Fourth Quarter Report

Transcription

1 Fourth Quarter Report

2 Fourth Quarter 2014 Report Juno Selection Fund Performance At the end of the fourth quarter on December 31, we closed the year with a value of per participation. During the fourth quarter the value increased by 6.2%. For the whole of 2014, we achieved a positive return of 18.6%. Compared to the market, we were able to once again outperform: the Euromoney Smaller Company increased by only 2.9% this year, while the AEX (calculated based on reinvested dividends) returned 8.3%. Since inception in 2008, we have achieved a compounded average return of 12.4% per year. Morningstar.nl has assigned Juno a five star rating and a low risk category. The Juno Selection Fund ended 2014 in first place in its category. Main Portfolio Developments It has been a while since we last wrote to you about our Danish holding, SimCorp. SimCorp is the developer of Dimension, a software package that forms the backbone of financial firms such as banks, insurers and large asset managers. During 2014, this Junocompany had a challenging time. Even with revenue growth of around 6% and profit growth of roughly 10%, we initially had higher expectations. After a number of years of strong growth in the number of new clients in the US, 2014 was clearly more difficult. The company was more focused on ensuring careful implementation of the software for new clients and less so on maintaining the underlying order book. SimCorp s management in the US seemed unable to lead the rapidly growing organization that had in the meantime grown to 250 people. In June 2014, this issue was tackled and a new SimCorp US management was appointed. James Corrigan was chosen from a direct competitor, Sungard. He was charged with the task of giving SimCorp in the US a new growth impulse. The business s potential is ample: SimCorp s US market share is 4%, but in Germany it is 60%. Moreover, the US is in volume terms by far the largest market globally. With Freddie Mac and Fannie Mae as clients, SimCorp s product has the de-facto approval of the US government, which should stimulate sales. There is growing demand for Client Reporting using modern technologies such as smartphones and tablets. Where a paper report used to be sufficient, now for example, pension fund managers would like with a few clicks to see the drivers of their performance and maybe more importantly, which risks they are taking with their positions. To sufficiently address this change in demand, SimCorp bought the English company Equipos, a specialist in reporting, in February

3 Another important development in the area of risk management for SimCorp clients is IBOR: Investment Book of Record. This enables portfolio managers to also see all of their portfolios in real-time during the day. In addition, they can immediately adjust their investment positions. In order to do this, a completely up-to-date administrative system is necessary. SimCorp is one of the few in the market that can offer such a product, given that their software relies on one central database. Even if 2014 seemed like a transition year, eight new large clients were brought in, including, for example, Aegon NV. We are confident that in 2015, and in the years to come, that this Danish software company will continue to generate strong profit growth. In 2014, the largest contributor to Juno s investment performance was the German firm Stratec Biomedical. Stratec builds blood analysis systems for clients focused on the development of diagnostic tests, such as Diasorin, Biomerieux and Siemens. They sell these in combination with Stratec s instruments to hospitals and laboratories. Stratec makes money from the sale of the instruments, their clients from the sales of the tests. In October 2013, we informed you that not everything was going according to plan for Stratec. Their German production location suffered flood damage. More significantly, an important client, Abbott, cancelled their order with Stratec, just before the introduction of a new machine. In spite of the obvious challenges, management remained very positive, causing the market to slowly begin to lose confidence in them. Through our conversations with Marcus Wolfinger, the CEO of Stratec, we were able to deduce that the problems in 2013 were, in reality, one-off in nature. We maintained our trust in the company and its growth potential and steadily increased our position in the company. Even though Stratec reported disappointing results in 2013, it had its revenge in As it happened, last year was the most profitable year ever for Stratec. There were more systems delivered than ever before, and a couple of new promising development contracts were signed. In these contracts, there is increasingly more room for Stratec to supply its own components. Through these Stratec will in the future be able to supply a larger portion of replacement parts, which will be good for margins. An important motivation for Stratec s clients to outsource their production is the specific technologies and R&D teams that it has. This makes the development time shorter than, for example, if Siemens were to do it itself. Any innovation that is discovered during the development process Stratec patents for itself and is able to make use of in future development projects. In this way a sort of virtuous cycle is created with the outsourcing trend only getting stronger. The clients can focus singularly on the development of the diagnostic tests, while they leave the instrument design, a completely different discipline, to Stratec. Another important development that is helping Stratec is personalized medicine. Through this, patients are increasingly getting medicine that is customized. In particular, this can lead to better outcomes for various types of cancer. With this, the patient needs to be tested far more frequently, requiring an instrument developed by companies like Stratec. In order to meet increased demand, this year production will be expanded to Romania as well as Switzerland. All the precision work will be done in Switzerland while the less specialized assembly will take place in Romania. Owing to the roughly 3 year development time for new instruments and the minimum useful life for a machine of 10 years, Stratec is able to make good estimates for expectations for the next 5 years. More importantly, clients sign minimum volume contracts with Stratec. This gives us the desired predictability that gives us confidence in the revenue and profit development in the future. For two years in a row Gerry Weber has suffered from a cool summer and warm winter, causing clothing sales to disappoint. Because of 3 4

4 this, 2013 missed expectations (profit declined by 10%), and the 2014 fiscal year results, with an October year-end, will probably not meet expectations. Relative to other large European clothing retailers, Gerry Weber has been able to limit the damage. Inventories were kept under control, enabling working capital to remain low. New stores contributed to growth, and in existing stores the demand from typical Gerry Weber clients was smartly anticipated with adjustments in the selection. Characteristics of Juno investments are low debt and net cash positions. That allows managements to quickly take advantage of opportunities in the market. This is the same for Gerry Weber. Before Christmas, the company announced a large German acquisition. Hallhuber, with 94 stores and 113 concession stores and an anticipated 2015 revenue of 140 million, is a logical addition to Gerry Weber s existing position in the clothing market. Hallhuber has a younger client base and can immediately benefit from Gerry Weber s expertise. The number of House of Gerry Weber stores in Germany can hardly increase further. However, the Gerry Weber organization, can still open stores in more locations under the Hallhuber brand. Hallhuber s logistics and design will also be integrated. The cost savings are impressive. This is an attractive acquisition that can immediately contribute to profit growth. Outlook Precisely a year ago, we indicated that we were tentatively positive about the future performance of the Juno Selection Fund. We are very satisfied with the 18.6% performance. But the equity market as a whole, with a return of barely 3%, hardly moved. This was caused by a combination of geopolitical uncertainty, a hardly impressive economic recovery and a very weak oil price. Even though the low oil price has a stimulating effect on the economy, the share price reactions of the heavily weighted oil producers depressed the otherwise relatively flat equity indices in Against expectations bond markets continued to rally. Because of this, interest rates declined even further. Actually, after adjusting for inflation, current interest rates do not adequately reward investors. Because of this, equity markets are becoming relatively more attractive. Even with lower economic growth, they offer investors greater value. The money that investors have parked in deposits and bonds stands ready to be invested once the equity markets experience a longer period of share price weakness. So as with every year, we look at the profit growth of our companies for the coming year, but especially what can be achieved in the years that lie ahead. Profit growth is the engine for future share price performance. We see a very strong correlation between the actual performance of Juno s portfolio and the profit growth of our companies. The portfolio remains attractively priced, and the profit growth also seems promising in the coming year. Therefore we believe that 2015 can once more be a good year for the fund. On behalf of the managers of the Juno Selection Fund Frans Jurgens Lennart Smits 5 6

5 Juno Selection Fund: Historical Performance Juno Selection Fund Euromoney Smaller Europe AEX (reinvest) Barcap PanEuro 2008 * -33% -48% -47% +1% % +55% +42% +8% % +23% +9% +4% % -21% -9% +6% % +20% +13% +11% % +29% +20% +1% Q % +7% +1% +3% Q % -1% +4% +3% Q % -4% +2% +3% Q % +1% +1% +3% % +3% +8% +12% Since inception * +127% +26% +10% +49% *) Inception of fund: January 11, 2008 Top 5 Positions Name CTS Eventim Aryzta Simcorp Dialog Semi Stratec Biomedical Country Germany Switzerland Denmark United Kingdom Germany 7