Half-Year Results

RNS Number : 0205R
JPMorgan Mid Cap Invest Trust PLC
25 February 2019
 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN MID CAP INVESTMENT TRUST PLC

 

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST DECEMBER 2018

 

Legal Entity Identifier: 549300QED7IGEP4UFN49

Information disclosed in accordance with DTR 4.2.2

 

CHAIRMAN'S STATEMENT

Performance

The UK stock market suffered its worst year in a decade in 2018, as concerns over global growth increased sharply, and Brexit related risks intensified. The second half of the year, in particular, saw considerable stock market volatility and a marked deterioration in investor sentiment towards the UK, leading to a major market sell-off. As a consequence, in the six month period under review to 31st December 2018, the Company's total return on net assets was -20.8%, representing an underperformance of the Company's benchmark, which returned -16.8%. The discount level remained almost unchanged over the half year, although this masks intra-period volatility, particularly around the market correction in October. This resulted in a share price total return of -20.6%. Whilst it is disappointing to report an underperformance, the Board focusses on longer term performance, which remains strong. Shareholders will be pleased to note that the share price rebounded in January 2019, returning just under 10%.

A review of the Company's performance for the period and the outlook for the remainder of the year is provided in the Investment Managers' Report.

Revenue and Dividends

Net revenue after taxation for the six months to 31st December 2018 was £3.45 million (2017: £3.45 million) and earnings per share, calculated on the weighted average number of shares in issue, were 14.50p (2017: 14.47p). The Board has declared an interim dividend of 8.0p (2017: 8.0p) to be paid on 17th April 2019 to shareholders on the register at the close of business on 15th March 2019.

Loan Facilities and Gearing

The Board has determined that in normal circumstances the Company's overall gearing range is 5% net cash to 25% geared. Within this range, after due consideration at each Board meeting, the Board normally sets a narrower, short term gearing range for the ensuing period. In the run-up to the scheduled withdrawal of the UK from the European Union, the Investment Managers have reduced the gearing level to 1.1%. More information on the Company's portfolio positioning ahead of the withdrawal is detailed within the Investment Managers' Report.

The Company is in the process of refinancing its multi-currency loan facility with Scotiabank. The refinanced £30 million five year facility will have an option of further increasing the amount available to £50 million.

Management of the Discount

The Board believes that the repurchase authority remains an important tool in the management of discount volatility and powers were again sought and approved by shareholders at the Company's 2018 Annual General Meeting. The Company will only repurchase shares at a discount to their prevailing net asset value. The Company repurchased 50,000 shares over the reporting period when the discount significantly widened over a particularly volatile period.

Board of Directors

Ahead of the retirement of Margaret Littlejohns at the conclusion of the Company's 2019 Annual General Meeting, Margaret Payn has been appointed to the Board with effect from 1st March 2019. Margaret has extensive experience across the financial sector, most recently at AMP where she was CFO/COO. After qualifying as an accountant with KPMG, she worked for several organisations including nine years at Schroders (latterly as CFO/COO of the Asian business based in Hong Kong) and three years at ANZ in similar roles.

Prospects

The increased stock market volatility experienced in the second half of 2018 has been attributed to the expectations of tightening credit conditions and greater political and trade tensions. The net result was to see reduced forecasts for economic and profits growth for this year and possibly next. It is therefore reassuring to see Central Banks rein in their expectations of policy tightening. However, at the time of writing there is no confirmation of any softening in the US position on trade tariffs and a final Brexit deal is still awaited. While these global uncertainties have led to a more cautious stance by companies, it is worth noting that the holdings of cash by UK companies is now approaching the equivalent of 40% of GDP.1 This has steadily increased since the financial crisis of 2008 and accelerated sharply since the referendum result. There is therefore the scope for a boost to the economy when business confidence returns and companies are ready to re-establish their investment plans. It is also a timely reminder that most UK companies remain in good health.

It is also worth noting that increased stock market volatility did not lead to a reduction in M&A activity in the FTSE 250 universe. This is a feature we have identified before as being one of the attractions of this sector.

The ability of our investment team to identify likely out-performers and to react swiftly in cutting our exposures to under-performers has been proven over many years. We therefore remain confident that their ability to outperform their benchmark will be re-established after the underperformance in the period under review. This, together with the potential for the FTSE 250 to be re-rated once confidence has returned, leads us to believe that your Company will provide attractive total returns to both existing and new investors over the longer term.

1 Pantheon Macroeconomics

 

Michael Hughes

Chairman                                                                                                                                     

25th February 2019

 

INVESTMENT MANAGERS' REPORT

Performance and Market Background

UK economic growth remained positive in 2018, but pedestrian at 1.4%. On a more optimistic note unemployment continued to fall, reaching 4% in December 2018, and inflation also declined to its lowest level in almost two years, ending 2018 at 2.1%. However, the second half of the year saw a notable rise in stock market volatility and a sharp deterioration in investor sentiment. This led to significant declines in stock markets around the world. In the UK the FTSE 100 Index fell 10.2% but the FTSE 250 (ex-Investment Trusts) Index fell more and was down 16.8% in the six months to December 2018. 2019 has started with a positive tone, with almost half the losses recovered in January alone.

The global economic backdrop is mixed. Global growth was 3.7% in 2018, with forecasts now indicating a slowdown to 3.5% for 2019. The slowdown in Chinese GDP and the on-going trade dispute between China and the US, allied with a number of interest rates rises in the US during 2018, have been the key causes. It is important to emphasise that the level of growth still remains healthy.

Against this sharp decline in the index, it is disappointing to report that your Company underperformed its benchmark during the period, with a total return on net assets of -20.8%. The discount remained largely static, providing a share price return of -20.6%

Portfolio

While a number of positions in the portfolio performed well, such as our holdings in Marshalls, John Laing, Plus 500 and a recent IPO, Avast, we underperformed in the period under review for three key reasons. Firstly, while gearing had been reduced and ended the year at 1.1%, it was clearly negative in the falling market. Secondly, there were a number of takeovers in the FTSE 250 Index, including BTG, JLT and NEX, none of which we owned. These impacted on our performance relative to the Index. The third reason was due to underperformance by three of our large holdings. Ashtead and Electrocomponents both suffered significant share price declines, despite producing only positive news flow. The former was on misplaced fears of a US recession, the latter on concerns around global industrial capital spending. The third, and most disappointing company was Sophos (an IT security company), which suffered very poor trading, and that position has been significantly reduced.

We made several changes to the portfolio in the half year. New additions include the pub group EI, the cinema chain Cineworld, and Telecom Plus, a UK multi-utility supplier. We exited a number of holdings including Card Factory, Weir, UDG, IMI and BBA. There were also some notable changes to sector positioning. Software, Industrial Engineering and General Retailers were all reduced, while the weights in the Financial Services and Travel & Leisure sectors were significantly increased.

 

 

Outlook

At the time of writing, the day we are due to leave the EU is only just over one month away. At this stage in negotiations, the outcome remains very uncertain. As we have indicated before, our stance had been to plan, and to position the portfolio, for a 'hard Brexit'. As can be seen from some of the recent portfolio changes outlined above, we have softened this approach over recent months and increased our domestic exposure. In part, this action has been taken due to the decline in valuation of a number of domestic companies, but in addition recent data has shown a significant improvement in the financial position of the British worker. This was demonstrated by the Asda Income Tracker, which showed that disposable income had risen by +5.8% year on year in December 2018. Lower inflation, very low unemployment and this significant rise in real wages should in normal times be extremely positive for consumer-facing stocks. However, a recent collapse in consumer confidence, due to Brexit uncertainties, has cast a pall. There is a clear disconnect between these two data points. If the Government is able to negotiate its way out of the current impasse, we should see sterling rise, inflation fall further and consumer confidence rebound strongly, which would be very positive for the share prices of domestic-facing companies.

Further contradictions abound at present. The UK has just been rated by Forbes as the most business friendly of the world's biggest economies, but according to the Bank of England UK investment intentions have collapsed in recent months. Overall the UK remains out of favour, as evidenced by the valuation of the UK market, and the FTSE 250 in particular, and by a recent BAML fund managers' survey which showed that a net 38% of global investors are underweight the UK. If, and it is a big if, the UK can exit the EU gracefully, then the UK market will enjoy significant buying interest, and in particular the more domestically focussed FTSE 250 will reap the benefit.

 

Georgina Brittain

Katen Patel

Investment Managers                                                                                                             

25th February 2019

 

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 have not changed and fall into the following broad categories: investment and strategy; financial; accounting, legal and regulatory; corporate governance and shareholder relations; and operational and cybercrime. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th June 2018.

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 during the period.

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 operation existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i) the condensed set of financial statements contained within the half yearly 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 31st December 2018, 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 Guidance 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

Michael Hughes

Chairman                                                                                                                                  

25th February 2019

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2018


(Unaudited)

(Unaudited)

(Audited)


Six months ended

Six months ended

Year ended


31st December 2018

31st December 2017

30th June 2018


Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

(Losses)/gains on investments










  held at fair value through










  profit or loss

 -

 (67,422)

 (67,422)

-

 34,427

 34,427

-

38,395

38,395

Net foreign currency










  gains/(losses)

-

17

17

-

 (2)

 (2)

-

(2)

(2)

Income from investments

4,076

-

4,076

 4,052

-

 4,052

9,238

-

9,238

Interest receivable and similar










  income

60

-

60

 15

-

 15

37

-

37

Gross return/(loss)

4,136

 (67,405)

 (63,269)

 4,067

 34,425

 38,492

9,275

38,393

47,668

Management fee

 (296)

 (690)

 (986)

 (287)

 (671)

 (958)

(593)

(1,386)

(1,979)

Other administrative expenses

 (232)

-

 (232)

 (228)

-

 (228)

(490)

-

(490)

Net return/(loss) on ordinary










  activities before finance










  costs and taxation

3,608

 (68,095)

 (64,487)

3,552

 33,754

 37,306

8,192

37,007

45,199

Finance costs

 (85)

 (196)

 (281)

 (57)

 (134)

 (191)

(107)

(250)

(357)

Net return/(loss) on ordinary










  activities before taxation

 3,523

 (68,291)

 (64,768)

 3,495

 33,620

 37,115

8,085

36,757

44,842

Taxation

(74)

-

(74)

 (49)

-

 (49)

(197)

-

(197)

Net return/(loss) on ordinary










  activities after taxation

 3,449

 (68,291)

 (64,842)

 3,446

 33,620

 37,066

7,888

36,757

44,645

Return/(loss) per share (note 3)

14.50p

(287.06)p

(272.56)p

14.47p

141.17p

155.64p

33.12p

154.35p

187.47p

 

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

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.

The 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 31ST DECEMBER 2018


Called up

Capital





share

redemption

Capital

Revenue



capital

reserve

reserves

reserve1

Total


£'000

£'000

£'000

£'000

£'000

Six months ended 31st December 2018 (Unaudited)






At 30th June 2018

6,350

3,650

291,173

12,957

314,130

Repurchase of shares into Treasury

-

-

 (556)

-

(556)

Net (loss)/return on ordinary activities

-

-

 (68,291)

 3,449

 (64,842)

Dividends paid in the period (note 4)

-

-

-

(4,752)

(4,752)

At 31st December 2018

 6,350

 3,650

 222,326

 11,654

 243,980

Six months ended 31st December 2017 (Unaudited)






At 30th June 2017

 6,350

 3,650

 254,676

 11,260

 275,936

Repurchase of shares into Treasury

-

-

 (259)

 -

 (259)

Net return on ordinary activities

-

-

 33,620

 3,446

 37,066

Dividends paid in the period (note 4)

-

-

-

 (4,286)

 (4,286)

At 31st December 2017

 6,350

 3,650

 288,037

 10,420

 308,457

Year ended 30th June 2018 (Audited)






At 30th June 2017

 6,350

 3,650

 254,676

 11,260

 275,936

Repurchase of shares into Treasury

-

-

 (260)

-

 (260)

Net return on ordinary activities

-

-

 36,757

 7,888

 44,645

Dividends paid in the period (note 4)

-

-

-

 (6,191)

 (6,191)

At 30th June 2018

 6,350

 3,650

 291,173

 12,957

 314,130

1This 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 31ST DECEMBER 2018


(Unaudited)

(Unaudited)

(Audited)


31st December 2018

31st December 2017

30th June 2018


£'000

£'000

£'000

Fixed assets




Investments held at fair value through profit or loss

 246,738

316,947

328,569

Current assets




Debtors

926

5,349

4,399

Cash and cash equivalents

13,512

6,729

10,906


14,438

12,078

15,305

Current liabilities




Creditors: amounts falling due within one year

(9,196)

(568)

(29,744)

Net current assets

 5,242

11,510

(14,439)

Total assets less current liabilities

251,980

328,457

314,130

Creditors: amounts falling due after more than one year

 

(8,000)

 

(20,000)

 

-

Net assets

243,980

308,457

314,130

Capital and reserves




Called up share capital

6,350

6,350

6,350

Capital redemption reserve

3,650

3,650

3,650

Capital reserves

222,326

288,037

291,173

Revenue reserve

11,654

10,420

12,957

Total shareholders' funds

243,980

308,457

314,130

Net asset value per share (note 5)

1,026.7p

1,295.3p

1,319.2p

 

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2018


(Unaudited)

(Unaudited)

(Audited)


31st December 2018

31st December 2017

30th June 2018


£'000

£'000

£'000

Net cash outflow from operations before dividends and interest (note 6)

(1,197)

(1,291)

(2,514)

Dividends received

4,487

 4,588

8,807

Interest received

34

12

27

Overseas tax recovered

48

4

-

Interest paid

(219)

(117)

(315)

Net cash inflow from operating activities

3,153

3,196

6,005

Purchases of investments

(46,239)

(54,767)

(124,434)

Sales of investments

59,002

50,411

118,351

Settlement of forward currency contracts

(2)

-

-

Net cash inflow/(outflow) from investing activities

12,761

(4,356)

(6,083)

Dividends paid

(4,752)

(4,286)

(6,191)

Repurchase of shares into Treasury

(556)

(259)

(260)

Drawdown of bank loan

8,000

16,000

21,000

Repayment of bank loan

(16,000)

(14,000)

(14,000)

Net cash (outflow)/inflow from financing activities

(13,308)

(2,545)

549

Increase/(decrease) in cash and cash equivalents

2,606

(3,705)

471

Cash and cash equivalents at start of period

10,906

 10,434

10,434

Exchange movements

-

-

1

Cash and cash equivalents at end of period

13,512

6,729

10,906

Increase/(decrease) in cash and cash equivalents

2,606

(3,705)

471

Cash and cash equivalents consist of:




Cash and short term deposits

1,287

347

251

Cash held in JPMorgan Sterling Liquidity Fund

12,225

6,382

10,655

Total

13,512

6,729

10,906

 

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2018

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 Auditor.

The figures and financial information for the year ended 30th June 2018 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 and included the report of the Auditor 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 February 2018.

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 31st December 2018.

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 30th June 2018.

 

 

 

 

 

3.  Return/(loss) per share


(Unaudited)

(Unaudited)

(Audited)


Six months ended

Six months ended

Year ended


31st December 2018

31st December 2017

30th June 2018


£'000

£'000

£'000

Return/(loss) per share is based on the following:




Revenue return

3,449

3,446

7,888

Capital (loss)/return

 (68,291)

33,620

36,757

Total (loss)/return

(64,842)

37,066

44,645

Weighted average number of shares in issue

23,789,582

23,815,805

23,814,255

Revenue return per share

14.50p

14.47p

33.12p

Capital (loss)/return per share

(287.06)p

141.17p

154.35p

Total (loss)/return per share

(272.56)p

155.64p

187.47p

4.  Dividends paid


(Unaudited)

(Unaudited)

(Audited)


Six months ended

Six months ended

Year ended


31st December 2018

31st December 2017

30th June 2018


£'000

£'000

£'000

2018 Final dividend of 18.5p (2017: 15.0p) per share

4,396

3,572

3,572

2018 Special dividend of 1.5p (2017: 3.0p) per share

356

714

714

2018 Interim dividend of 8.0p

-

-

1,905

Total dividends paid

4,752

4,286

6,191

All dividends paid in the period/year have been funded from the Revenue Reserve.

An interim dividend of 8.0p has been declared in respect of the six months ended 31st December 2018, to be paid on 17th April 2019.

5.  Net asset value per share


(Unaudited)

(Unaudited)

(Audited)


Six months ended

Six months ended

Year ended


31st December 2018

31st December 2017

30th June 2018

Net assets (£'000)

243,980 

308,457

314,130

Number of shares in issue

23,762,680

23,812,680

23,812,680

Net asset value per share

1,026.7p

1,295.3p

1,319.2p

 

JPMORGAN FUNDS LIMITED

25th February 2019

 

For further information, please contact:

Alison Vincent

For and on behalf of

 

JPMorgan Funds Limited

020 7742 4000

 

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 ASSET MANAGEMENT (UK) LIMITED

ENDS

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

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

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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