Half Yearly Report

RNS Number : 0231X

JPMorgan Claverhouse IT PLC

06 August 2009

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CLAVERHOUSE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 

30TH JUNE 2009

Chairman's Statement

I signed out my Statement for the Annual Report on 4th March 2009 which, as it turned out subsequently, was within a day of the bottom of the stock market for the first six months of 2009. Once again they were a rollercoaster six months for investors. Initially the gloom, so evident at the turn of the year, got even deeper.

But when the market turned in early March, suddenly risk was back in fashion and, despite easing back towards the end of the half-year, many severely depressed stocks rebounded in style. Overall, the FTSE All-Share Index ended up 21.9% from its low point reached on 3rd March.

Your Company's net asset value total return was +0.8% over the six months to 30th June 2009. This exactly matched the total return on our benchmark index, the FTSE All-Share, of +0.8%. The total return to shareholders was +1.2%. A full review of the Company's performance for the first six months and the outlook for the remainder

of the year is provided in the Investment Managers' Review below.

Revenue and Dividends

As foreshadowed in my March Statement, earnings per share for the six months to 30th June 2009 fell sharply when compared with the same period in 2008. Earnings were 8.94p as compared with 11.18p for the corresponding period last year. It has been clear for some time that dividends will remain under pressure as companies seek to rebuild their balance sheets in the face of the serious down-turn in business activity and the uncertainty of the length of the recession in developed economies.

The Directors have already declared two quarterly dividends of 3.50p each for the current financial year (2008: 3.50p). I advised shareholders in my March Statement that the Board hoped to be able at least to maintain the dividend of 16.4p (excluding the special dividend of 3.6p, paid as a result of the VAT recovery) per share for the year ending 31st December 2009, if necessary using part of the Company's revenue reserve (which after payment of the second quarterly dividend of 3.50p equates to approximately 24.7p per share) to achieve this position. This remains the Board's intention.

Share Buy-backs and Discount

Throughout the investment trust sector share buy-backs have reduced substantially and that has also been your Company's experience. During the period under review the Company repurchased a total of 23,500 shares for cancellation, at a discount to net asset value (with debt at par value) of 7.3%. By comparison, during the six months to 30th June 2008, the Company repurchased 882,415 shares. The Company did not issue any new shares over the period. At the period end, the discount with debt valued at par was 5.5% and averaged 5.6% over the six months.

Gearing

As at 30th June 2009 the Company was 11.5% geared. During the period the gearing varied between 11.0% and 15.5%. It is the Board's current intention to keep gearing within the range of 0-15%, however this level is kept under regular review in conjunction with the investment managers and may be increased up to a maximum of 20%.

The Future

Despite their strength in recent weeks, markets remain nervous after the battering of 2008. Although the pace of decline of economic activity in developed economies appears to have slowed there is little sign of any sustained upturn. However, at least the developed world's banking system would appear to be more secure and private sector businesses are cutting costs and restructuring. When the upturn comes this should stand the private sector in good stead.

The same cannot be said about the UK public sector. The political and economic uncertainties are legion arising from the state of the UK Government's finances as the UK faces a general election no later than June 2010. Whoever forms the next Government will face a shocking state of affairs which will require both cuts in Government expenditure and tax rises. Even then the UK will be fortunate if it is able to finance the public deficits forecast for the next four years without a material rise in interest rates. In addition many commentators fear a resurgence of inflation in the years ahead.

These are not promising circumstances for rapid progress in the economy or the stock market, although the international nature of the business of the UK's largest companies should provide some support. Nevertheless, I continue to remind myself of the long-term trends in returns from stock market investments, which I referred to in my Statement to shareholders in March, and the necessity for investors to keep faith with the asset class, particularly should the risk of inflation increase. I fear though that we will continue to experience material volatility. But I am still of the view that long-term investors will eventually be rewarded despite the very indifferent performance of the equity market for ten years now.

Your Board will continue to monitor carefully the outcome of the Managers' investment process and very much hope to be able to report on value added at 31st December 2009.

Michael Bunbury

Chairman 

6th August 2009

Investment Managers' Report

Market Review

UK equities ended the first six months of the year broadly flat. However, the market's overall performance masked continued volatility for investors. The year began badly. The first two months of 2009 saw significant share price falls as ongoing concerns about the extent of the economic downturn and continued worries about the health

of the global financial system sparked further heavy selling.

Backward looking economic data painted a picture of severe weakness. The UK economy contracted by 1.8% quarter on quarter over the final three months of 2008 and by another 2.4% in the first quarter of 2009, marking the biggest drop in UK economic output for over fifty years (source: National Statistics Office and Bloomberg). Against this backdrop, the Bank of England's Monetary Policy Committee continued to cut interest rates aggressively, with cuts in January, February and March down to a record low of just 0.5%, where it has stayed since that date.

In the first week of March the Bank of England also took the unprecedented step of announcing plans to buy £75 billion (extended to £150 billion in May) of Government bonds through a programme called quantitative easing ('QE'). The aim of QE, which has also been adopted by the US Federal Reserve, is to bring down borrowing costs for businesses and consumers by forcing long-term Government bond yields lower.

As the half year progressed, signs started to emerge that the unprecedented monetary policy action, combined with the Government stimulus packages announced late last year, may be working. Economic data releases began to suggest that the pace of economic contraction was slowing, with manufacturing and services purchasing managers' indices picking up and retail sales rising again. A further boost to the UK economy and corporate earnings will come from the significant fall in value of sterling, particularly against the US dollar, in the second half of 2008. Even housing market reports suggested house prices may at last be stabilising after falling sharply since late 2007.

The result of the stabilisation in economic news was a sharp rebound in the FTSE All-Share Index during the second half of March and through April and May. Therefore, despite falling sharply and hitting a near five-year low on 3rd March, the market fought back during the spring and early summer to end the period 0.8% higher.

Portfolio Review

For the first six months of the year the total return on net assets for your Company was +0.8%, in line with the benchmark return. Our investment philosophy is to build a portfolio combining value and growth stocks, as both of these 'styles' have long term records of out-performance. In the first six months of 2009 the returns to these two styles have seen marked shifts as investor sentiment has oscillated between extreme fear and nascent optimism. Up until the market bottoming on 3rd March, value stocks, which are often more economically sensitive, underperformed as investors worried that the global economy could be heading for a severe depression. Over this period, growth stocks outperformed the declining market. Since 3rd March investor sentiment has recovered and value stocks have outperformed markedly, whilst those growth stocks which had defensive attributes have lagged. Over the six months as a whole this has meant that value has modestly outperformed, whilst growth, in particular earnings and price momentum, have underperformed. 

At a stock level these differing style returns are reflected in the Company's portfolio. The overweight positions in lowly rated stocks which have outperformed, such as the mining companies Rio Tinto and Kazakhmys, the bank, Barclays, and financials such as Tullett Prebon and Investec have contributed positively to performance. By contrast, stocks held for their growth characteristics, such as GlaxoSmithKline and Unilever have underperformed as investors have focused their attention on more cyclical companies. The mining sector has delivered particularly strong returns in the first half of 2009, with Kazakhmys leading the sector's performance, rising 173%, whilst Rio Tinto delivered +75%. The mining sector performed strongly as it responded positively to indications that China had resumed buying commodities, with the copper price in particular rising strongly over the period. In the 2008 Annual Report we commented that oil equipment and services companies had been out of favour in the second half of that year but we remained positive on the sector. In the first six months of 2009, the sector has rallied strongly with Petrofac delivering a 98% return as it has become clear that oil companies will continue to invest to protect their long term growth.

Another feature of the first half of 2009 has been the announcement of an increasing number of rights issues by companies. Debt finance has become increasingly expensive and hard to come by and so companies have raised additional equity to rebuild their battered balance sheets. Such rights issues included a large number of real estate companies alongside some highly geared cyclical companies that needed to reduce their financial gearing in order to avoid breaching banking covenants. The Company participated in a number of capital raisings, including the two major rights issues, HSBC, the global banking group, and Rio Tinto.

For the second half of the year the economic outlook continues to be difficult to predict with any degree of certainty. In the immediate future the unprecedented degree of monetary and fiscal stimulus, coupled with QE have removed the worst case economic scenarios that were being discussed early in 2009. Indeed, there are an increasing number of surveys and indicators that give hope that the worst part of this downturn has passed. However, whilst the rate of deterioration may have eased, that is not the same as a resumption of growth. For the Company, that means that we will continue to ensure the portfolio is invested to give a balanced exposure to value, earnings growth and positive newsflow. The portfolio continues to have a significant exposure to both of the UK's leading pharmaceutical companies, AstraZeneca and GlaxoSmithKline as their lowly share price valuations will respond well to positive newsflow from their drug development pipelines and should prove to be defensive in any further market volatility. The Company is also well positioned in a number of attractively valued cyclical stocks, to benefit from

economic and corporate recovery when it occurs, with a number of retailers, construction related stocks and selected financials.

Market outlook

UK equity valuations continue to look broadly attractive, both on an historic basis and relative to bond yields. The UK economy, although still weak, is likely to benefit from the significant Government stimulus measures, central bank easing and the boost to trade from the weakness of sterling, which in turn should help strengthen corporate

earnings expectations.

Indeed, most recent economic data have continued to suggest that the trough in activity has been passed and that the business cycle has turned. Surveys have continued to improve and in some instances have significantly beaten expectations, although from very low levels.

However, with global credit conditions still tight and with household de-leveraging and rising unemployment likely to constrain the extent of the rebound in consumer spending, any economic recovery through the rest of 2009 is likely to be modest. Nevertheless, the recent stabilisation of economic data have led to an improvement in corporate earnings momentum over the past few months, with a greater number of analysts now upgrading their forecasts for company earnings. Indeed these trends have continued into the second half of the year with the equity market rising through July.

James Illsley

Sarah Emly

Investment Managers 

6th August 2009

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 six broad categories: market; investment and strategy; accounting, legal and regulatory; corporate governance and shareholder relations; 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 December 2008.

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.

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

(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.

Michael Bunbury

Chairman    

For further information, please contact:

Jonathan Latter or Alison Vincent

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 6000

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

Income Statement

	(Unaudited) Six months ended 30th June 2009			(Unaudited) Six months ended 30th June 2008			(Audited) Year ended 31st December 2008
For the six months	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
ended 30th June 2009	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments held at fair value through profit or loss	-	(6,097)	(6,097)	-	(36,630)	(36,630)	-	(113,890)	(113,890)
Income from investments	5,974	-	5,974	7,452	-	7,452	13,335	-	13,335
Other interest receivable and similar income	23	-	23	17	-	17	772	-	772
Gross return/(loss)	5,997	(6,097)	(100)	7,469	(36,630)	(29,161)	14,107	(113,890)	(99,783)
Management fee	(170)	(316)	(486)	(264)	(491)	(755)	(475)	(881)	(1,356)
VAT recovered	-	-	-	-	-	-	1,267	2,067	3,334
Other administrative expenses	(331)	-	(331)	(310)	-	(310)	(658)	-	(658)
Net return/(loss) on ordinary activities before finance costs and taxation	5,496	(6,413)	(917)	6,895	(37,121)	(30,226)	14,241	(112,704)	(98,463)
Finance costs	(392)	(727)	(1,119)	(393)	(729)	(1,122)	(766)	(1,423)	(2,189)
Net return/(loss) on ordinary activities before taxation	5,104	(7,140)	(2,036)	6,502	(37,850)	(31,348)	13,475	(114,127)	(100,652)
Taxation	(29)	-	(29)	(26)	-	(26)	(49)	-	(49)
Net return/(loss) on ordinary activities after taxation	5,075	(7,140)	(2,065)	6,476	(37,850)	(31,374)	13,426	(114,127)	(100,701)
Return/(loss) per share (note 4)	8.94p	(12.58)p	(3.64)p	11.18p	(65.33)p	(54.15)p	23.38p	(198.70)p	(175.32)p

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 share capital	Share premium	Capital  redemption  reserve	Capital reserves	Revenue reserve	Total
Six months ended 30th June 2009 (Unaudited)
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2008	14,198	149,641	6,674	22,291	18,283	221,087
Repurchase and cancellation of shares	(6)	-	6	(82)	-	(82)
Net (loss)/return on ordinary activities	-	-	-	(7,140)	5,075	(2,065)
Dividends appropriated in the period	-	-	-	-	(7,377)	(7,377)
At 30th June 2009	14,192	149,641	6,680	15,069	15,981	201,563
	Called up share capital	Share premium	Capital  redemption reserve	Capital reserves	Revenue reserve	Total
Six months ended 30th June 2008 (Unaudited)
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2007	14,585	149,641	6,287	143,517	13,882	327,912
Repurchase and cancellation of shares	(221)	-	221	(4,281)	-	(4,281)
Net (loss)/return on ordinary activities	-	-	-	(37,850)	6,476	(31,374)
Dividends appropriated in the period	-	-	-	-	(5,043)	(5,043)
At 30th June 2008	14,364	149,641	6,508	101,386	15,315	287,214
	Called up share capital	Share premium	Capital redemption  reserve	Capital reserves	Revenue reserve	Total
Year ended 31st December 2008 (Audited)
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2007	14,585	149,641	6,287	143,517	13,882	327,912
Repurchase and cancellation of shares	(387)	-	387	(7,099)	-	(7,099)
Net (loss)/return on ordinary activities	-	-	-	(114,127)	13,426	(100,701)
Dividends appropriated in the year	-	-	-	-	(9,025)	(9,025)
At 31st December 2008	14,198	149,641	6,674	22,291	18,283	211,087

Balance Sheet

	(Unaudited)	(Unaudited)	(Audited)
	30th June 2009	30th June 2008	31st December 2008
As at 30th June 2009	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	224,689	312,369	231,599
Investments in liquidity funds held at fair value through profit or loss	11,039	4,054	8,924
	235,728	316,423	240,523
Current assets
Debtors	1,181	1,332	1,034
Cash and short term deposits	96	479	86
	1,277	1,811	1,120
Creditors: amounts falling due within one year	(5,752)	(1,356)	(879)
Net current (liabilities)/assets	(4,475)	455	241
Total assets less current liabilities	231,253	316,878	240,764
Creditors: amounts falling due after more than one year	(29,690)	(29,664)	(29,677)
Total net assets	201,563	287,214	211,087
Capital and reserves
Called up share capital	14,192	14,364	14,198
Share premium	149,641	149,641	149,641
Capital redemption reserve	6,680	6,508	6,674
Capital reserves	15,069	101,386	22,291
Revenue reserve	15,981	15,315	18,283
Shareholders' funds	201,563	287,214	211,087
Net asset value per share (note 5)	355.1p	499.9p	371.7p

Cash Flow Statement

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
For the six months	30th June 2009	30th June 2008	31st December 2008
ended 30th June 2009	£'000	£'000	£'000
Net cash inflow from operating activities (note 6)	4,939	5,868	14,934
Net cash outflow from returns on investments and servicing of finance	(1,099)	(1,153)	(2,208)
Overseas tax recovered	-	-	1
Net cash (outflow)/inflow from capital expenditure and financial investment	(1,338)	10,600	9,509
Dividends paid	(7,377)	(5,043)	(9,025)
Net cash inflow/(outflow) from financing	4,885	(9,818)	(13,149)
Increase in cash for the period	10	454	62
Reconciliation of net cash flow to movement in net debt
Net cash movement	10	454	62
Net loans (drawn down)/ repaid in the period	(5,000)	6,000	6,000
Other movements	(13)	(13)	(27)
Movement in net debt in the period	(5,003)	6,441	6,035
Net debt at the beginning of the period	(29,591)	(35,626)	(35,626)
Net debt at the end of the period	(34,594)	(29,185)	(29,591)
Represented by:
Cash and short term deposits	96	479	86
Bank loans falling due within one year	(5,000)	-	-
Debenture falling due after more than five years	(29,690)	(29,664)	(29,677)
	(34,594)	(29,185)	(29,591)

Notes to the Accounts

for the six months ended 30th June 2009

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 2008 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' 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 December 2008.

3. Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2009	30th June 2008	31st December 2008
	£'000	£'000	£'000
Unclaimed dividends refunded to the Company	(3)	-	(3)
2008 Fourth quarterly dividend of 5.9p (2007: 5.2p) paid in March	3,349	3,020	3,020
2008 Special dividend of 3.6p (2007: nil) paid in March	2,044	-	-
First quarterly dividend of 3.5p (2008: 3.5p) paid in June	1,987	2,023	2,023
Second quarterly dividend of 3.5p paid in September	n/a	n/a	1,995
Third quarterly dividend of 3.5p paid in December	n/a	n/a	1,990
	7,377	5,043	9,025

A second quarterly dividend of 3.5p (2008: 3.5p) per share, amounting to £1,987,000 (2008: £1,995,000), has been declared payable in respect of the six months ended 30th June 2009.

4.    Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th June 2009	30th June 2008	31st December 2008
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	5,075	6,476	13,426
Capital loss	(7,140)	(37,850)	(114,127)
Total loss	(2,065)	(31,374)	(100,701)
Weighted average number of shares in issue	56,765,653	57,933,779	57,437,139
Revenue return per share	8.94p	11.18p	23.38p
Capital loss per share	(12.58)p	(65.33)p	(198.70)p
Total loss per share	(3.64)p	(54.15)p	(175,32)p

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 30th June 2009 of 56,765,653 (30th June 2008: 57,456,153 and 31st December 2008: 56,789,153).

6. Reconciliation of total loss 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
	30th June 2009	30th June 2008	31st December 2008
	£'000	£'000	£'000
Total loss on ordinary activities before finance costs and taxation	(917)	(30,226)	(98,463)
Less capital loss before finance costs and taxation	6,413	37,121	112,704
Increase in net debtors and accrued income	(212)	(507)	(205)
Overseas taxation	(24)	(29)	(58)
Scrip dividends received as income	(5)	-	(230)
Expenses charged to capital	(316)	(491)	1,186
Net cash inflow from operating activities	4,939	5,868	14,934

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

www.jpmclaverhouse.co.uk

 

END

 

 

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