Half-year Report

RNS Number : 2101N

JPMorgan Claverhouse IT PLC

07 August 2017

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CLAVERHOUSE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST JUNE 2017

chairman's statement

Performance

For the six months to 30th June 2017 I am pleased to report a total return on the Company's net assets of +6.8% and a share price total return of +9.6%. The results compare with a total return from the Company's benchmark index, the FTSE All-Share Index, of +5.5% over the same period, an outperformance of +1.3%.

Over the long term, performance remains strong. Since the change in investment strategy in 2012, the Company has produced a total return on net assets of +82.2% compared with the benchmark index total return of +59.4%. Over the same period this equates to an annualised total return of +2.8%* in excess of the benchmark index total return.

The net asset value has increased further since the half year end by +2.2% as at 31st July 2017, compared to the benchmark index increase of +1.2% over the same period, and the share price has risen by +0.6%.

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

Revenue and Dividends

Revenue per share for the six months to 30th June 2017 increased by 9.5% to 16.21p, compared to 14.81p earned in the same period in 2016.

A first quarterly dividend of 5.5p per share (2016: 5.0p) was paid on 1st June 2017. It remains the Board's intention that the first three quarterly dividends should be of an equal amount and the Board has declared a second quarterly dividend of 5.5p per share (2016: 5.0p) to be paid on 1st September 2017 to shareholders on the register at the close of business on 11th August 2017. It continues to be the Board's aim to increase the total dividend each year as it has done in each of the past 44 years and the Company continues to benefit from a high level of revenue reserves and the ability to utilise these, if necessary, to support the dividend.

Discount and Share Repurchases

Discounts in the investment trust sector have narrowed generally in recent months, a reversal of the widening discount trend in early 2017. As at 30th June 2017 the Company's discount (to its capital only NAV with debt at par) was 7.5%. In January 2017 a total of 145,000 shares were repurchased for holding in Treasury. The Board continues to monitor the discount closely and is prepared to repurchase shares when it believes that it is appropriate. As at 31st July 2017 the discount was 9.1%.

Gearing

As previously explained, the Board has agreed with the Investment Managers that gearing of 10% may be considered as 'normal'. This is partly a reflection of the long term debt comprised in the £30 million 7% 2020 debenture. The Investment Managers have discretion to manage the gearing level within a range of +/-7.5% around the 10% normal level and as at 30th June 2017 the Company was 12.7% geared.

In April the Board renewed the Company's revolving credit facility of £50 million with National Australia Bank for a further three years to April 2020. £35 million of this facility was drawn at 30th June 2017. The Board is also starting to consider how to replace the debenture which is due to be repaid in 2020.

*        calculated on an arithmetic basis.

Outlook

It seems inevitable that sentiment in the UK stockmarket over the coming months will be dominated by developments in the Brexit negotiations and any further upheavals in the British political scene. There is, in my view, now a greater likelihood than before that transitional arrangements covering many aspects of Britain's EU exit will be agreed for the period after March 2019 and thus there is some hope that the outcome will be more business

friendly than might earlier have been expected. However, considerable uncertainty will remain for some time, which will not help companies with their business and investment decisions.

There have been mixed messages about the ability of UK companies to continue paying the level of dividends that they have paid in recent years. There has been concern that, with UK growth slowing, the earnings and dividends of more domestically focussed companies would be put under strain. While this remains the case, it is likely that UK companies are heading for the highest total of dividends ever paid this year, due to the lower pound which has increased the sterling value of international earnings. The Company continues to benefit from a high level of revenue reserves.

Equities remain an attractive asset class for medium to long term investment and the Investment Managers will continue to seek to invest in stocks within the Company's investment universe that can best flourish in these uncertain times.

Andrew Sutch

Chairman

4th August 2017

Investment Managers' Report

Market Review

The first six months of the year saw the FTSE All-Share index deliver a total return of +5.5%. The more internationally oriented FTSE 100 large-cap index returned +4.7%, in contrast to the much more domestically focussed FTSE Mid 250 and FTSE Small Cap indices, which returned +8.5% and +10.2% respectively. The pound rallied by over 5% during the period to $1.30 at the end of June. The UK Gilts market delivered a total return of +0.3%.

Politics dominated investors' thoughts in the first half of the year. In a remarkable series of events, the UK government went, within six months, from being genuinely strong and stable to weak and divided. By contrast, the resounding victory by Emmanuel Macron in the French Presidential Elections gave Europe a new found confidence.

The same opinion pollsters who gave David Cameron the confidence to call the EU referendum also led to the fateful decision of Prime Minister May to risk her parliamentary majority by calling a snap June Election. The campaign was shambolic and proved to be a humiliating experience for the Prime Minister, who not only failed to increase her majority but actually lost it altogether. It was only a hasty confidence and supply agreement with the Democratic Unionist Party that enabled Mrs May to form a government.

The uncertainty caused by both this and the ticking Brexit clock (which was started in March) filtered through to business and consumer confidence, both of which started to wane by the end of the period. Higher inflation ate into real wage growth, which impacted some stocks exposed to the UK consumer. However, continuing low unemployment levels and a low savings ratio helped support consumer spending.

Fortunately, global economic growth continued to accelerate, which provided some support for stocks with international earnings. Indeed, in the US, growth was sufficiently strong for the Fed to raise interest rates to 1.25% in June, the second rate rise in 2017 to date.

Portfolio review

The total return on the net assets of the Company of +6.8% compared with the benchmark index return of +5.5% over the first six months of 2017.

Stock selection was good. Fever-Tree, the fast growing premium mixer company was again the fund's best performer, with its share price rising another 50% over the six months. This remarkable company which employs only 50 people now has a market capitalisation of almost £2 billion as global demand for its suite of mixers continues to significantly beat expectations. Following such a strong run we top-sliced our holding during the period but the stock remains our most overweight position and we continue to be very positive on the company's prospects. JD Sports, the leading UK sportswear retailer, was another consumer stock which performed extremely well and again we took a small amount of profit on the holding.

Our holdings in Melrose Industries, Synthomer and 3i were all added to during the period and they all continued to perform well, delivering positive news flow and encouraging outlook statements. We also added to our recent purchase of Electrocomponents, the electronic equipment distributor where a new management team is adding significant shareholder value. Other new holdings included the specialist construction group Morgan Sindall and the bank note printer, De la Rue. The portfolio benefited from Unilever receiving an aborted bid from a US consortium which included Warren Buffet amongst its number. The failed takeover attempt spurred the company into implementing a number of shareholder-friendly changes to its strategy, which has pushed Unilever's share price to all-time highs.

The portfolio's holdings in pharmaceutical and oil stocks generally performed poorly and we reduced our weightings in both sectors in the light of more challenging trading. We also sold our holdings in Smith and Nephew, United Utilities and Domino's Pizza as the trading prospects of each of them had deteriorated.

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

Top Five Overweight Positions			Top Five Underweight Positions
Fever-Tree	+2.1%		Vodafone Group	-1.6%
3i	+2.0%		National Grid	-1.4%
Synthomer	+2.0%		AstraZeneca	-1.3%
Melrose	+1.8%		Standard Chartered	-0.9%
Micro Focus Int	+1.7%		SSE	-0.6%

Source: JPMAM, as at 30th June 2017.

The outlook for underlying UK dividend growth remains mixed, with recent headline dividend growth flattered by the weakness of sterling over the last twelve months. This has enhanced the sterling value of dividends from some of the globally-oriented large cap stocks which declare their dividends in US dollars. There have also been some special dividends announced by UK companies in the first half of 2017, although fewer than was the case last year. Nonetheless some companies will continue to generate sufficient cash to deliver good underlying dividends and/or special dividends. Claverhouse itself has seen an increase in its income from investments during the first half of the year, as outlined in the Chairman's statement.

Market outlook

The economic and political outlook for the second half of 2017 and beyond has become more uncertain. The Prime Minister's authority has evaporated and only the lack of appetite on the Conservative benches for another leadership election keeps her in place. At some stage that will change but, for the moment at least, Mrs May is likely to remain in office, a much diminished figure whose position as Prime Minister hangs by a thread, ready to be cut once her party has re-grouped.

However, at least two good things should come out of a compromised, minority government: firstly, the likelihood of a more business friendly Brexit and secondly, against such an uncertain backdrop, the likelihood of interest rates staying lower for even longer. Both of these should provide some support for equities. Sterling may well weaken further from here, but this would, at the margin, be good for overseas earners and exporters. Moreover, global growth is accelerating and equities are also a better hedge than bonds or cash against the UK's rising inflation.

Notwithstanding all of the above, we will be led by events, many of which will be difficult to predict. For example, the pursuit of a business unfriendly 'hard' Brexit or the fall of the Government would lead to some significant changes in the portfolio and to our level of gearing. At the time of writing, gearing is 11.2%.

William Meadon

Sarah Emly

Investment Managers

4th August 2017

Interim Management Report

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

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into the following broad categories: investment and strategy; market; legal and regulatory; corporate governance and shareholder relations; operational and cyber crime; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 31st December 2016.

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 and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider that there is sufficient 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 FRS 104 'Interim Financial Reporting' and gives a true and fair view of the state of affairs of the Company, and of the assets, liabilities, financial position and net return of the Company as at 30th June 2017 as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; 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.

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 accounting 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 the 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.

For and on behalf of the Board

Andrew Sutch
Chairman

4th August 2017

statement of Comprehensive income
for the six months ended 30th June 2017

	(Unaudited) Six months ended 30th June 2017			(Unaudited) Six months ended 30th June 2016			(Audited) Year ended 31st December 2016
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss	-	18,476	18,476	-	(17,488)	(17,488)	-	24,029	24,029
Net foreign currency (losses)/gains	-	(3)	(3)	-	6	6	-	6	6
Income from investments	10,042	-	10,042	9,289	-	9,289	16,236	-	16,236
Interest receivable and similar income	15	-	15	38	-	38	72	-	72
Gross return/(loss)	10,057	18,473	28,530	9,327	(17,482)	(8,155)	16,308	24,035	40,343
Management fee	(400)	(743)	(1,143)	(286)	(530)	(816)	(650)	(1,208)	(1,858)
Performance fee writeback	-	-	-	-	3,500	3,500	-	3,500	3,500
Other administrative expenses	(350)	-	(350)	(401)	-	(401)	(840)	-	(840)
Net return/(loss) on ordinary activities before finance costs and taxation	9,307	17,730	27,037	8,640	(14,512)	(5,872)	14,818	26,327	41,145
Finance costs	(451)	(838)	(1,289)	(474)	(880)	(1,354)	(919)	(1,706)	(2,625)
Net return/(loss) on ordinary activities before taxation	8,856	16,892	25,748	8,166	(15,392)	(7,226)	13,899	24,621	38,520
Taxation	(12)	-	(12)	(61)	-	(61)	(66)	-	(66)
Net return/(loss) on ordinary activities after taxation	8,844	16,892	25,736	8,105	(15,392)	(7,287)	13,833	24,621	38,454
Return/(loss) per share (note 4)	16.21p	30.95p	47.16p	14.81p	(28.13)p	(13.32)p	25.28p	44.99p	70.27p

All revenue and capital items in the above statement derive from continuing operations.

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 net return/(loss) on ordinary activities after taxation represents the profit/(loss) for the period/year and also the total comprehensive income.

statement of changes in equity
for the six months ended 30th June 2017

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 30th June 2017 (Unaudited)
At 31st December 2016	14,192	149,641	6,680	192,118	19,676	382,307
Repurchase of the Company's shares into Treasury	-	-	-	(918)	-	(918)
Net return on ordinary activities	-	-	-	16,892	8,844	25,736
Dividends paid in the period	-	-	-	-	(7,354)	(7,354)
At 30th June 2017	14,192	149,641	6,680	208,092	21,166	399,771
Six months ended 30th June 2016 (Unaudited)
At 31st December 2015	14,192	149,641	6,680	167,612	17,601	355,726
Net (loss)/return on ordinary activities	-	-	-	(15,392)	8,105	(7,287)
Dividends paid in the period	-	-	-	-	(6,285)	(6,285)
At 30th June 2016	14,192	149,641	6,680	152,220	19,421	342,154
Year ended 31st December 2016 (Audited)
At 31st December 2015	14,192	149,641	6,680	167,612	17,601	355,726
Repurchase of the Company's shares into Treasury	-	-	-	(115)	-	(115)
Net return on ordinary activities	-	-	-	24,621	13,833	38,454
Dividends paid in the year	-	-	-	-	(11,758)	(11,758)
At 31st December 2016	14,192	149,641	6,680	192,118	19,676	382,307

¹ This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

statement of financial position
at 30th June 2017

	(Unaudited)	(Unaudited)	(Audited)
	30th June 2017	30th June 2016	31st December 2016
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	450,374	376,632	428,242
Current assets
Debtors	1,941	4,463	882
Cash and cash equivalents	13,125	39,651	11,771
	15,066	44,114	12,653
Current liabilities
Creditors: amounts falling due within one year	(764)	(47,809)	(28,696)
Derivative financial liabilities	-	(905)	-
Net current assets/(liabilities)	14,302	(4,600)	(16,043)
Total assets less current liabilities	464,676	372,032	412,199
Creditors: amounts falling due after more than one year	(64,905)	(29,878)	(29,892)
Net assets	399,771	342,154	382,307
Capital and reserves
Called up share capital	14,192	14,192	14,192
Share premium	149,641	149,641	149,641
Capital redemption reserve	6,680	6,680	6,680
Capital reserves	208,092	152,220	192,118
Revenue reserve	21,166	19,421	19,676
Total shareholders' funds	399,771	342,154	382,307
Net asset value per share (note 5)	732.7p	625.2p	698.9p

Notes to the Financial Statements
for the six months ended 30th June 2017

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 2016 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies, including 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 financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the 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' (the revised 'SORP') issued by the Association of Investment Companies in November 2014 and updated in January 2017.

FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 30th June 2017.

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

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 31st December 2016.

3.     Dividends paid

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		30th June 2017	30th June 2016	31st December 2016
		£'000	£'000	£'000
	Unclaimed dividends refunded to the Company	(12)	(8)	(7)
	2016 fourth quarterly dividend of 8.0p (2015: 6.5p) paid in March	4,365	3,557	3,557
	First quarterly dividend of 5.5p (2016: 5.0p) paid in June	3,001	2,736	2,736
	Second quarterly dividend of 5.0p paid in September	n/a	n/a	2,736
	Third quarterly dividend of 5.0p paid in December	n/a	n/a	2,736
	Total dividends paid in the period	7,354	6,285	11,758

All dividends paid in the period/year have been funded from the revenue reserve.

A second quarterly dividend of 5.5p (2016: 5.0p) per share, amounting to £3,001,000 (2016: £2,736,000), has been declared payable in respect of the year ending 31st December 2017. It will be paid on 1st September 2017 to shareholders on the register at the close of business on 4th August 2017.

4.     Return/(loss) per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		30th June 2017	30th June 2016	31st December 2016
		£'000	£'000	£'000
	Return/(loss) per share is based on the following:
	Revenue return	8,844	8,105	13,833
	Capital return/(loss)	16,892	(15,392)	24,621
	Total return/(loss)	25,736	(7,287)	38,454
	Weighted average number of shares in issue	54,570,913	54,723,979	54,720,755
	Revenue return per share	16.21p	14.81p	25.28p
	Capital return/(loss) per share	30.95p	(28.13)p	44.99p
	Total return/(loss) per share	47.16p	(13.32)p	70.27p

5.     Net asset value per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		30th June 2017	30th June 2016	31st December 2016
	Net assets (£'000)	399,771	342,154	382,307
	Number of shares in issue at period end	54,558,979	54,723,979	54,703,979
	Net asset value per share	732.7p	625.2p	698.9p

For further information, please contact:

Faith Pengelly

For and on behalf of

JPMorgan Funds Limited, Secretary

020 7742 4000

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

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

ENDS

A copy of the half year 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 will also 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.

 

END

 

 

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