Half Yearly Results

RNS Number : 8387K

JPMorgan American IT PLC

02 August 2013

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN AMERICAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2013

Chairman's Statement

Investor Environment

I last wrote to you in March 2013, and in the statement which accompanied our full year results, I noted that the US equity market had staged a very significant recovery from the lows of early 2009. The last six months has seen the S&P 500 surge upwards again, rising by over 12% in US dollar terms, and to a sterling based investor, that return was increased to just under 21%, by the strength of the US dollar against sterling. As our fund manager, Garrett Fish, comments, this was a very unusual six months. The US economy and corporate sector continued to show an improving trend: S&P 500 earnings have now reached an all time high and the S&P 500 index of US shares itself has just reached an all time high.

We all know, though, that we are in uncharted territory as the Federal Reserve (the 'Fed') continued to support the US economy through its quantitative easing program. There was a sharp reminder of the absence of usual moorings in early June, when Ben Bernanke, the chairman of the Fed, made reference to the possibility and practicalities of this support coming to an end. US ten year bond yields shot up, from around 1.5% to over 2.6% at worst (and they have not come back down much, either). US equities did fall, and in particular, those equities which were most 'bond like', such as utilities, were particularly badly affected. However, the US market has, at the time of writing recovered its declines as Mr Bernanke and others sought to row back from the edge which they had brought into sight.

It should be noted that the US equity market has been rather resilient in all this. The US bond market has not recovered, and the impact on other markets globally, particularly those which had benefitted from the sloshing around of easy money, was quite severe. This impact, together with concerns over tightening credit conditions in China caused sharp set backs in Asian (except for Japan) and emerging equity markets and in some emerging market currency and bond markets. The way in which these markets responded to what were perhaps predictable comments from Mr Bernanke reminds us that global financial markets are very intertwined and we may not understand quite how, or to what extent.

Results for the six month period

Your Company saw a net asset value ('NAV') total return per share (in sterling terms) of 20.8%, and a share price total return of 21.4%, compared with the equivalent return of 21.8% from the S&P 500 index, our benchmark. The income statement shows that gains on the portfolio over the period amounted to £97.8 million, which seems quite dramatic. The small company portfolio provided a positive contribution to relative performance over the whole period. The large company portfolio underperformed the S&P 500 in the first three months of the period, and outperformed in the second three months and has continued to do so since the end of the period.

Dividend

The income account is looking robust. Approximately half of the increase is the effect of the translation of dollar dividends into sterling, and half is a continuing increase in dividend payments by the companies in which we invest (obviously, both of these effects could reverse). We introduced an interim dividend last year, paying 5.0 pence per share, which, combined with the 7.5 pence final dividend we paid, took dividends for the year as a whole to 12.5 pence, up from 11.0 pence the year before. We are paying 5.0 pence again for the first six months of this year. This interim dividend will be payable on 9th October 2013 to Shareholders on the register on 6th September 2013. We will consider the rate of the final dividend when we know what the full year results look like. We continue to have significant income reserves which we have used in the past to support dividend payments when corporate payouts are less healthy.

Gearing

We indicated in the full year accounts that we did not think that moving the gearing level around was likely to be a particularly reliable source of added value. We thought that a strategic gearing level of around 10% was a reasonable position, but that we did want to preserve our fund manager's ability to hold cash of up to 5% of net assets if he feels there is a real risk of capital loss. We have made some progress to this position, and have used the recent market set back to accelerate that progress.

Share Issuance and Repurchases

We are prepared to issue new shares at a slight premium to NAV (calculated with debt taken at fair value) if we feel there is sustainable demand for shares, and we believe that the manager has no capacity constraints and that an inflow of cash will not adversely affect performance. Over the period, we have issued 1,260,850 shares, raising £13.7 million net of expenses. We do understand that having issued shares, we have an obligation not to let the discount widen significantly.

Alternative Investment Fund Managers Directive ('AIFMD')

We have been discussing our options for compliance with the AIFMD. At this stage, we would expect to be able to enter into arrangements with our Manager, JPMAM, such that this entity will act as our Alternative Investment Fund Manager, at no additional cost to the Company or its Shareholders. We are continuing to investigate the other obligations arising from the Directive which affect the Company.

Foreign Account Tax Compliance Act ('FATCA')

We are relieved that HMRC has reached an agreement with the US tax authorities such that the impact of FATCA has been substantially diminished.

Outlook

The US equity market has recently reached new highs and the US economy continues to recover even if the recovery is not particularly strong. US corporations remain reasonably robust. Valuations in some sectors are not cheap but our fund manager continues to find opportunities. It would perhaps be surprising if we did not see some more choppy waters over the next year as market participants follow every twist and turn of the Fed's policies. Nevertheless the range of opportunities offered by the US market at this stage remains extraordinary.

Sarah Bates

Chairman                                                                                                                                         2nd August 2013

Investment Manager's Report

Market Review

The US equity market performed positively over the six months under review; it produced the best performance for the first half of a year since 1991. Investors had much to applaud, including continued strength in corporate profits, ongoing improvements in housing and an improved outlook for US fiscal policy. However, it was not all smooth sailing and volatility levels increased from May onwards over concerns around the Federal Reserve (the 'Fed') altering the pace of its bond buying programme.

Earnings for the S&P 500 companies broke a quarterly record in the first quarter and the second quarter looked reasonably strong as well. The strength in the housing market continues, as housing starts for the first five months of the year have increased 28% over the same period in 2012. Perhaps even more significant is the increase in home prices, as the national median existing home price for May rose 15.4% over the same period last year. This was the strongest 12 month price gain since October 2005. Easing anxiety over the US fiscal situation was also welcomed by investors. The Congressional Budget Office's (CBO) updated budget projections show the 2013 budget deficit will shrink to $642 billion, the smallest since 2008. This was mostly a result of higher than expected revenues from taxes and an increase in payments to the Treasury by Fannie Mae and Freddie Mac.

June brought with it increased volatility for markets. The outcome of the Fed's June Federal Open Market Committee (FOMC) did not deviate far from expectations; however, Chairman Bernanke during his press conference outlined a detailed and somewhat more aggressive schedule for concluding bond purchases. These developments caught some investors off guard as the yield on the 10 Year US Treasury rose sharply to 2.61% from 1.63% in early May. Capital markets rebounded after several members of the FOMC reiterated that tapering the pace of bond purchases is not a tightening of monetary policy.

Performance

The Company's net asset value rose by 20.8% in total return terms over the first six months of 2013, marginally underperforming the Company's benchmark, the S&P 500 Index, which rose by 21.8% in sterling terms on a total return basis.

There was a positive performance contribution from the small cap portfolio, while the large cap portfolio detracted. Overall, the portfolio suffered from weak stock selection in the technology and energy sectors. Within technology our exposure to Apple and Aruba Networks disappointed. Shares of Apple declined as their quarterly results were below expectations due to weaker revenue and gross margins. We have reduced our position size on the belief that gross margins will remain pressured over the short term, despite the company's solid balance sheet. Aruba Networks swung to a fiscal third-quarter loss as the wireless-equipment maker's results were hampered by higher taxes and expenses, which masked improved revenue. Aruba, which sells wireless-networking equipment to carriers and businesses, has seen its revenue climb in recent years as demand for wireless products has grown with help from a proliferation of mobile devices.

In contrast, the portfolio's consumer discretionary and financial holdings proved beneficial. Within consumer discretionary, overweight positions in Best Buy and Staples added value rebounding from their lacklustre performance in 2012. Best Buy shares, under new Chief Executive Hubert Joly, have more than doubled in the first half of this year to be the best performing in the S&P 500 Index. The electronics retailer continues to improve its customer experience through in-store shop deals with both Samsung and Microsoft and is also revamping its online operation. Shares of office products retailer Staples rose on news of a potential merger between Office Depot and OfficeMax. Staples, the market leader, should benefit from any fallout after the merger. While Staples is a somewhat controversial stock given the secular decline worries, we like the new approach by the company and believe the risk reward remains favourable. As regards our financials performance, an overweight position in State Street added value. The trust bank's profit rose as it cut costs and saw its servicing fees revenue improve. As with many financial firms, the company's results have been pressured by historically low interest rates. The bank continues to take a hard line on expenses despite improving business trends. It is undergoing a multiyear effort to streamline technology and reduce costs, anticipating $220 million of cost savings this year as part of that programme.

The Company's level of gearing moved from 1% net cash at the start of year to 5% geared at 30th June 2013; as we took advantage of volatility in the equity market to add gearing to the portfolio.

Market Outlook

Even with the strong US equity rally, we maintain a balanced outlook on the market. The relative valuation of equities versus bonds is still compelling. It is this valuation disparity that we believe is unsustainable and is critical in supporting further equity returns. Additionally, stocks look reasonably priced to us at 15x normalised earnings, and while the opportunity to invest at unusually attractive levels that occurred after the Lehman failure may now have passed, we would expect that investors will still earn a reasonable return from these levels.

While markets are now wrestling with several new and unfamiliar themes, we do recognise the downside risk of rates rising too quickly and therefore potentially negatively impacting growth. However, our bias remains towards a market trending higher, driven by economic recovery. Recent data points are strong and consumer confidence is now back to the levels last seen in January 2008.

When looking at the angst attributed to the Fed scaling back the pace of its bond purchase programme, there are a few things that investors should consider. First, even if the pace of bond purchases is tapered, the Fed's balance sheet is still expanding and policy remains accommodative. Second, Fed officials have made it very clear that the pace of bond purchases is data dependent, meaning that the pace of bond purchases can be adjusted upward or downwards based on the strength of the economy. The fact that Chairman Bernanke was able to lay a framework for the curtailment of bond purchases shows that there is increasing confidence at the Fed of the economy's resilience.

We are confident as well. The Fed's tapering comments probably came too early although we do believe in the messaging, and, despite the near term wrinkle it has introduced, ultimately the central banks' efficacy in stimulating the economy is key. Given the recovery in housing, a resilient consumer, an improved US fiscal situation and reasonable valuations; while additional volatility could arise, we believe equity markets can continue their upward trend.

Garrett Fish

Investment Manager                                                                                                                   2nd August 2013

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 2012.

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.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

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                                                                                                                                         2nd August 2013

Income Statement

for the six months ended 30th June 2013

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	30th June 2013			30th June 2012			31st December 2012
	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	-	97,792	97,792	-	31,447	31,447	-	32,386	32,386
Net foreign currency (losses)/gains*	-	(1,784)	(1,784)	-	73	73	-	1,025	1,025
Income from investments	5,261	-	5,261	4,577	-	4,577	9,821	-	9,821
Other interest receivable
and similar income	28	-	28	9	-	9	18	-	18
Gross return	5,289	96,008	101,297	4,586	31,520	36,106	9,839	33,411	43,250
Management fee	(287)	(1,148)	(1,435)	(239)	(957)	(1,196)	(493)	(1,972)	(2,465)
Other administrative expenses	(271)	-	(271)	(241)	-	(241)	(577)	-	(577)
Net return on ordinary activities
before finance costs and
taxation	4,731	94,860	99,591	4,106	30,563	34,669	8,769	31,439	40,208
Finance costs	(343)	(1,374)	(1,717)	(347)	(1,387)	(1,734)	(693)	(2,775)	(3,468)
Net return on ordinary activities
before taxation	4,388	93,486	97,874	3,759	29,176	32,935	8,076	28,664	36,740
Taxation	(742)	-	(742)	(653)	-	(653)	(1,423)	-	(1,423)
Net return on ordinary activities
after taxation	3,646	93,486	97,132	3,106	29,176	32,282	6,653	28,664	35,317
Return per share (note 4)	7.20p	184.70p	191.90p	6.55p	61.55p	68.10p	13.80p	59.46p	73.26p

*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 2013 amounts to 5.0p (2012: 5.0p) per share, costing £2,575,000.

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 2013	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2012	12,560	82,996	8,151	347,225	13,802	464,734
Issue of ordinary shares to the market	214	8,699	-	-	-	8,913
Net return on ordinary activities	-	-	-	93,486	3,646	97,132
Dividends appropriated in the period	-	-	-	-	(3,784)	(3,784)
At 30th June 2013	12,774	91,695	8,151	440,711	13,664	566,995
	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
Year ended	share	Share	redemption	Capital	Revenue
31st December 2012	capital	premium	reserve	reserves	reserve	Total
(Audited)	£'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	1,009	35,668	-	-	-	36,677
Net return on ordinary activities	-	-	-	28,664	6,653	35,317
Dividends appropriated in the year	-	-	-	-	(7,639)	(7,639)
At 31st December 2012	12,560	82,996	8,151	347,225	13,802	464,734

Balance Sheet

at 30th June 2013

	(Unaudited)	(Unaudited)	(Audited)
	30th June 2013	30th June 2012	31st December 2012
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	592,954	433,853	461,036
Investments in liquidity funds held at fair value through
profit or loss	15,466	46,103	40,174
Total investments	608,420	479,956	501,210
Current assets
Derivative financial instruments (note 5)	-	255	794
Debtors	4,739	669	568
Cash and short term deposits	16,501	18,271	12,339
	21,240	19,195	13,701
Creditors: amounts falling due within one year	(12,350)	(282)	(337)
Derivative financial instruments (note 5)	(461)	(1,257)	-
Net current assets	8,429	17,656	13,364
Total assets less current liabilities	616,849	497,612	514,574
Creditors: amounts falling due after more than one year	(49,854)	(49,826)	(49,840)
Net assets	566,995	447,786	464,734
Capital and reserves
Called up share capital	12,774	12,117	12,560
Share premium	91,695	67,103	82,996
Capital redemption reserve	8,151	8,151	8,151
Capital reserves	440,711	347,737	347,225
Revenue reserve	13,664	12,678	13,802
Shareholders' funds	566,995	447,786	464,734
Net asset value per share (note 6)	1,109.7p	923.9p	925.0p

Cash Flow Statement

for the six months ended 30th June 2013

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2013	30th June 2012	31st December 2012
	£'000	£'000	£'000
Net cash inflow from operating activities (note 7)	2,565	2,454	5,302
Returns on investments and servicing of finance
Interest paid	(1,721)	(1,719)	(3,440)
Taxation
Overseas tax recovered	2	17	17
Capital expenditure and financial investment
Purchases of equity investments	(173,514)	(41,607)	(124,935)
Purchases of liquidity fund	(101,394)	(57,619)	(75,470)
Sales of equity investments	145,210	28,453	86,985
Sales of liquidity fund	128,417	47,338	69,862
Other capital charges	(4)	(2)	(8)
Net cash outflow from capital expenditure
and financial investment	(1,285)	(23,437)	(43,566)
Dividends paid	(3,784)	(5,216)	(7,639)
Net cash outflow before management of liquid resources and financing	(4,223)	(27,901)	(49,326)
Management of liquid resources	(14,713)	-	-
Financing
Issue of ordinary shares to the market	8,913	20,341	36,678
Decrease in cash for the period	(10,023)	(7,560)	(12,648)
Reconciliation of net cash flow to movement in net debt
Net cash movement	(10,023)	(7,560)	(12,648)
Management of liquid resources	14,713	-	-
Other movements	(14)	(14)	(29)
Exchange movements	(528)	995	152
Movement in net debt in the period	4,148	(6,579)	(12,525)
Net debt at the beginning of the period	(37,501)	(24,976)	(24,976)
Net debt at the end of the period	(33,353)	(31,555)	(37,501)
Represented by:
Cash and short term deposits	16,501	18,271	12,339
Debt falling due after more than one year	(49,854)	(49,826)	(49,840)
Net debt at the end of the period	(33,353)	(31,555)	(37,501)

Notes to the Accounts

for the six months ended 30th June 2013

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 2012 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 2012.

3.  Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2013	30th June 2012	31st December 2012
	£'000	£'000	£'000
Final dividend in respect of the year ended
31st December 2012 of 7.5p (2011: 11.0p)	3,784	5,216	5,216
Interim dividend in respect of the six months ended
30th June 2012 of 5.0p (2011: nil)	-	-	2,423
	3,784	5,216	7,639

     An interim dividend of 5.0p has been declared in respect of the six months ended 30th June 2013, costing £2,575,000.

4.  Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2013	30th June 2012	31st December 2012
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	3,646	3,106	6,653
Capital return	93,486	29,176	28,664
Total return	97,132	32,282	35,317
Weighted average number of shares in issue	50,616,114	47,405,885	48,208,366
Revenue return per share	7.20p	6.55p	13.80p
Capital return per share	184.70p	61.55p	59.46p
Total return per share	191.90p	68.10p	73.26p

5. Derivative financial instrument

      The Company has hedged against the currency risk arising from its £50 million debenture liability. The forward currency contracts settled on 16th July 2013 and are for the purpose of hedging the risk of fluctuation in the £/US$ exchange rate. Upon maturity, these contracts were rolled over with the same counterparties and the settlement date of these new contracts is 15th October 2013.

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 2013 of 51,096,442 (30th June 2012: 48,468,092 and 31st December 2012: 50,241,592).

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 2013	30th June 2012	31st December 2012
	£'000	£'000	£'000
Total return on ordinary activities before finance
costs and taxation	99,591	34,669	40,208
Less capital return before finance costs
and taxation	(94,860)	(30,563)	(31,439)
Scrip dividends received as income	-	(9)	(18)
(Increase)/decrease in net debtors and accrued income	(174)	6	68
(Decrease)/increase in accrued expenses	(87)	(37)	45
Overseas withholding tax	(757)	(655)	(1,590)
Management fee charged to capital	(1,148)	(957)	(1,972)
Net cash inflow from operating activities	2,565	2,454	5,302

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

 

 

IR EANPAEAADEEF