Half-year Report

RNS Number : 9758W

JPMorgan Claverhouse IT PLC

07 August 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CLAVERHOUSE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
30th JUNE 2018

Legal Entity Identifier: 549300NFZYYFSCD52W53

Information disclosed in accordance with the DTR 4.2.2

The Directors of JPMorgan Claverhouse Investment Trust plc announce the Company's results for the half year ended 30th June 2018.

CHAIRMAN'S STATEMENT

Performance

For the six months to 30th June 2018 I am pleased to report a total return on the Company's net assets of +2.9% and a share price total return of +6.5%. This result compares with a total return from the Company's benchmark index, the FTSE All-Share Index, of +1.7% over the same period, an outperformance of 1.2%.

Performance remains strong over the short and long term, for which the investment managers must be commended. Since the change in investment strategy in 2012 the Company has produced a total return on net assets of +103.9% compared with the benchmark index total return of +73.6% and for the last three, five and ten years to 30th June 2018 the Company's total return on net assets has exceeded the benchmark index by 3.8%, 14.5% and 18.6%, respectively.

The net asset value has increased further since the period end by 1.1% as at 31st July 2018, compared to the benchmark index increase of 1.2% over the same period, and the share price has risen by 1.8%.

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

Revenue and Dividends

Earnings per share for the six months to 30th June 2018 increased to 17.30p, compared to 16.21p earned in the same period in 2017.

A first quarterly dividend of 6.0p per share (2017: 5.5p) was paid on 1st June 2018. 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 6.0p per share (2017: 5.5p) to be paid on 3rd September 2018 to shareholders on the register at the close of business on 10th August 2018. It continues to be the aim to increase the total dividend each year and, taking a run of years together, to pay dividends that are close to or above the rate of inflation. Over the last five years annual dividends have increased by 37.9%. 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 Issues and Repurchases

At the Annual General Meeting in April shareholders authorised the sale of shares from Treasury at a discount of no more than 2% to the prevailing NAV per share (cum income debt at par). The Company's discount has narrowed significantly over the period and as a result 495,000 shares have been issued from Treasury since the approval in April, at an average discount of 1.3%. 1,711,674 shares now remain in Treasury. As at 30th June 2018 the Company's discount (to its cum income net asset value with debt at par) was 2.4%. The Company intends in normal market conditions to repurchase shares offered in the market at prices representing discounts to NAV (capital only) of 5% or more.

Gearing

The Company's gearing policy is to operate within a range of 5% net cash and 20% geared and the investment managers have discretion to vary the gearing level between 5% net cash and 17.5% geared. The level of gearing reduced from 11.3% at the beginning of the year to 10.2% at 30th June 2018. In addition to its debenture the Company has a revolving credit facility of £50 million and as at 30th June 2018 £30 million was drawn down. Since 30th June 2018 £7.5 million of the facility has been repaid.

Board Apprentice

The Board has appointed Harish Bhayani as the new Board Apprentice and we hope that he will find the experience valuable.

Outlook

It is not surprising that my last annual and half-yearly statements have mentioned the uncertainty caused by the Brexit negotiations. This uncertainty has been ongoing and, with less than nine months left before the UK formally leaves the EU, it will be interesting to see how the market reacts as, hopefully, the exit arrangements become clearer. I make no predictions, as there remain too many different outcomes.

Away from the noise of domestic and international politics, the global economy is still growing and many UK listed companies continue to offer attractive investment opportunities at acceptable valuations.

A key differentiator of the Company is in its risk-controlled approach to portfolio construction, which maximises the chances of the portfolio outperforming in both good and bad market conditions. I am therefore confident that the Investment Managers' implementation of the Company's investment strategy will continue to provide long-term outperformance of the Company's benchmark index and of many of the Company's peers.

Andrew Sutch

Chairman                                                                                                                                         6th August 2018

INVESTMENT MANAGERS' REPORT

Investment Approach

We aim to construct a diversified portfolio of our best ideas, comprising both growth and value stocks. We also hold a small number of very large stocks by market capitalisation for risk-control reasons. For the patient investor, such an approach will, we believe, produce out-performance of the index in a steady, risk-controlled manner irrespective of market conditions. We also strive to maintain Claverhouse's enviable dividend record by biasing the portfolio towards stocks with growing dividends.

Market Review

The first six months of the year saw the FTSE All-Share index deliver a total return of +1.7%. The more internationally oriented FTSE100 large-cap index returned +1.7%, whilst the FTSE Mid 250 and FTSE Small Cap indices, returned +1.9% and +1.0% respectively. Although volatile, the pound was broadly flat over the period. At its peak, the pound rallied to $1.43 but then sank 9.2% to a low of $1.31. The UK Gilts market delivered a total return of +0.4%.

Politics, both domestic and international, have remained at the forefront of investors' minds. In the period there was little progress made on Brexit negotiations despite the initial positive transition deal announcement in March.

European politics has also been tumultuous. The Italian election has resulted in a surprise coalition of the alternative party Five Star and the right wing League. They have divergent views on some policies but both are anti-establishment and populist - their fiscal policy is likely to lead to clashes with their EU partners. Even in Germany, the heart of the EU, there has been instability. Crisis over immigration policy threatened to splinter Chancellor Merkel's coalition and lead Germany into populism, which has swept across so many countries globally.

Global politics has not been smooth sailing either. President Trump has followed up his war of words on trade, with a real trade war, announcing significant tariffs against China. This spooked markets and led to a rally of defensive stocks and cyclical sell off, with basic resources being a major loser.

Despite this rather gloomy litany of political flare ups, the global economy maintained its robust growth with GDP remaining above trend in most parts of the world, which should support earnings growth this year.

Portfolio review

The total return on the net assets of the Company of +2.9% compared with the benchmark return of +1.7% over the first six months of 2018.

Stock selection was good. Fever-Tree, the fast growing premium mixer company, was again the fund's best performer, with its share price rising 49% over the six months. This remarkable company which only employs 60 people now has a market capitalisation of over £4 billion. Global demand for its suite of mixers continues to significantly beat expectations and the vast US drinks market means there is plenty of potential growth. Once again we top sliced the position for risk control reasons, but it remains our biggest overweight position (it is quoted on AIM) and we continue to be very positive on the company's prospects. Softcat the IT services company was another significant contributor. The trend towards digitalisation is still accelerating with rapid changes in the industry presenting growth opportunities. The company has had to consistently upgrade guidance due to excellent trading during the period.

Our holdings in Softcat and Intermediate Capital Group were added to during the period. They continue to trade well and have delivered results ahead of expectations. We purchased a position in business to business funds platform Integrafin, which came to market in February of this year. We subsequently topped up this position as trading has been strong and the discount to its peer Hargreaves Lansdown looked unjustified. The stock has doubled since IPO. New purchases included real estate investment trust, Segro. The company specialises in industrial assets and warehouses and is a way of tapping into the trends of urbanisation and online retail. The Company benefited from its overweight position in Fenner, which was subject to a cash bid at a 30% premium by Michelin.

The portfolio's underweight in tobacco benefited the fund and we continued to trim holdings in this sector. We also sold our holdings in Carnival, Inchcape and Sage, as trading in each has been challenging and we see the potential for further deterioration.

Being overweight Jupiter Fund Management was a detractor for returns. This international asset manager has struggled with outflows from funds, particularly their Dynamic bond fund, being worse than expected. This has been exacerbated by pressure on fee revenue. 

Our overweight position in the package holiday company, Thomas Cook Group, was also detrimental to returns. The excellent weather in the UK has led to customers delaying holiday bookings and increasingly holidaying in the UK, which led to earnings downgrades.

Top Contributors and Detractors to Performance vs FTSE All-Share Index

Top Five Contributors		Top Five Detractors
Fever-Tree	+0.75%	Jupiter Fund Management	-0.43%
Softcat	+0.44%	Thomas Cook Group	-0.24%
Fenner	+0.39%	Card Factory	-0.20%
Electrocomponents	+0.32%	Sky	0.18%
Evraz	+0.28%	Ocado	-0.15%

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

Top Five Overweight Positions		Top Five Underweight Positions
Fever-Tree	+2.1%	British American Tobacco	-1.7%
Electrocomponents	+2.1%	Reckitt Benckiser	-1.6%
Ashtead	+2.0%	Barclays	-1.3%
Legal & General	+1.8%	Vodafone	-1.3%
Softcat	+1.7%	AstraZeneca	-1.2%

Source: JPMAM, as at 30th June 2018.

Market outlook

Subsequent to the end of the period, Theresa May has unveiled the White Paper that will form the basis of negotiations on the relationship of the UK and EU after the planned exit in March 2019. The paper outlines staying close to the single market on goods guided by a set of common rules, with the intention to avoid a hard Irish border. It is proposed that the UK will follow EU law but not be directly affected by the European Courts and freedom of movement will end. Mutual recognition on services is not being sought after, but given this is by far the largest constituent (circa 80%) of the UK economy, it is essential favourable terms are secured in the negotiations.

The White Paper has led to turmoil in the Conservative party as Brexiteers and Remainers have both aired grievances, with two pro-Brexit cabinet members resigning. However, Prime Minister May has not yet had a serious threat to her leadership as her party is acutely aware that a Conservative implosion could lead to losing power altogether.

The actual details are still far from decided and in fact it still remains to be seen if the EU believe this White Paper is a viable starting point to begin negotiations. As throughout the Brexit process uncertainty remains.

Globally, the escalation of trade wars, primarily between China and the US, is concerning. This threatens to destabilise global economic growth and could lead to investors becoming more risk averse. However, there is still time for tensions to be defused.

We have recently taken gearing down by selling cyclicals and financials to control risk. At the time of writing, gearing is 9.0%.

William Meadon

Callum Abbot

Investment Managers                                                                                                                 6th August 2018

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 2017.

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 2018 as required by the UK Listing Authority Disclosure Guidance 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

Andrew Sutch

Chairman                                                                                                                                         6th August 2018

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30TH JUNE 2018

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	30th June 2018			30th June 2017			31st December 2017
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at
fair value through profit
or loss	-	4,639	4,639	-	18,476	18,476	-	47,672	47,672
Net foreign currency
(losses)/gains	-	(12)	(12)	-	(3)	(3)	-	17	17
Income from investments	10,739	-	10,739	10,042	-	10,042	18,484	-	18,484
Interest receivable and
similar income	46	-	46	15	-	15	47	-	47
Gross return	10,785	4,627	15,412	10,057	18,473	28,530	18,531	47,689	66,220
Management fee	(418)	(776)	(1,194)	(400)	(743)	(1,143)	(813)	(1,511)	(2,324)
Other administrative expenses	(348)	-	(348)	(350)	-	(350)	(780)	-	(780)
Net return on ordinary
activities before finance
costs and taxation	10,019	3,851	13,870	9,307	17,730	27,037	16,938	46,178	63,116
Finance costs	(466)	(865)	(1,331)	(451)	(838)	(1,289)	(921)	(1,711)	(2,632)
Net return on ordinary
activities before taxation	9,553	2,986	12,539	8,856	16,892	25,748	16,017	44,467	60,484
Taxation	(88)	-	(88)	(12)	-	(12)	(20)	-	(20)
Net return on ordinary
activities after taxation	9,465	2,986	12,451	8,844	16,892	25,736	15,997	44,467	60,464
Return per share (note 3)	17.30p	5.46p	22.76p	16.21p	30.95p	47.16p	29.32p	81.50p	110.82p

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30TH JUNE 2018

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	Reserve*	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 30th June 2018
(Unaudited)
At 31st December 2017	14,192	149,641	6,680	235,667	22,318	428,498
Issue of shares from Treasury	-	1,462	-	2,220	-	3,682
Net return on ordinary activities	-	-	-	2,986	9,465	12,451
Dividends paid in the period (note 4)	-	-	-	-	(8,456)	(8,456)
At 30th June 2018	14,192	151,103	6,680	240,873	23,327	436,175
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 (note 4)	-	-	-	-	(7,354)	(7,354)
At 30th June 2017	14,192	149,641	6,680	208,092	21,166	399,771
Year ended 31st December 2017
(Audited)
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	-	-	-	44,467	15,997	60,464
Dividends paid in the year (note 4)	-	-	-	-	(13,355)	(13,355)
At 31st December 2017	14,192	149,641	6,680	235,667	22,318	428,498

*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 2018

	(Unaudited)	(Unaudited)	(Audited)
	30th June 2018	30th June 2017	31st December 2017
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	480,505	450,374	476,819
Current assets
Debtors	6,852	1,941	877
Cash and cash equivalents	11,049	13,125	16,489
	17,901	15,066	17,366
Current liabilities
Creditors: amounts falling due within one year	(2,299)	(764)	(768)
Net current assets	15,602	14,302	16,598
Total assets less current liabilities	496,107	464,676	493,417
Creditors: amounts falling due after more than one year	(59,932)	(64,905)	(64,919)
Net assets	436,175	399,771	428,498
Capital and reserves
Called up share capital	14,192	14,192	14,192
Share premium	151,103	149,641	149,641
Capital redemption reserve	6,680	6,680	6,680
Capital reserves	240,873	208,092	235,667
Revenue reserve	23,327	21,166	22,318
Total shareholders' funds	436,175	399,771	428,498
Net asset value per share (note 5)	792.3p	732.7p	785.4p

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30TH JUNE 2018

	(Unaudited)	(Unaudited)	(Audited)
	30th June 2018	30th June 2017	31st December 2017
	£'000	£'000	£'000
Net cash outflow from operations before dividends received and
interest (note 6)	(1,511)	(1,468)	(3,055)
Dividends received	9,391	8,914	18,422
Interest received	44	18	43
Interest paid	(1,349)	(1,254)	(2,560)
Overseas tax recovered	87	61	37
Net cash inflow from operating activities	6,662	6,271	12,887
Purchases of investments	(85,553)	(56,966)	(135,101)
Sales of investments	83,226	53,311	134,197
Settlement of foreign currency contracts	1	3	8
Net cash outflow from investing activities	(2,326)	(3,652)	(896)
Dividends paid	(8,456)	(7,354)	(13,355)
Issue of shares from Treasury	3,682	-	-
Repurchase of the Company's shares into Treasury	-	(918)	(918)
Repayment of bank loan	(5,000)	-	-
Drawdown of bank loan	-	7,000	7,000
Net cash outflow from financing activities	(9,774)	(1,272)	(7,273)
(Decrease)/increase in cash and cash equivalents	(5,438)	1,347	4,718
Cash and cash equivalents at start of period/year	16,489	11,771	11,771
Exchange movements	(2)	7	-
Cash and cash equivalents at end of period/year	11,049	13,125	16,489
(Decrease)/increase in cash and cash equivalents	(5,438)	1,347	4,718
Cash and cash equivalents consist of:
Cash and short term deposits	250	254	302
Cash held in JPMorgan Sterling Liquidity Fund	10,799	12,871	16,187
Total	11,049	13,125	16,489

NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30TH JUNE 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 auditors.

The figures and financial information for the year ended 31st December 2017 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 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 30th June 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 31st December 2017.

3.       Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2018	30th June 2017	31st December 2017
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	9,465	8,844	15,997
Capital return	2,986	16,892	44,467
Total return	12,451	25,736	60,464
Weighted average number of shares in issue	54,705,913	54,570,913	54,564,897
Revenue return per share	17.30p	16.21p	29.32p
Capital return per share	5.46p	30.95p	81.50p
Total return per share	22.76p	47.16p	110.82p

4.       Dividends paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2018	30th June 2017	31st December 2017
	£'000	£'000	£'000
Unclaimed dividends refunded to the Company	(8)	(12)	(13)
2017 fourth quarterly dividend of 9.5p (2016: 8.0p)
paid in March	5,183	4,365	4,365
First quarterly dividend of 6.0p (2017: 5.5p)
paid in June	3,281	3,001	3,001
Second quarterly dividend of 5.5p paid in September	n/a	n/a	3,001
Third quarterly dividend of 5.5p paid in December	n/a	n/a	3,001
Total dividends paid in the period	8,456	7,354	13,355

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

A second quarterly dividend of 6.0p (2017: 5.5p) per share, amounting to £3,303,000 (2017: £3,001,000) has been declared payable in respect of the year ending 31st December 2018. It will be paid on 3rd September 2018 to shareholders on the register at the close of business on 10th August 2018.

5.       Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2018	30th June 2017	31st December 2017
Net assets (£'000)	436,175	399,771	428,498
Number of shares in issue at period/year end	55,053,979	54,558,979	54,558,979
Net asset value per share	792.3p	732.7p	785.4p

6.       Reconciliation of net return on ordinary activities before finance costs and taxation to net cash outflow from operations before dividends received and interest

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2018	30th June 2017	31st December 2017
	£'000	£'000	£'000
Net return on ordinary activities before finance costs and
taxation	13,870	27,037	63,116
Less capital return on ordinary activities before finance
costs and taxation	(3,851)	(17,730)	(46,178)
Increase in accrued income and other debtors	(1,259)	(1,120)	(32)
Increase in accrued expenses	39	45	26
Management fee charged to capital	(776)	(743)	(1,511)
Overseas withholding tax	(88)	(12)	(20)
Dividends received	(9,391)	(8,914)	(18,422)
Interest received	(44)	(18)	(43)
Realised (losses)/gains on foreign currency transactions	(11)	(13)	9
Net cash outflow from operations before dividends
received and interest	(1,511)	(1,468)	(3,055)

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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