JPMorgan European Discovery Trust NAV rises by 66.2% outperforming benchmark by 8.3%

JPMorgan European Discovery Trust plc

JPMorgan European Discovery Trust plc (LON:JEDT) have today published final results for the year ended 31st March 2021.

CHAIRMAN’S STATEMENT

Dear Shareholder,

I am pleased to present the Company’s results for the year ended 31st March 2021.

Investment Performance

The last year has been dominated by the Covid-19 pandemic and it is important to consider and acknowledge the impact of the pandemic on Europe. The events associated with Covid-19 have also caused unprecedented turmoil in global equity markets.

Despite these levels of market volatility and the economic uncertainty that persisted, due to the continuing pandemic, I am pleased to report that, to 31st March 2021 your Company’s total return on net assets was 66.2%, outperforming its benchmark by 8.3% as the MSCI Europe (ex UK) Small Cap Index rose by 57.9 per cent. As a reminder, the benchmark changed to the MSCI Europe (ex UK) small cap net total return index with effect from 1st April 2020. This index better reflects the underlying portfolio constituents.

The basis for this performance is explained in the Investment Managers’ report below which provides a detailed commentary on the portfolio positioning and the outlook for investing.

The Company’s longer term performance remains strong, with the 5 year and 10 year total return on net assets rising 83.6% and 177.3%, respectively, whilst the benchmark total return rose 88.4% and 147.4%.

Gearing

Gearing can be a differentiator for an investment trust and the Board believes that it can be beneficial to performance. The Board sets the overall strategic gearing policy and guidelines and reviews these at each Board meeting. Borrowings during the year consisted of a EUR 125m revolving credit facility, of which EUR 90m was drawn down at the year end. During the year gearing varied between 3.1% and 9.4%.

Revenue and Dividends

The Board’s dividend policy is to pay out the majority of the net revenue available each year. This is set against the Company’s objective of maximising capital growth and the Investment Managers are therefore not constrained to deliver income in any one financial year.

Net revenue return for the year reduced to £7.1 million (2020: £10.9 million), a substantial decline compared to 2020 as many of the companies in our portfolio lowered their payouts due to the pandemic. An interim dividend of 1.2 pence per share was paid on 22nd January 2021. Subject to shareholder approval at the forthcoming Annual General Meeting, a final dividend of 5.5 pence per share will be paid on 30th July 2021 to shareholders on the register as at the close of business on 25th June 2021 (ex-dividend date 24th June 2021). This dividend will require the use of the Company’s revenue reserves as insufficient revenue has been received by the Company during the year to cover the dividend, one of the advantages of our closed end structure.

Discounts and Share Repurchases

The discount of the Company’s share price to net asset value narrowed during the Company’s financial year, from nearly 23% as at the end of March 2020 to 12.9% as at 31st March 2021, with an average discount over the 12 months of 13.6%. As at 11th June 2021 the discount was 13.6%. The Board continues to monitor the level of the discount carefully and seeks to use its ability to repurchase shares to minimise the short term volatility and the absolute level of the discount when appropriate. No shares were repurchased during the year.

Manager Evaluation

During the year, the Management Engagement Committee undertook a formal review of the Manager, covering the investment management, company secretarial, administrative and marketing services provided to the Company. The review took into account the Manager’s investment performance record, management processes, investment style, resources and risk control mechanisms. In addition, during the period of market volatility arising as a result of Covid-19 the Board continued to meet more frequently to ensure support was available to the investment managers. The Board agreed with the Committee’s recommendation that the continued appointment of the Manager is in the interests of shareholders as a whole.

As mentioned in my statement last year, a reduction in management fees was agreed last year and has been in effect from 1st April 2020. The management fee is now being charged at an annual rate of 0.85% of the net assets. Previously, the management fee was charged at 1.0% on net assets up to £400 million and 0.85% on net assets over £400 million. This reduction has provided a saving to our shareholders for the reporting year.

Environmental, Social and Governance (‘ESG’)

As I reported last year, the Board has continued to engage with the Manager on the integration of ESG factors into its investment process. While the investment managers have always considered environmental, social and governance (‘ESG’) issues in their investment process, it is now rigorously integrated into their investment processes so that ESG issues are considered at every stage of the investment decision. With company reporting on ESG issues remaining at an early stage of development, the Investment Managers use their regular company meetings with potential and existing portfolio companies to discuss and challenge management on their adherence to best practice. Further information on the Manager’s ESG process and engagement is set out in the ESG Report on pages 19 to 21 of the Annual Report with stock specific examples included in the Investment Managers’ Report below.

The Board

There has been no change to the composition of the Board during the year. In line with the Board’s succession planning, the intention had been for Stephen White to stand down at this year’s AGM, having served on the Board for nine years. However, in light of the challenges faced by the Company over the last 12 months as a result of Covid-19, the Directors agreed that it would be appropriate for the Company to continue to benefit from Stephen’s extensive investment management experience for a further few months. Therefore, subject to reappointment by shareholders at the upcoming AGM, he will continue as a director till the later part of the year.

In order to ensure a smooth transition when Stephen retires, the Board undertook a search exercise to identify a new Director. Following successful conclusion of that search exercise, as announced on 2nd June 2021, I am delighted to report that Sarah Watters will be joining the Board with effect from 1st July 2021. Sarah brings to the Board a wealth of investment management experience gained over 27 years, having most recently been Head of Equities, UK, Europe and Emerging Markets at BP Investment Management Ltd.

Amendment to Articles of Association

The Board is proposing an amendment to the Company’s Articles of Association to enable the Company to hold shareholder meetings whereby shareholders are not required to attend the meeting in person at a physical location. This will facilitate shareholder attendance in situations where they are prevented, through laws or regulations, from attending at a physical location. Having consulted a number of the Company’s larger shareholders the Board understands that these shareholders do not object to the proposed change in the articles. The Directors have no present intention of holding ‘virtual-only’ meetings and would only utilise them where Directors consider it in the best interests of shareholders to do so, for example where shareholders are not permitted to physically attend. Further details of the amendments are set out in the Directors’ Report in the Annual Report.

Annual General Meeting

This year’s Annual General Meeting will be held on Wednesday, 21st July 2021 at 12.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP. Our preference had been to welcome shareholders in person to our 2021 Annual General Meeting, particularly given the constraints we faced in 2020 due to the Covid-19 pandemic. However, at the date of posting of the AGM Notice, given the ongoing uncertainty and due to ongoing public health concerns, the Board intends to limit physical attendance at the AGM only to Directors or their proxies and representatives from J.P. Morgan. The Board will ensure that the minimum quorum is present to allow the formal business to proceed. If law or Government guidance so requires at the time of the Meeting, the Chairman of the Meeting will limit, in his sole discretion, the number of individuals in attendance at the Meeting. Should the Government guidance change and the current restrictions on group gatherings be relaxed by the time of the Meeting, the Company may still impose entry restrictions on certain persons wishing to attend the Annual General Meeting in order to secure the safety of those attending the Meeting and the orderly conduct of the Meeting.

The Board is aware that many shareholders look forward to hearing the views of the Investment Managers and Directors and asking them questions at the AGM. Accordingly, at the time of the AGM a webinar will be organised which will involve a presentation from the Chairman of the Board and the Investment Managers, followed by a live question and answer session, all of which may be viewed at the time by registered participants. Shareholders are invited to register as participants to join the webinar and address any questions they have either by submitting questions during the webinar or in advance of the AGM via the ‘Ask a Question’ link on the Company’s website www.jpmeuropeandiscovery.co.uk or via email to invtrusts. cosec@jpmorgan.com. Details on how to register as a participant for this event will be posted on the Company’s website, or by requesting the details via the email address above.

As shareholders will not be able to attend the Annual General Meeting, the Board strongly encourages all shareholders to exercise their votes by completing and returning their proxy forms. This will ensure that their votes are registered.

If there are any changes to the arrangements for the Annual General Meeting, the Company will update shareholders through the Company’s website and, if appropriate, through an announcement to the London Stock Exchange. The Board would like to thank shareholders for their understanding and co-operation at this difficult time. I sincerely hope that you and your families remain safe and well and along with the rest of the Board look forward to meeting you at a future Annual General Meeting.

Outlook

The vaccine rollout around the world has fuelled optimism for a strong economic recovery later in the year after the turmoil caused by Covid-19. Conversely, there are fears of the return of inflation, high debt levels and the possibility of a further wave due to new virus variants. Whilst uncertainty still looms, the Board believes there to be significant investment opportunities in Europe and supports the Investment Managers’ approach in seeking such opportunities to meet our long term objectives.

Marc van Gelder

Chairman                                                                                                                                              

INVESTMENT MANAGERS’ REPORT

Investment Scope and Process

The objective of the Company is to achieve capital growth from a portfolio of quoted smaller European companies, excluding the United Kingdom. The investment universe is defined at the time of purchase by the countries and market capitalisation range of the constituents of the benchmark index. On 1 April 2020 the benchmark index was changed from the Euromoney Smaller European Companies (ex UK) Index to the MSCI Europe ex UK Small Cap Index. At the end of March 2021 the new benchmark index consisted of free float adjusted market capitalisation range of approximately GBP 100m to GBP 5.7 billion. This universe of potential investments is screened using a proprietary multi-factor model, the results of which we apply fundamental analysis.

The investment process is driven by bottom-up stock selection with a focus on identifying market leading growth companies with a catalyst for outperformance. Stock position sizing is determined by investment conviction and trading liquidity. Investments are sold when there is a fundamental deterioration in business prospects or the market capitalisation has significantly outgrown the benchmark index. The Board has set a liquidity range of between 20 per cent cash and 20 per cent gearing within which the Managers may operate. The policy is not to hedge the currency exposure of the portfolio’s assets.

Market Review

The twelve month period to March 2021 was dominated by the world’s response to the Covid-19 global pandemic. Following the significant market sell off in March 2020, the rapid response by governments and Central Banks worked to mitigate concerns around the magnitude of the impact to the economy. The level of support was unprecedented, with Central Bank support far higher than the total support provided during the Global Financial Crisis. As a result, equity markets rebounded extremely strongly over the twelve months to March 2021 with the Trust’s benchmark finishing the period significantly higher than it reached at its peak prior to Covid-19.

Improving global economic data and better than expected company earnings due to tight cost control supported markets over the period. On 9th November, Pfizer and BioNTech announced positive trial data for their Covid-19 vaccine. This was quickly followed by positive trial data from other pharmaceutical companies. These effective vaccines offered a clearer path out of lockdowns. Nevertheless, concerns around rising infection rates, new variants of the virus and delays to vaccination rollouts in a number of European countries resulted in high volatility over the period.

While these concerns remain, markets should continue to be supported by even more fiscal and monetary injections. The US Federal Reserve has relaxed its inflation target from ‘2 per cent’ to ‘an average of 2 per cent’, meaning that it will not necessarily tighten policy even if it sees inflation in excess of 2 per cent in the future. At the same time, there is still ample room for additional fiscal support from governments as illustrated by the stimulus packages implemented in the European Union and the US.

Over the twelve month period to March 2021, the MSCI Europe ex UK Small Cap Index rose by 57.9 per cent.

Portfolio Performance

Over the financial year the net asset value of the Trust rose by 66.2 per cent, outperforming its benchmark by 8.3 per cent.

Top performers over the period included Spanish renewable energy operator, Solaria, due to the huge growth opportunity for solar energy in Spain; Dutch semiconductor equipment manufacturer, ASM International, as demand for semiconductors proved resilient during the slowdown and atomic layer deposition (ALD) continued to be instrumental in wafer miniaturisation; and German online pharmacy, Shop Apotheke, after the German government passed a law to mandate e-prescriptions.

Stock detractors from performance included Belgium logistics real estate company, Warehouses De Pauw, and Italian renewable energy operator, Falck Renewables, which both underperformed the rapidly rising markets due to their more defensive business models; and Swiss insurance company, Baloise, which suffered from the low interest rate environment.

PERFORMANCE ATTRIBUTION

YEAR ENDED 31ST MARCH 2021

%%
Contributions to total returns
Benchmark return57.9
  Asset allocation3.6
  Stock selection1.0
  Gearing/cash effect5.2
  Currency effect-0.6
Investment Managers’ added contribution9.2
Portfolio return67.1
  Management fee/other expenses-0.9
Other effects-0.9
Return on net assetsA66.2
Return to shareholdersA87.5

Source: Datastream/JPMAM/Morningstar.

All figures are on a total return basis.

Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.

A Alternative Performance Measure (‘APM’)

Portfolio Positioning

Over the period we reduced the portfolio’s exposure to the Electricity sector which was comprised entirely of renewable energy generation companies. While we still maintain selected exposure to the sector we have sold out of the companies where we believed valuations to be expensive.

Software & Computer Services became the largest sector overweight. We added further exciting growth companies such as the Swedish companies, Fortnox, a cloud based platform that enables small businesses to manage their finances more efficiently and Stillfront, a mobile phone computer game developer.

We also added a number of fundamentally high quality companies that are experiencing share price weakness due to near-term earnings headwinds from lockdowns but where we see significant medium term upside potential. These include the Automotive & Parts companies, Valeo in France and German listed Hella, both of which are leaders in providing technology for Electronic Vehicles. We also added CTS Eventim in Germany which is the European leading online ticket seller for live events (Media sector), and two salmon farmers listed in Norway, Bakkafrost and Salmar (Food Producers sector). All of these companies will be direct beneficiaries of lockdown reopening whilst also benefiting from long term structural growth drivers.

During the period Italy grew to be the Trust’s largest country overweight. For example, we added luxury yacht manufacturer Sanlorenzo at its IPO and also premium tyre manufacturer Pirelli.

France became the second largest country overweight through the addition of reopening beneficiaries such as the aforementioned Valeo and also motorway concession operator, Eiffage, and hospitality services company, Elis.

Spain and Finland were the largest underweights as we could not find any sufficiently attractive investment opportunities in these countries. Switzerland became the third largest underweight, having been the largest overweight at the start of the period, as we reduced exposure to companies with more defensive business models in order to fund investments into companies with larger upside potential from the improving global economic environment.

By the end of the financial year we were 8.8 per cent geared.

Outlook

The Trust’s last financial year was dominated by Covid-19. We are hopeful that normality is returning as vaccination programs are rolled out globally.

It appears we are entering a period which could be very supportive of equity markets. We see a synchronised global economic expansion while at the same time governments and Central Banks remain supportive and the valuation of the European Small Cap asset class is attractive.

While the Trust remains predominantly invested in the long term themes of technological disruption, environmental protection and wellness, we have added opportunistically to high quality companies that will benefit from more widespread vaccination programmes and where Covid-19 will not be a long term disruptor to their business models.

Francesco Conte

Edward Greaves

Investment Managers                                                                                                                               

PRINCIPAL AND EMERGING RISKS

The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company, as well as emerging risks. In assessing the risks and how they can be mitigated, the Board has given particular attention to those risks that might threaten the viability of the Company. These key risks fall broadly under the following categories:

•        Investment Underperformance and Strategy: Investment performance could be adversely affected by the loss of one or more of the investment management team. To reduce the likelihood of such an event, the Manager ensures appropriate succession planning and adopts a team-based approach as well as special efforts to retain key personnel.

          An inappropriate investment strategy, for example excessive concentration of investments, asset allocation, the level of gearing or the degree of portfolio risk, may lead to underperformance against the Company’s benchmark index and peer companies.

          The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported on by the Manager. JPMF provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, who attend all Board meetings, and reviews data which show statistical measures of the Company’s risk profile. The Board sets strategic guidelines for gearing as well as investments. Once those are agreed, decisions on levels of gearing are delegated to the investment managers, whose decisions are subject to challenge by the Board. The Board holds a separate meeting devoted to strategy each year.

          A disproportionate widening of the discount relative to the Company’s peers could result in loss of value for shareholders. The Board regularly discusses discount management policy and has set parameters for the Manager and the Company’s broker to follow.

•        Market and Currency: Market risk arises from uncertainty about the future prices of the Company’s investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. Investing in smaller companies is inherently more risky and volatile, partly due to the potential lack of liquidity in some shares. The Board discusses these risk factors at each Board meeting and has placed investment restrictions and guidelines to limit these risks. In addition, as the impact of Brexit and the trade deal negotiated between the UK and the EU becomes clearer, investor sentiment may lead to reduced or increased demand for the Company’s shares.

          The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by JPMF. The Board monitors the implementation and results of the investment process with the investment manager. The majority of the Company’s assets, liabilities and income are denominated in Euros rather than in the Company’s functional currency of sterling (in which it reports). As a result, movements in the Euro:sterling exchange rate may affect the sterling value of those items. Therefore, there is an inherent risk from these exchange rate movements. The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements – currency risk, interest rate risk and other price risk. Information to enable an evaluation of the nature and extent of these three elements of market risk is given in note 21(a) on pages 72 to 75 of the Annual Report, together with details of how the Board manages these risks.

•        Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 (‘Section 1158’). Details of the Company’s approval are given under ‘Business of the Company’ on page 22 of the Annual Report. Were the Company to breach Section 1158, it may lose investment trust status and, as a consequence, gains within the Company’s portfolio would be subject to capital gains tax. The Section 1158 qualification criteria are continually monitored by JPMF and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the FCA Listing Rules, the Market Abuse Regulations (‘MAR’), Disclosure Guidance and Transparency Rules (‘DTRs’) and, as an investment trust, the Alternative Investment Fund Managers Directive (‘AIFMD’). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the FCA Listing Rules or DTRs could result in the Company’s shares being suspended from listing which in turn would breach Section 1158. Failure of the Manager to comply with the AIFMD could lead to the Manager losing its status as an Alternative Investment Fund Manager (‘AIFM’) and the Company would then need to change its AIFM. The Board relies on the support of the services of its Company Secretary, the Manager and its professional advisers to ensure compliance with the Companies Act, the FCA Listing Rules, MAR, DTRs and AIFMD.

•        Operational: Disruption to, or failure of, the Manager’s accounting, dealing or payments systems or the Depositary or Custodian’s records may prevent accurate reporting and monitoring of the Company’s financial position. Under the terms of its agreement, the Depositary has strict liability for the loss or misappropriation of assets held in custody. See note 21 for further details on the responsibilities of the Depositary. Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective risk management and internal control are included within the Risk Management and Internal Control section of the Corporate Governance Statement on page 38 of the Annual Report.

          The risk of fraud or other control failures or weaknesses within the Manager or other service providers could result in losses to the Company. The Audit Committee receives independently audited reports on the Managers and other service providers’ internal controls, as well as a report from the Manager’s Compliance function. The Company’s management agreement obliges the Manager to report on the detection of fraud relating to the Company’s investments and the Company is afforded protection through its various contracts with suppliers, of which one of the key protections is the Depositary’s indemnification for loss or misappropriation of the Company’s assets held in custody.

•        Cyber Crime: The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Board has received the cyber security policies for its key third party service providers and JPMF has provided assurance to the Directors that the Company benefits directly or indirectly from all elements of JPMorgan’s Cyber Security programme. The information technology controls around the physical security of JPMorgan’s data centres, security of its networks and security of its trading applications are tested and reported on every six months against the AAF Standard.

•        Financial: The financial risks arising from the Company’s financial instruments include market price risk, interest rate risk, liquidity risk and credit risk. Further details are disclosed in note 21 on pages 72 to 77 of the Annual Report.

               Poor control of expenses can lead to an escalation of costs and high ongoing charges. The Board monitors the expenses of the Trust and is provided with detailed financial information.

•        Corporate Governance and Shareholder Relations: Details of the Company’s compliance with corporate governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement on pages 35 to 39 of the Annual Report.

•        Pandemic Risk: The global reach and disruption to markets caused by Covid-19 is unprecedented and triggered a sharp fall in global stock markets in 2020. The Company is exposed to the concomitant risks of market volatility, falling equity markets and the uncertainty around future dividend income. To date, the portfolio’s holdings have not exhibited a material negative impact but the pandemic has yet to run its full course.

          The Board regularly reviews the mitigation measures which JPMorgan Asset Management and other key service providers have in place to maintain operational resilience and is satisfied that these are appropriate even in the current conditions. Relevant business continuity plans have been invoked and the Board has been given regular updates. Arrangements for working from home have been implemented where appropriate and government guidance is being followed. The Board has not experienced and does not anticipate a fall in the level of service from any service provider.

          Further information on Covid-19 is set out in the Chairman’s statement, the Investment Managers’ report and note 1(a) on page 61 of the Annual Report.

•        Emerging Risks: The Board assesses and keeps under review emerging risks, including but not limited to the impact of climate change, natural disasters and social inequality. Increasingly these risks have the potential to combine and in doing so heighten geopolitical risk.

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors’ Report on page 32 of the Annual Report.

The management fee payable to the Manager for the year was £6,092,000 (2020: £6,284,000) of which £nil (2020: £nil) was outstanding at the year end.

During the year £nil (2020: £36,000), including VAT, was payable to JPMAM for the marketing and administration of savings scheme products, of which £nil (2020: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 64 of the Annual Report are safe custody fees payable to JPMorgan Chase amounting to £98,000 (2020: £90,000) excluding VAT of which £37,000 (2020: £25,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm’s length. The commission payable to JPMorgan Securities Limited for the year was £nil (2020: £nil) of which £nil (2020: £nil) was outstanding at the year end.

The Company also holds cash in JPMorgan Euro Liquidity Fund, which is managed by JPMF. At the year end, this was valued at £1.1 million (2020: £46.0 million). Due to change in EU Money Market Fund Regulations, effective from 18th March 2019, negative interest is no longer charged explicitly and instead, it causes the NAV per share to fall. Therefore for the 12 months ended 31st March 2021, negative interest was included under (losses)/gains on liquidity fund. In the comparative period/year, this was included in other administrative expenses.

Securities lending income amounting to £469,000 (2020: £253,000) was receivable by the Company during the year. JPMorgan commissions in respect of such transactions amounted to £52,000 (2020: £28,000).

Handling charges on dealing transactions amounting to £47,000 (2020: £76,000) were payable to JPMorgan Chase during the year of which £15,000 (2020: £12,000) was outstanding at the year end.

At the year end, a bank balance of £268,000 (2020: £60,227,000) was held with JPMorgan Chase Bank N.A. A net amount of interest of £2,000 (2020: £1,000) was receivable by the Company during the year from JPMorgan Chase of which £nil (2020: £nil) was outstanding at the year end.

Full details of Directors’ remuneration and shareholdings can be found on page 44 of the Annual Report.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

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

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).

Under company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the Annual Report and Accounts are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•        select suitable accounting policies and then apply them consistently;

•        make judgements and accounting estimates that are reasonable and prudent;

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

•        prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business

and the Directors confirm that they have done so.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The financial statements are published on the www.jpmeuropeandiscovery.co.uk website, which is maintained by the Company’s Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditors accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. The financial statements are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

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

Each of the Directors, whose names and functions are listed on page 31 confirm that, to the best of their knowledge:

•        the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return or loss of the Company; and

•        the Strategic Report includes a fair review 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 it faces.

The Board confirms that it is satisfied that the Annual Report and Financial Statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the strategy and business model of the Company.

For and on behalf of the Board

Marc Van Gelder

Chairman, JPMorgan European Discovery Trust plc

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