inexpensive and home care is enjoying good growth, it was retained. DeVry Education (post-secondary education) was another turnaround where management were trying to diversify away from the highly competitive university business in the face of declining student numbers. Last year it faced two blows: a lawsuit from the Federal Trade Commission and rule changes by the Department of Education that together have the potential to bankrupt it, and it was sold.

 

There were four bids this year: in addition to the two mentioned above, C1 Financial agreed to a bid from Bank of the Ozarks. The Andersons (diversified agri-business) received an unsolicited bid from a Special Purpose Acquisition Company.

 

Portfolio

 

Over the last year buying activity was concentrated in recovery stocks in the first half, to take advantage of weakness in the shares of agriculture and manufacturing shares. In the second half, however, buying was mainly of compounders in consumer, health and transport.

 

The Company's conservative investment approach tends to lead the portfolio to own broadly four kinds of stocks. These are a) "compounders", that is, companies capable of delivering reliable growth over a long period, where the stock price, at purchase, is very cheap compared to the underlying business value; b) "valuable assets", where the company owns an asset that can be exploited to increase overall share value; c) recovery stocks, where the shares are deeply depressed and very cheap in absolute terms; and d) turnarounds, in other words, troubled companies that require new management to set them back on the right track.

 

In agriculture, shares were depressed by falling farm incomes caused by weak crop prices. As these conditions are normally self-correcting, new investments were made including an old favourite, The Andersons, whose share price was trading cheaply compared to its book value per share.

 

Manufacturing activity in the US was depressed by the severe contraction in the energy sector and made worse by Chinese dumping of steel. Several new purchases were made that have recovery potential, including Graham, a manufacturer of vacuum and heat transfer equipment, which has a strong balance sheet.

 

Notwithstanding recent improvements in wages, the average American family faces a squeeze on its disposable income from rising rents and health care costs. The focus of the portfolio was on companies that offer consumers good value. An example was Ollie's Bargain Outlet Holdings, a retail chain that offers end of line branded merchandise at up to 70% off their normal retail prices - branded companies prefer not to offer close-outs online - and is enjoying good growth as larger competitors retreat from the sector.

 

In transport, another sector hit by the slowdown in US manufacturing, the portfolio was able to pick up compounders at bargain prices. One was Old Dominion Freight Line, a leading regional carrier; as a result of its low costs and industry leading service it is growing by market share gains.

 

The prior year's investments in healthcare companies that save the system money continued this year. These included Addus Homecare, a provider of personal care at home. Helping the elderly and infirm stay at home is far cheaper than hospital or nursing home care, as well as improving quality of life.

 

The complete sale of a holding normally results from one of four circumstances: a) confidence is lost in management or the company's franchise; b) the price objective is met and future prospects are uncertain; c) the investment thesis no longer applies; or d) the stock is bid for. This year disposals were mainly in the first three categories. Examples of the first were the recovery stock Alere (diagnostics company), which had already performed well, and turnaround Pernix Therapeutics, which had not. Stocks that were considered to be fully valued included Installed Building Products and Penn National Gaming. Stocks where the thesis no longer applied included turnaround Sotheby's, as well as old favourite Roper Technologies. The latter had been in the portfolio for 15 years: the company is driven by acquisitions, however, growth seems to be slowing at recently acquired health care software businesses. A sale resulted in the case of the bid for IPC Healthcare. However in the case of the other two agreed bids, the positions were retained to exchange for the acquirer's shares.

 

Outlook

 

The stock market rally that began earlier in the year continued after the period end. The S&P500 Index achieved new all-time highs, although small caps are leading the rally as they have since January. Concerns about Brexit seem to have been shaken off: US exports to the UK make up a tiny part of the total. Brexit has even less direct economic relevance for the more domestically-focused small companies. Brexit may have more significance for the US political scene given that the kind of social divisions that the vote highlighted in the UK also exist in the US, (elites vs the left behind, urban vs non-urban).

 

Although there were signs of improvement in the economy over summer, these seemed to fade later.

 

This year the White House race has more significance for the wider US economy than usual, potentially meaning either more regulation if Clinton wins or an aggressive "America first" approach if Trump is victorious. The outcome is unclear as "shy Trump supporters" may be distorting the polls. Whoever wins, the new President may be keen to get a recession out of the way sooner rather than later, in order to improve chances of re-election but presenting hidden risks for the market.

 

Robert Siddles

Fund Manager

Jupiter Asset Management Limited

Investment Adviser

 

23 September 2016

  

Strategic Review

 

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 Tax Act 2010 ('CTA 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 CTA 2010 and has no employees.

 

The Company was incorporated in England & Wales on 15 January 1993.

 

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

 

There has been no significant change in the activities of the Company during the year to 30 June 2016 and the Directors anticipate that the Company will continue to operate in the same manner during the current financial year.

 

Investment Objective

 

The Company's investment objective is to achieve long-term capital growth by investing in a diversified portfolio of quoted US smaller and medium-sized companies.

 

Strategy

 

The Board recognises that by its nature the US smaller companies sector can be a risky asset class in which to invest. The sector is highly diversified with a great many companies from which to choose. Many companies are relatively immature, whether financially or operationally or in terms of management or market position. They tend to be highly geared to growth and are particularly vulnerable to market and other changes. Against this background, the Company has adopted a disciplined and relatively conservative investment style that focuses on companies with a strong franchise, free cash flow, insider ownership by management and whose shares are considered by the Investment Adviser to be cheap at the time of investment. Whilst shares in these companies will not always be the best performing, the Directors believe that this is an excellent approach to long-term investment in this sector.

 

Investment Policy

 

The investment policy of the Company is to invest in quoted US smaller and medium-sized companies and its objective is achieved through diversification of holdings across a variety of economic/industrial sectors.

 

No more than 10% of the total assets of the Company may be invested in other listed investment companies (including investment trusts) except in such other listed investment companies which themselves have stated that they will invest no more than 15% of their total assets in other listed investment companies, as defined in section 15.6.8 of the Listing Rules, in which case the limit is 15%.

 

Benchmark Index

 

The Company's benchmark index is the sterling adjusted Russell 2000 Index.

 

Gearing

 

The Company is currently not geared.

 

Gearing is defined as the ratio of a company's total loan liability expressed as a percentage of net assets less cash held. The effect of gearing is that in rising markets a geared share class tends to benefit from any out performance of the relevant 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 value of the geared shares class suffers more if the Company's investment portfolio under-performs the cost of those prior entitlements.

 

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;
 

·      The premium or discount of share price to Net Asset Value over time;
 

·      A comparison of the absolute and relative performance of the Ordinary share price and the Net Asset Value per share relative to the return on the Company's Benchmark Index; and
 

·      Ordinary share price movement.

 

Information on these Key Performance Indicators and how the Company has performed against them can be found within the Chairman's Statement above.

 

In addition, a history of the Net Asset Value, Ordinary share price and Benchmark Index are shown on the monthly factsheets which can be viewed on the Investment Adviser's website www.jupiteram.com/JUS and which are available on request from the Company Secretary.

 

Discount to Net Asset Value

 

The Directors review the level of the discount or premium between the middle market price of the Company's Ordinary shares and their Net Asset Value on a regular basis. The Directors have taken the opportunity to issue shares when there is sufficient demand.

 

Such issues are always at a price which is in excess of the NAV. No shares were issued during the year under review.

 

The Board will continue to apply its policy of buying back shares at appropriate times with a view to limiting any discount in the longer term to around 10%. The Directors had powers granted to them at the last Annual General Meeting ('AGM') to purchase Ordinary shares and either cancel or hold them in treasury as a method of controlling the discount to Net Asset Value and enhancing shareholder value.

 

The Company has repurchased 1,913,323 Ordinary shares for cancellation during the year under review at an average discount of 12.57%.

 

Under the Listing Rules, the maximum price that may currently be paid by the Company on the repurchase of any Ordinary shares is 105% of the average of the middle market quotations for the Ordinary shares for the five business days immediately preceding the date of repurchase. The minimum price will be the nominal value of the Ordinary shares. The Board is proposing that its authority to repurchase up to approximately 14.99% of its issued share capital should be renewed at the AGM. The new authority to repurchase will last until the conclusion of the AGM of the Company in 2017 (unless renewed earlier). Any repurchase made will be at the discretion of the Board in light of prevailing market conditions and within guidelines set from time to time by the Board, the Companies Act, the Listing Rules and Model Code.

 

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 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.

 

As at 19 September 2016 there were no shares held in treasury.

 

Management

 

The Company has no employees and most of its day to day responsibilities are delegated to Jupiter Asset Management Limited ('JAM'), which acts as the Company's Investment Adviser and Company Secretary. Further details of the Company's arrangement with JAM and the Alternative Investment Fund Manager ('AIFM'), Jupiter Unit Trust Managers Limited ('JUTM') can be found in Note 5 to the Accounts below.

 

J.P. Morgan Europe Limited acts as the Company's Depositary and the Company has entered into an outsourcing arrangement with J.P. Morgan Chase Bank N.A. for the provision of accounting and administrative services.

 

Although JAM is named as the Company Secretary, JPMorgan Europe Limited provides administrative support to the Company Secretary as part of its formal mandate to provide broader Fund Administration services to the Company.

 

Viability Statement

 

In accordance with provision C.2.2 of the UK Corporate Governance Code as issued by the Financial Reporting Council in September 2014, the Board has assessed the viability of the Company over the next three years. The Company's investment objective is to achieve long-term capital growth and the Board regards the Company as a long-term investment. As part of its assessment, the Board has noted that shareholders will be required to vote on the continuation of the Company at the 2017 AGM. Three years is also considered a reasonable period for investment in equities and is appropriate for the composition of the Company's portfolio. The Board has selected that period under review on the assumption that a vote on the continuation of the Company at the 2017 AGM put to shareholders will be passed. The Board is of the opinion that this is an appropriate timeframe as it will provide shareholders with assurances on the viability of the Company post the date of the continuation vote.

 

In carrying out its assessment, the Board has also considered the Company's business model including its investment objective and investment policy as well as the principal risks and uncertainties that may affect the Company as detailed below.

 

The Board has noted that:

·      The Company holds a liquid portfolio invested predominantly in US listed equities; and
 

·      No significant increase to ongoing charges or operational expenses is anticipated.

The Board has therefore concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years.

 

Principal Risks and Uncertainties

 

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

 

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.

 

Liquidity Risk - The Company may invest in securities that have a very limited market which will affect the ability of the Investment Adviser to dispose of securities when it is no longer felt that 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.

 

Discount to Net Asset Value - A 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 had 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.

 

Further details of the buy back programme can be found in the Chairman's Statement and under 'Discount to Net Asset Value' above.

 

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 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, the FCA's Disclosure and Transparency 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 Investment Adviser develops its recruitment and remuneration packages in order to retain key staff, has training and development programmes in place and undertakes succession planning.

 

Operational - Failure of the core accounting systems, or a disastrous disruption to the Investment Adviser's 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. Details of how the Board monitors the services provided by Jupiter Asset Management Limited and its associates are included within the Internal Control section of the Report of the Directors in the Annual Financial Report.

 

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 report on its internal controls and procedures.

 

Directors

 

Details of the Directors of the Company and their biographies are set out in the Annual Financial Report.

 

The Company's policy on Board diversity is included in the Corporate Governance section of the Annual Financial Report.

 

As at 30 June 2016, the Board comprises one female and four male directors.

 

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 JUTM, JAM and other third parties. There are therefore no disclosures to be made in respect of employees.

 

The Board has noted its 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 its 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 or 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 on Directors' Reports) Regulations 2013.

 

 

For and on behalf of the Board

Gordon Grender

Chairman

23 September 2016

  

Statement of Directors Responsibilities

 

The Directors are responsible for preparing the Annual Report & Accounts in accordance with applicable law and regulation.

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws) including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and the Republic of Ireland.

 

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

(a)  select suitable accounting policies and then apply them consistently;
 

(b)  make judgments and accounting estimates that are reasonable and prudent;

 

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

(d)  prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

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 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.

 

Under applicable law and regulations, the Directors are also responsible for preparing a Report of the Directors, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.

 

The financial statements are published on www.jupiteram.com/JUS which is a website maintained by the Investment Adviser.

 

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 Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Investment Adviser's website. Legislation in the UK 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 Strategic Report and Report of the Directors include a fair review of the development and performance of the Company, together with a description of the principal risks and uncertainties that the Company faces; and

 

(c)  in their opinion the Annual Report & Accounts, taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy.

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

(a)  There is no relevant audit information of which the Company's auditor is unaware; and
 

(b)  The Directors have taken all steps required of a company director to make themselves aware of any relevant audit information and to establish that the Company's auditor has been made aware of that information.

 

 

For and on behalf of the Board

Gordon Grender

Chairman

23 September 2016

  

Income Statement for the year ended 30 June 2016

 

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

Revenue

Capital

 

Revenue

Capital

 

 

 

Return

Return

Total

Return

Return

Total

 

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

Gain on investments at fair value

 

 

 

 

 

 

 

through profit or loss

-

12,118

12,118

-

9,355

9,355

 

 

 

 

 

 

 

 

 

Foreign exchange gain

-

851

851

-

312

312

 

 

 

 

 

 

 

 

 

Investment income

1,332

-

1,332

1,508

-

1,508

 

 

 

 

 

 

 

 

 

Total income

1,332

12,969

14,301

1,508

9,667

11,175

 

 

 

 

 

 

 

 

 

Investment management fee

(1,334)

-

(1,334)

(1,378)

-

(1,378)

 

 

 

 

 

 

 

 

 

Other expenses

(353)

(2)

(355)

(343)

(3)

(346)

 

 

 

 

 

 

 

 

 

Total expenses

(1,687)

(2)

(1,689)

(1,721)

(3)

(1,724)

 

 

 

 

 

 

 

 

 

(Loss)/return before finance costs

 

 

 

 

 

 

 

and taxation

(355)

12,967

12,612

(213)

9,664

9,451

 

 

 

 

 

 

 

 

 

(Loss)/return before taxation

(355)

12,967

12,612

(213)

9,664

9,451

 

 

 

 

 

 

 

 

 

Taxation

(200)

-

(200)

(375)

-

(375)

 

 

 

 

 

 

 

 

 

Net (loss)/return after taxation

(555)

12,967

12,412

(588)

9,664

9,076

 

 

 

 

 

 

 

 

 

Net (loss)/return per Ordinary Share

(2.34p)

54.68p

52.34p

(2.45p)

40.21p

37.76p

 

 

 

 

 

 

 

 

 

 

The total column of this statement is the profit and loss account of the Company.

 

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

 

Statement of Financial Position as at 30 June 2016

 

 

 

2016

2015

 

£'000

£'000

 

 

 

Fixed assets

 

 

 

 

 

Investments held at fair value through profit or loss

169,432

169,890

 

 

 

Current assets

 

 

 

 

 

Debtors

117

536

 

 

 

Cash at bank

5,821

4,264

 

 

 

 

5,938

4,800

 

 

 

Creditors: amounts falling due within one year

(1,207)

(657)

 

 

 

Net current assets

4,731

4,143

 

 

 

Net assets

174,163

174,033

 

 

 

Capital and reserves

 

 

 

 

 

Called up share capital

5,530

6,008

 

 

 

Share premium

19,550

19,550

 

 

 

Non-distributable reserve

841

841

 

 

 

Capital redemption reserve

8,653

8,175

 

 

 

Retained earnings

139,589

139,459

 

 

 

Total shareholders' funds

174,163

174,033

 

 

 

Net Asset Value per Ordinary Share

787.33p

724.11p

 

 

 

 

 

Approved by the Board of Directors and authorised for issue on 23 September 2016.

 

Company Registration Number 02781968

 

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

 

 

 

Called up Share Capital

Share Premium

Non- distributable Reserve

Capital Redemption Reserve

Retained Earnings

Total

 

 

 

 

 

For the year ended

£'000

£'000

£'000

£'000

£'000

£'000

30 June 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

1 July 2015

6,008

19,550

841

8,175

139,459

174,033

 

 

 

 

 

 

 

Repurchase of Ordinary shares for cancellation

(478)

-

-

478

(12,282)

(12,282)

 

 

 

 

 

 

 

Net return for the year

-

-

-

-

12,412

12,412

 

 

 

 

 

 

 

Balance at 30 June 2016

5,530

19,550

841

8,653

139,589

174,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Called up Share Capital

Share Premium

Non-distributable Reserve

Capital Redemption Reserve

Retained Earnings

Total

 

 

 

 

 

For the year ended

£'000

£'000

£'000

£'000

£'000

£'000

30 June 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

1 July 2014

6,008

19,550

841

8,175

130,383

164,957

 

 

 

 

 

 

 

Net return for the year

-

-

-

-

9,076

9,076

 

 

 

 

 

 

 

Balance at 30 June 2015

6,008

19,550

841

8,175

139,459

174,033

 

 

 

 

 

 

 

 

  

Notes to the Accounts for the year ended 30 June 2016

1.   Accounting policies
 

(a)  Basis of Preparation

The financial statements for the year ended 30 June 2016 have been prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP') including Financial Reporting Standard 102 ('FRS 102'), the financial reporting standard applicable in the UK and Republic of Ireland and with the Statement of Recommended Practice ('SORP') for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies ('AIC') in November 2014. This is the first year that the Company has presented its results under FRS 102. The date of transition to FRS 102 was 1 July 2015. There were no changes to accounting policies as a result of the adoption of FRS 102 and no adjustments were required to the prior year numbers reported as a result of the transition. The Company continues to adopt the going concern basis in the preparation of the financial statements. The financial statements have been prepared in accordance with the Company's accounting policies as set out below. They are presented in accordance with the Companies Act 2006 (the 'Act') and the requirements of the SORP 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014. The updated SORP reflects the changes arising from the adoption of Financial Reporting Standard FRS 102. Aside from the disclosure of the fair value hierarchy information, no significant changes have arisen from the adoption of the new standards. Where changes have arisen, they are substantially in relation to presentation, disclosure and non-quantifiable aspects - there has been no impact to financial position or financial performance and no comparative figures require restating.

 

The Company has taken advantage of the exemption from preparing a Cash Flow Statement under FRS 102, as it is an investment fund and the investments are substantially all highly liquid and carried at fair (market) value.

 

The functional and reporting currency of the Company is pounds sterling because that is the currency of the primary economic environment in which the Company operates.

 

Statement of Compliance

 

The financial statements of the Company have been prepared in compliance with United Kingdom Accounting Standards, including FRS 102 and the Companies Act 2006.

 

(b)  Principal accounting policies

(i)   Financial instruments

Financial instruments include fixed asset investments, derivative assets and liabilities and long-term debt instruments.

 

Accounting standards recognise a hierarchy of fair value measurements for financial instruments which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The classification of financial instruments depends on the lowest significant applicable input, as follows:

 

Level 1 - Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities. Included within this category are investments listed on any recognised stock exchange.

 

Level 2 - Quoted prices for similar assets or liabilities, or other directly or indirectly observable inputs which exist for the duration of the period of investment. Examples of such instruments would be those for which the quoted price has been recently suspended, forward exchange contracts and certain other derivative instruments.

 

Level 3 - External inputs are unobservable. Value is the Directors' best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instruments. Included within this category are unquoted investments.

 

(ii)   Fixed asset investments

 

As an investment trust, the Company measures its fixed asset investments at "fair value through profit or loss" and treats all transactions on the realisation and revaluation of investments as transactions on the capital account. Purchases are recognised on the relevant trade date, inclusive of expenses which are incidental to their acquisition. Sales are also recognised on the trade date, after deducting expenses incidental to the sales. Quoted investments are valued at bid value at the close of business on the relevant date on the exchange on which the investment is quoted.

 

(iii)  Foreign currency

 

Monetary assets, monetary liabilities and equity investments denominated in a foreign currency are expressed in sterling at rates of exchange ruling at the balance sheet date. Purchases and sales of investment securities, dividend income, interest income and expenses are translated at the rates of exchange prevailing at the respective dates of such transactions.

 

Foreign exchange profits and losses on fixed asset investments are included within the changes in fair value in the capital account. Foreign exchange profits and losses on other currency balances are separately credited or charged to the capital account except where they relate to revenue items when they are credited or charged to the revenue account.

 

(iv)  Income

 

Income from equity shares is brought into the revenue account (except where, in the opinion of the Directors, its nature indicates it should be recognised within the capital account) on the ex-dividend date or, where no ex-dividend date is quoted, when the Company's right to receive payment is established.

 

Dividends are accounted for on the basis of income actually receivable, without adjustment for the tax credit attaching to the dividends. Dividends from overseas companies are shown gross of withholding tax.

 

Where the Company has elected to receive its dividends in the form of additional shares rather than in cash (scrip dividends), the amount of the cash dividend foregone is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend foregone is recognised in the capital account.

 

(v)   Expenses, including finance charges

 

Expenses are charged to the revenue account of the Income Statement, except as noted below:

 

- expenses incidental to the acquisition or disposal of fixed asset investments are included within the cost of the investments or deducted from the disposal proceeds of investments and are thus charged to the capital element of retained earnings - arising on investments sold via the capital account; and

 

- performance fees insofar as they relate to capital performance are allocated to the capital element of retained earnings - arising on investments held.

 

All expenses are accounted for on an accruals basis. Finance charges are accrued using the effective interest rate method.

 

(vi)  Taxation

 

Withholding tax deducted at source from income received is treated as part of the taxation charge in the income account, in instances where it cannot be recovered.

 

Deferred tax is provided in accordance with FRS102, on an undiscounted basis, on all timing differences that have originated but not reversed by the Statement of Financial Position date, based on the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the "marginal" basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account.

 

 

(vii) Capital redemption reserve

 

The nominal value of ordinary share capital purchased and cancelled is transferred out of called-up share capital and into the capital redemption reserve.

 

(viii)  Retained earnings

 

Capital reserve - arising on investments sold

 

The following are accounted for in this reserve:

 

- gains and losses on the realisation of fixed asset investments;

 

- realised foreign exchange differences of a capital nature;

 

- performance fee payable to the AIFM;

 

- costs of professional advice, including related irrecoverable VAT, relating to the capital structure of the Company;

 

- other capital charges and credits charged or credited to this account in accordance with the above policies; and

 

- the costs of purchasing ordinary share capital.

 

Capital reserve - arising on investments held

 

The following are accounted for in this reserve:

 

- increases and decreases in the valuation of fixed asset investments held at the year end;

 

- unrealised foreign exchange differences of a capital nature; and

 

- the income loss for the year is taken to the income element of this reserve.

 

2.   Investment Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

2015

 

 

 

 

 

 

£'000

£'000

Income from investments

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from overseas companies

 

 

 

 

1,332

1,508

 

 

 

 

 

 

 

Total income

 

 

 

 

1,332

1,508

 

 

 

 

 

 

 

Total income comprises

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

 

1,332

1,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,332

1,508

 

 

 

 

 

 

 

Income from investments

 

 

 

 

 

 

 

 

 

 

 

 

 

Listed overseas

 

 

 

 

1,332

1,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,332

1,508

 

 

 

 

 

 

 

 

 

  

3.   Return per Ordinary share

 

 

 

 

 

 

 

2016

2015

 

 

 

£'000

£'000

 

 

 

 

Net revenue loss

(555)

(588)

 

 

 

 

 

Net capital return

12,967

9,664

 

 

 

 

 

Net return

12,412

9,076

 

 

 

 

 

Weighted average number of Ordinary shares in issue during the year

23,712,096

24,034,135

 

 

 

 

 

Revenue loss per Ordinary share

(2.34p)

(2.45p)

 

 

 

 

 

Capital return per Ordinary share

54.68p

40.21p

 

 

 

 

 

Total return per Ordinary share

52.34p

37.76p

 

 

 

 

 

 

 

 

 

 

 

4.   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 £174,163,000 (2015: £174,033,000) and on 22,120,812 (2015: 24,034,135) Ordinary shares, being the number of Ordinary shares in issue at the year end.

 

 

5.   Related parties

There are no transactions with the Directors other than aggregated remuneration for services as Directors and the beneficial interests of the Directors in the Ordinary shares of the Company.

 

JUTM is contracted to provide investment management services to the Company (subject to termination by not less than twelve months notice by either party) for a quarterly fee of 0.20% of the net assets of the Company, excluding the value of any Jupiter managed investments. The investment management fee payable to JUTM for the year 1 July 2015 to 30 June 2016 was £1,334,000 (2015: £1,378,000) with £349,000 outstanding as at 30 June 2016 (2015: £348,000).

 

JUTM is also eligible for a performance related fee, charged through the capital account, of 5% of any annual out-performance by the net asset value ("NAV") per share of "target performance", defined as a margin of 2% over the Russell 2000 Index (in both cases converted to sterling). If the NAV per Ordinary share performance (adjusted to exclude the relevant performance-related fee) exceeds the target, the performance-related fee is payable on the excess. If the NAV per Ordinary share underperforms the Russell 2000 Index by 2% or more, the under-performance will be carried forward and no further performance-related fee will be payable until the NAV per ordinary share has both recovered the accumulated under-performance and exceeded the target performance for the year. The maximum performance-related fee which may be payable in respect of any year is 0.7% of gross assets.

 

The portfolio management of the Company is carried out by Jupiter Asset Management Limited ("JAM") under delegation from JUTM.

 

The performance related fee payable at the year end was £nil (2015: £nil).

 

6.   Contingent liabilities and capital commitments

There were no contingent liabilities or capital commitments outstanding as at 30 June 2016 (2015: nil).

 

 

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.jupiteram.com/JUS

 

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

23 September 2016


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