Half Yearly Report

RNS Number : 0913X

JPMorgan American IT PLC

07 August 2009

 



STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN AMERICAN INVESTMENT TRUST PLC

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 

30th JUNE 2009

Chairman's Statement

Performance 

The financial storm that engulfed the global economy during 2008 continued unabated into the early months of 2009. In early March, the US stock market reached a low that was 57% below its peak in October 2007. However, concerted intervention by governments worldwide, an apparent resolution to the banking crisis and growing evidence that the downturn in global economic activity had moderated, steadied investors' nerves and led to a turn around in market sentiment. The rally that began in March continued through April and May and into June. Over the six months to 30th June the Company's net asset value fell by 9.6% in sterling total return terms, marginally outperforming the S&P 500 Index, which fell by 9.9%. The returns were reduced by the weakness of the dollar, which fell from 1.44 against sterling to 1.65.

Discount Management 

Over the course of the half year under review, the Company's shares have moved from a discount of 5.5%, calculated with liabilities held at their fair value and including current year income, to a premium of 2.6% and have traded in a range between a discount of 5.6% and a premium of 6.9%. The company did not issue nor repurchase any of its ordinary shares during the period. 

Revenue and Dividends

At 5.13p (2008: 4.95p), earnings per share for the six months to 30th June 2009 were modestly up on the equivalent period in 2008 despite the swingeing dividend cuts witnessed in the financial services sector as banks sought to bolster their balance sheets. These cuts were offset to some extent by ongoing dividend growth in the health care and energy sectors. 

The Company's policy has been to distribute all, or substantially all, of the available income in each year. Shareholders should note that income streams can vary significantly and the Company's dividend payouts are likely to reflect those variations.

Outlook

We believe that the underpinnings of an economic recovery in the US are in place. Uncertainties remain, however, as to the sustainability and duration of this recovery. Crucial factors include the US government's initiatives with regard to regulation, taxation and healthcare and the strength of the rebound in global trade.

Hamish Buchan

Chairman    

7th August 2009

Interim Management Report 

The Company is required to make the following disclosures in its half year report.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into six broad categories: market; investment and strategy; accounting, legal and regulatory; corporate governance and shareholder relations; operational; and financial. Information on each of these areas is given in the Business Review on page 19 of the Annual Report and Accounts for the year ended 31st December 2008.

During the market turmoil in the latter part of 2008, JPMAM reacted with heightened management scrutiny of counterparty risk. In addition, reviews were initiated of exposures, policies, procedures and legal arrangements applicable to the major sources of counterparty exposure.

Related Parties Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)    the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half-Yearly Financial Reports'; and

(ii)    the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

Hamish Buchan

Chairman    

7th August 2009

Investment Managers' Report

Market Review

The beginning of 2009 was one of worst starts for the US equity markets in recent history. The S&P 500 registered a decline of 18.2% (in dollar terms) during the first two months of the year (the worst performance in the 100 years-plus of available data). Ironically, it was the unveiling of the US Treasury's three-part Financial Stability Plan in mid-February that rattled investor confidence the most. Investor sentiment began slowly to improve in March, as key economic releases, including both new and existing home sales and durable goods orders, showed improvement over the previous month, albeit from depressed levels. 

Markets began to advance strongly as investors embraced the realisation that the banking system was not insolvent, economic activity was not in terminal freefall and that policymakers were committed to easing the economic downturn, almost at any cost. The tipping point for investor optimism was when the US Treasury released the much-anticipated bank stress test results; the largest 19 financial institutions were deemed to require a total of $74.6 billion in additional equity capital to be able to withstand an 'adverse' economic scenario. This relatively small capital requirement, plus news of capital raises from private sources by a handful of banks shortly thereafter, greatly reduced systemic fears.

While the markets have advanced from March lows on expectations that the economy may be improving, there continues to be fallout from the current downturn. Layoff announcements continued during the quarter, where the most publicised reductions came from auto manufacturers, General Motors and Chrysler. With expectations of higher unemployment, one of the market's largest concerns is the ability of banks to absorb the anticipated increase in credit card losses. In fact, credit card write-offs for US banks hit a record high of 10.8% in June, up from 4.5% twelve months earlier. 

Performance

The Company's net asset value decreased by 9.6% in total return terms in the first six months of 2009 as the US dollar declined by 11.6% against sterling during the period. There was a positive relative performance contribution of 1.1% from the large cap portfolio. The key driver of this was strong stock selection within the health care sector, including stocks such as Schering Plough and Wyeth. An exposure to Corning also proved beneficial as the global technology company's share price rose when management reiterated their positive view for the second quarter of 2009. The portfolio's energy and financials exposures, particularly Exxon Mobil and US Bancorp, detracted from relative performance over the time period.  

The Company's level of gearing remained relatively stable during the first six months of the year. After starting the year at 113%, we remained at this level despite the volatility within the markets, and ended the period at 114%. The composition of the portfolio changed slightly, as the investment managers reduced exposure to small cap, due to the increasingly attractive outlook for larger cap companies. The large cap portion of the portfolio has shifted from a very defensive posture to a more aggressive posture by increasing the weighting in the energy and material/commodity sectors while decreasing exposure to health care and utility sectors. As this transition has been taking place we have increased the number of stocks within the large cap portion of the trust to approximately 95 securities compared to 75 securities a year ago.   

Market Outlook

The recent rally has been about the market's relief at avoiding a complete collapse of the financial system. A continuation of the market's strong advances in the second half of 2009 will need investors to anticipate an outright recovery. It is probable that a 'statistical recovery' is currently unfolding. Low inventory to new orders ratios should continue to boost production activity. However, without the effects of job creation producing higher levels of income and spending, manufacturing activity could again decline as the year wears on. Additional production needs are likely to be met through boosting the output of existing workers rather than increasing headcount. 

Corporate operating leverage has been reduced by the drastic inventory reductions and aggressive cost-cutting that has taken place via headcount reduction over the last six to nine months. Even a modest improvement in demand should have a meaningful impact on profitability. It is also hard to bet against the determination of policymakers in the near-term. We believe that the economic data is likely to improve as we move into the second half of the year; but the, as yet, unanswered question remains as to whether or not the recovery will prove to be sustainable.

Garrett Fish 

Investment Manager

7th August 2009

For further information, please contact:

Andrew Norman

For and on behalf of

JPMorgan Asset Management (UK) Limited - Secretary

020 7742 6000

Income Statement

for the six months ended 30th June 2009

	(Unaudited)				(Unaudited)				(Audited)
	Six months ended				Six months ended				Year ended
	30th June 2009				30th June 2008				31st December 2008
	Revenue	Capital	Total	Revenue		Capital	Total	Revenue		Capital	Total
	£’000	£’000	£’000	£’000		£’000	£’000	£’000		£’000	£’000
Losses on investments held
at fair value through
profit or loss	—	(40,071)	(40,071)	—		(37,843)	(37,843)	—		(10,732)	(10,732)
Net foreign currency
gains/(losses)	—	6,889	6,889	—		(1,108)	(1,108)	—		(12,726)	(12,726)
Income from investments	3,711	—	3,711	3,498		—	3,498	7,846		—	7,846
Other interest receivable
and similar income	14	—	14	170		—	170	310		—	310
Gross return/(loss)	3,725	(33,182)	(29,457)	3,668		(38,951)	(35,283)	8,156		(23,458)	(15,302)
Management fee	(157)	(628)	(785)	(175)		(700)	(875)	(351)		(1,406)	(1,757)
Performance fee writeback/(charge)	—	240	240	—		—	—	—		(1,257)	(1,257)
VAT recoverable	—	—	—	—		—	—	100		85	185
Other administrative expenses	(217)	—	(217)	(189)		—	(189)	(423)		—	(423)
Net return/(loss) on ordinary
activities before finance costs
and taxation	3,351	(33,570)	(30,219)	3,304		(39,651)	(36,347)	7,482		(26,036)	(18,554)
Finance costs	(347)	(1,389)	(1,736)	(346)		(1,385)	(1,731)	(694)		(2,774)	(3,468)
Net return/(loss) on ordinary
activities before taxation	3,004	(34,959)	(31,955)	2,958		(41,036)	(38,078)	6,788		(28,810)	(22,022)
Taxation	(810)	281	(529)	(843)		378	(465)	(1,935)		870	(1,065)
Net return /(loss) on ordinary
activities after taxation	2,194	(34,678)	(32,484)	2,115		(40,658)	(38,543)	4,853		(27,940)	(23,087)
Return/(loss) per share
(note 3)	5.13p	(81.16)p	(76.03)p	4.95p		(95.16)p	(90.21)p	11.36p		(65.40)p	(54.04)p

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. 

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. The Total column represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL'). For this reason a STRGL has not been presented.

  Reconciliation of Movements in Shareholders' Funds

	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
30th June 2009	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£’000	£’000	£’000	£’000	£’000	£’000
At 31st December 2008	10,682	18,906	8,151	241,075	14,864	293,678
Net (loss)/return on ordinary activities	—	—	—	(34,678)	2,194	(32,484)
Dividends appropriated in the period	—	—	—	—	(4,700)	(4,700)
At 30th June 2009	10,682	18,906	8,151	206,397	12,358	256,494
	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
30th June 2008	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£’000	£’000	£’000	£’000	£’000	£’000
At 31st December 2007	10,682	18,906	8,151	269,020	14,711	321,470
Shares bought back and cancelled1	—	—	—	(5)	—	(5)
Net (loss)/return on ordinary activities	—	—	—	(40,658)	2,115	(38,543)
Dividends appropriated in the period	—	—	—	—	(4,700)	(4,700)
At 30th June 2008	10,682	18,906	8,151	228,357	12,126	278,222

1Comprises stamp duty on shares repurchased for cancellation.

	Called up		Capital
Year ended	share	Share	redemption	Capital	Revenue
31st December 2008	capital	premium	reserve	reserves	reserve	Total
(Audited)	£’000	£’000	£’000	£’000	£’000	£’000
At 31st December 2007	10,682	18,906	8,151	269,020	14,711	321,470
Shares bought back and cancelled1	—	—	—	(5)	—	(5)
Total (loss)/return on ordinary activities	—	—	—	(27,940)	4,853	(23,087)
Dividends appropriated in the year	—	—	—	—	(4,700)	(4,700)
At 31st December 2008	10,682	18,906	8,151	241,075	14,864	293,678

1Comprises stamp duty on shares repurchased for cancellation.

  Balance Sheet

at 30th June 2009

	(Unaudited)	(Unaudited)	(Audited)
	30th June 2009	30th June 2008	31st December 2008
	£’000	£’000	£’000
Fixed assets
Investments held at fair value through profit or loss	288,715	291,342	331,144
Investments in liquidity funds held at fair value through
profit or loss	10,713	16,854	14,369
	299,428	308,196	345,513
Current assets
Derivative instrument (note 4)	5,494	10,672	—
Debtors	653	1,282	627
Cash and short term deposits	1,665	8,880	2,899
	7,812	20,834	3,526
Creditors: amounts falling due within one year	(410)	(1,098)	(2,480)
Derivative instrument (note 4)	—	—	(2,319)
Net current assets/(liabilities)	7,402	19,736	(1,273)
Total assets less current liabilities	306,830	327,932	344,240
Creditors: amounts falling due after more than one year	(49,738)	(49,710)	(49,724)
Provisions for liabilities and charges	(598)	—	(838)
Total net assets	256,494	278,222	293,678
Capital and reserves
Called up share capital	10,682	10,682	10,682
Share premium	18,906	18,906	18,906
Capital redemption reserve	8,151	8,151	8,151
Capital reserves	206,397	228,357	241,075
Revenue reserve	12,358	12,126	14,864
Shareholders’ funds	256,494	278,222	293,678
Net asset value per share (note 5)	600.3p	651.2p	687.4p

  Cash Flow Statement

for the six months ended 30th June 2009

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2009	30th June 2008	31st December 2008
	£’000	£’000	£’000
Net cash inflow from operating activities (note 6)	1,874	2,189	4,982
Returns on investments and servicing of finance
Interest paid	(1,722)	(1,716)	(3,439)
Capital expenditure and financial investment
Purchases of investments	(52,369)	(49,186)	(98,970)
Sales of investments	56,615	39,131	80,500
Other capital charges	(8)	—	(7)
Net cash inflow/(outflow) from capital expenditure
and financial investment	4,238	(10,055)	(18,477)
Dividends paid	(4,700)	(4,700)	(4,700)
Net cash outflow before financing	(310)	(14,282)	(21,634)
Financing
Repurchase and cancellation of the Company’s shares	—	(671)	(671)
Net cash outflow from financing	—	(671)	(671)
Decrease in cash for the period	(310)	(14,953)	(22,305)
Reconciliation of net cash flow to movement in net debt
Net cash movement	(310)	(14,953)	(22,305)
Other movements	(14)	(14)	(29)
Exchange movements	(924)	84	1,456
Movement in net debt in the period	(1,248)	(14,883)	(20,878)
Net debt at the begining of the period	(46,825)	(25,947)	(25,947)
Net debt at the end of the period	(48,073)	(40,830)	(46,825)
Represented by:
Cash and short term deposits	1,665	8,880	2,899
Debt falling due within one year	(49,738)	(49,710)	(49,724)
Net debt at the end of the period	(48,073)	(40,830)	(46,825)

  Notes to the Accounts

for the six months ended 30th June 2009

1.    Financial statements

    The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditors.

    The figures and financial information for the year ended 31st December 2008 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.    Accounting policies

    The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' issued in January 2009.

    All of the Company's operations are of a continuing nature.

    The accounting policies applied to these interim accounts are consistent with those applied in the accounts for the year ended 31st December 2008.

3.    Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2009	30th June 2008	31st December 2008
	£’000	£’000	£’000
Return/(loss) per share is based on the following:
Revenue return	2,194	2,115	4,853
Capital loss	(34,678)	(40,658)	(27,940)
Total loss	(32,484)	(38,543)	(23,087)
Weighted average number of shares in issue	42,725,949	42,725,949	42,725,949
Revenue return per share	5.13p	4.95p	11.36p
Capital loss per share	(81.16)p	(95.16)p	(65.40)p
Total loss per share	(76.03)p	(90.21)p	(54.04)p

4.     Derivative instrument

    The Company has hedged against the currency risk arising from its £50 million debenture liability. The Company has purchased sterling against US$ for settlement on 5th October 2011, matching the principal amount but not the maturity date of the debenture.

5.     Net asset value per share

    Net asset value per share is calculated by dividing shareholders' funds by the number of shares in issue at 30th June 2009 of 42,725,949 (30th June 2008: 42,725,949 and 31st December 2008: 42,725,949).

  6.    Reconciliation of total loss on ordinary activities before finance costs and taxation to net cash inflow from     operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2009	30th June 2008	31st December 2008
	£’000	£’000	£’000
Total loss on ordinary activities before finance
costs and taxation	(30,219)	(36,347)	(18,554)
Less capital loss before finance costs
and taxation	33,570	39,651	26,036
Decrease/(increase) in net debtors and accrued income	99	79	(85)
Expenses charged to capital	(628)	(700)	(1,406)
Performance fee paid	(419)	—	—
Discount on debt security allocated to income	—	(29)	(29)
Overseas taxation	(529)	(465)	(1,065)
VAT recovered and credited to capital	—	—	85
Net cash inflow from operating activities	1,874	2,189	4,982

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

7TH AUGUST 2009 

Please note that up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can be found at www.jpmamerican.co.uk.

 

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