Half Yearly Report

RNS Number : 7716J

JPMorgan American IT PLC

10 August 2012

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN AMERICAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2012

Chairman's Statement

I am pleased to be writing to shareholders of JPMorgan American Investment Trust for the first time. It is something of a challenge to take over from Hamish Buchan, whose erudition and commitment as your Chairman have been exemplary, but I will do my best.

There is a considerable debate about the effectiveness of communication with Shareholders, and many other aspects of corporate governance. Communication should be both ways and it is important to the Board that we listen to our Shareholders. I invite you to contact me either in writing or via the Company's website. Please address your letters to me at the Company's registered office, or follow the 'Ask the Chairman' link on the Company's website.

Garrett Fish, our fund manager in New York, has described what has been happening over the last few months both in the US market and in the portfolio, in his report below. I would just like to add three observations from the perspective of someone outside the US:

1.   At the moment, it seems that the behaviour of markets and stocks within them is determined not so much by their own history, but by the degree of turmoil to be seen elsewhere. This might be one of the reasons why the US equity and bond markets have been outperforming others.

2.   Historically UK investors have tended to invest less in the US equity market than they have elsewhere. Perhaps because of the turmoil elsewhere, it is possible that their preferences are changing, and we are seeing evidence of that in cash flows into both US open ended funds and into this Company.

3.   Because of this under emphasis, there has been less discussion in the UK about the extraordinary rise and recent decline of Apple shares. Apple holds just over US$100 billion of cash, and has accounted for about 10% of the rise in the S&P 500 this year.

Performance

Over the six months to 30th June 2012, the Company's net asset value in total return terms increased 7.9% compared with the total return of 8.3% provided by the S&P 500 Index in sterling terms over the same period. The share price total return was 4.1%, reflecting the move in the Company's share price from a premium to net asset value at the Company's year end of 3.3% to a discount of 2.0%.

We estimate that the larger companies portfolio outperformed the S&P 500 benchmark by 0.7%, while both the small companies portfolio and a small net cash position detracted slightly from performance.

Discount Management

Although the Company's shares have moved from a premium to net asset value to a discount over the period under review, on average, they traded at a premium of 2.3%. This allowed the Company to issue a total of 2,264,045 shares in a number of placings at small premiums to net asset value to satisfy demand from the market. This raised in total £20.4 million (net of expenses). Having issued shares, the Board continues closely to monitor the level of discount and is aware of its obligation not to let the discount widen significantly.

Revenue and Dividends

Earnings per share for the six months to 30th June 2012 increased to 6.6p from 5.3p for the equivalent period in 2011. The Company's policy has been to distribute all, or substantially all, of the available income in each year, although the levels of available income may fluctuate. Given the importance of income to Shareholders, the Board has resolved to pay an interim and final dividend rather than just one final dividend per year. A decision on whether to maintain last year's total dividend will be taken after the Company's year end. For the first interim dividend the Board has resolved to pay 5p per share for the six months ended 30th June 2012. To ensure that the dividend payments are equally spread throughout the year, this interim dividend will be payable on 8th October 2012 to Shareholders on the register on 7th September 2012.

Outlook

While the pace of US expansion has slowed and policy uncertainty in both Europe and the US has capped equity valuations, price earnings multiples for all but the most defensive sectors in the US equity market, are very attractive. The US elections and the potential fiscal tightening are certain to be sources of continuing volatility. However, our Managers believe that US corporations are healthy, with ample firepower to increase investment once macro and policy headwinds subside.

Sarah Bates

Chairman

10th August 2012

Investment Manager's Report

Market Review

The US equity market performed positively over the six months under review and remains one of the world's best performing major equity market in 2012, to date. The year started off strongly, with solid first quarter results from US companies, including better than expected earnings. However, a more subdued mood took hold of markets in the second quarter due to continued concerns over the future of the Eurozone and the prospects of a global economic slowdown. Within the market, a preference for stocks with stable earnings and dividends was again the most striking feature, as it has been for much of the past two years.

US economic data continued to soften over the six month period. Weekly unemployment claims have been range bound while many of the regional manufacturing surveys showed activity moderating. In order to make financial conditions more accommodative the Federal Reserve (Fed) announced it would extend its Maturity Extension Program. The programme, which is also known as Operation Twist, seeks to enhance efforts to push down longer term interest rates. On a company level, the health of corporate America continues to be very strong. However, profit expectations started to decline slowly, weighed down by slower growth, sharp falls in commodity prices and the impact of a stronger US Dollar.

While the pace of the US expansion has slowed, one area of the US economy that continued to surprise on the upside was housing. US new home sales in May rose 7.6% over April and this is the highest reading since April 2010. Given the multiple sources of uncertainty across the globe, continued improvement in the US housing market is a welcome development.

Performance

The Company's net asset value rose by 7.9% in total return terms over the first six months of 2012, marginally underperforming the Company's benchmark, the S&P 500 Index, which rose by 8.3% in sterling terms.

There was a positive performance contribution from the large cap portfolio, which was largely driven by contributions from our technology and utilities exposures. Within technology, overweight positions in Apple and Microsoft proved beneficial. Apple's shares rallied following the company's strong first-quarter results and its earnings more than doubled following strong sales of the iPhone and iPad. Microsoft entered the tablet hardware market, announcing the 'Surface' tablet in June. Within utilities, overweight positions in NextEra Energy and Verizon Communications added value. Although NextEra Energy's financial performance has been mixed in recent quarters, its earnings more than doubled as the renewable energy provider's margins rose sharply on better-than-expected revenue. Verizon Communications is a leader in delivering broadband and other wireless communications services. Its stock price rose following indications across the industry of growing discipline around pricing and subsidies that carriers pay to handset makers to sell devices such as the iPhone.

In contrast, the portfolio's holdings of financial and consumer discretionary stocks detracted from relative performance. Within financials, an overweight position in NASDAQ OMX Group proved disappointing. Shares of NASDAQ declined as controversy continued around the firm's handling of a recent large scale IPO and how much rectifying the problems may cost the company. As regards our consumer discretionary holdings, overweight positions in Best Buy and Staples hindered performance. The electronics retailer Best Buy's recent quarterly results were slightly disappointing due to slowing sales trends. Similarly, Staple's sales missed expectations due to a decline in its European business.

The Company's level of gearing was relatively unchanged from 97% at the start of year to 98% at 30th June 2012, as we continued to take a cautious view of the equity market in the short term.

Market Outlook

The pace of US expansion has slowed. Many of the more cyclical areas of the US economy such as vehicle sales remain below long term averages but are showing modest signs of improvement. With activity in these areas muted, we believe pent up demand will continue to build. Lower oil prices act as a tax cut for US consumers, which can also help alleviate recessionary pressures. The US housing market continues gradually to improve. Increasing home prices have the potential for a significant impact on the economy as overall confidence could improve, homebuilders may increase output, consumers feel wealthier and banks could become more encouraged to lend.

Overall our earnings forecasts have declined slowly so far. While positive earnings surprises in the second quarter may be less abundant, we still see profits growing at about 8% this year. This puts the S&P 500 at 13x current earnings, hardly expensive by past standards, and with Treasury yields at almost unimaginably low levels, stocks look more attractive versus bonds than has been the case over 98% of the time since 1960, according to analysis by JPMAM. This suggests that equity investment will reward the patient investor willing to look beyond weaker near term profit trends and the continued angst over Europe.

Garrett Fish

Investment Manager

10th August 2012

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 remain unchanged and fall into the following broad categories: investment and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational; financial; political and economic. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 31st December 2011.

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.

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 year 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.

For and on behalf of the Board

Sarah Bates

Chairman

10th August 2012

For further information, please contact:

Alison Vincent

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 4000

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

Income Statement

for the six months ended 30th June 2012

	(Unaudited) Six months ended 30th June 2012			(Unaudited) Six months ended 30th June 2011			(Audited) Year ended 31st December 2011
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	31,447	31,447	-	12,126	12,126	-	1,260	1,260
Net foreign currency gains*	-	73	73	-	1,211	1,211	-	951	951
Income from investments	4,577	-	4,577	3,605	-	3,605	7,682	-	7,682
Other interest receivable and similar income	9	-	9	7	-	7	18	-	18
Gross return	4,586	31,520	36,106	3,612	13,337	16,949	7,700	2,211	9,911
Management fee	(239)	(957)	(1,196)	(217)	(869)	(1,086)	(432)	(1,727)	(2,159)
Performance fee charge	-	-	-	-	(674)	(674)	-	-	-
Other administrative expenses	(241)	-	(241)	(219)	-	(219)	(497)	-	(497)
Net return on ordinary activities before finance costs and taxation	4,106	30,563	34,669	3,176	11,794	14,970	6,771	484	7,255
Finance costs	(347)	(1,387)	(1,734)	(347)	(1,388)	(1,735)	(694)	(2,775)	(3,469)
Net return/(loss) on ordinary activities before taxation	3,759	29,176	32,935	2,829	10,406	13,235	6,077	(2,291)	3,786
Taxation	(653)	-	(653)	(505)	-	(505)	(1,088)	-	(1,088)
Net return /(loss) on ordinary activities after taxation	3,106	29,176	32,282	2,324	10,406	12,730	4,989	(2,291)	2,698
Return/(loss) per share (note 4)	6.55p	61.55p	68.10p	5.33p	23.85p	29.18p	11.20p	(5.14)p	6.06p

*     Includes gains and losses on forward foreign currency contracts which are used to hedge the currency risk in respect of the geared portion of the portfolio. Details of the hedging contracts can be found in note 5.

The interim dividend declared in respect of the six months ended 30th June 2012 amounts to 5.0p (2011:nil) per share, costing £2,423,000. 

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 2012	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2011	11,551	47,328	8,151	318,561	14,788	400,379
Issue of ordinary shares to the market	566	19,775	-	-	-	20,341
Net return on ordinary activities	-	-	-	29,176	3,106	32,282
Dividends appropriated in the period	-	-	-	-	(5,216)	(5,216)
At 30th June 2012	12,117	67,103	8,151	347,737	12,678	447,786
	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
30th June 2011	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2010	10,713	19,778	8,151	320,852	14,526	374,020
Issue of ordinary shares to the market	513	17,230	-	-	-	17,743
Net return on ordinary activities	-	-	-	10,406	2,324	12,730
Dividends appropriated in the period	-	-	-	-	(4,727)	(4,727)
At 30th June 2011	11,226	37,008	8,151	331,258	12,123	399,766
	Called up		Capital
Year ended	share	Share	redemption	Capital	Revenue
31st December 2011	capital	premium	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2010	10,713	19,778	8,151	320,852	14,526	374,020
Issue of ordinary shares to the market	838	27,550	-	-	-	28,388
Net (loss)/return on ordinary activities	-	-	-	(2,291)	4,989	2,698
Dividends appropriated in the year	-	-	-	-	(4,727)	(4,727)
At 31st December 2011	11,551	47,328	8,151	318,561	14,788	400,379

Balance Sheet

at 30th June 2012

	(Unaudited)	(Unaudited)	(Audited)
	30th June 2012	30th June 2011	31st December 2011
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	433,853	392,015	389,086
Investments in liquidity funds held at fair value through profit or loss	46,103	34,766	36,156
Total investments	479,956	426,781	425,242
Current assets
Derivative financial instruments (note 5)	255	4,550	507
Debtors	669	1,194	486
Cash and short term deposits	18,271	18,544	24,835
	19,195	24,288	25,828
Creditors: amounts falling due within one year	(282)	(1,057)	(294)
Derivative financial instruments (note 5)	(1,257)	-	(586)
Net current assets	17,656	23,231	24,948
Total assets less current liabilities	497,612	450,012	450,190
Creditors: amounts falling due after more than one year	(49,826)	(49,797)	(49,811)
Provisions for liabilities and charges	-	(449)	-
Net assets	447,786	399,766	400,379
Capital and reserves
Called up share capital	12,117	11,226	11,551
Share premium	67,103	37,008	47,328
Capital redemption reserve	8,151	8,151	8,151
Capital reserves	347,737	331,258	318,561
Revenue reserve	12,678	12,123	14,788
Shareholders' funds	447,786	399,766	400,379
Net asset value per share (note 6)	923.9p	890.3p	866.5p

Cash Flow Statement

for the six months ended 30th June 2012

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2012	30th June 2011	31st December 2011
	£'000	£'000	£'000
Net cash inflow from operating activities (note 7)	2,454	1,387	3,482
Returns on investments and servicing of finance
Interest paid	(1,719)	(1,719)	(3,440)
Taxation
Overseas tax recovered	17	-	1
Capital expenditure and financial investment
Purchases of equity investments	(41,607)	(42,524)	(109,891)
Purchases of liquidity fund	(57,619)	(22,551)	(50,056)
Sales of equity investments	28,453	54,137	112,652
Sales of liquidity fund	47,338	16,796	44,059
Other capital charges	(2)	-	-
Net cash (outflow)/inflow from capital expenditure and financial investment	(23,437)	5,854	(3,243)
Dividends paid	(5,216)	(4,727)	(4,727)
Net cash (outflow)/inflow before financing	(27,901)	795	(7,927)
Financing
Issue of ordinary shares to the market	20,341	17,743	28,388
(Decrease)/increase in cash for the period	(7,560)	18,538	20,461
Reconciliation of net cash flow to movement in net debt
Net cash movement	(7,560)	18,538	20,461
Other movements	(14)	(14)	(29)
Exchange movements	995	(25)	4,344
Movement in net debt in the period	(6,579)	18,499	24,776
Net debt at the beginning of the period	(24,976)	(49,752)	(49,752)
Net debt at the end of the period	(31,555)	(31,253)	(24,976)
Represented by:
Cash and short term deposits	18,271	18,544	24,835
Debt falling due after more than one year	(49,826)	(49,797)	(49,811)
Net debt at the end of the period	(31,555)	(31,253)	(24,976)

Notes to the Accounts

for the six months ended 30th June 2012

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 2011 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 ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009.

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

      The accounting policies applied to these half year accounts are consistent with those applied in the accounts for the year ended 31st December 2011.

3.   Dividends

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		30th June 2012	30th June 2011	31st December 2011
		£'000	£'000	£'000
	Final dividend in respect of the year ended 31st December 2011 of 11.0p (2010: 11.0p)	5,216	4,727	4,727
		5,216	4,727	4,727

      An interim dividend of 5.0p has been declared in respect of the six months ended 30th June 2012, costing £2,423,000.

4.   Return/(loss) per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		30th June 2012	30th June 2011	31st December 2011
		£'000	£'000	£'000
	Return/(loss) per share is based on the following:
	Revenue return	3,106	2,324	4,989
	Capital return/(loss)	29,176	10,406	(2,291)
	Total return	32,282	12,730	2,698
	Weighted average number of shares in issue	47,405,885	43,623,338	44,547,344
	Revenue return per share	6.55p	5.33p	11.20p
	Capital return/(loss) per share	61.55p	23.85p	(5.14)p
	Total return per share	68.10p	29.18p	6.06p

5.   Derivative financial instrument

      The Company has hedged against the currency risk arising from its £50 million debenture liability. The forward currency contracts settle on 5th July and 15th October 2012 and are for the purpose of hedging the risk of fluctuation in the £/US$ exchange rate.

6.   Net asset value per share

      Net asset value per share is calculated by dividing the funds attributable to ordinary shareholders by the number of ordinary shares in issue at 30th June 2012 of 48,468,092 (30th June 2011: 44,904,047 and 31st December 2011: 46,204,047).

7.   Reconciliation of total return 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 2012	30th June 2011	31st December 2011
		£'000	£'000	£'000
	Total return on ordinary activities before finance costs and taxation	34,669	14,970	7,255
	Less capital return before finance costs and taxation	(30,563)	(11,794)	(484)
	Scrip dividends received as income	(9)	(10)	(20)
	Decrease/(increase) in net debtors and accrued income	6	(19)	(71)
	Decrease in accrued expenses	(37)	(19)	(71)
	Performance fee paid	-	(383)	(383)
	Overseas withholding tax	(655)	(508)	(1,088)
	Management fee charged to capital	(957)	(869)	(1,727)
	Net cash inflow from operating activities	2,454	1,387	3,482

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

A copy of the Half Year Report has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

The Half Year Report will also shortly be available on the Company's website at www.jpmamerican.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

Ends

Neither the contents of the Manager's website nor the contents of any website accessible from hyperlinks on the Manager's website (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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