HIGHLIGHTS
– Total return to shareholders 16.0% (Benchmark 8.6%)
– Ordinary dividend 4.0p
Legal Entity Identifier: 549300D8SPJFHBDGXS57
Information disclosed in accordance with DTR 4.1
CHAIR’S STATEMENT
Introduction
It is pleasing to note that the Company has generated healthy returns in its first full financial year of its new simplified single portfolio and share structure. The Board believes that the Company’s distinctive proposition offers the best of capital growth combined with a resilient income
During the Company’s financial year ended 31st March 2023, the markets in which the Company invests, have experienced a turbulent year. The devastating conflict in Ukraine, continuing effects of the Covid-19 pandemic, tensions with China and failure of Credit Suisse and some regional banks in the USA, have combined to create an increasingly uncertain environment. Global energy prices increased dramatically and supply chain issues added to inflationary pressures across major economies. Central banks have acted to curb inflation by increasing interest rates which has the potential to add to existing financial pressures.
Performance
Return to shareholders and return on net assets
Despite the challenging environment the Company achieved a positive return on net assets during the financial year ended 31st March 2023 and an outperformance against the Company’s benchmark of 1.3% (debt at par value).
The total return on net assets for the Company’s Ordinary shares was +9.9% (debt at par value) and +12.5% (debt at fair value). Both of these returns compare well with the benchmark total return in sterling terms of +8.6%. For an explanation of why the Company’s NAV varies when debt is calculated at par and at fair values, please see the Glossary of Terms and Alternative Performance Measures on page 91 of the Company’s annual report and financial statements.
The total return to shareholders for the Company’s Ordinary shares was +16.0%.
In their Report on page 11 of the Company’s annual report and financial statements, the Investment Managers comment in more detail on some of the factors underlying the performance of the Company, including strong stock selection which was the main reason for the out-performance over the benchmark, as well as commenting on the economic and market background.
The restructuring has resulted in some of the performance and dividend data for years prior to this reporting period being calculated on a transitional basis as detailed in various footnotes throughout this report.
Revenue and Dividends
During the 12 months to 31st March 2023, the Company’s net revenue attributable to shareholders (net return after taxation) was 4.8% higher at £12,354,000 (2022: £11,784,000).
As detailed in the Company’s previous annual report, an aim of the Company’s restructuring was to provide shareholders with a predictable dividend income at a level that is consistent and frequent, based on 4% of the preceding year end net asset value per share. The Company pays quarterly dividends in July, October, January and March.
In line with the above aim, in respect of the year ending 31st March 2023, the Company’s dividend was 4.0 pence per share, amounting to £17.4 million. This represents a significant increase from the £10.2 million paid in 2022, as illustrated in note 10(b) on page 68 of the Company’s annual report and financial statements.
For the Company’s financial year ending 31st March 2024 the Board is expecting to adopt the same approach with 4% of the year ended 31st March 2023 net asset value per share being paid as dividend. On 23rd May 2023, the Board declared a first interim dividend of 1.05 pence per share in respect of the financial year ending 31st March 2024, payable on 21st July 2023. As in 2023, brought forward revenue reserves will be utilised to partially cover the dividend for financial year ending 31st March 2024. Although not expected to be required in the financial year ending 31st March 2024, the Company’s Articles permit the Company’s dividends to be paid from distributable capital reserves.
Gearing
There has been no change in the Investment Manager’s permitted gearing range, as previously set by the Board, of between 10% net cash to 20% geared. At 31st March 2023 the Company was 3.1% geared (31st March 2022: 2.7%).
Discounts, Share Issuance and Repurchase
As noted in the half year report, during the period under review, discounts across the Investment Trust sector have widened, in some cases indiscriminately. The sector in which the Company operates has not been immune. The Board will continue to address imbalances in the supply of and demand for the Company’s shares. The Board does not wish to see the discount widen beyond 10% under normal market conditions (using the cum-income NAV with debt at fair value) on an ongoing basis. The precise level and timing of repurchases through an active buyback of shares is dependent on a range of factors including the prevailing market conditions. In the period under review, 300,000 Ordinary shares were bought back for cancellation and 2,548,683 Ordinary shares were bought into Treasury. From 1st April 2023 to 1st June 2023, 518,906 Ordinary shares were bought into Treasury. No Ordinary shares were issued.
The Company’s Ordinary share discount as at 31st March 2023 was 10.3%. The average discount of a peer group of six companies as at the same date was 10.9%. As at 1st June, 2023, the Company’s Ordinary share discount was 8.4%, which compares to the average discount of the same peer group of 9.7% reflecting variation in strategy and performance across the sector.
Board of Directors
As this is my first annual report as the Company’s Chair, I would like to thank the Board for deciding to appoint me as the Chair on the retirement of Josephine Dixon, in line with the Board’s succession plan in September 2022. I very much look forward to continuing my predecessor’s skillful leadership of the Company’s Board.
During the year, the Board evaluation process reviewed Directors, the Chair, the Committees and the working of the Board as a whole. It was concluded that all aspects of the Board and its procedures were operating effectively. In accordance with corporate governance best practice, all of the Directors retire by rotation at this year’s AGM and will offer themselves for re-election.
The Company’s Directors fees and that of the Chair of the Board and the Chair of the Audit Committee were last increased with effect from 1st April 2022. To maintain the fees in line with the increasing demands of time required and relative to its peers, the Board agreed that the current fee for the Audit Committee Chair should be increased with effect from 1st April 2023. The other directors and Chair of the Board’s fees would remain unchanged. See page 43 of the Company’s annual report and financial statements for further details.
Environmental, Social and Governance
Environmental, Social and Governance (‘ESG’) considerations are integrated into the Investment Managers’ investment process as set out in the ESG Report on page 14 of the Company’s annual report and financial statements. The Board shares the Investment Managers’ view of the importance of ESG factors when making investments for the long term and of the necessity of continued engagement with investee companies throughout the duration of the investment.
Investment Managers
The performance of the Investment Managers is formally evaluated by the Board annually. The evaluation of the Manager was undertaken in January 2023 and based on the data available at that time; the Board concluded that the performance of the Manager had been satisfactory and that their services in the new restructured format should be retained.
Annual General Meeting
The Company’s ninety fourth Annual General Meeting (AGM) will be held at 60 Victoria Embankment, London EC4Y 0JP at 2.30 p.m. on Thursday, 6th July 2023 as an in-person meeting.
We are pleased that this year we will once again be able to invite shareholders to join us in-person for the Company’s AGM, hear from the Investment Managers and ask questions. Shareholders wishing to follow the AGM proceedings but choosing not to attend in person will be able to view proceedings live and ask questions (but not vote) through conferencing software. Details on how to register, together with access details, will be available shortly on the Company’s website at www.jpmeuropeangrowthandincome.com or by contacting the Company Secretary at invtrusts.cosec@jpmorgan.com
My fellow Board members, representatives of JPMorgan and I look forward to the opportunity to meet and speak with shareholders after the formalities of the meeting have been concluded. Shareholders who are unable to attend the AGM are strongly encouraged to submit their proxy votes in advance of the meeting, so that they are registered and recorded at the AGM. Proxy votes can be lodged in advance of the AGM either by post or electronically: detailed instructions are included in the Notes to the Notice of Annual General Meeting on pages 88 to 90 of the Company’s annual report and financial statements.
If there are any changes to these arrangements for the AGM, the Company will update shareholders via the Company’s website and an announcement on the London Stock Exchange.
Outlook
During the Company’s financial year the general market continued to be buffeted by significant challenges, although at the start of the current calendar year global markets were performing well following China’s emergence from its zero-Covid policy and the prospect of peaking inflation and interest rates. However, in recent months this enthusiasm has been swiftly dampened by the challenges to the financial system caused by the failure of a number of regional banks in the US and also of Credit Suisse in Switzerland. The duration of inflationary pressures is uncertain despite the reduction in energy prices in recent months. The extent of interest rate rises by the European Central Bank, along with counterparts elsewhere in the world leaves commentators unclear as to the impact on consumer confidence and the potential severity of a possible global recession. We hope to see an easing in the tragic events taking place in Ukraine, but it seems likely that the future will offer much uncertainty and continued volatility in asset markets, with tensions with China adding to the concerns around geopolitical risks.
Despite these challenges the Board has confidence that the Company’s Investment Managers have the requisite experience to navigate such a tricky environment by continuing to adhere to a proven investment process. In addition, the Board shares the Investment Managers’ optimism for European equities in the long term. The Board believes the new structure and objective of the Company provides shareholders with the potential for both strong capital returns and enhanced income through a well constructed portfolio of European equities.
For and on behalf of the Board
Rita Dhut
Chair 5th June 2023