Annual Financial Report

RNS Number : 7103G

JPMorgan Claverhouse IT PLC

19 March 2020

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CLAVERHOUSE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2019

Legal Entity Identifier : 549300NFZYYFSCD52W53

Information disclosed in accordance with the DTR 4.1.3

The Directors of JPMorgan Claverhouse Investment Trust plc announce the Company's results for the year ended 31st December 2019.

CHAIRMAN'S STATEMENT

Performance and Manager Review

Since the end of your Company's financial year, 31st December 2019, world stockmarkets have fallen significantly, principally because of concerns about the effect of the spread of the COVID-19 on the global economy; and as at 16th March 2020 the FTSE All-Share Index had fallen to 2848.87; a fall of over 30% and its lowest level in almost eight years. Although we report in this document on the 2019 financial year, it is clear that 2020 will be different and very challenging for the global economy and markets and thus for the Company. Meanwhile, I can report a strong performance for the year to 31st December 2019, the Company's net asset total return being +25.3%. This compares with a total return for the same period from the Company's benchmark, the FTSE All-Share Index, of +19.1%, an excellent outperformance of +6.2%. The long-term performance also continued to be strong, with a cumulative net asset total return outperformance, compared to the benchmark total return, of +4.0% and +4.8% over three and five years, respectively.

The share price rose from 665.0p as at 1st January 2019 to 776.0p as at the year end, reflecting the rise in NAV but also affected by the price at which the shares have traded moving from a premium to a discount over the period. The shareholder total return for the year was +21.5% (2018: -5.5%).

The Investment Managers' report below reviews the market and provides more detail on performance.

Revenue and Dividends

Revenue for the year to 31st December 2019 increased to 31.10p per share (2018: 30.09p). The Directors have declared a fourth quarterly interim dividend of 10.25p per share for the year ended 31st December 2019 which will bring the total dividend per share for the year to 29.0p (2018 total: 27.5p). This represents the 47th successive year in which the dividend has been raised and is an increase of 5.5% over the previous year. The dividend was more than covered by the revenue generated by the Company's portfolio and this once again allowed us to make a transfer to the Company's revenue reserves. 

The Board's dividend policy remains to seek to increase the total dividend each year and, taking a run of years together, to increase dividends at a rate close to or above the rate of inflation. Given the Company's strong revenue reserves, the Board currently expects future dividend increases to continue to exceed the rate of inflation. The Board also intends to increase the first three quarterly interim dividends in 2020 from 6.25p per share to 6.50p per share. The Company continues to benefit from a relatively high level of revenue reserves and the ability to utilise these, if necessary, to support the dividend.

The Company pays interim dividends in order to provide shareholders with a regular income. Consequently, it does not pay final dividends, which would otherwise be subject to shareholder approval at the Annual General Meeting ('AGM'). In order to provide shareholders with an opportunity to vote on dividend policy and in accordance with best practice, the Directors will seek approval for the Company's dividend policy at the forthcoming AGM, namely to pay in each year four quarterly interim dividends on the Company's ordinary shares.

Premium/Discount and Share Issuance/Repurchases

During the year the discount to net asset value at which the shares traded ranged from a premium of 3.0% to a discount of 4.5%. At the start of the year 105,000 new shares were issued at a time when the shares were trading at a premium. 480,322 shares were repurchased and held in Treasury during the year and in the latter part of the year, as the discount narrowed to less than 2.0%, 375,000 shares were issued from Treasury. The balance of 105,322 shares were issued out of Treasury in January 2020.

At the AGM in April 2019 shareholders renewed the authority for the sale of shares from Treasury at a discount of no more than 2.0% to the prevailing net asset value per share (cum income debt at par). Renewal of this authority, the authority to issue new shares and to repurchase shares, will be sought at the AGM in April this year.

Gearing/Long Term Borrowing

The Company's gearing policy is to operate within a range of 5% net cash and 20% geared and the Investment Managers have discretion to vary the gearing level between 5% net cash and 17.5% geared.

 Taking into account borrowings, net of cash balances held, the Company ended the year approximately 8.9% geared. Given the market turmoil in the last few weeks the Investment Managers have reduced gearing considerably since the year end. During the year gearing varied between 1.5% cash and 15.2% geared. Borrowing consisted of a combination of the £30 million 7% 2020 debenture and a revolving credit facility of £50 million, of which £30 million was drawn down at the year end. A further £10 million was drawn down after the year end and in recent weeks £25 million was repaid.

The £30 million 7% 2020 debenture matures on 30th March 2020 and, as I have previously reported, the Company entered into an agreement to authorise the issue and sale, by way of private placing, of £30 million 3.22% fixed rate 25 year unsecured notes (the 'Notes'). The sale and purchase of the Notes will occur on 30th March 2020 and will fund the maturity of the debenture.

Environmental, Social and Governance issues

We have seen over recent years the growing importance of environmental, social and governance ('ESG') issues and, more recently, an unprecedented focus on climate change. While the Investment Managers have always considered ESG issues in their investment process, over the last 12 months these have been progressively integrated into their investment process so that ESG issues will increasingly be considered at every stage along the decision making process. Company reporting on ESG issues is developing and the Investment Managers use their regular company meetings with potential and existing investee companies to discuss and challenge management on their adherence to best practice. The Board will continue to discuss and decide how the Company should best deal with sustainability and ESG issues.

Investment Management Fees and Manager Evaluation

Following discussions with the Manager, a reduction in management fees was agreed in December of last year and has been effective from 1st January 2020. The investment management fee is now charged on a tiered basis at an annual rate of 0.55% of the Company's net assets on the first £400 million and at 0.40% of net assets above that amount. Previously the management fee was charged at 0.60% of net assets on the first £500 million and at 0.50% of net assets above that amount.

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. I am pleased to report that the Board agreed with the Committee's recommendation that the continued appointment of the Manager is in the interests of shareholders.

Board of Directors

As reported in my statement in the Half Year Report, Mr Humphrey van der Klugt and Mrs Jane Tufnell will retire as Directors of the Company at the AGM in April this year. Both Humphrey and Jane have been valued colleagues on the Board and have contributed greatly to the Company and its development; and I thank them for their service. Mr David Fletcher will take over as Senior Independent Director on Humphrey's retirement.

As part of the Board's succession planning a recruitment process was undertaken and I am pleased to report that Mr Nicholas Melhuish and Mrs Victoria Stewart joined the Board at the beginning of February 2020. Nicholas and Victoria will stand for re-appointment at the AGM and I look forward to introducing them to shareholders then.

In accordance with UK Corporate Governance requirements, all Directors, other than Mr van der Klugt and Mrs Tufnell, will stand for re-appointment at the AGM.

Change of Auditors

The current audit firm Ernst & Young LLP has audited the Company's financial statements for over 20 years. As required under regulations requiring the rotation of audit firms, a formal audit tender was undertaken during the year and PricewaterhouseCoopers LLP has been selected as the new auditor on the basis of the experience demonstrated of the investment trust business and the strength of the audit team. Approval of the new audit firm will be put to shareholders at the forthcoming AGM. I thank Ernst & Young LLP for their work over the period they have been the Company's auditors.

Annual General Meeting

This year's Annual General Meeting ('AGM') will be held at JPMorgan's offices at 60 Victoria Embankment, London EC4Y 0JP on Thursday, 23rd April 2020 at 12 noon.

Due to the ongoing situation surrounding COVID-19, and the developing advice from the Department of Health & Social Care, the Board has taken the difficult decision to amend the format of the AGM for this year. Whilst the formal business of the AGM will be considered, the meeting will be functional only. There will be no presentation from the investment managers, William Meadon and Callum Abbot. However, a video of the presentation will be placed on the Company's website shortly afterwards. In addition, there will be no social event as part of the AGM and therefore no refreshments provided. In these exceptional circumstances shareholders are strongly encouraged to consider whether they believe it would be appropriate for themselves to attend the AGM.

In light of the changed format the Board strongly encourages all shareholders to exercise their votes in respect of the meeting in advance, by completing and returning their proxy forms. This will ensure that the votes are registered in the event that attendance at the AGM is not possible.

In addition, shareholders are encouraged to raise any questions in advance of the AGM via the 'Ask the Question' link found under the 'Contact Us' section on the Company's website. Any questions received will be replied to by the Company Secretary.

In the event that the situation changes the Company will update shareholders through an announcement to the London Stock Exchange and on the Company's website.

Outlook

As at 16th March 2020 the Company's share price had fallen to 532p, compared with 776.0p as at the year end, a fall of over 31%. It is clear that the effect of the COVID-19 on economic activity will be considerable during 2020 and it is impossible to say at this stage when markets are likely to recover their recent losses.

The outcome of last December's General Election removed some of the last few years' uncertainty surrounding Brexit and, while many of the long-term effects of the UK's departure from, and the nature of the UK's ongoing relationship with, the European Union are still unclear, the UK stockmarket responded positively to the General Election result. UK equities, which have been out of favour for the last few years, should now be capable of attracting more investor interest. However, the new Government's policies, including the measures announced in the recent Budget, are now overshadowed by the emergency measures which the Government is introducing to support the UK economy and the health and well-being of its people during the virus epidemic. It is evident that 2020 will see a marked slowdown in economic activity which will impact businesses of all types; and we must be prepared for share prices to remain for some time volatile and lower than in the last few years. While the UK stockmarket may still be cheap compared with some others, it may take some time for investors to return to sustained buying activity. During this uncertain period the Investment Managers will, I am sure, concentrate on protecting the Company's portfolio while keeping close attention to the dividends being received from investee companies.

The Company has provided a regular, and over the last 47 years a rising, source of income for shareholders and the Company's revenue reserves are amongst the strongest in its sector. With these attributes and the Manager's risk-controlled approach to stock selection, I believe that the Company should continue to outperform its benchmark index on a total return basis over the medium and long term.

Andrew Sutch

Chairman

18th March 2020

INVESTMENT MANAGERS' REPORT

Market Review

Global equity markets were very strong over the year. The UK stock market was no exception, with the FTSE All-Share index delivering a handsome double digit return. Investors took heart not only from continuing steady world growth but also the news that the EU and UK government had eventually reached an agreed date, 31st January 2020, for the UK's departure from the European Union. The political clarity coming from the decisive Conservative general election victory in December came as further encouragement to many investors.

As the year drew to a close, equity markets continued to rally with the UK stock market closing at an all-time high. Sterling rallied sharply from its summer lows to finish the year higher against both the US dollar and the Euro. Interest rates remained low reflecting the continuing benign outlook for inflation.

Performance Review

Claverhouse performed well throughout the year, benefiting from both good stock selection and maintaining double digit gearing levels for most of the period.

In the year to 31st December 2019, Claverhouse delivered a total return on net assets (capital plus dividends re-invested) of +25.3% compared to the benchmark FTSE All-Share Index return of +19.1%. Despite the Company's shares moving from a premium to a small discount at the year end, the total annual return for shareholders was a still handsome +21.5%. A detailed breakdown of the performance is given in the accompanying table.

Our risk controlled approach to sizing positions at a stock and sector level has helped deliver consistent returns. Since the change in management approach in 2012, the fund has outperformed in over 70% of quarters.

PERFORMANCE ATTRIBUTION

YEAR ENDED 31ST DECEMBER 2019

	%	%
Contributions to total returns
Benchmark return		19.1
Stock & Sector selection	6.4
Gearing & cash	1.6
Investment Managers' contribution	8.0
Cost of debt (debenture)	-0.5
Portfolio return		26.6
Management fee/other expenses	-0.7
Share buyback/share issuance	-
Sub total	-0.7
Return on net assets with debt at fair valueA		25.9
Change in the fair value of the debenture		-0.6
Return on net assets with debt at par valueA		25.3

Source: B-one/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').

A list of APMs, with explanations and calculations, and a glossary of terms are provided in the Annual Report.

Top Contributors and Detractors to Performance vs FTSE All-Share Index

Top Five Contributors			Top Five Detractors
JPMorgan Smaller Companies
Investment Trust	+2.01%		Micro Focus	-0.72%
JD Sports	+1.24%		Evraz	-0.55%
Softcat	+0.70%		Imperial Brands	-0.51%
Intermediate Capital Group	+0.69%		International Consolidated Airlines	-0.38%
Barratt Developments	+0.60%		Royal Dutch Shell	-0.35%

Source: JPMAM, as at 31st December 2019.

The JPMorgan Smaller Companies Investment Trust, managed by our in-house small companies team, performed extremely well over the period, returning 68% in share price terms. Over the years, this fund has not only contributed materially to the performance of Claverhouse, but as stocks have grown out of the smaller companies index and into the FTSE 350, it has also provided a rich source of many new ideas for us to invest in directly. Games Workshop and Dunelm are just two recent, very rewarding, examples of this process. JPMorgan Smaller Companies performed particularly well after the General Election as a combination of strong stock selection and a closing of the discount combined to give exceptional share price returns.

Our overweight position in Softcat, the IT reseller, materially contributed to returns. The company's share price nearly doubled over the course of the year. The company has continued to gain share in a growing market and its strategy of selling deeper to existing customers has reaped benefits. We still believe there is significantly more to go for as companies in the UK continue to prioritise technology investment and Softcat is well placed to capture a greater share of this growing markets.

Intermediate Capital Group is an alternative asset manager that specialises in various types of niche credit and equity financing through private equity style funds. Fund performance has been consistently strong across their range, generating substantial performance fees and leading to considerable demand for new funds, which are charged at premium fees.

In 2019, homebuilders performed strongly, as the primary housing market remained robust and investors became more comfortable with the macro and political environment. Barratt Developments was the best performer. The management team set an ambitious margin target at the start of the year and has executed its strategy successfully throughout 2019. We think the company will continue to drive margins higher towards their target and the improved outlook for the UK economy should provide a further tailwind.

The largest detractor for performance was our overweight position in software company Micro Focus. Since acquiring HP Enterprise's software business in 2017, Micro Focus's management team has been struggling to integrate it. However, the company reported strong trading at the start of 2019. We believed that if the improved trading trends could be maintained and the integration brought back on track the stock looked very cheap so we purchased an overweight position. However, it turned out to be a false dawn. We sold out after the profit warning in August. The company has continued to underperform since our exit.

Commodity companies Evraz and Royal Dutch Shell contributed negatively to returns. The income streams from these companies is attractive but both are highly sensitive to macro sentiment, which deteriorated towards the end of the year.

International Consolidated Airlines underperformed the market in the first half of the year. We sold out of our position as we felt there were more interesting opportunities elsewhere.

Tobacco company Imperial Brands had a challenging 2019. It is highly cash generative and pays an attractive dividend. However, the company has struggled to get to grips with the changes to its market that next generation tobacco products have caused.

We built a small overweight position in British American Tobacco (BAT) over the course of the year. This tobacco company had a challenging 2018 due to disruption from alternative tobacco products and increased regulatory pressure in the US. In 2019 the US regulatory focus moved on reining in the nascent alternative tobacco markets. The increased regulatory burden will increase barriers to entry for the alternative tobacco markets, which favour the well-resourced and experienced incumbent tobacco companies. BAT has also invested significantly in alternative tobacco products. These factors mean BAT is now well placed to grow in both the traditional and alternative tobacco markets going forward.

JD Sports , a retailer of brand-name sports and leisurewear, continues to beat even our high expectations. It has excelled while all around traditional high street retailers have struggled. Its unique relationships with big brands like Nike and Adidas, as well as its strong online offering across multiple brands, has protected it from the tough retail industry backdrop. A recent expansion into the US (through the acquisition of Finish Line) should provide another leg of growth.

Portfolio Review

The portfolio held 62 stocks at the year-end and was geared for the majority of the year. A more volatile political backdrop in the UK and heightened geo-political risk between the US and China led to portfolio turnover being slightly higher than usual.

We are bottom-up stock pickers; sector and macro views have less influence on the portfolio. We aim to run a stock-focused but sector-diversified portfolio.

Your fund benefited from being geared throughout the year. Through periods of heightened political uncertainty we occasionally use FTSE 100 futures to manage gearing. For example, in the second half of the year, we did a small amount of hedging to help cushion the fund from the volatility in share prices emanating from the increased levels of Brexit and political uncertainty. Once the General Election result was known, these hedged positions were closed.

At the year-end your fund was 8.9% geared.

Top Over and Under-weight positions vs FTSE All Share Index

Top Five Overweight Positions			Top Five Underweight Positions
Legal & General	+1.9%		Vodafone	-1.7%
GlaxoSmithKline	+1.7%		Reckitt Benckiser	-1.7%
JD Sports	+1.6%		HSBC	-1.7%
3i Group	+1.6%		National Grid	-1.4%
Next	+1.6%		Glencore	-1.1%

Source: JPMAM, as at 31st December 2019.

Legal & General's ongoing simplification has allowed it to be more stringent in its capital allocation, pricing and risk management in its core areas. Having streamlined its activities, by offloading assets such as legacy insurance liabilities to Swiss RE, it has been rewarded with higher returns, higher cash flows and higher dividends for investors. We continue to favour Legal & General over its competitors as, the shares still look cheap. Even after the recent rally the business looks attractively valued on a dividend yield basis which is at a significant premium to the FTSE All-Share Life Insurance Sector (see dividend yield chart below)

Significant stock purchases

Lloyds and Barclays - we moved to an overweight position in these UK banks in the run up to the election as the likelihood of a Labour government diminished. Their domestically exposed divisions should benefit from better consumer confidence in the UK and a generally stronger economy. Lloyds' risk exposure to the UK consumer puts it in a strong position should the UK economy rebound after a sluggish period due to the uncertainty created around Brexit outcomes. Barclays trades at a significant discount to its book value which seems unwarranted given their balanced book of business which finally seems to be performing after a period of restructuring.

Games Workshop , a new holding in the portfolio, is the global leader for table-top miniature gaming. The company has scale, expertise and control of every aspect of its brands (eg Warhammer) and products. Such high barriers to entry enable the company to earn very healthy profits with little competitive threat. Whilst niche, the company's products have a genuine global fan base with more than three-quarters of sales now coming from overseas. The company's nascent media business, which includes animation, enables it to earn substantial royalties from computer game developers. Keeping a very low investor profile means that many are surprised to learn that the company has a market capitalisation in excess of £2 billion.

Mitchells & Butlers - at the time of purchase this pub owner and operator traded at a discount to its net asset value. This discount is likely to reduce as the company has delivered strong like for like revenue growth and is generating significant free cash flow. Recent consolidation in the sector (Greene King and EI Group) has shown there is appetite for asset-backed UK companies, which further supports the valuation.

Ultra Electronics - this aerospace and defence company had been poorly managed for a number of years. A new management team is in the process of turning the business around, the success of which is evidenced by the improvement in organic growth and a growing order book. The share price has rallied strongly, but we believe the turnaround has long term benefits, which are still to come through.

Next , a long standing holding in the portfolio, is another example of a retailer that has demonstrated a canny ability to grow profits consistently, despite the woes of the wider sector. Management continue to successfully transition the business away from its high street stores to a lower cost, wider-reaching online presence. In addition to offering own label products it is also becoming a platform to retail other brands through their 'Label' offering. The company's capital discipline is exemplary with 30% of their shares bought back over the last decade. They have also set the standard for clear detailed communication with shareholders regarding their Brexit preparations. We added to our holding during the year.

Countryside Properties - this UK construction company is a new holding for us. They operate two main divisions: firstly, a housebuilding business similar to that of other UK housebuilders; second, 'Partnerships' which focus on the regeneration of urban sites generally in conjunction with a public sector body. As the domestic political skies cleared we added to our utility holding (United Utilities, Severn Trent and Pennon) as they simply looked too cheap versus both history and their regulated assets bases.

GlaxoSmithKline (GSK) - is a research-based pharmaceutical company that has been a stalwart in the portfolio offering strong cash generation and an attractive valuation in a relatively expensive sector. Given the pricing concerns around pharmaceuticals in the US, we favour the diversified business model that GSK has relative to its peer group. Also, the announcement to eventually divest its consumer health division through a joint venture with Pfizer should help unlock value in the group and allow it to focus purely on the research side of the business.

M&G - this long-standing asset management business and closed UK life insurance business was spun out from its parent company, Prudential, during the year. The newly created M&G has a very attractive dividend yield (8%) which is supported by the strong cash generation of its life insurance business.

Significant stock sales

The Autumn saw us make our final sales of Fever-Tree. This stock has been a wonderful investment for Claverhouse over the years. Having first invested in 2015 at £4, the rapid rise in the share price over the ensuing four years enabled us to make many profitable partial sales along the way, some as high as £35. However, during 2019, we became increasingly concerned that growth of the company's range of mixers was slowing in both the UK and Europe and that the success of its US expansion was as yet unproven. We therefore made final sales of the stock in September at £24. Such fears proved well founded as, post the period end, the company warned that its profits would not meet the market's expectations. The stock fell sharply and is currently trading at £9.7, where we are assessing whether to invest once more.

We reduced our exposure to the oil sector during the year through some sales of both Royal Dutch Shell and BP. Both companies face significant headwinds from a falling oil price and the increasing demands put on them by society to reduce their carbon emissions. We sold out of the exploration and production company Tullow, after it announced a disappointing update on its Guyana oil fields. The mining company Glencore has substantial coal and oil assets which are rapidly falling out of favour as society becomes increasingly conscious of the impact they are having on the environment. This, together with the overhang of a US Department of Justice investigation into Glencore's operations in the Democratic Republic of Congo, Nigeria and Venezuela, led us to sell our entire holding.

HSBC - we moved further underweight to this international banking group. In the second half of the year the company abandoned previously stated financial targets and announced a substantial restructuring of many of its businesses. The company is clearly struggling to cope with a backdrop of sustained low interest rates as well as heightened geo-political risks in its key Asian markets, especially Hong Kong.

Reckitt Benckiser - this global household goods and health products business has been struck down by a series of ailments which has led us to exit our already underweight holding. We think that the new CEO has his work cut out to return the group to meaningful volume growth and there is a danger that the margins may be sacrificed to achieve this.

Burford - we exited our off-benchmark position in this litigation finance specialist. As the litigation finance market becomes more crowded, our concerns grew over the sustainability of the high returns on capital. This proved prescient as, later in the year, the stock fell sharply as more investors started to share our concerns.

We sold out of our position in ITV, the British TV producer. Netflix, Amazon and now Apple (to name just a few) have entered the production space with much higher budgets and we struggle to see how ITV's latest venture, Britbox, can successfully compete with such deep pocketed behemoths.

Vodafone - we sold our remaining small holding as we do not think a dividend cut is enough to turn the tide in an industry where price wars are a constant feature. Even post the dividend cut, debt levels remain uncomfortably high.

Market Outlook

The decisive result of the recent General Election has removed much of the political uncertainty that has hung for over both the UK economy and stock market in recent years. Whilst the precise timeline for delivering a complete Brexit (including attendant trade deals) will remain unclear for some while yet, we nevertheless expect the clearing of the political skies soon to improve the confidence of consumers, corporates and investors alike.

With such a substantial majority in the Commons, the Government can enact policy at will and it would not surprise us if much of it was radical in nature and rewarding for UK shareholders. Such policies should also attract overseas investors back to the UK economy and stock market. What is more, despite a strong performance in 2019, UK equities still look very good value, trading at a 35% discount to the MSCI World index - a near 30 year record. Moreover, the prospective yield on the FTSE All-Share looks particularly appealing relative to both other equity markets and also the pitifully low yield on bonds and cash deposits.

The global economy remains in reasonable shape and should be supported further by the recent signing of the first stage of the US/China trade deal. The US economy may slow a little in 2020 but it is unlikely to go into recession. This together with continuing low interest rates keeps us optimistic on the prospects for markets in the medium term.

However, an improving economic and political backdrop has been completely overshadowed since the year end by the rapid spread of coronavirus from its origins in China. This virulent virus, which is moving at pace across the globe, is understandably causing concern amongst both investors and general public alike. Against a backdrop of considerable uncertainty as to how potentially dangerous the virus is and how far it will spread, equity markets globally have fallen sharply. Sentiment is likely to remain risk averse until such fears dissipate, which may be some while. As a consequence, we have tactically reduced the gearing in the portfolio to lower levels than usual, but we will be looking to increase it when appropriate. 

Meanwhile, as markets oscillate, Claverhouse's shareholders can continue to take considerable comfort from being invested in a company with fortress revenue reserves which provide them with one of the most secure dividends in the UK stock market.

Your fund currently has no gearing.

William Meadon

Callum Abbot

Investment Managers

18th March 2020

Postscript

Much of the above report was originally written before the extreme market turmoil of the last week. Share prices have fallen significantly in recent days and the outlook for many companies has changed. We will react and adapt to the changing situation, the outcome of which is difficult to predict at present, to ensure that the capital and income objectives of the Company are preserved as best as we can.

Principal Risks

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

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. The risk matrix, including emerging risks, are reviewed formally by the Board every six months or more regularly as appropriate. 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:

• Cybercrime

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 Company benefits directly or indirectly from all elements of JPMorgan's cyber security programme. The Board reviews the cyber security precautions taken by its third party suppliers on a regular basis. 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 by independent reporting accountants and reported on every six months against the AAF Standard.

• Share price discount

If the Company's share price lags the NAV by a significant level, this may result in lower returns to shareholders. The Board seeks to manage the volatility and absolute level of the discount by judicious use of its share repurchase authority taking account of market conditions and having established explicit guidelines.

• External factors

The Board has considered, and continues to keep under review, the political, economic and regulatory risks to the Company associated with the UK's decision to leave the European Union and the ongoing trade negotiations, including the effect on the business and economic environment in which the companies in the portfolio operate; the effect of volatility in sterling on the portfolio companies and the dividends received from them; possible changes in regulation affecting the listing and promotion of shares in UK companies, including the Company itself; and possible changes in direct and indirect taxes which may affect the Company's returns. In addition the Board continues to review the geo-political and economic impact of the Coronavirus.

•  Investment and Strategy

An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to underperformance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. 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 Investment Managers employ the Company's gearing within a strategic range set by the Board. The Board holds a separate meeting devoted to strategy each year.

• Market

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. The Company may use Index Futures to manage the effective level of gearing. Such instruments are also subject to fluctuations in value and may therefore result in gains or losses. 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 the Manager. The Board monitors the implementation and results of the investment process with the Manager.

• Operational

Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the depositary's or custodian's records could prevent accurate reporting and monitoring of the Company's financial position.

Details of how the Board monitors the services provided by the Manager and its associates and the key elements designed to provide effective internal control are included within the Risk Management and Internal Control section of the Corporate Governance report in 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 Manager's and other service providers' internal controls, as well as 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.

• Loss of Investment Team

Loss of key staff by the Manager, such as the Investment Managers, could affect the performance of the Company. The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team-based approach.

• Legal and Regulatory/Corporate Governance

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 in the Annual Report. Were the Company to breach Section 1158, it might lose investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by the Manager and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act and, since its shares are listed on the London Stock Exchange, the FCA Listing Rules, Prospectus, Market Abuse Regulation and Disclosure Guidance & Transparency Rules ('DTRs'). 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. The Board relies on the services of its Company Secretary and its professional advisers to ensure compliance with the Companies Act and the FCA Listing Rules and DTRs.

Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance report in the Annual Report.

• Financial

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

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 22 of the Annual Report.

• Emerging Risks

The Board has considered and kept under review emerging risks, including but not limited to the impact of climate change, natural disasters and social dislocation and conflict.

Transactions with the Manager and related parties

Details of the management contract are set out in the Directors' Report in the Annual Report. The management fee payable to the Manager for the year was £2,357,000 (2018: £2,399,000) of which £nil (2018: £nil) was outstanding at the year end.

During the year £126,000 (2018: £185,000), including VAT, was payable to the Manager for the administration of savings scheme products, of which £nil (2018: £nil) was outstanding at the year end.

Included in administration expenses in note 6 of the Annual Report are safe custody fees amounting to £7,000 (2018: £7,000) payable to JPMorgan Chase Bank N.A. of which £2,000 (2018: £1,000) 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 (2018: £39,000) of which £nil (2018: £nil) was outstanding at the year end.

The Company holds an investment in JPMorgan Smaller Companies Investment Trust plc which is managed by JPMorgan. At the year end this was valued at £24.1 million (2018: £14.7 million) and represented 4.9% (2018: 3.8%) of the Company's investment portfolio.

During the year the Company made £nil (2018: £nil) purchases of this investment and sales with a total value of £nil (2018: £1,305,000).

Dividend income amounting to £420,000 (2018: £412,000) was receivable during the year of which £nil (2018: £nil) was outstanding at the year end.

The Company also holds cash in the JPMorgan Sterling Liquidity Fund, which is managed by JPMorgan. At the year end this was valued at £18.8 million (2018: £20.1 million). Interest amounting to £78,000 (2018: £113,000) was receivable during the year of which £nil (2018: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £5,000 (2018: £7,000) were payable to JPMorgan Chase Bank N.A. during the year of which £3,000 (2018: £2,000) was outstanding at the year end.

At the year end, total cash of £614,000 (2018: £359,000) was held with JPMorgan Chase Bank N.A. A net amount of interest of £1,000 (2018: £nil) was receivable by the Company during the year from JPMorgan Chase Bank N.A. of which £nil (2018: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found in the Directors' Remuneration Report and in note 6 of the Annual Report.

STATEMENT of directors' Responsibilities

The Directors are responsible for preparing the annual report and financial statements 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 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 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 accounts are published on the www.jpmclaverhouse.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 accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

The Strategic Report and Directors' Report include 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 the Company faces.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report and Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed in the Annual Report, 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.

The Board confirms that it is satisfied that the annual report and accounts taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the performance, business model and strategy of the Company.

For and on behalf of the Board
Andrew Sutch
Chairman

18th March 2020

Statement of Comprehensive income

for the year ended 31st December 2019

	2019			2018
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair  value through profit or loss	-	77,518	77,518	-	(70,369)	(70,369)
Net foreign currency gains	-	-	-	-	31	31
Income from investments	19,912	-	19,912	19,039	-	19,039
Interest receivable and similar income	79	-	79	119	-	119
Gross return/(loss)	19,991	77,518	97,509	19,158	(70,338)	(51,180)
Management fee	(825)	(1,532)	(2,357)	(840)	(1,559)	(2,399)
Other administrative expenses	(618)	-	(618)	(739)	-	(739)
Net return/(loss) before finance costs   and taxation	18,548	75,986	94,534	17,579	(71,897)	(54,318)
Finance costs	(920)	(1,707)	(2,627)_	(911)	(1,691)	(2,602)
Net return/(loss) before taxation	17,628	74,279	91,907	16,668	(73,588)	(56,920)
Taxation	(9)	-	(9)	(45)	-	(45)
Net return/(loss) after taxation	17,619	74,279	91,898	16,623	(73,588)	(56,965)
Return/(loss) per share (note 2)	31.10p	131.12p	162.22p	30.09p	(133.20)p	(103.11)p
Dividends declared and payable in  respect of the year	29.00p			27.50p
Dividends paid during the year	28.25p			27.50p

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

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.

Net return/(loss) after taxation represents the profit/(loss) for the year and also Total Comprehensive Income.

statement of changes in equity

for the year ended 31st December 2019

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2017	14,192	149,641	6,680	235,667	22,318	428,498
Issuance of the Company's shares from Treasury	-	5,821	-	9,898	-	15,719
Expenses related to listing of shares	-	(78)	-	-	-	(78)
Net (loss)/return	-	-	-	(73,588)	16,623	(56,965)
Dividends paid in the year (note 3)	-	-	-	-	(15,141)	(15,141)
At 31st December 2018	14,192	155,384	6,680	171,977	23,800	372,033
Issuance of the Company's shares from Treasury	-	198	-	2,650	-	2,848
Issue of Ordinary shares	26	685	-	-	-	711
Repurchase of the Company's shares  into Treasury	-	-	-	(3,394)	-	(3,394)
Net return	-	-	-	74,279	17,619	91,898
Dividends paid in the year (note 3)	-	-	-	-	(16,002)	(16,002)
At 31st December 2019	14,218	156,267	6,680	245,512	25,417	448,094

1  This reserve forms the distributable reserve of the Company and may be used to fund distributions to investors.

statement of financial position

at 31st December 2019

	2019	2018
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	487,784	381,377
Current assets
Debtors	1,569	869
Cash and cash equivalents	19,429	20,436
	20,998	21,305
Current liabilities
Creditors: amounts falling due within one year	(60,688)	(703)
Net current (liabilities)/assets	(39,690)	20,602
Total assets less current liabilities	448,094	401,979
Creditors: amounts falling due after more than one year	-	(29,946)
Net assets	448,094	372,033
Capital and reserves
Called up share capital	14,218	14,192
Share premium	156,267	155,384
Capital redemption reserve	6,680	6,680
Capital reserves	245,512	171,977
Revenue reserve	25,417	23,800
Total shareholders' funds	448,094	372,033
Net asset value per share (note 4)	789.4p	655.4p

statement of cash flows

for the year ended 31st December 2019

	2019	2018
	£'000	£'000
Net cash outflow from operations before dividends and interest	(3,014)	(3,096)
Dividends received	19,567	18,928
Interest received	79	120
Overseas tax recovered	18	69
Interest paid	(2,547)	(2,649)
Net cash inflow from operating activities	14,103	13,372
Purchases of investments	(172,172)	(206,973)
Sales of investments	143,629	232,047
Settlement of futures contracts	(345)	-
Net cash (outflow)/inflow from investing activities	(28,888)	25,074
Dividends paid	(16,002)	(15,141)
Issuance of the Company's shares from Treasury	2,463	15,719
Repurchase of the Company's shares into Treasury	(3,394)	-
Issue of Ordinary shares	711	-
Repayment of bank loans	-	(45,000)
Drawdown of bank loans	30,000	10,000
Expenses related to listing of shares	-	(78)
Net cash inflow/(outflow) from financing activities	13,778	(34,500)
(Decrease)/increase in cash and cash equivalents	(1,007)	3,946
Cash and cash equivalents at start of year	20,436	16,489
Exchange movements	-	1
Cash and cash equivalents at end of year	19,429	20,436
(Decrease)/increase in cash and cash equivalents	(1,007)	3,946
Cash and cash equivalents consist of:
Cash and short term deposits	614	359
Cash held in JPMorgan Sterling Liquidity Fund	18,815	20,077
Total	19,429	20,436

RECONCILIATION OF NET DEBT

	As at 31st December 2018	Cash flows	Other non-cash charges	As at 31st December 2019
	£'000	£'000	£'000	£'000
Cash and cash equivalents
Cash	359	255	-	614
Cash equivalents	20,077	(1,262)	-	18,815
	20,436	(1,007)	-	19,429
Borrowings
Debt due within one year	-	(30,000)	(29,973)	(59,973)
Debt due after one year	(29,946)	-	29,946	-
	(29,946)	(30,000)	(27)	(59,973)
Total	(9,510)	(31,007)	(27)	(40,544)

Notes to the financial statements

for the year ended 31st December 2019

1.  Accounting policies

(a)  Basis of accounting

The financial statements are prepared under historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in October 2019.

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

The financial statements have been prepared on a going concern basis. The disclosures on going concern in the Directors' Report of the Annual Report form part of these financial statements.

The policies applied in these financial statements are consistent with those applied in the preceding year.

2.  Return/(loss) per share

		2019	2018
		£'000	£'000
	Revenue return	17,619	16,623
	Capital return/(loss)	74,279	(73,588)
	Total return/(loss)	91,898	(56,965)
	Weighted average number of shares in issue during the year	56,649,063	55,249,240
	Revenue return per share	31.10p	30.09p
	Capital return/(loss) per share	131.12p	(133.20)p
	Total return/(loss) per share	162.22p	(103.11)p

3.  Dividends

(a)  Dividends paid and declared

		2019 £'000	2018 £'000
	Dividends paid
	Unclaimed dividends refunded to the Company1	(10)	(8)
	2018 fourth quarterly dividend of 9.5p (2017: 9.5p) paid in March 2019	5,403	5,183
	First quarterly dividend of 6.25p (2018: 6.0p) paid in May 2019	3,555	3,281
	Second quarterly dividend of 6.25p (2018: 6.0p) paid in September 2019	3,530	3,303
	Third quarterly dividend of 6.25p (2018: 6.0p) paid in December 2019	3,524	3,382
	Total dividends paid in the year of 28.25p (2018: 27.50p)	16,002	15,141
	Dividend declared
	Fourth quarterly dividend declared of 10.25p (2018: 9.5p) paid in March 2020	5,829	5,403

¹ Represents dividends which remain unclaimed after a period of 12 years and thereby become the property of the Company.

  All dividends paid and declared in the period have been funded from the Revenue Reserve.

The fourth quarterly dividend has been declared and paid in respect of the year ended 31st December 2019. This dividend will be reflected in the financial statements for the year ending 31st December 2020.

(b)  Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year, shown below.

The revenue available for distribution by way of dividend for the year is £17,619,000 (2018: £16,623,000). The minimum distribution required under Section 1158 is £14,632,000 (2018: £13,749,000). Brought forward revenue reserves amounting to £nil (2018: nil) have been utilised in order to finance the dividend.

		2019 £'000	2018 £'000
	First quarterly dividend of 6.25p (2018: 6.0p) paid in May 2019	3,555	3,281
	Second quarterly dividend of 6.25p (2018: 6.0p) paid in September 2019	3,530	3,303
	Third quarterly dividend of 6.25p (2018: 6.0p) paid in December 2019	3,524	3,382
	Fourth quarterly dividend of 10.25p (2018: 9.5p) paid in March 2020	5,829	5,403
	Total dividend declared in respect of the year of 29.0p (2018: 27.5p)	16,438	15,369

  The revenue reserve after payment of the final dividend will amount to £19,588,000 (2018: £18,397,000).

4.  Net asset value per share

		2019	2018
	Net assets (£'000)	448,094	372,033
	Number of shares in issue (excluding shares held in Treasury)	56,765,331	56,765,653
	Net asset value per share	789.4p	655.4p

5.  Status of results announcement

2018 Financial Information

The figures and financial information for 2018 are extracted from the published Annual Report and Financial Statements for the year ended 31st December 2018 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2019 Financial Information

The figures and financial information for 2019 are extracted from the published Annual Report and Financial Statements for the year ended 31st December 2019 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

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

JPMORGAN FUNDS LIMITED 

  18th March 2020

  For further information, please contact:

  Faith Pengelly

  For and on behalf of

  JPMorgan Funds Limited

  020 7742 4000

ENDS

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

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

JPMORGAN FUNDS LIMITED

 

END

 

 

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