Half Yearly Report

RNS Number : 0010A

JPMorgan Smaller Cos IT PLC

23 March 2012

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN SMALLER COMPANIES INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST JANUARY 2012

Chairman's Statement

Investment Performance

As reported in my last statement in the 2011 Annual Report, this financial year started with substantial stockmarket volatility, which seriously and adversely affected performance. Global markets remained turbulent in the latter half of 2011 as investors focused on the eurozone financial crisis and the expectation of slower economic growth around the world.

Following the Company's strong performance in the previous two financial years, the Company recorded a total return on net assets of -11.2% in line with the same total return delivered by the benchmark, the FTSE Small Cap (excluding Investment Trusts) Index during the six months reporting period to 31st January 2012. The total return to shareholders over the reporting period was down -16.7%, as the discount to the net asset value widened further. It is reassuring to note that markets have recovered to a considerable extent in 2012 and since the period end, the Company's net asset value and share price have increased by 10.9% and 14.1% respectively, comfortably exceeding the benchmark. During the reporting period, a final dividend in respect of the financial year ended 31st July 2011 of 8.5p per share (2010: 8.5p) was paid on 9th December 2011.

Despite the negative returns over the six months reporting period, the long term performance record against the benchmark at 31st January 2012 remains strong as shown below:

	1 year	2 years	3 years	5 years	10 years
Net Asset Value Total Return	9%	26%	105%	-5%	143%
Share Price Total Return	15%	29%	103%	-11%	125%
Benchmark Total Return	10%	4%	77%	-29%	24%

The Investment Manager provides a detailed commentary on markets and the portfolio performance in her Report.

Share Repurchases

During the six months to 31st January 2012, the Company has continued to use the authority given by shareholders to repurchase its shares in the market to help maintain an orderly market for the Company's shares, thereby reducing the volatility of the discount. The Company repurchased a total of 160,988 ordinary shares for cancellation for a total consideration of £676,000 representing 0.86% of the issued share capital at the beginning of the year. The shares were repurchased at a discount of 20.0% and added approximately 0.88p per share to the net asset value for continuing shareholders. The Company's average discount during the reporting period was 18.5%. Since the period end, the Company has repurchased 22,061 further shares.

Gearing and Loan Facility

Gearing levels reduced during the period from 107.3% at the beginning of the period to 105.7% at 31st January 2012. A flexible loan facility of £10 million is currently in place with ING Bank N.V., which expires in April 2013. This facility enables the Company to use gearing tactically as investment opportunities arise, with the aim of enhancing returns. At the end of January 2012, £9 million had been drawn on the facility.

Outlook

While central banks' policies continue to provide support for global growth, and, in turn, cyclically sensitive assets, the outlook for the second half of the Company's financial year appears more positive. The Board has confidence in the Investment Manager's approach of identifying companies with strong growth potential and financial characteristics. This coupled with prospects of further corporate activity in the small cap sector in the medium term should continue to deliver superior longer term returns to our shareholders. However, the Board remains mindful of the continuing uncertainty and the associated risk of a possible downturn in markets.

Strone Macpherson

Chairman                                                                                                                                 

23rd March 2012

Investment Manager's Report

Market Background

After a very strong run in the last financial year to July 2011, the start of this year saw a sharp correction in stockmarkets. Over the summer a number of issues came to the fore. Concerns over a stalling US recovery, the possibility of a sharp slowdown in China, and the Eurozone crisis brought the stockmarket run to an abrupt halt. Cyclical assets were hardest hit as investors took fright at the global outlook and sought out defensive companies which were least likely to be affected. This meant that they moved out of smaller-sized companies, and bought into large 'blue chip' names, which led to sharp falls in share prices of a number of smaller companies.

Portfolio

The Company suffered from the move towards defensives, as we were positioned for an on-going recovery in global markets. This led to a very sharp decline in the smaller companies' index, and in the Company's performance, in the month of August. We believed that this sharp decline was an over-reaction, and retained our positioning, which led us to recover the losses of August, relative to the benchmark.

The FTSE Small Cap (ex IT) Index failed to enjoy the sharp rebound seen in the larger stocks towards the year end, and, despite a rise of over 7% in January alone, returned a very disappointing -11.2% for the six months. The Company's total return on net assets was exactly in line with this.

As stated above, we believed that the excessive negativity over the global growth outlook was misplaced so we did not make large changes to the portfolio over the six months. Sticking with our theme of being under-exposed to the UK consumer, we went further underweight in domestic stocks such as general retailers, travel and leisure companies, and the UK real estate sector. We renewed our emphasis on niche growth companies where the market dynamics remain compelling, adding to positions in companies such as Anite (telecoms testing), Dialight (specialist LED lighting) and Tribal Group (software into the education market).

As we have been predicting (somewhat prematurely) for some time, corporate activity (M&A) was a feature in the half year. Hamworthy, the oil services company, was bought by a large industrial player, Wartsila, in November; and two of our long-term and significant positions, Cove Energy and Globeop, are currently the subject of recommended bids.

Outlook

Uncertainty remains a key feature of the world today, and the risks remain manifold. The fate of Greece continues to be a major concern; the French election has the potential to disrupt the Eurozone; global growth forecasts have been reduced and may be further hit by the rising oil price; Europe and perhaps the UK may re-enter recession. In addition, significant tensions in the Middle East and North Africa look likely to remain at elevated levels for some time to come.

Against these concerns, abundant liquidity is being pumped into the markets, as evidenced by further quantitative easing in the UK, and the European Central Bank's provision of three-year funding for banks, the so-called Long Term Refinancing Operations. In addition, recent economic data has been more positive in the USA, the UK, and even Europe, where fears of a severe recession this year look misplaced.

At the company level, balance sheets are strong, valuations are compelling and growth forecasts for individual companies have been rebased to a sensible level. Add to this the spice of further M&A as larger companies look to buy additional growth, and the case for investing in smaller companies remains one that we strongly believe in.

Georgina Brittain

Investment Manager                                                                                                      

23rd March 2012

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; discount; political; corporate governance and shareholder relations; market; accounting, legal and regulatory; operational 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 July 2011.

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. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

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

(i)          the condensed set of financial statements contained within the half year financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half Yearly Financial Reports'; and

(ii)         the half year management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

For and on behalf of the Board

Strone Macpherson

Chairman                                                                                                                     

23rd March 2012

For further information, please contact:

Divya Amin

For and on behalf of

JPMorgan Asset Management (UK) 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.jpmsmallercompanies.co.uk

Income Statement

for the six months ended 31st January 2012

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st January 2012			31st January 2011			31st July 2011
	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	-	(15,614)	(15,614)	-	29,568	29,568	-	32,758	32,758
Income from   investments	1,129	-	1,129	1,152	-	1,152	2,511	-	2,511
Other interest receivable   and similar income	1	-	1	4	-	4	14	-	14
Gross return/(loss)	1,130	(15,614)	(14,484)	1,156	29,568	30,724	2,525	32,758	35,283
Management fee	(223)	(223)	(446)	(214)	(214)	(428)	(472)	(472)	(944)
Other administrative   expenses	(140)	-	(140)	(130)	-	(130)	(333)	-	(333)
Net return/(loss) on   ordinary activities   before finance costs   and taxation	767	(15,837)	(15,070)	812	29,354	30,166	1,720	32,286	34,006
Finance costs	(60)	(60)	(120)	(47)	(47)	(94)	(117)	(117)	(234)
Net return/(loss)   on ordinary   activities before   taxation	707	(15,897)	(15,190)	765	29,307	30,072	1,603	32,169	33,772
Taxation	(1)	-	(1)	(1)	-	(1)	(3)	-	(3)
Net return/(loss) on   ordinary activities   after taxation	706	(15,897)	(15,191)	764	29,307	30,071	1,600	32,169	33,769
Return/(loss) per   share (note 4)	3.81p	(85.81)p	(82.00)p	4.05p	155.20p	159.25p	8.50p	170.90p	179.40p

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

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. The Total column represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL'). For this reason a STRGL has not been presented.

Reconciliation of Movements in Shareholders' Funds

	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
31st January 2012	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2011	4,660	18,360	2,006	92,516	2,584	120,126
Repurchase and cancellation of the
Company's own shares	(40)	-	40	(676)	-	(676)
Net (loss)/return on ordinary activities	-	-	-	(15,897)	706	(15,191)
Dividends appropriated in the period	-	-	-	-	(1,579)	(1,579)
At 31st January 2012	4,620	18,360	2,046	75,943	1,711	102,680
	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
31st January 2011	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2010	4,735	18,360	1,931	61,846	2,588	89,460
Repurchase and cancellation of the
Company's own shares	(30)	-	30	(546)	-	(546)
Net return on ordinary activities	-	-	-	29,307	764	30,071
Dividends appropriated in the period	-	-	-	-	(1,604)	(1,604)
At 31st January 2011	4,705	18,360	1,961	90,607	1,748	117,381
	Called up		Capital
Year ended	share	Share	redemption	Capital	Revenue
31st July 2011	capital	premium	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2010	4,735	18,360	1,931	61,846	2,588	89,460
Repurchase and cancellation of the
Company's own shares	(75)	-	75	(1,499)	-	(1,499)
Net return on ordinary activities	-	-	-	32,169	1,600	33,769
Dividends appropriated in the year	-	-	-	-	(1,604)	(1,604)
At 31st July 2011	4,660	18,360	2,006	92,516	2,584	120,126

Balance Sheet

at 31st January 2012

	(Unaudited)	(Unaudited)	(Audited)
	31st January 2012	31st January 2011	31st July 2011
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	108,544	126,330	128,948
Investments in liquidity funds held at fair value through
profit or loss	2,190	-	-
Total investments	110,734	126,330	128,948
Current assets
Debtors	1,071	262	212
Cash and short term deposits	41	494	1,313
	1,112	756	1,525
Creditors: amounts falling due within one year	(166)	(705)	(1,347)
Net current assets	946	51	178
Total assets less current liabilities	111,680	126,381	129,126
Creditors: amounts falling due after more than one year	(9,000)	(9,000)	(9,000)
Net assets	102,680	117,381	120,126
Capital and reserves
Called up share capital	4,620	4,705	4,660
Share premium	18,360	18,360	18,360
Capital redemption reserve	2,046	1,961	2,006
Capital reserves	75,943	90,607	92,516
Revenue reserve	1,711	1,748	2,584
Total equity shareholders' funds	102,680	117,381	120,126
Net asset value per share (note 5)	555.7p	623.7p	644.5p

Cash Flow Statement

for the six months ended 31st January 2012

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2012	31st January 2011	31st July 2011
	£'000	£'000	£'000
Net cash inflow from operating activities (note 6)	571	549	1,198
Net cash outflow from returns on investments and
servicing of finance	(115)	(94)	(174)
Net cash inflow/(outflow) from capital expenditure
and financial investment	527	(81)	1,121
Dividend paid	(1,579)	(1,604)	(1,604)
Net cash (outflow)/inflow from financing	(676)	1,453	501
(Decrease)/increase in cash for the period	(1,272)	223	1,042
Reconciliation of net cash flow to movement in
net debt
Net cash movement	(1,272)	223	1,042
Net drawdown of loans	-	(2,000)	(2,000)
Movement in net debt in the period	(1,272)	(1,777)	(958)
Net debt at the beginning of the period	(7,687)	(6,729)	(6,729)
Net debt at the end of the period	(8,959)	(8,506)	(7,687)
Represented by:
Cash and short term deposits	41	494	1,313
Debt falling due after more than one year	(9,000)	(9,000)	(9,000)
Net debt	(8,959)	(8,506)	(7,687)

Notes to the Accounts

for the six months ended 31st January 2012

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 July 2011 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.         Accounting policies

            The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009.

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

            The accounting policies applied to these half year accounts are consistent with those applied in the accounts for the year ended 31st July 2011.

3.         Dividend paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2012	31st January 2011	31st July 2011
	£'000	£'000	£'000
Final dividend in respect of the year ended 31st
July 2011 of 8.5p (2010: 8.5p)	1,579	1,604	1,604

            No interim dividend has been declared in respect of the six months ended 31st January 2012 (2011: nil).

4.         Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2012	31st January 2011	31st July 2011
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	706	764	1,600
Capital (loss)/return	(15,897)	29,307	32,169
Total (loss)/return	(15,191)	30,071	33,769
Weighted average number of shares in issue:	18,524,648	18,883,070	18,823,179
Revenue return per share	3.81p	4.05p	8.50p
Capital (loss)/return per share	(85.81)p	155.20p	170.90p
Total (loss)/return per share	(82.00)p	159.25p	179.40p

5.         Net asset value per share

            Net asset value per share is calculated by dividing shareholders' funds by the number of shares in issue at 31st January 2012 of 18,477,064 (31st January 2011: 18,820,271 and 31st July 2011: 18,638,052).

6.         Reconciliation of net (loss)/return on ordinary activities before finance costs and taxation to net cash inflow from operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2012	31st January 2011	31st July 2011
	£'000	£'000	£'000
Net (loss)/return on ordinary activities before
finance cost and taxation	(15,070)	30,166	34,006
Add back capital loss/(return) before finance
costs and taxation	15,837	(29,354)	(32,286)
Scrip dividends received as income	(2)	-	(2)
Decrease/(increase) in accrued income	78	(3)	(49)
Decrease/(increase) in other debtors	1	(4)	4
Decrease in accrued expenses	(49)	(41)	-
Tax on unfranked investment income	(1)	(1)	(3)
Management fee charged to capital	(223)	(214)	(472)
Net cash inflow from operating activities	571	549	1,198

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 interim report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.hemscott.com/nsm.do

The interim report will also shortly be available on the Company's website at www.jpmsmallercompanies.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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