Final Results
JPMorgan Fleming Claverhouse IT PLC
21 March 2006
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN FLEMING CLAVERHOUSE INVESTMENT TRUST PLC
PRELIMINARY ANNOUNCEMENT OF FINAL RESULTS
The Directors of JPMorgan Fleming Claverhouse Investment Trust plc announce the
Company's results for the year ended 31st December 2005.
I am very pleased to present my first Chairman's Statement to shareholders
following Robert Walther's retirement as Chairman last year. Robert served as a
Director from 1993, and as Chairman from 1998. He presided over a period of
substantial growth of the Company followed by three difficult years from 2000 to
2002 during which his steady resolve was tested by the most unfavourable market
conditions seen in over 25 years. That resolve did not weaken and the Company
emerged ready to take advantage of the return of better markets since 2003.
Performance
I am pleased to report that, in the year to 31st December 2005, the Company
produced a total return to shareholders of +26.3% and also a total return on net
assets of +26.3%. This compares favourably with a total return on the FTSE
All-Share Index, the benchmark against which the Directors judge the Company's
performance, of +22.0% over the same period. This is the third year in
succession that performance has outpaced our benchmark and the result is a
tribute to the disciplined investment process adopted by our Investment
Managers.
Underlying attribution data, which analyses the components of the 4.3%
out-performance net of the fees and the expenses of running the Company, shows
that the Investment Managers' asset allocation and stock selection during the
year added approximately 4.1%, and that this was further enhanced by the
positive impact of the Company's gearing in a rising market.
Revenue and Dividends
The Board's intention remains to increase the dividend annually by at least the
rate of inflation, thereby continuing the Company's record of increasing its
dividend every year since 1972. The Board has decided that the total dividend
for 2005 should be 11.50p per share, representing an increase of 8.0% over 2004.
This payment is once again fully covered by earnings, as the dividend flow from
our underlying investments has remained very healthy. However, as has been
stated in previous years, the Board remains prepared to use the revenue reserve
to support its dividend policy rather than constrain the Investment Managers'
management of the portfolio. Indeed the ability to use the revenue reserve in
this way, which is not permitted to unit trusts, is viewed as one of the
advantages of the investment trust structure, together with the ability to gear
up by using borrowings to enhance shareholder returns over the medium term.
The Company ended the year 13.2% geared. During the year the range fluctuated
between 11% and 15%. It is the Board's intention to keep gearing within the
range of 0% to 15% under normal market conditions, whilst reserving the right to
allow gearing to increase in the event of a serious set-back in markets which
provided a buying opportunity. Even in such circumstances the Board would not
envisage gearing rising significantly above 20%.
Share Repurchases
During the year the Company repurchased a total of 3,150,397 ordinary shares for
cancellation at a weighted average discount to net asset value (with debt valued
at par) of 5.7%. This has added approximately 1.23p per share to net asset value
for continuing shareholders. The Board's objective remains to use the share
repurchase authority to manage any imbalance between the supply and demand of
the Company's shares, thereby minimising the volatility of the discount. To
date, the Board believes that it has been successful in achieving this aim, with
the discount ranging between 4.7% and 6.6% (with debt valued at par) during
2005.
Treasury Shares
At the 2005 AGM, the Board sought shareholder authority to reissue shares from
treasury at a discount to net asset value. The Board believed, as it still does,
that the ability to reissue, rather than cancel, shares bought in the market
would be in the interests of shareholders in improving liquidity in the
Company's shares, managing any imbalance between the supply and demand,
minimising the volatility and absolute level of the discount and enhancing the
net asset value on the 'round trip' (i.e. selling shares at a narrower discount
than that at which they were bought in). However, the principle of reissuing
shares at a discount to net asset value is not supported by some institutional
shareholder bodies. Although a significant majority of shareholders' proxy votes
were lodged in favour of the resolutions, those were insufficient to achieve the
75% vote in favour necessary for the resolutions to be passed. Consequently the
relevant resolutions were withdrawn from the AGM.
The Company and its Investment Managers continue to have dialogue with
institutional shareholders, who make up some 19% of the Company's share
register, and their representative bodies seeking to persuade them that such
authority would be in the interests of all long term shareholders. However, thus
far those representative bodies are not persuaded and consequently no
resolutions will be forthcoming for the 2006 AGM. Nevertheless the Board hopes
to be able to return to this issue in future years. I have recently offered to
meet with our major shareholders to understand better their views.
Board of Directors
During 2005, the Board conducted a search for a new Director following Robert
Walther's retirement. We interviewed a number of candidates and on 1st January
2006 Anne McMeehan was appointed a Director of the Company. Anne is a founder
director of Cauldron Consulting, a City-based communications consultancy
specialising in the provision of marketing and PR services to organisations
operating in the financial arena, and brings a wealth of experience to the
Board, having worked in the UK Financial Services industry since 1977. Having
been appointed by the Board since the year end, she will stand for election at
the forthcoming Annual General Meeting.
Corporate Governance
The Company operates in accordance with corporate governance best practice. In
January this year, the Nomination Committee of the Board met to evaluate the
performance of the Managers and of the Board itself, its committees and the
individual Directors. It also considered whether to recommend to shareholders
the re-election of the Directors due to retire by rotation at this year's AGM.
In accordance with the Company's Articles of Association, Virginia Holmes and I
are required to retire by rotation at this year's AGM. I am pleased to confirm
that Virginia continues to be a very effective Director and demonstrates
commitment to her role. Absent myself, the Nomination Committee has also
confirmed its satisfaction with my own performance and therefore Virginia and I
will both stand for re-election at the AGM. As I have served as a Director for
more than nine years, I will now be required to seek re-election on an annual
basis.
Managers and Management - Fees and Notice Period
The Board has evaluated the performance of the Managers, JPMorgan Asset
Management, and confirms that it is satisfied that the continuing appointment of
the Managers is in the interests of shareholders as a whole. In arriving at this
view, the Board noted three years of performance ahead of the benchmark, and
considered the investment strategy and process of the Investment Managers and
the support that the Company receives from JPMorgan.
Fees payable to JPMorgan were last reviewed in 1999 when the performance fee was
introduced to take effect for the year 2000. In 2005 the Board commissioned a
report from Bestinvest Research Ltd seeking advice on how the Company's fee
arrangements compared with those of other investment trusts and similar funds.
That report was discussed with JPMorgan and, with effect from 1st January 2006,
certain changes have been agreed in respect of the fee arrangements.
The Company has taken responsibility for reimbursing JPMorgan with the costs
that are payable to third party administrators for running the very successful
share plans that have been built up over the years and which amount to 52% of
the share register. In addition, in order to align JPMorgan's interests more
closely with those of shareholders, the base fee will be calculated by reference
to the market value of the Company's shares rather than, as in the past, the
gross value of the Company's assets. The Board have agreed a base fee of 0.55%
of market value. The performance fee basis will continue unchanged, namely being
earned at a rate of 15% of outperformance above the benchmark plus a hurdle of
0.5% and calculated by reference to gross assets. Only one third of any
performance fee earned in any one year is immediately payable and the balance is
carried forward and is subject to claw-back in the event of underperformance in
the following two years.
The outstanding performance relative to the benchmark has earned JPMorgan a
performance fee of £2.4 million in 2005. The Board is pleased to report this
outcome and hopes that JPMorgan will continue to deliver above benchmark
performance and thus will earn substantial performance fees in future years as
such performance will be of great benefit to all shareholders.
The changes to the base fee and the way in which charges for the share plans are
levied should result in a significant saving in the annual costs of running the
Company, before taking account of any performance fee payable. The amount of the
saving will depend upon the levels of gearing and of the discount to net asset
value at any one time.
In a further move towards best market practice, the Board have agreed with
JPMorgan to reduce the notice period in respect of the investment management
contract from twelve months to six in the event of the Board giving notice as a
result of poor investment performance. In other circumstances the notice period
will remain at twelve months.
VAT Appeal
As many shareholders will be aware, investment trust companies currently suffer
VAT on management fees. This is not the case for other collective investment
vehicles, such as authorised unit trusts and open ended investment companies,
and the Board believes that this is inequitable. Consequently, in 2004 the
Company lodged a joint appeal with the Association of Investment Trust Companies
('AITC') for VAT to be removed from the payment of investment trust management
fees. The costs of the appeal are being borne by the investment trust industry
through the AITC. A tribunal hearing was held in the UK in May 2005, following
which, as expected, the case was referred to the European Court of Justice. A
decision is expected later this year.
Directors' Fees
Directors' Fees were last increased in 2004. In the light of significantly
increased responsibilities placed on directors in recent years, particularly in
relation to corporate governance requirements, and the time taken to discharge
those responsibilities, the Board has taken advice from JPMorgan in relation to
the level of fees paid elsewhere in the investment trust industry and is
recommending that shareholders approve an increase in fees at the forthcoming
AGM. If the recommendation is approved, the Chairman's fees will rise to
£24,000, the other Directors' fees to £16,000 and the Chairman of the Audit
Committee will receive an additional £2,000.
Annual General Meeting
This year's AGM will be held in London at Trinity House, Tower Hill, London EC3N
4DH on Thursday 27th April 2006 at 12.00 noon. The Investment Managers will
review the past year and comment on the outlook for the current year. The
meeting will be followed by a buffet lunch, allowing shareholders the
opportunity to meet the Directors and the Investment Managers. Following the
success of last year's AGM in Edinburgh, the Board hopes to continue its
practice of alternating the AGM venue between London and regional centres
convenient for shareholders.
The Future
After three years of very strong performance it seems hard to expect continued
progress at the rate that we have seen recently. However, economic conditions
remain favourable and, in the light of significant increases in company profits
in recent years, UK shares are not expensive, either by historical standards or
those of other major markets. In addition UK companies are clearly seen as
attractive as evidenced by the number of take-overs by foreign groups and
private equity interests.
The Company has the specific focus of outperforming the FTSE All-Share Index for
the UK market and that we will seek to continue to do, as we have in seven years
out of the last ten. We are a fund committed to UK equities. Equities are a long
term investment and not every year can be expected to be as profitable as was
2005. However, we are confident that they remain an appropriate asset class for
long term investors. We will strive to ensure that Claverhouse continues to
deliver regular outperformance together with a rising dividend and we will be
discussing with JPMorgan how best to promote the Company's shares to new
investors so as to bring supply and demand into balance.
Sir Michael Bunbury Bt., KCVO, DL
Chairman 21st March 2006
For further information please contact:
Jonathan Latter
JPMorgan Asset Management (UK) Limited
Telephone 0207 742 6000
JPMorgan Fleming Claverhouse Investment Trust plc
Unaudited figures for the year ended 31 December 2005
Income Statement
Year ended 31 December 2005 Year ended 31 December 2004
(restated)
Revenue Capital Total Revenue Capital Total
return return return return return return
£'000 £'000 £'000 £'000 £'000 £'000
Net realised gains on investments - 10,012 10,012 - 2,599 2,599
Unrealised gains on investments - 54,155 54,155 - 35,047 35,047
Other capital charges - (4) (4) - (3) (3)
Income from investments 10,126 - 10,126 9,648 - 9,648
Other income 227 - 227 293 - 293
_______ ________ _______ _______ ________ _______
Gross revenue and capital return 10,353 64,163 74,516 9,941 37,643 47,584
Management fee (758) (1,409) (2,167) (736) (1,366) (2,102)
Performance fee - (2,969) (2,969) - (614) (614)
Other administrative expenses (318) - (318) (332) - (332)
_______ ________ _______ _______ ________ _______
Net return before finance charges and
taxation 9,277 59,785 69,062 8,873 35,663 44,536
Interest payable (917) (1,703) (2,620) (1,219) (2,263) (3,482)
Debenture breakage cost - - - - (3,210) (3,210)
_______ _______ _______ _______ _______ _______
Return before taxation 8,360 58,082 66,442 7,654 30,190 37,844
Taxation (1) - (1) (1) - (1)
______ _______ _______ ______ _______ _______
Total return attributable to ordinary
shareholders 8,359 58,082 66,441 7,653 30,190 37,843
Return per ordinary share 12.76p 88.65p 101.41p 10.59p 41.77p 52.36p
JPMorgan Fleming Claverhouse Investment Trust plc
Unaudited figures for the year ended 31 December 2005
Reconciliation of Movements in Shareholders' Funds
Called-up Capital Capital Capital
share Share reserve reserve redemption Revenue
capital Premium -realised -unrealised reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31st December 2003 (as 18,574 149,641 68,452 17,244 2,298 10,390 266,599
restated)
Shares bought back and cancelled (1,733) - (24,755) - 1,733 - (24,755)
Capital return from ordinary - - 9,188 21,002 - - 30,190
activities
Revenue return from ordinary - - - - - 7,653 7,653
activities
Dividends appropriated in the year - - - - - (7,643) (7,643)
_______ _______ ________ ________ _______ _______ ________
At 31st December 2004 (as restated) 16,841 149,641 52,885 38,246 4,031 10,400 272,044
Shares bought back and cancelled (788) - (12,836) - 788 - (12,836)
Capital return from ordinary - - 28,580 29,502 - - 58,082
activities
Revenue return from ordinary - - - - - 8,359 8,359
activities
Dividends appropriated in the year - - - - - (7,195) (7,195)
_______ _______ ________ ________ _______ _______ ________
At 31st December 2005 16,053 149,641 68,629 67,748 4,819 11,564 318,454
JPMorgan Fleming Claverhouse Investment Trust plc
Unaudited figures for the year ended 31 December 2005
BALANCE SHEET 31 December 31 December
2005 2004
(restated)
£'000 £'000
Investments at fair value through profit and loss 360,996 306,730
Net current liabilities (10,796) (4,706)
Creditors: amounts falling due after one year (29,597) (29,570)
Provisions for liabilities and charges (2,149) (410)
_______ _______
Total net assets 318,454 272,044
======= =======
Net asset value per ordinary share 495.9p 403.8p
CASH FLOW STATEMENT
2005 2004
£'000 £'000
Net cash inflow from operating activities 7,730 7,184
Net cash outflow from servicing of finance (2,554) (7,610)
Net cash inflow from capital expenditure and financial investment 9,829 41,535
Total equity dividends paid (7,195) (7,643)
Net cash outflow from financing (3,309) (40,922)
_______ _______
Increase/(decrease) in cash for the year 4,501 (7,456)
======= =======
Certain figures for the year ended 31st December 2004 have been restated in
accordance with Financial Reporting Standards 21,25 and 26.
Due to the introduction of Financial Reporting Standard 21, the Company is no
longer permitted to accrue unpaid dividends in its accounts. In addition, FRS 25
states that dividends can no longer be presented on the Income Statement. In
respect of the year ended 31st December 2005, the Company has declared a fourth
quarterly dividend of 3.70p per share (£2,362,000). As a result of buybacks
following the year ended 31st December 2004, £11,000 has been written back to
the revenue reserve in the year to the 31st December 2005. Prior results have
accordingly been restated and this has led to an increase in net assets
attributable to shareholders of £2,122,000 for the year ended 31st December
2005.
The above financial information does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985. The comparative financial
information is based on the statutory accounts for the year ended 31st December
2004. These accounts, upon which the auditors issued an unqualified opinion,
have been delivered to the Registrar of Companies.
JPMORGAN ASSET MANAGEMENT (UK) LIMITED
21st March 2006
This information is provided by RNS
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