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RNS

Annual Financial Report

Released 16:51 20-Sep-2017

RNS Number : 3445R
Jupiter UK Growth Inv Trust PLC
20 September 2017
 

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

 

Annual Report & Accounts for the year ended 30 June 2017

 

This announcement contains regulated information

 

Chairman's Statement

 

Introduction

It is with pleasure that I present the Annual Report for the Jupiter UK Growth Investment Trust PLC for the twelve months to 30 June 2017. This period is the first full year we have reported on since the change in investment strategy and Steve Davies' appointment as Investment Adviser. As we hoped when reporting a year ago, the trust has continued to perform well since the market dislocation around the time of the Brexit referendum.

 

Investment performance

With the UK market recovering strongly in the 12 months to 30 June 2017, the manager's stock-picking and asset allocation skills have been shown to good effect. The Company's net asset value, with dividends added back, grew by 26.7% and the share price, on the same basis, by 25.5%. This compares favourably with the FTSE All-Share index's 18.1% total return. The portfolio benefited from its strategic lack of exposure to the oil and gas sectors and by Steve's decision to top up his holdings in a number of domestic stocks that were marked down sharply in the aftermath of the referendum.

 

The manager's style is to hold a concentrated portfolio of 30-35 stocks that represent a number of high conviction ideas. It has one of the highest "active shares" of its peer group, meaning that shareholders are owning something very different to the UK market index, a necessary condition for significant outperformance. The growth bias of the trust means that it is likely to do particularly well during rising markets. Its gains during the year were particularly creditable given the strong performance of small and midcap shares, to which we have relatively little exposure. Its focus on companies with a strong presence in the UK consumer sector makes it sensitive to consumer sentiment and spending levels, but these have held up much better than many investors expected.

 

Turnover, another critical factor in driving performance, was also commendably low during the period, as Steve notes in the Investment Adviser's report. The fact that two of his larger holdings were the subject of takeover and merger approaches during the year is a testament to his ability to spot undervalued opportunities. After the disappointment of the Brexit-inspired underperformance during his first two months in charge, the board is pleased that the trust is now delivering the competitive positive returns that we were looking to achieve with the change in mandate.

 

Dividend

The change in strategy last year to pursue growth in the UK equity market had implications for the timing and frequency of dividend payments. Having reviewed the portfolio and discussed the issue with the Investment Adviser, the board resolved to replace the regular quarterly dividends with a single annual dividend, payable shortly after the annual general meeting each year. The first of these payments has been set at 7.0p and will be paid on 23 November 2017 to those on the register on 3 November 2017. This is equal to the aggregate of 7.0p paid in interim dividends in respect of the previous financial year ended 30 June 2016. The board's ambition is to at least maintain the dividend at this level and look to grow it over time.

 

Gearing

As at 30 June 2017 the Company's net gearing level (being the amount of drawn down bank debt of £9.5 million less the cash held on the balance sheet pending investment on that date) was 5%. Steve expects that he will tend to increase gearing during periods of low valuations and reduce it in stronger markets. This approach has added value over the course of the Company's history and we continue to consider the use of gearing as a tactical tool to improve returns.

 

Expanding the trust

The board remains committed to finding ways to increase the size of our trust over time, so as to improve liquidity and spread the trust's fixed running costs over a larger asset base. I am pleased to advise shareholders that the board of Jupiter Dividend & Growth Trust has agreed, as part of the reconstruction proposals it is putting to its shareholders, to offer them the option of rolling over their holdings into our trust. Those who opt to do this will become shareholders in Jupiter UK Growth with effect from 1 December 2017 after Jupiter Dividend & Growth has been wound up. We do not know how many will do so, but we are hopeful that it will produce a material increase in our shareholder and asset base. Further details of the transaction, including a shareholder circular and prospectus, are intended to be published during October.

 

Discount control

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.

 

During the 12 months to 30 June 2017, the company repurchased a total of 1,553,816 shares. As a result the shares of the Company have continued to trade close to net asset value. The Company has issued no Ordinary shares from Treasury during the year.

 

Annual General Meeting

The Company's AGM will be held at 10.30 am on 15 November 2017 at the 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 failure of the Conservatives to obtain a clear parliamentary majority in the UK general election has created greater uncertainty about the Government's negotiating strategy for Brexit. What has become clearer is that the Government has been listening to the concerns of business about the dangers of an abrupt exit and appears to be moving towards the negotiation of a two or three year transition period after 2019. The ebb and flow of the negotiations will inevitably continue to have an influence over financial market performance in the interim, but investor sentiment has remained impressively resilient so far. We see no reason to change our investment approach, which despite its UK focus, and current exposure to the consumer sector, will continue to be driven primarily by the manager's ability to pick shares in companies with strong business models and growth prospects, and selling at bargain or fair prices. Historically our manager's style of investing has produced significant outperformance and we are confident that it is more than capable of doing so again in the future.

 

 

Tom H Bartlam

Chairman

20 September 2017

 

 

Financial Highlights

 

Capital performance

 

 

30 June

30 June

 

 

2017

2016

% change

 

 

 

 

Total assets less current liabilities (£'000)

45,224

40,052

+12.9

Ordinary share performance

 

 

 

 

30 June

30 June

 

 

2017

2016

% change

 

 

 

 

Net asset value per share (pence)

334.0

265.4

+25.8

 

 

 

 

Net asset value per share (with dividends added back)

 

 

+26.7

 

 

 

 

Mid market price (pence)

327.8

263.0

+24.6

 

 

 

 

Mid market price (with dividends added back)

 

 

+25.5

 

 

 

 

Discount to Net Asset Value (%)

(1.9)

(0.9)

 

 

 

 

 

FTSE All-Share Index Total Return (Bloomberg: ASXTR)

6,777.29

5,737.47

+18.1

 

 

 

 

Revenue performance

 

 

 

 

Year ended

Year ended

 

 

30 June

30 June

 

 

2017

2016

% change

 

 

 

 

Return after taxation (£'000)

1,099

1,324

-17.0

 

 

 

 

Revenue earnings per Ordinary share (pence)  

7.69

8.27

-7.0

 

 

 

 

Net dividend per Ordinary share (pence)

7.0

7.0

0.0

 

 

 

 

Net dividend yield per Ordinary share (%)*

2.1

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

 

 

Rate/ per share

Announcement

 

Payment

 

(net)

Date

XD Date

Date

 

 

 

Fourth Interim for the year ended 30 June 2016

1.60p

15 July 2016

25 August 2016

15 September 2016

Fifth Interim for the year ended 30 June 2016

0.60p

20 September 2016

29 September 2016

20 October 2016

Dividends declared after the period under review

 

 

 

 

 

 

 Rate/ per share

Announcement

 

Payment

 

(net)

Date

XD Date

Date

 

 

 

 

 

Interim for the year ended 30 June 2017*

7.00p

26 October 2017

2 November 2017

23 November 2017

 

 

 

 

 

 

* The quarterly dividend policy was changed to pay a single annual dividend with effect from 1 July 2016.

 

 

Ongoing charges ratio

 

 

 

 

 

 

Year ended

Year ended

 

30 June

30 June

 

       2017

      2016

 

 

 

Ratio at year end (%) excluding finance costs

1.20

     1.43

 

 

 

Ten Year History to 30 June 2017

 

 

 

 

Total

 

 

 

 

return

 

 

 

 

(net asset

 

 

 

Net

value with

 

Total

 

Asset

dividends

 

Assets

Dividend

Value

added back)

 

less

declared per

per

per

 

current

Ordinary

Ordinary

Ordinary

Year ended

liabilities

Share*

Share

Share

30 June

£'000

p

p

%

 

 

 

 

 

2008

49,415

4.10

221.27

-7.3

 

 

 

 

 

2009

37,868

5.50

173.51

-19.3

 

 

 

 

 

2010

43,187

7.75

203.40

+21.0

 

 

 

 

 

2011

50,552

8.35

250.60

+27.5

 

 

 

 

 

2012

46,032

8.35

227.80

-5.8

 

 

 

 

 

2013 (restated)

54,683

8.35

274.30

+24.1

 

 

 

 

 

2014

56,603

4.80

297.10

+11.1

 

 

 

 

 

2015

54,099

6.40

312.90

+7.5

 

 

 

 

 

2016

40,052

7.00

265.35

-13.2

 

 

 

 

 

2017

45,224

7.00

333.99

+26.7

 

 

 

 

 

 

* Adjusted for five for one stock split in 2013.

 

 

Investment Adviser's Review

 

Market background

At the start of the period the noise surrounding the UK's vote to leave the EU was followed by a new wave of monetary stimulus from the Bank of England, inertia in the UK economy and a renewed sense of political clarity following Theresa May becoming Prime Minster. These all helped to invigorate UK stock markets and the period was a generally positive one for the UK equity market.

 

Towards the end of 2016 news flow was largely dominated by the US Presidential election and, following Trump's win, the healthcare, infrastructure and defence sectors initially rallied on the news. The Autumn Statement in the UK included few surprises, and highlighted the resilience of the UK economy, upgrading growth for 2016. GDP growth forecasts for 2017 were initially reduced slightly, to +1.4%, but in the first quarter of 2017 these were raised to 2%.

 

As 2017 continued, politics continued to dominate headlines. Following the snap general election that resulted in a hung parliament, the Conservatives managed to strike a deal with the DUP, which cost them £1bn but meant Brexit negotiations officially began, as planned on 19th June. The UK's economic and political outlook for the remainder of the year has become more uncertain, however the likelihood of a softer Brexit has probably increased. The Bank of England decided to keep rates at 0.25%, but the vote came in at 5-3, marginally edging towards a rise. Mark Carney, at the Mansion House speech, then went on to report that inflation pressures remain subdued and now is not the time for a rate hike.

 

Performance review

Over the twelve months to 30 June 2017 the Company's share price returned 25.5% and NAV rose 26.7% (both including dividends) compared to a total return of 18.1% for the FTSE All-Share Index. Over three years the Company's share price is up 15.3% versus 23.9% for the Index, while over five years it is up 80.2% versus 65.3% for the Index - although it's worth noting that the Company has only been following its current investment strategy since April 2016.

 

The biggest positive contribution over the period under review came from the portfolio's sizeable holding in Sirius Minerals, which is developing a huge fertiliser resource in North Yorkshire. Sirius was also promoted from the FTSE AIM Index to the Main Market in April and joined the FTSE 250 Index in June.

 

IAG has been another significant contributor over the past year, benefiting from a lower oil price, further improvements in cash generation and good capacity discipline across the North Atlantic. The period was not without its challenges, though, with its largest subsidiary British Airways suffering a major IT meltdown in May. I will be discussing the company's response to these events with both the management team and the Chairman at our meetings over the next couple of months.

 

One of the international holdings in the portfolio, Apple, rose sharply on market-beating results which highlighted the company's highest ever quarterly revenues, supported by record iPhone sales and the market is now looking forward to the release of the new iPhone in the autumn with some anticipation.

 

It was also good to see one of the fund's smaller cap holdings, Arrow Global, performing well. Arrow is a debt collection and management business (Jupiter is its largest shareholder) and it has broadened its geographical and product capabilities significantly since its IPO in 2013. The share price has almost doubled since then, but it still looks attractive to me when I compare it to many of its European peers.

 

More recently, the portfolio's zero weighting in the oil majors has been another strong contributor to relative performance. I believe the oil price remains stuck in a $40-$60 range, with the potential for that range to move lower over time. In my view, the oil majors do not offer an attractive risk/reward trade-off if that is the starting assumption. US shale producers have continued to increase production despite lower oil prices and the likes of Libya and Nigeria are also bouncing back from previous disruptions. OPEC has maintained its production cuts, but the recent political changes in Saudi Arabia may have a significant impact on how things evolve from here. Mohammed bin Salman, the youthful new Crown Prince, is acutely aware that Saudi's oil could become a stranded asset in 20-30 years' time if demand patterns change significantly, so he is looking to reduce Saudi Arabia's fiscal dependence on oil revenues and improve the economy's ability to cope with lower oil prices.

 

The biggest detractor to returns in 2017 was Dixons Carphone. Its electrical division continues to trade well but Carphone Warehouse is struggling as consumers change handsets less frequently and EU roaming charges are falling. The shares are now extremely cheap, in my view, and I am engaging actively with the company to restore value. Another negative was TalkTalk, which reported a fall in revenue and a dividend cut that was larger than the market expected. On a relative basis the portfolio's zero weighting in HSBC was a negative too, as the bank rose strongly alongside its sector over the year with an added benefit from currency translation as sterling weakened.

 

In the aftermath of the UK's vote on membership of the European Union, I added to a mixture of UK domestic names like ITV, Legal & General, IAG, Taylor Wimpey - all of which had share prices significantly impacted by the referendum. In addition, I added to international growth stocks such as Merlin and Inchcape. These latter names were beneficiaries of the fall in sterling following the referendum, but their share prices did not move up as much as some of the "safe haven" sectors like staples or the dollar-earning commodity stocks.

 

More recent transactions included a substantial reduction in the size of the Apple position following its strong performance. Also, both Booker and Sky were sold following their respective merger/bid approaches. I spent a considerable amount of time considering whether to convert the fund's Booker shares into Tesco (the offer was mostly in shares with a small cash element) but concluded that the potential upside in Tesco was insufficient, in my view, compared to other opportunities I saw elsewhere. Fox's offer for Sky remains subject to regulatory review and, rather than wait for an outcome, I decided to exit and invest the proceeds in other holdings.

 

Strategy

The Company is managed with a bottom-up approach that focuses on two specific types of opportunity. Firstly 'recovery' stocks, meaning those that have been written off or deemed un-investible 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 to be reasonable prices.

 

Initial position sizes are determined by a mixture of conviction, upside to target price and liquidity, and I generally aim for a starting position size of 2-3%. 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 can lead to periods of higher volatility relative to the index and also introduces an element of currency risk. I also make use of the flexibility to diversify the Company's portfolio geographically through holding a small number of overseas stocks, which provide the Company with a means of exposure to investment themes where I feel there is no suitable UK-listed alternatives (Apple and Manchester United are examples from the current portfolio).

 

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 two-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

Investor sentiment towards the UK remains very subdued and the unexpectedly close outcome of June's general election has added an extra element of uncertainty in the short-term.

 

We may be in the realms of "weak but stable" government for the time being, with Mrs May's leadership likely to last somewhat longer than generally expected. The Conservative party will be very wary of holding a potentially divisive leadership battle anytime soon, particularly if such a move precipitated another general election which might let Jeremy Corbyn into Number Ten. Mrs May's credibility has been severely dented and she will be forced into a much more inclusive style of government.

 

The optimist in me hopes that this should improve the chances of a slower and more economically friendly Brexit being negotiated with the EU. However, the realist must also acknowledge that a weak government and a bitterly divided range of opinions about Brexit makes it foolish to dismiss the possibility of a chaotic, cliff-edge Brexit as the Article 50 clock ticks inexorably on.

 

 

Steve Davies

Jupiter Asset Management Limited

Investment Adviser

20 September 2017

 

 

 

Investment Portfolio as at 30 June 2017

 

 

30 June 2017

 

30 June 2016

 

 

 

 

 

 

Value

Percentage

Value*

Percentage

Company

£'000

of investments

£'000

of investments

 

 

 

 

 

Lloyds Banking Group

3,152

6.7

2,587

6.7

Barclays

2,977

6.3

1,956

5.1

Legal & General Group

2,899

6.1

2,065

5.3

Sirius Minerals

2,551

5.4

844

2.2

Dixons Carphone

2,342

5.0

2,009

5.2

International Consolidated Airlines Group

1,949

4.1

1,106

2.9

Taylor Wimpey

1,876

4.0

869

2.2

Thomas Cook Group

1,813

3.8

1,050

2.7

Carnival

1,778

3.8

800

2.1

TalkTalk Telecom Group

1,763

3.7

1,715

4.4

Experian

1,623

3.4

1,490

3.9

Merlin Entertainments

1,579

3.4

1,340

3.5

WH Smith

1,570

3.3

1,442

3.7

GKN

1,503

3.2

-

-

Zoopla Property Group

1,477

3.1

1,143

3.0

Inmarsat

1,467

3.1

1,282

3.3

ITV

1,435

3.0

1,332

3.4

Inchcape

1,414

3.0

980

2.5

Royal Bank of Scotland Group

1,412

3.0

1,024

2.6

Arrow Global Group

1,364

2.9

669

1.7

Apple

1,231

2.6

1,330

3.4

Manchester United

1,086

2.3

913

2.4

Howden Joinery Group

1,051

2.2

721

1.9

Hays

1,020

2.2

587

1.4

DFS Furniture

862

1.8

608

1.6

Virgin Money

859

1.8

77

0.2

Countrywide

819

1.7

617

1.6

PureTech Health

575

1.2

472

1.2

CityFibre Infrastructure

447

1.0

462

1.2

Gloo Networks

438

0.9

496

1.3

AO World

273

0.6

377

1.0

Consort Medical

245

0.5

246

0.6

Ludgate 181 (Jersey)^

175

0.4

235

0.6

Angle

145

0.3

122

0.3

Tissue Regenix Group

107

0.2

143

0.4

Total investments

47,277

100.0

 

 

 

^ Unquoted.

 

* The difference in values between the year end dates is affected both by price movements and any sales or purchases from the portfolio.

 

 

Cross holdings in other Investment Companies

As at 30 June 2017, 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%, 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% 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 2017

 

 

 

FTSE

 

 

 

 

North &

 

 

All-

 

 

 

 

Latin

2016

2017

Share

Equities

 

UK

Europe

America

%

%

 

 

 

%

%

%

 

 

 

 

 

 

 

 

-

-

11.39

Oil & Gas

 

 

 

 

-

-

11.11

Oil & Gas Producers

 

-

-

-

-

-

0.28

Oil Equipment, Services & Distribution

 

-

-

-

 

 

 

 

 

 

 

 

2.2

5.4

6.59

Basic Materials

 

 

 

 

-

-

0.65

Chemicals

 

-

-

-

-

-

0.32

Forestry & Paper

 

-

-

-

-

-

0.07

Industrial Metals & Mining

 

-

-

-

2.2

5.4

5.56

Mining

 

5.40

-

-

 

 

 

 

 

 

 

 

8.8

7.8

11.41

Industrials

 

 

 

 

-

-

1.57

Construction & Materials

 

-

-

-

-

-

1.99

Aerospace & Defence

 

-

-

-

-

-

0.93

General Industrials

 

-

-

-

-

-

0.48

Electronic & Electrical

 

-

-

-

-

-

0.72

Industrial Engineering

 

-

-

-

-

-

0.42

Industrial Transportation

 

-

-

-

8.8

7.8

5.30

Support Services

 

7.81

-

-

 

 

 

 

 

 

 

 

7.0

7.1

15.43

Consumer Goods

 

 

 

 

2.5

3.2

0.24

Automobile & Parts

 

3.18

-

-

-

-

2.71

Beverages

 

-

-

-

-

-

0.80

Food Producers

 

-

-

-

2.2

3.9

3.53

Household Goods & Home Construction

 

3.97

-

-

-

-

0.03

Leisure Goods

 

-

-

-

2.3

-

2.55

Personal Goods

 

-

-

-

-

-

5.58

Tobacco

 

-

-

-

 

 

 

 

 

 

 

 

1.3

2.3

9.32

Health Care

 

 

 

 

0.6

0.5

1.05

Health Care Equipment & Services

 

       0.52

-

-

0.7

1.8

8.27

Pharmaceuticals & Biotechnology

 

1.76

-

-

 

 

 

 

 

 

 

 

42.1

37.2

11.31

Consumer Services

 

 

 

 

2.7

-

1.23

Food & Drug Retailers

 

-

-

-

16.8

13.7

1.86

General Retailers

 

13.66

-

-

9.0

6.2

3.59

Media

 

6.15

-

-

13.6

17.3

4.64

Travel & Leisure

 

15.05

-

2.30

 

 

 

 

 

 

 

 

8.9

7.8

3.79

Telecommunications

 

 

 

 

5.6

4.7

1.15

Fixed Line Telecommunications

 

4.68

-

-

3.3

3.1

2.64

Mobile Telecommunications

 

3.10

-

-

 

 

 

 

 

 

 

 

-

-

3.19

Utilities

 

 

 

 

-

-

0.69

Electricity

 

-

-

-

-

-

2.50

Gas, Water & Multiutilities

 

-

-

-

 

 

 

 

 

 

 

 

3.4

2.6

0.88

Information Technology

 

 

 

 

-

-

0.80

Software & Computer Services

 

-

-

-

3.4

2.6

0.08

Technology Hardware & Equipment

 

-

-

2.60

 

 

 

 

 

 

 

 

73.7

70.2

73.31

Total Non-Financials

 

65.28

-

4.90

 

 

 

 

 

 

 

 

26.3

29.8

26.69

Financials

 

 

 

 

14.6

17.8

11.24

Banks

 

17.78

-

-

-

-

1.13

Non-life Insurance

 

-

-

-

5.3

6.1

4.71

Life Insurance

 

6.13

-

-

1.6

1.7

0.46

Real Estate Investment & Services

 

1.73

-

-

-

-

2.07

Real Estate Investment Trusts

 

-

-

-

3.5

3.3

2.68

Financial Services

 

3.25

-

-

-

-

4.40

Equity Investment Instruments

 

-

-

-

1.3

0.9

0.00

Non-equity Investment Instruments

 

0.93

-

-

 

 

 

 

 

 

 

 

 

100.0

100.00

2017 Totals

 

95.10

-

4.90

 

 

 

 

 

 

 

 

100.0

 

 

2016 Totals

 

89.41

4.79

5.80

 

 

 

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 ('HMRC') 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.

 

There has been no significant change in the activities of the Company during the year to 30 June 2017 and the Directors anticipate that the Company will continue to operate in the same manner during the current financial year.

 

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 the FTSE All-Share Index Total Return expressed in Sterling.

 

Strategy

The Investment Adviser has adopted a bottom-up approach that focuses on two specific types of opportunity. The first are 'recovery' stocks. 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 are 'growth' stocks that can generate above-average rates of growth over an extended time period.

 

The Investment Adviser researches companies, ensuring that each potential investment falls within the Company's stated investment policy. Consideration is also given to a potential investment's risk/return profile and growth prospects before an investment is made. Once companies operating within the appropriate theme have been identified and due diligence has been carried out, the Investment Adviser will decide whether a particular investment would be appropriate.

 

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%, in aggregate, of the Company's 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% 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

The Board has not set an objective of a specific portfolio yield for the Company and 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 are expected to be paid out in the form of an annual dividend.

 

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% of the Company's total assets at the time of drawdown.

 

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.

 

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% 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 2018. 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.

 

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.

 

During the year, 1,553,816 Ordinary shares representing 7.1% of the total Ordinary shares in issue at 30 June 2017, were bought back.

 

The Company issued no Ordinary shares from Treasury during the year.

 

As at 30 June 2017 there were 8,359,689 Ordinary shares held in Treasury.

 

The Board believes that the effective use of Treasury shares can assist the Company in improving liquidity in the Company's Ordinary shares, managing any imbalance between supply and demand and minimizing the volatility of the discount at which the Ordinary shares trade to their net asset value for the benefit of shareholders. It is believed that this facility gives the Company the ability to sell Ordinary shares held in Treasury quickly and cost effectively, and provides the Company with additional flexibility in the management of the capital base.

 

The Board shall have regard to current market practice for the reissue of Treasury shares by investment trusts and the recommendations of the Investment Adviser. The Board will make an announcement of any change in its policy for the reissue of Ordinary shares from Treasury via a Regulatory Information Service approved by the FCA. The Board's current policy is that any Ordinary shares held in Treasury will not be resold by the Company at a discount to the Investment Adviser's estimate of the presiding net asset value per Ordinary share as at the date of issue.

 

Management

The Company has no employees and most of its day to day responsibilities are delegated to Jupiter Asset Management Limited ('JAM'), who act as the Company's Investment Adviser and Company Secretary.

 

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

 

Although JAM is named as the Company Secretary, JPMEL 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 ('FRC') in April 2016, the Board has assessed the prospects 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.

 

In carrying out its assessment, the Board has 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 highly liquid portfolio invested predominantly in UK 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.

 

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. There can be no assurances that appreciation in the value of the Company's investments will occur but the Board seeks to reduce this risk.

 

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 - 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 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. Further details of the buy back programme can be found in the Chairman's Statement under the heading Discount control.

 

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, JAM, 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. The Investment Adviser is contractually obliged to ensure that its conduct of business conforms to applicable laws and regulations.

 

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 JAM 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 core accounting systems, or a disastrous disruption to the Investment Adviser's business or that of the administration provider JPMCB, could lead to an inability to provide accurate reporting and monitoring. The Board annually reviews the Investment Adviser's and the Administrator's statements on their business continuity planning.

 

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.

 

Details of how the Board monitors the services provided by JAM and its associates are included within the Internal Control section of the Report of the 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 Jupiter Unit Trust Managers Limited ('JUTM'), JAM 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.

 

For and on behalf of the Board:

 

 

Tom H Bartlam

Chairman

20 September 2017

 

 

 

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 auditor is aware of that information.

 

 

By Order of the Board

Tom H Bartlam

Chairman

20 September 2017

 

 

 

Statement of Comprehensive Income for the year ended 30 June 2017

 

 

Year ended 30 June 2017

Year ended 30 June 2016

 

 

 

 

 

 

 

 

 

 

Revenue

Capital

Total

Revenue

Capital

Total

 

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

Gain/(loss) on investments at fair value

-

8,938

8,938

-

(8,482)

(8,482)

 

 

 

 

 

 

 

 

 

Income

1,481

-

1,481

1,717

-

1,717

 

 

 

 

 

 

 

 

 

Other income

19

-

19

40

-

40

 

 

 

 

 

 

 

 

 

Foreign exchange gain

-

457

457

-

1,007

1,007

 

 

 

 

 

 

 

 

 

Gross return

1,500

9,395

10,895

1,757

(7,475)

(5,718)

 

 

 

 

 

 

 

 

 

Investment management fee

(56)

(168)

(224)

(45)

(192)

(237)

 

 

 

 

 

 

 

 

 

Other expenses

(299)

(11)

(310)

(338)

(111)

(449)

 

 

 

 

 

 

 

 

 

Total expenses

(355)

(179)

(534)

(383)

(303)

(686)

 

 

 

 

 

 

 

 

 

Net return/(loss) before finance costs

 

 

 

 

 

 

 

and taxation

1,145

9,216

10,361

1,374

(7,778)

(6,404)

 

 

 

 

 

 

 

 

 

Finance costs

(31)

(76)

(107)

(34)

(91)

(125)

 

 

 

 

 

 

 

 

 

Return/(loss) on ordinary activities

 

 

 

 

 

 

 

before taxation

1,114

9,140

10,254

1,340

(7,869)

(6,529)

 

 

 

 

 

 

 

 

 

Taxation

(15)

-

(15)

(16)

-

(16)

 

 

 

 

 

 

 

 

 

Net return/(loss) after taxation

1,099

9,140

10,239

1,324

(7,869)

(6,545)

 

 

 

 

 

 

 

 

 

Return/(loss) per Ordinary share

7.69p

64.02p

71.71p

8.27p

(49.16)p

(40.89)p

 

 

 

 

 

 

 

 

 

                   

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 2017

 

 

2017

2016

 

 

 

£'000

£'000

 

 

 

 

 

Non current assets

 

 

 

 

 

 

 

Investments held at fair value through profit or loss

47,277

38,701

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Receivables

200

163

 

 

 

 

 

Cash and cash equivalents

7,454

12,376

 

 

 

 

 

 

7,654

12,539

 

 

 

 

 

Total assets

54,931

51,240

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Payables

(9,707)

(11,188)

 

 

 

 

 

Total assets less current liabilities

45,224

40,052

 

 

 

 

 

Capital and reserves

 

 

 

 

 

 

 

Called up share capital

1,095

1,095

 

 

 

 

 

Share premium

26,136

26,136

 

 

 

 

 

Capital redemption reserve

683

683

 

 

 

 

 

Retained earnings*

17,310

12,138

 

 

 

 

 

Total equity shareholders' funds

45,224

40,052

 

 

 

 

 

Net Asset Value per Ordinary share

334.0p

265.4p

 

 

* Under the Company's Articles of Association any dividends are distributed only from the revenue reserve

 

 

 

Statement of Changes in Net Equity for the year ended 30 June 2017

 

 

 

 

Capital

 

 

 

Share

Share

Redemption

Retained

 

 

Capital

Premium

Reserve

Earnings

Total

For the year ended 30 June 2017

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

30 June 2016

1,095

26,136

683

12,138

40,052

 

 

 

 

 

 

Ordinary shares repurchased

-

-

-

(4,742)

(4,742)

 

 

 

 

 

 

Net return for the year

-

-

-

10,239

10,239

 

 

 

 

 

 

Equity dividends paid and declared

-

-

-

(325)

(325)

 

 

 

 

 

 

Balance at 30 June 2017

1,095

26,136

683

17,310

45,224

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 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.

 

 

Statement of Cash Flow for the year ended 30 June 2017

 

Year ended

Year ended

 

30 June

30 June

 

2017

2016

 

£'000

£'000

 

 

 

Cash flows from operating activities

 

 

 

 

 

Investment income received

1,621

1,696

 

 

 

Investment management fee paid

(263)

(338)

 

 

 

Investment performance fee paid

-

(285)

 

 

 

Other cash receipts

19

43

 

 

 

Other cash expenses

(433)

(502)

 

 

 

Net cash inflow from operating activities before taxation

944

614

 

 

 

Interest paid

(135)

(125)

 

 

 

Taxation

(16)

(22)

 

 

 

Net cash inflow from operating activities

793

467

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of investments

(14,955)

(38,967)

 

 

 

Sales of investments

13,850

56,606

 

 

 

Net cash (outflow)/inflow from investing activities

(1,105)

17,639

 

 

 

Cash flows from financing activities

 

 

 

 

 

Shares reissued

-

956

 

 

 

Shares repurchased

(4,742)

(7,435)

 

 

 

Equity dividends paid

(325)

(1,023)

 

 

 

Net cash outflow from financing activities

(5,067)

(7,502)

 

 

 

(Decrease)/increase in cash

(5,379)

10,604

 

 

 

Change in cash and cash equivalents

 

 

 

 

 

Cash and cash equivalents at start of year

12,376

765

 

 

 

Realised gain on foreign currency

457

1,007

 

 

 

Cash and cash equivalents at end of year

7,454

12,376

 

 

 

 

 

Notes to the Accounts for the year ended 30 June 2017

 

1.   Accounting policies

The Accounts comprise the financial results of the Company for the year to 30 June 2017. 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 20 September 2017. 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 Statement of Cash Flow.

 

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.

 

Investment Management fees and finance costs are charged 75% to capital and 25% to revenue. The annual management fee reduction, in place until 18 April 2016, was credited 100% to revenue. The April 2016 reconstruction reduction to the management fee was credited 100% to capital. Saving scheme administration and transaction handling charges were 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.

 

(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% to revenue and 75% 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 and are relevant to the Company but are not yet effective for year ended 30 June 2017:

 

International Accounting Standards (IAS/IFRS's)

IFRS 9 Financial Investments Classification and Measurement

Effective date: 1 January 2018

 

Amendments to IAS 7 Statement of Cash flows

Effective date: 1 January 2017

 

IFRS 15 Revenue from Contracts with Customers

Effective date: 1 January 2018

 

The Directors anticipate that the adoption of the above standards and interpretation in future periods will have no material impact on the financial statements of the Company. The Company intends to adopt the standards in the reporting period when they become effective.

 

 

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

 

 

 

 

 

 

 

2017

2016

 

 

 

 

 

 

 

£'000

£'000

 

 

 

 

 

 

Income from fixed asset investments:

 

 

 

 

 

 

 

 

 

 

 

Dividends from UK companies

 

 

 

1,323

1,363

 

 

 

 

 

 

Property income distribution from UK REITS

 

 

 

-

39

 

 

 

 

 

 

Dividends from overseas companies

 

 

 

158

315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,481

1,717

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee rebate

 

 

 

 

 

2

29

 

 

 

 

 

 

 

 

Deposit interest

 

 

 

 

 

2

-

 

 

 

 

 

 

 

Interest from liquidity fund

 

 

 

 

15

-

 

 

 

 

 

 

 

Underwriting Commission

 

 

 

 

-

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,500

1,757

 

 

 

 

 

Income from fixed asset investments is derived:

 

 

 

 

 

 

 

Listed on the UK Stock Exchange

 

 

 

1,323

1,402

 

 

 

 

 

 

Listed on overseas Stock Exchanges

 

 

 

158

315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,481

1,717

 

 

4.   Investment management and performance fees

 

 

 

 

2017

 

 

2016

 

Revenue

Capital

Total

Revenue

Capital

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Investment management fee*

56

168

224

45

192

237

 

 

 

 

 

 

 

 

56

168

224

45

192

237

 

*  During the previous year ended 30 June 2016, an amount of £32,000 (pro-rated to 17 April 2016) 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

 

 

 

2017

2016

 

 

£'000

£'000

 

 

 

Directors' remuneration

88

88

 

 

 

Auditors' remuneration - audit

29

28

 

 

 

Auditors' remuneration - other services

-

1

 

 

 

Savings scheme administration (charged to capital)*

-

54

 

 

 

Transaction handling charges (charged to capital)

10

2

 

 

 

Reconstruction legal fees (charged to capital)

-

55

 

 

 

Loan facility legal fees (charges to capital)

1

-

 

 

 

 

Other

 

182

221

 

 

 

 

 

 

310

449

         

 

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

 

 

 

6.   Dividends

 

 

 

2017

2016

Amounts recognised as distributions to equity holders in the period:

£'000

£'000

 

 

 

 

2015 Fourth interim of 1.6p per Ordinary share

-

273

 

 

 

 

2016 First interim of 1.6p per Ordinary share

-

258

 

 

 

 

2016 Second interim of 1.6p per Ordinary share

-

253

 

 

 

 

2016 Third interim of 1.6p per Ordinary share

-

239

 

 

 

 

2016 Fourth interim of 1.6p per Ordinary share

237

241

 

 

 

 

2016 Fifth interim of 0.6p per Ordinary share

88

88

 

 

 

 

 

 

325

1,352

 

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:

 

 

2017

2016

Dividends on equity shares:

£'000

£'000

 

 

 

First Interim of 0.0p per Ordinary share (2016: 1.6p)

-

258

 

 

 

Second Interim of 0.0p per Ordinary share (2016: 1.6p)

-

253

 

 

 

Third Interim of 0.0p per Ordinary share (2016: 1.6p)

-

239

 

 

 

Fourth Interim of 0.0p per Ordinary share (2016: 1.6p)

-

241

 

 

 

Fifth Interim of 0.0p per Ordinary share (2016: 0.6p)

-

88

 

 

 

2017 Interim of 7.0p per Ordinary share

936

-

 

 

 

 

936

1,079

 

 

 

7.   Earnings per Ordinary share

 

The earnings per Ordinary share figure is based on the net gain for the year of £10,239,000 (2016: loss of £6,545,000) and on 14,277,978 (2016: 16,008,175) 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

 

2017

2016

 

£'000

£'000

 

 

 

Net revenue return

1,099

1,324

 

 

 

Net capital return/(loss)

9,140

(7,869)

 

 

 

Net total return/(loss)

10,239

(6,545)

 

 

 

Weighted average number of Ordinary shares in issue during the year

14,277,978

16,008,175

 

 

 

Revenue earnings per Ordinary share

7.69p

8.27p

 

 

 

Capital earnings/(losses) per Ordinary share

64.02p

(49.16)p

 

 

 

Total earnings/(losses) per Ordinary share

71.71p

(40.89)p

 

 

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 £45,224,000 (2016: £40,052,000) and on 13,540,276 (2016: 15,094,092) Ordinary shares, being the number of Ordinary shares in issue at the year end, (excluding Ordinary shares held in Treasury).

 

 

9.   Related parties

 

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.

 

Prior to 18 April 2016 the base management fee payable to JUTM was 0.80% per annum of the Company's net assets, less a waiver of £40,000 per annum. However, with effect from the change in the Company's investment strategy approved by shareholders on 18 April 2016 the base management fee was reduced to 0.50% of Adjusted Net Assets (being 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 will be further reduced to 0.45% to the extent that the Company's Adjusted Net Assets come to exceed £150 million and will be reduced further still to 0.40%. To the extent that the Company's Adjusted Net Assets exceed £250 million.

 

The management fee payable to JUTM in respect of the period 1 July 2016 to 30 June 2017 was £223,855 with £56,387 outstanding at year end.

 

JUTM is also entitled to an investment performance fee which is based on the out-performance of the net asset value per Ordinary share over the total return on the Benchmark Index (being the total return on the FTSE All Share Index) in each accounting period.

 

Any performance fee payable will equal 15% of the amount by which the increase in the adjusted 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 higher of:

 

1)     in respect of each subsequent Calculation Period, the net asset value per Ordinary Share on the last Calculation Date of the immediately preceding Calculation Period, in each case as increased or decreased by the increased by the percentage by which the total return of the Benchmark Index increases or decreases during the calculation period plus 2%;

 

2)     if applicable, the net asset value per Ordinary Share on the last Calculation Date by reference to which a Performance Fee was paid (such Calculation Date not being before 30 June 2016), increased or decreased by the total return of the Benchmark Index increases or decreases during the calculation period plus 2%; and

 

3)     the estimated net asset value per Ordinary Share on Friday, 29 July 2016 (being 285.80p).

 

In respect of the Calculation Period ending 30 June 2017, the turbulent market conditions in the immediate aftermath of the Brexit referendum resulted in an estimated NAV per share of 265.12p as at 30 June 2016. Rather than adopt this NAV as the new high watermark for the then current and subsequent accounting periods for the purposes of any performance fee accrual, the Board agreed with the manager on 26 September 2016 that it would be appropriate to adopt the higher estimated NAV of 285.80p as at 29 July 2016 as its new high watermark for these purposes.

 

No performance fee was payable to JUTM in respect of the year ended 30 June 2017.

 

The total amount of any base management and performance fees payable to JUTM in respect of any one accounting period is limited to 2% of the Adjusted Net Assets of the Company.

 

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. During the year there were no such investments.

 

 

10.  Contingent liabilities

 

As at 30 June 2017 and 30 June 2016 there were no potential contingent liabilities.

 

 

11.  Post statement of financial position event

 

Since the year end an additional 276,000 Ordinary shares were repurchased to be held in treasury for prices between 317p and 336p per share.

 

 

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

investmentcompanies@jupiteram.com

020 3817 1496

 

20 September 2017


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