JPMORGAN EUROPEAN GROWTH & INCOME PLC
UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
30TH SEPTEMBER 2023
Legal Entity Identifier: 549300D8SPJFHBDGXS57
Information disclosed in accordance with DTR 4.1.
CHAIR’S STATEMENT
Introduction
In this six month reporting period to the 30th September 2023 it is pleasing to report that the Company continued to outperform its benchmark. In what has been an uncertain period, the Board believes the robust proposition of the Company allows the Investment Managers the freedom to navigate European markets, whilst delivering to our shareholders the best of capital growth combined with a consistent income.
During this reporting period, very sadly the devastating conflict in Ukraine rages on and as I write this, we witness the terrible events in Israel and Palestine. It seems resolution and peace are a long way off. Surprisingly global stock markets have mostly taken these latest events in their stride. However other factors are taking their toll on the growth of the European economies. There has been a period of interest rate hikes by the central banks of the main Western economies including the European Central Bank (ECB) to bring inflation under control. Germany, the region’s largest economy, has been particularly affected. Tensions with China persisted and the failure of Credit Suisse added to an increasingly fragile geopolitical situation and negative economic pressures.
Performance
Return on net assets (NAV) and return to shareholders
The Company’s net assets outperformed its benchmark by 1.8% in the period under review (debt at fair value). Despite the favourable performance, the Company’s net assets recorded a negative return for the period, unable to completely offset the broad decline of the benchmark.
The total return on net assets was -0.2% (debt at fair value). As stated, both of these returns compare well with the benchmark which recorded a total return in sterling terms of -2.0%. Strong relative stock selection was the main reason for this. In their Report on page 11 of the Company’s half year report and financial statements, the Investment Managers review in more detail some of the factors underlying the performance of the Company as well as commenting on the economic and market background over the period in question.
For an explanation of the calculation of the Company’s NAV, please see the Glossary of Terms and Alternative Performance Measures on page 27 of the Company’s half year report and financial statements.
The total return to shareholders, which takes into account the movement of the share price over the period, outperformed the benchmark though by a smaller margin delivering a return of -1.2%.
The Company’s restructuring in February 2022 has resulted in some of the performance and dividend data for periods prior to this reporting period being calculated on a transitional basis as detailed in various footnotes throughout this report.
Dividends
One of the aims of the Company is to provide shareholders with a predictable dividend income at a level that is consistent and frequent. This has been set at 4% of the preceding year NAV payable in July, October, January and March.
In line with the above aim, in respect of the year ending 31st March 2024, the Company has paid the first interim dividend of 1.05 pence per Ordinary share and declared the second interim dividend of 1.05 pence per Ordinary share. Between the end of this six month reporting period and the release of this report, the Company’s Board declared a third interim dividend of 1.05 pence per Ordinary share. The Board is expecting to declare the fourth interim dividend in February 2024. As in 2023, brought forward revenue reserves will be utilised to partially cover the dividend for the financial year ending 31st March 2024.
Although not expected to be required in the financial year ending 31st March 2024, the Company’s Articles also 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 30th September 2023 the Company was modestly geared at 3.3% (31st March 2023: 3.1%).
Discounts, Share Issuance and Repurchase
During the period under review, the average discount across the Investment Trust sector has remained elevated. Particular signs of stress are evident in those Trusts with significant unquoted assets due to illiquidity concerns as investors deliberate their level of confidence in underlying Net Asset Values. Despite the liquidity and transparency of the markets in which your Company invests, its sector and the Company itself have been tarred with this nervousness. The Board remain vigilant and active, addressing imbalances in the supply of and demand for the Company’s shares through a buy-back of 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) on an ongoing basis. The precise level and timing of repurchases is dependent on a range of factors including prevailing market conditions. In the period under review, 3,468,338 Ordinary shares were bought into Treasury. From 1st October 2023 to 27th November 2023, 1,200,059 Ordinary shares were bought into Treasury. No Ordinary shares were issued.
The Company’s Ordinary share discount as at 30th September 2023 was 11.8% to NAV with debt at fair value. The average discount of a peer group of six companies as at the same date was 10.1%. On 27th November, 2023, the Company’s Ordinary share discount was 10.2%, which compares to an average discount of the same peer group of 10.0% as at the same date, though hides variation in strategy and performance across the sector.
Board of Directors
In line with the Company’s Board Succession Plan, Jutta af Rosenborg will be retiring as Director and Audit Committee Chair on reaching her nine-year tenure next year. An independent search agency has been engaged to undertake a search for a suitable replacement Director and Audit Chair, with the aim of appointment in early 2024.
AIC Investment Week Award 2023
I am delighted that the Company was voted the best investment company in the European sector at the annual AIC Investment Week Award ceremony held on 16th November 2023. The judges commended the Company’s performance and the benefits provided by its simplified and shareholder focused structure.
Outlook
The already fragile geopolitical outlook was further weakened in October 2023 by the vicious escalation of hostilities between Israel and Palestine. The economic impact that this latest tragedy will have on European equity markets is uncertain but has the potential to develop into a wider regional conflict which could further exacerbate already elevated energy prices. The recent run of increases in interest rates by the major economies central banks, including the ECB, seems to have ended as the desired reduction in inflation rates has so far been achieved. Whether the current rates of interest will precipitate a global recession remains to be seen.
Despite these challenges the Board has confidence the Company’s Investment Managers remain dedicated to their strategy and have the agility to navigate these tricky times. Our optimism for European equities over the long term remains undimmed.
Rita Dhut
Chair 29th November 2023