Final Results
JPMorgan American IT PLC
14 March 2007
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN AMERICAN INVESTMENT TRUST PLC
FINAL RESULTS
CHAIRMAN'S STATEMENT
Investment Performance
The Company produced during the year to 31st December 2006 a total return on net
assets of 2.2%, outperforming the sterling total return of the S&P 500 Index
(our benchmark) of 1.2%. Encouragingly this is the fourth consecutive year of
outperformance achieved by our Managers. The Company's total return to
shareholders was somewhat better, at 4.6%, reflecting a narrowing of the
discount from 7.3% to 6.3%.
In Dollar terms our benchmark rose over the course of the year by 15.5% (total
return) and on the same basis the Company's net asset value increased by 16.6%.
However for Sterling based investors, the Dollar's weakness meant that returns
were reduced by 12.4%. The Dollar began 2006 at a rate of 1.7163 to the pound
and ended at 1.9589. As previously reported, in order to protect against
currency fluctuations in respect of the Company's existing £50 million
debenture, a currency hedge was put in place on 3rd October, 2001 at a $/£ rate
of 1.4576.
The Company therefore produced a net asset value return of 1.0% in excess of our
benchmark index. Performance attribution data shows that the larger companies'
portfolio outperformed by 3.1%, however the negative impact of gearing and the
costs associated with running the Company detracted from this. The investment
management team have continued their policy of investing in larger, blue chip
growth companies on attractive valuations.
Revenue Account and Dividends
Earnings per share for the year, calculated on the average weekly number of
shares in issue, were 11.3p, substantially higher than the 7.8p achieved in
2005. The main reasons for this increase were the higher yield on large cap US
stocks and the series of interest rate rises witnessed over the course of the
year, which increased interest receivable. The Company's dividend policy has
been to distribute substantially all of the available income in each year and in
this instance, the Board is proposing a dividend of 11.0p per share (2005:
8.0p). Shareholders should note that income streams can vary significantly, and
the Company's dividend payout will reflect those variations. After accounting
for the payment of the proposed final dividend, a balance of £10.1m is left in
revenue reserves. The dividend will be paid on 4th May 2007 to shareholders on
the register on 10th April 2007.
Gearing
The Board of Directors sets the overall gearing strategic policy and guidelines
and reviews these at each meeting. The investment management team manages the
gearing levels actively within these agreed levels. At present, there is an
upper net gearing limit of 120% of shareholders' funds and this can only be
increased with Board consent. The £50 million debenture provides the potential
to gear up to 116%. As at the year end, the Company's net gearing level
(offsetting cash and near cash against our debenture) was 104% of shareholders'
funds, having ranged between 101% and 109% during the year.
Investment Manager
The Company's objective is to provide shareholders with capital growth from a
broad portfolio of North American investments. The Board has once again
thoroughly reviewed the capabilities of the Investment Manager in order to
assess whether JPMorgan Asset Management remains the most appropriate manager of
the Company's assets. In addition to scheduled Board Meetings, the Directors
have undertaken additional strategy and investment meetings with the named
investment managers, conducted comparisons with the peer group both in the UK
and the US with regard to performance, fee rates and the costs of management and
spent time reviewing the investment management operation whilst in New York for
a Board Meeting. We have concluded that the ongoing appointment of the existing
Investment Manager is in the best interests of shareholders.
Management of the Discount
The Company's discount narrowed 1.0% over the course of the year finishing at
6.3%. During the year the discount traded between 4.5% and 9.0%. On 22nd
February 2006, the Company repurchased 200,000 ordinary shares (0.5% of the
shares in issue) at a discount of 9.2%. The total cost of this repurchase was
£1.3 million and this activity enhanced the net asset value by 0.3p per share.
Encouragingly, the level of buybacks has remained extremely low as demand for
the Company's shares has picked up. A resolution to renew the authority to allow
the Company to repurchase shares will be submitted to the Annual General
Meeting.
The Board
The Board has put in place procedures to ensure that the Company complies fully
with the revised Combined Code and the AIC Code on Corporate Governance.TM
In accordance with the Company's Articles of Association, James Fox and James
Williams will retire at this year's Annual General Meeting and seek re-election
from shareholders. Both contribute significantly on a wide range of topics and
the Board recommends their re-election.
Change of Auditors
During the course of the year, the Board undertook a review of audit companies
as part of its ongoing responsibility to provide the best level of service, at a
competitive cost, to shareholders. Following this review, Deloitte & Touche LLP
were appointed to replace the incumbents PricewaterhouseCoopers LLP with effect
from 10th August 2006.
Annual General Meeting
This year's Annual General Meeting will be held at Trinity House, Tower Hill,
London EC3N 4DH on Thursday 3rd May 2007 at 2.00 p.m. Garrett Fish, the lead
investment manager, will make a presentation to shareholders, reviewing the year
and commenting on the outlook for the current year.
Outlook
A modest slowdown in the US economy and the removal of any lingering threats of
inflation would be the ideal scenario in 2007. Investor attention will be
focussed on these areas and positive news should, in the end, allow investors to
look forward to lower interest rates and an upturn in economic fortunes.
Hamish Buchan
Chairman 14thMarch 2007
For further information, please contact:
Andrew Norman
For and on behalf of
JPMorgan Asset Management (UK) Limited - Secretary
020 7742 6000
INVESTMENT MANAGERS' REPORT
Market Review
Equity markets provided investors with handsome returns in Dollar terms for 2006
as evidenced by the 15.5% total return obtained from the S&P 500 Index. Returns
were fueled by increased investor expectations of a soft US economic landing,
robust corporate profits, falling energy prices and moderating inflation. For UK
investors however these gains were substantially reduced by the weakness of the
US Dollar against Sterling. During the first six months of the year investors
were challenged by rising interest rates, a housing slowdown, higher energy and
commodity prices, and fears of increasing inflation. The Federal Reserve ('Fed')
raised interest rates four times for a total of 100 basis points in the first
half of the year, leaving the Fed Funds Rate at 5.25%.
These challenges continued into the second half of 2006 amid rising inflation
concerns and escalating conflict in the Middle East. Equity markets then
proceeded to rally, as a pause in the Fed's interest rate rises was followed by
a series of relatively benign inflation reports. The Federal Open Market
Committee left interest rates unchanged at the remainder of its meetings for the
year, as the Fed believes inflationary pressures will moderate over time
resulting from the cumulative impact of its restrictive policy actions, lower
energy prices and reduced inflation expectations.
Sources of investor concern remained centered around the housing market and its
potential impact on the broader economy. The increased weakness of the Dollar
has also shaken the confidence of investors.
Overall Asset Allocation
The investment management team is responsible for managing the allocation
between the two investment portfolios together with the levels of cash and
gearing. In recent years the investment team has worked closely with the Board
of Directors to develop modeling tools to assist in both the allocation and
gearing decisions. In 2006 the gearing level ranged between 101% and 109% of
shareholders' funds, with the level at the year end being 104%. At regular
intervals, this is adjusted within the gearing guidelines reflecting our outlook
on both risk and return for equities and bonds. Whilst we reduced gearing
significantly during the early part of the year, we were still geared going into
the market fall in May of last year and this lowered overall returns for the
year. Gearing was increased through the remainder of the year as the outlook for
equities brightened.
The weighting in the smaller companies' portfolio ranged between 7.6% and 11.1%
of the Company's total assets less current liabilities and at the end of the
year was 8.7%. We believe that this overall investment approach enhances the
potential returns to shareholders and our attribution data shows that in 2006 it
was the larger companies portfolio that gave the greatest contribution towards
the outperformance of the benchmark index. The large cap outperformance was
driven more by very strong stock selection than by sector positioning.
In contrast, despite the rise in the market over the year, gearing proved to be
a negative factor. This was due to the Company being relatively highly geared
during the second quarter of 2006 when the market fell sharply.
Large Companies' Portfolio
Our investment methodology continues to focus on investing in high quality,
reasonably valued companies. This style leads us to invest in companies that
exhibit good growth characteristics with growing earnings, strong cash flows and
reasonable valuations.
The large companies' portfolio provided positive absolute returns during the
year and outperformed the S&P 500 Index by 3.1%. We are encouraged by our
results in a year that many active managers found the benchmark very difficult
to beat. In 2005, the large companies' portfolio underperformed the market and
it is pleasing to note that our methodology has borne fruit in 2006. We remain
confident that our portfolio of robust, large companies, offers an attractive
investment proposition given the reasonable valuations that we continue to
exploit in the large cap arena.
Our large overweight positions in information technology and consumer staples
contributed significantly throughout the year backed by outstanding performance
by companies such as Mastercard, Lockheed Martin and McDonald's.
Mastercard's revenue and earnings surpassed Wall Street expectations, causing
the stock to rally as credit and debit cards continue to gain market share from
paper money in transactions around the globe. The company is seeing significant
increases in cards issued, the number of transactions and card purchases,
resulting in expanding profit margins. McDonald's was another top contributor to
the portfolio for the year as the company delivered solid earnings growth driven
by strong same-store sales across the US and noticeable growth in Europe.
McDonald's announced that they are raising their annual dividend and plan to
return at least US$10 billion to shareholders over the next couple of years
through share repurchase and dividend increases. We believe that the company's
stock still has more room to grow as overall trends in the quick-service
restaurant category continue to support robust earnings growth.
Countering these successes, the overweight positions in telecom services
detracted from returns, prompted by lacklustre performance from stocks such as
Sprint Nextel and Motorola. Our difficulty in telecom services was mainly
attributable to an overweight position in Sprint Nextel, as the stock has
suffered from repeated earnings misses and disappointing consumer demand for its
wireless products. Sprint Nextel has valuable assets that could lead to healthy
cash flow with modest growth potential over the coming years and we believe it
still has significant upside potential.
Our overweight position in Motorola also underperformed during the year after
the company disappointed investors with poor results. Third quarter profits
declined by 45% from the previous year following the disappointing launch of its
new product KRZR and lower than expected demand for phones designed specifically
for Nextel customers. Motorola plans to acquire technology to improve its
current smart phone positioning and competitiveness and we have maintained our
overweight positioning supported by its stock buy-back plans and its sustained
control over 20% of the global handset market.
Outlook
The US economy appears to be on a transition path to a period of sub-trend
growth. Now, investors will be focussed on the extent to which economic activity
will cool. The growth in consumer spending, which has underpinned the US economy
over recent years, is threatened by falling house prices and the resulting
damage to consumer confidence.
While some economic indicators, particularly in the goods-producing sectors
point to signs of weakness, the broad economy and, crucially the job market,
have held up rather well. The employment picture would need to weaken if a move
towards monetary stimulus is to be forthcoming. In the meantime, interest rates
will most likely stay on hold with an outside risk of further increases.
A moderate US slowdown should ultimately be bullish for equities in 2007 but we
are, nonetheless, prepared for some periods of economic uncertainty and
corresponding bouts of market weakness.
Garrett Fish
Investment Manager 14th March 2007
Small Companies' Portfolio
Overall the smaller companies' portfolio made a neutral contribution to
performance in 2006. As a reminder, the three underlying segments are: a
portfolio of small capitalisation growth companies; an investment in the
JPMorgan America Microcap Fund, which focuses on the smallest companies in the
market; and a small legacy portfolio of unquoted investments and funds that has
now been almost completely liquidated.
Small Cap Growth Portfolio: The allocation of assets to the small cap growth
portfolio can range between zero and 11% of the Company's gross assets,
depending upon relative value of the asset class compared with the S&P500 Index.
The return on this portfolio was 16.7% for the year, versus 15.5% for the S&P500
Index and 13.4% for the small cap growth benchmark index. The portfolio
benefited in particular from strong stock selection in the consumer
discretionary, healthcare and financial services sectors. At the end of December
the small cap growth weighting was 5.8%, just below our neutral weighting of
6.0%.
Microcap: The America Microcap Fund underperformed for the first time in several
years in 2006, with a return of 9.2%. The microcap weighting can range between
zero and 4% of gross assets, and in mid-April, with the fund up about 12%, the
weighting was reduced from 3.4% to the neutral position of 2.0%. The year end
weighting was 1.6%.
Unquoted Investments: At the end of the year the total investment in unquoted
companies was £4.6m or 1.3% of the Company's total assets less current
liabilities. This comprises just four remaining investments, one of which we
expect to be sold shortly.
Outlook
Looking forward, from a relative valuation perspective the small cap growth
asset class remains approximately in line with its long term average against the
S&P 500. However unlike last year, it appears to enter 2007 with less of an
earnings momentum advantage. We will continue to follow the guidance of our
asset allocation model that has functioned successfully for several years,
mindful of the fact that in addition to the aspect of return, the small cap
growth portfolio adds a valuable element of diversification to the style of the
large cap portfolio.
Tim Parton
Eytan Shapiro
Investment Managers 14th March 2007
JPMorgan American Investment Trust plc
Unaudited figures for the year ended 31st December 2006
Income Statement
For the year ended 31st December 2006
(Unaudited) (Audited)
Year ended 31 December 2006 Year ended 31 December 2005
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains from investments held at fair value through
profit or loss - 5,703 5,703 - 44,653 44,653
Net foreign currency gains/(losses) - 1,431 1,431 - (1,074) (1,074)
Income from investments 6,235 - 6,235 5,176 - 5,176
Other interest receivable and similar income 1,065 - 1,065 583 - 583
_______ ________ _______ _______ ________ _______
Gross return 7,300 7,134 14,434 5,759 43,579 49,338
Management fee (366) (1,465) (1,831) (329) (1,313) (1,642)
Other administrative expenses (516) - (516) (508) - (508)
_______ ________ _______ _______ ________ _______
Net return on ordinary activities
Before finance costs and taxation 6,418 5,669 12,087 4,922 42,266 47,188
Finance costs (713) (2,851) (3,564) (703) (2,811) (3,514)
_______ _______ _______ _______ _______ _______
Net return on ordinary activities
before taxation 5,705 2,818 8,523 4,219 39,455 43,674
Taxation (821) - (821) (747) - (747)
_______ _______ _______ _______ _______ _______
Net return on ordinary activities
after taxation 4,884 2,818 7,702 3,472 39,455 42,927
===== ===== ===== ===== ===== =====
Return per share 11.28p 6.50p 17.78p 7.78p 88.44p 96.22p
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
The total column of this statement is the profit and loss account of the Company
and the revenue and capital columns represent supplementary information. 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.
JPMorgan American Investment Trust plc
Unaudited figures for the year ended 31st December 2006
Reconciliation of Movements in Shareholders' Funds (unaudited)
for the year ended 31st December 2006
Called up Capital
redemption
share Share reserve Capital Revenue
capital premium reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31st December 2004 11,773 18,906 7,060 237,025 14,890 289,654
Repurchase and cancellation of shares (903) - 903 (20,160) - (20,160)
Total return from ordinary activities - - - 39,455 3,472 42,927
Dividends appropriated in the year - - - - (3,396) (3,396)
_______ ________ _______ _______ _______ ________
At 31st December 2005 10,870 18,906 7,963 256,320 14,966 309,025
Repurchase and cancellation of shares (50) - 50 (1,295) - (1,295)
Total return from ordinary activities - - - 2,818 4,884 7,702
Transfer of accumulated tax relief on
expenses charged to capital - - - 1,538 (1,538) -
Dividends appropriated in the year - - - - (3,445) (3,445)
_______ ________ _______ _______ _______ ________
At 31st December 2006 10,820 18,906 8,013 259,381 14,867 311,987
===== ===== ===== ===== ===== =====
JPMorgan American Investment Trust plc
Unaudited figures for the year ended 31st December 2006
Balance Sheet (Unaudited) (Audited)
as at 31st December 2006 31st December 31st December
2006 2005
£'000 £'000
Fixed assets
Investments at fair value through profit or loss 347,979 336,351
Current assets
Derivative instrument 12,174 8,343
Debtors 610 467
Cash and short term deposits 1,347 13,842
_______ _______
14,131 22,652
Creditors: amounts falling due within one year (457) (341)
_______ _______
Net current assets 13,674 22,311
_______ _______
Total assets less current liabilities 361,653 358,662
Creditors: amounts falling due after more than one year (49,666) (49,637)
_______ _______
Total net assets 311,987 309,025
===== =====
Capital and reserves
Called up share capital 10,820 10,870
Share premium 18,906 18,906
Capital redemption reserve 8,013 7,963
Capital reserve 259,381 256,320
Revenue reserve 14,867 14,966
_______ _______
Shareholders' funds 311,987 309,025
===== =====
Net asset value per share 720.9p 710.7p
Cash Flow statement
for the year ended 31st December 2006 (Unaudited) (Audited)
2006 2005
£'000 £'000
Net cash inflow from operating activities 4,074 2,735
Returns on investments and servicing of finance (3,533) (3,477)
Taxation recovered - 5
Net cash (outflow)/inflow from capital expenditure and financial
investment (5,896) 34,047
Dividends paid (3,445) (3,396)
_______ _______
Net cash (outflow)/inflow before financing (8,800) 29,914
Net cash outflow from financing (1,295) (20,706)
_______ _______
(Decrease)/increase in cash for the year (10,095) 9,208
===== ====
Notes
1. 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' dated 31st
December 2005.
All of the Company's operations are of a continuing nature.
The accounting policies applied to these accounts are consistent with those
applied in the accounts for the year ended 31st December 2005.
2. Dividends
(Unaudited) (Audited)
Year ended Year ended
31st December 2006 31st December 2005
£'000 £'000
Dividends paid and declared
Unclaimed dividends refunded to the Company (17) -
2005 final dividend of 8.0p (2004: 7.5p) 3,462 3,396
______ ______
3,445 3,396
====== =====
______ ______
Final dividend payable of 11.0p (2005: 8.0p) 4,761 3,478
====== =====
The final dividend has been declared in respect of the year ended 31st December
2006 and is subject to approval at the forthcoming Annual General Meeting. In
accordance with the accounting policy of the Company, this dividend will be
reflected in the accounts for the year ended 31st December 2007.
3. Return per share
(Unaudited) (Audited)
Year ended Year ended
31st December 2006 31st December 2005
£'000 £'000
Return per share is based on the following:
Revenue return 4,884 3,472
Capital return 2,818 39,455
______ ______
Total return 7,702 42,927
====== =====
Weighted average number of shares in issue 43,306,372 44,613,016
Revenue return per share 11.28p 7.78p
Capital return per share 6.50p 88.44p
______ ______
Total return per share 17.78p 96.22p
====== =====
4. Net asset value per share
The net asset value per share of 720.9p (2005: 710.7p) is based on the net
assets attributable to the ordinary shareholders of £311,987,000 (2005:
£309,025,000) and on the 43,279,449 ( 2005: 43,479,449) shares in issue at the
year end.
5. Status of preliminary announcement
The financial information set out in this preliminary announcement does not
constitute the Company's statutory accounts for the years ended 31st December
2006 or 2005. The financial information for the year ended 31st December 2005 is
derived from the statutory accounts for that year which have been delivered to
the Registrar of Companies. The auditors reported on those accounts; their
report was unqualified and did not contain a statement under s237(2) or (3) of
the Companies Act 1985.The statutory accounts for the year ended 31st December
2006 will be finalised on the basis of the information presented by the
Directors in this preliminary announcement and will be delivered to the
Registrar of Companies following the Company's Annual General Meeting on 3rd May
2007.
JPMORGAN ASSET MANAGEMENT (UK) LIMITED
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Wednesday, 15th January 2025
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