Half Yearly Report

RNS Number : 2418I

JPMorgan Smaller Cos IT PLC

23 March 2015

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN SMALLER COMPANIES INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST JANUARY 2015

Chairman's Statement

Performance and Discount

During the first six months of the Company's financial year, UK equity markets experienced considerable volatility. This was caused by a combination of issues including the Scottish independence vote, rising global geo-political concerns and a troubled picture in Europe. The total return on the Company's net assets was -1.3% for the six months to 31st January 2015. This was slightly better than the Company's benchmark, the FTSE Small Cap Index (excluding investment trusts), which fell by 1.6% over the same period. The Investment Managers provide a detailed commentary on markets and the portfolio performance in their Report.

The Company's Ordinary share price total return for the reporting period was slightly positive as the Company's discount to net asset value reduced from 17.8% to 16.7%. UK equity markets have risen since the period end, with the net asset value and Ordinary share price increasing by 6.2% and 5.3% respectively up to the time of writing.

Subscription Share Issuance and Share Buybacks

Following our announcement at the year end, the Board decided to propose a one for every five bonus issue of Subscription shares. This provides the Company an opportunity to grow its capital base and was agreed by shareholders at a general meeting on 23rd February 2015. On 24th February, the subscription shares exercise price was determined at 915p per share. Holders of Subscription shares can choose to convert them on the last day of every month starting on 31st March 2015 and finishing on 30th June 2017. Further details of the Subscription shares can be found on page 17 of the Half Year report and also on the Company's website at www.jpmsmallercompanies.co.uk

In line with our policy to reduce the volatility of the discount, during the six months to 31st January 2015 the Company repurchased 358,124 Ordinary shares for cancellation at a cost of £2,618,628. The Board will continue to monitor the discount and repurchase shares as appropriate.

Gearing

The use of gearing in the current period of low interest rates is an attractive way of amplifying the effect of rising markets, but inevitably increases the risk of loss if markets fall. The Company has a highly flexible borrowing facility of £24 million in place with Scotiabank until April 2016. The Board sets the overall gearing guidelines and regularly discusses these with the investment manager. The guidelines set a maximum level of gearing with the facility for temporary increases under special circumstances. The Company's gearing level increased during the period from 9.3% at the beginning of the period to 10.0% at 31st January 2015. At the time of writing the Company's gearing was 9.3%, with total borrowings of £19 million.

The Board

As part of the Board's succession planning and in anticipation of future retirements, the Nomination Committee carried out a recruitment process which led to the appointment of Andrew Impey as a non-executive director of the Company with effect from 16th March 2015. Andrew's wide ranging knowledge and experience in investment management and the smaller company sector in particular will be of great value to the Board.

Outlook

There is likely to be a continuation of economic and political uncertainty over the coming year both domestically and internationally. The forthcoming general election is the least predictable in recent times, we have yet to see how the eurozone will weather the challenges following the Greek election, and growing concerns about deflation are unsettling. There are also positive signs, however, with the consumer starting to feel more comfortable, the continuation of a low interest rate environment and a widespread commitment to growth.

Despite the uncertainties our managers remain able to identify a good supply of attractive smaller companies with strong balance sheets and growing businesses that can be bought at reasonable valuations. This, combined with increasing mergers and acquisition activity gives the Board confidence that the Company will continue to deliver good long term returns for shareholders.

Michael Quicke

Chairman                                                                                                                                                                                           

23rd March 2015

Investment Managers' Report

Performance and Market Background

The performance of your Company in the first half of this financial year was unexciting, with the benchmark FTSE Smaller Companies (ex Investment Trust) Index falling 1.6%, and your Company's total return on net assets performing marginally better versus the index at -1.3%.

While the Small Cap Index, and indeed the broader FTSE All Share Index, were fairly flat over the six months, these numbers hide significant volatility over the autumn. Both indices fell approximately 10% from September to mid October on concerns over the Scottish elections, a perceived further slowdown in Europe, and the Russia/Ukraine situation. The bounce back was strong for the FTSE All Share, but less so for the Small Cap Index.

Portfolio

Sector selection was helpful in most areas, most notably in Mining, (where we were very underweight relative to the benchmark), Financial Services (our significant holding in Plus500 in particular) and Aerospace & Defense (our long term holding in Avon Rubber). The two sectors that detracted from performance were Support Services and Technology Hardware & Equipment. The former was mainly caused by a significant decline in the shareprice of Utilitywise, an energy consultant, and the latter by the de-rating of Telit, an M2M or machine-to-machine business. Since there were no negative changes to the outlook for either of these companies, we bought more of both.

The last calendar year saw a wave of new companies coming to the market, and while we continue to be selective, we have invested in several exciting new opportunities. Examples include FeverTree Drinks, and Mortgage Advice Bureau. We have sold out of a number of positions to pay for these new investments, and also exited Advanced Computer Software, Hyder Consulting and Spirit Pub Co following bids for each of these companies. While we continue to run a diversified portfolio of stocks, our continued focus on the UK consumer has led to Consumer Services now being our largest sector overweight relative to the benchmark. Examples within this include Lookers and Topps Tiles among our retail holdings, and Trinity Mirror and NAHL Group among our Media positions.

Outlook

The UK economy remains one of the fastest growing in the Western World, expanding at 2.6 % in 2014, and forecast by the Bank of England to grow at 2.9% in 2015. Inflation is low and continues to fall due to the oil price collapse, since the UK is now a growing net importer of oil. This decline in inflation supports the case for keeping interest rates lower for longer - the market is now expecting the first rate rise in early 2016 and even this may prove premature. Unemployment continues to fall faster than all expectations, and (finally) UK take home pay has begun to increase in real terms. All of these factors should boost disposable incomes for consumers, aiding consumer confidence and thus benefitting retail spending in 2015.

As the Eurozone remains the UK's principal trading partner, it is likely that the economic outlook for the UK will be further improved by the ECB's Euro 1.1 trillion stimulus plan and a suitable solution to the Greek crisis. While we expect the UK general election and the possibility of another coalition government to cause uncertainty and market volatility in the first half of 2015, we remain positive - as evidenced by our current gearing levels. Companies in the Small Cap arena continue both to grow and to strengthen their balance sheets further, and current valuations do not reflect these positive factors. We believe your Company is well positioned, with a portfolio that is cheaper, growing faster and higher quality than the benchmark. As we saw in 2014, mergers and acquisition activity has increased, and relatively low valuation levels make it likely that we will see more this year.

Georgina Brittain

Katen Patel

Investment Managers                                                                                                                                                                       

23rd March 2015

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 2014.

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 yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half Yearly Financial Reports' 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 January 2015, 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

Michael Quicke

Chairman                                                                                                                                                                                                 

23rd March 2015

Income Statement

for the six months ended 31st January 2015

	(Unaudited)			(Unaudited)				(Audited)
	Six months ended			Six months ended				Year ended
	31st January 2015			31st January 2014				31st July 2014
	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	-	(2,605)	(2,605)	-	21,159	21,159	-		12,074	12,074
Net foreign currency losses	-	-	-	-	-	-	-		(1)	(1)
Income from investments	1,160	-	1,160	1,311	-	1,311	3,126		-	3,126
Interest receivable and similar
income	-	-	-	-	-	-	25		-	25
Gross return/(loss)	1,160	(2,605)	(1,445)	1,311	21,159	22,470	3,151		12,073	15,224
Management fee	(359)	(359)	(718)	(358)	(358)	(716)	(743)		(743)	(1,486)
Other administrative expenses	(226)	-	(226)	(187)	-	(187)	(413)		-	(413)
Net return/(loss) on ordinary
activities before finance costs
and taxation	575	(2,964)	(2,389)	766	20,801	21,567	1,995		11,330	13,325
Finance costs	(70)	(70)	(140)	(55)	(55)	(110)	(137)		(137)	(274)
Net return/(loss) on ordinary
activities before taxation	505	(3,034)	(2,529)	711	20,746	21,457	1,858		11,193	13,051
Taxation	(37)	-	(37)	5	-	5	(34)		-	(34)
Net return/(loss) on ordinary
activities after taxation	468	(3,034)	(2,566)	716	20,746	21,462	1,824		11,193	13,017
Return/(loss) per share (note 4)	2.59p	(16.82)p	(14.23)p	3.93p	113.87p	117.80p	10.01p		61.44p	71.45p

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 2015	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2014	4,549	18,360	2,117	137,187	3,016	165,229
Repurchase and cancellation of the Company's
own shares	(90)	-	90	(2,616)	-	(2,616)
Expenses in relation to issuance of
Subscription shares	-	(237)	-	-	-	(237)
Net (loss)/return on ordinary activities	-	-	-	(3,034)	468	(2,566)
Dividend appropriated in the period	-	-	-	-	(1,734)	(1,734)
At 31st January 2015	4,459	18,123	2,207	131,537	1,750	158,076
	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
31st January 2014	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2013	4,555	18,360	2,111	126,167	2,923	154,116
Net return on ordinary activities	-	-	-	20,746	716	21,462
Dividend appropriated in the period	-	-	-	-	(1,731)	(1,731)
At 31st January 2014	4,555	18,360	2,111	146,913	1,908	173,847
	Called up		Capital
Year ended	share	Share	redemption	Capital	Revenue
31st July 2014	capital	premium	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2013	4,555	18,360	2,111	126,167	2,923	154,116
Repurchase and cancellation of the
Company's own shares	(6)	-	6	(173)	-	(173)
Net return on ordinary activities	-	-	-	11,193	1,824	13,017
Dividend appropriated in the year	-	-	-	-	(1,731)	(1,731)
At 31st July 2014	4,549	18,360	2,117	137,187	3,016	165,229

Balance Sheet

at 31st January 2015

	(Unaudited)	(Unaudited)	(Audited)
	31st January 2015	31st January 2014	31st July 2014
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	173,487	189,330	181,571
Investments in liquidity funds held at fair value through
profit or loss	2,961	2,650	3,050
Total investments	176,448	191,980	184,621
Current assets
Debtors	884	2,057	482
Cash and short term deposits	155	123	564
	1,039	2,180	1,046
Creditors: amounts falling due within one year	(411)	(20,313)	(1,438)
Net current assets/(liabilities)	628	(18,133)	(392)
Total assets less current liabilities	177,076	173,847	184,229
Creditors: amounts falling due after more than one year	(19,000)	-	(19,000)
Net assets	158,076	173,847	165,229
Capital and reserves
Called up share capital	4,459	4,555	4,549
Share premium	18,123	18,360	18,360
Capital redemption reserve	2,207	2,111	2,117
Capital reserves	131,537	146,913	137,187
Revenue reserve	1,750	1,908	3,016
Total equity shareholders' funds	158,076	173,847	165,229
Net asset value per share (note 5)	886.2p	954.2p	908.0p

Company registration number: 2515996

Cash Flow Statement

for the six months ended 31st January 2015

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2015	31st January 2014	31st July 2014
	£'000	£'000	£'000
Net cash inflow from operating activities (note 6)	287	325	1,070
Net cash outflow from returns on investments and
servicing of finance	(143)	(114)	(258)
Total tax recovered	-	17	17
Net cash inflow/(outflow) from capital expenditure
and financial investment	3,970	(2,702)	(2,861)
Dividend paid	(1,734)	(1,731)	(1,731)
Net cash (outflow)/inflow from financing	(2,789)	4,000	4,000
(Decrease)/increase in cash for the period	(409)	(205)	237
Reconciliation of net cash flow to movement in
net debt
Net (debt)/cash movement	(409)	(205)	237
Net drawdown of loans	-	(4,000)	(4,000)
Exchange movements	-	-	(1)
Movement in net debt in the period	(409)	(4,205)	(3,764)
Net debt at the beginning of the period	(18,436)	(14,672)	(14,672)
Net debt at the end of the period	(18,845)	(18,877)	(18,436)
Represented by:
Cash and short term deposits	155	123	564
Debt falling due within one year	-	(19,000)	-
Debt falling due after more than one year	(19,000)	-	(19,000)
Net debt	(18,845)	(18,877)	(18,436)

Notes to the Accounts

for the six months ended 31st January 2015

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 2014 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 financial statements 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 2014.

3.   Dividend paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2015	31st January 2014	31st July 2014
	£'000	£'000	£'000
Final dividend in respect of the year ended 31st July 2014
of 9.6p (2013: 9.5p)	1,734	1,731	1,731

      No interim dividend has been declared in respect of the six months ended 31st January 2015 (2014: nil).

4.   Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2015	31st January 2014	31st July 2014
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	468	716	1,824
Capital (loss)/return	(3,034)	20,746	11,193
Total (loss)/return	(2,566)	21,462	13,017
Weighted average number of shares in issue:	18,033,118	18,219,372	18,219,309
Revenue return per share	2.59p	3.93p	10.01p
Capital (loss)/return per share	(16.82)p	113.87p	61.44p
Total (loss)/return per share	(14.23)p	117.80p	71.45p

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 2015 of 17,838,248 (31st January 2014: 18,219,372 and 31st July 2014: 18,196,372).

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 2015	31st January 2014	31st July 2014
	£'000	£'000	£'000
Net (loss)/return on ordinary activities before finance cost
and taxation	(2,389)	21,567	13,325
Add back capital loss/(less capital return) before finance
costs and taxation	2,964	(20,801)	(11,330)
Scrip dividends received as income	(38)	(63)	(124)
Decrease/(increase) in accrued income	166	29	(24)
Increase in other debtors	(9)	(11)	(5)
(Decrease)/increase in accrued expenses	(11)	(33)	4
Tax on unfranked investment income	(37)	(5)	(33)
Management fee charged to capital	(359)	(358)	(743)
Net cash inflow from operating activities	287	325	1,070

7.   Subsequent event

      3,567,532 Subscription shares were issued to Ordinary shareholders on the register at the close of business on 23 February 2015. Further details are provided on page 17 of the Half Year Report.

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 will be 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.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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