Half-year Results to 31 December 2018

RNS Number : 2321S

JPMorgan Global Growth & Income PLC

07 March 2019

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN GLOBAL GROWTH & INCOME PLC ('the Company')

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

31ST DECEMBER 2018

Legal Entity Identifier: 5493007C3I0O5PJKR078

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

While equity markets were firm in the first three months of the Company's new financial year, the second three months to 31st December 2018 saw widespread falls and increased volatility. Concerns about rising US central bank interest rates, a sharp slowdown in Eurozone business confidence, weaker Chinese growth and rising geopolitical concerns (including Brexit, Italian politics and ongoing trade conflict between the US and China) were all factors that influenced the investment landscape. Against this backdrop, the Company recorded a fall in net asset value ('NAV') total return of 8.6% and a fall in total return to shareholders of 8.7%.

The return on the Company's benchmark (the MSCI All Countries World Index in sterling terms) was -5.7% which meant that the Investment Managers underperformed during the period, mainly due to stock selection. The Investment Managers' report provides more detail about stock selection as well as a commentary on the market outlook.

Encouragingly, the Company's shares traded close to, or at a small premium to NAV. It was not necessary to buy back any shares during the period and when the share price traded at a premium to NAV, the Company was able to reissue 1,760,000 shares from Treasury for a total consideration of £5,400,000. The shares have continued to trade at a premium to NAV in 2019, allowing the Company to continue reissuing shares; up to the time of writing, 235,000 shares have been reissued from Treasury in 2019 for a total consideration of £709,000.

PERFORMANCE ATTRIBUTION

SIX MONTHS ENDED 31ST DECEMBER 2018

	%	%
Contributions to total returns
Benchmark return		-5.7
Asset allocation	0.4
Stock selection	-3.0
Currency effect	0.2
Gearing/cash	-0.4
Investment Managers' contribution		-2.8
Portfolio return		-8.5
Management fee/other expenses	-0.3
Performance fee	0.3
Net asset value return - prior
to structural effects		-8.5
Structural effects
Share buy-backs/issuance	-
Net asset value return - Debt at fair value		-8.5
Impact of Fair Value Valuation of Debt	-0.1
Net asset value return - Debt at par value		-8.6
Return to shareholders		-8.7

Source: JPMAM and Morningstar.

All figures are on a total return basis.

This performance attribution analyses how the Company achieved its performance relative to its benchmark index. The Investment Managers' report provides a detailed commentary on these figures and discusses activity, performance and the market outlook.

Markets have recovered quite steadily in January and February and, at the time of writing, the Company's NAV has recovered a significant proportion of the losses incurred in the first half of the year. The Investment Managers' contribution to returns has also turned positive. While the global financial and economic outlook remains highly uncertain, the Board retains its confidence in the ability of the Investment Managers to identify attractively priced high quality stocks with which to build the Company's portfolio.

Finally, as announced on 1st March 2019, Jeroen Huysinga will be retiring from JPMorgan after 22 years' service to pursue further education and a career in the charities sector. Jeroen's specific portfolio management responsibilities will be transitioned to other highly experienced members of the same Research Driven Process ('RDP') Portfolio Management team within JPMorgan. Rajesh (Raj) Tanna and Helge Skibeli will join Tim Woodhouse as the Company's joint portfolio managers with effect from 14th March 2019. Jeroen will continue to support the team over the course of the summer to ensure a smooth transition. The investment process (RDP) for the Company's portfolio management will remain unchanged. The Board would like to thank Jeroen for his stewardship of the Company's portfolio during the past ten years and wishes him all the best for the future. The Board looks forward to working with the new portfolio management team and believes that the RDP investment process will continue to deliver strong long term returns for the Company's shareholders.

Nigel Wightman

Chairman                                                                                                                                    

7th March 2019

INVESTMENT MANAGERS' REPORT

Global headwinds challenge markets

As we look back on the first half of the Company's current financial year, from July to December 2018, it's worth emphasising that the investment and geopolitical climate has been much more challenging this half-year than it was in the last financial year. Although the current period began with global stock markets still in synchronised and buoyant form, sharper market swings than before were already a feature. In August, US markets celebrated the longest bull market in history, but there was already broad agreement that the path ahead would be considerably more challenging and that the possibility of a significant market correction was high. These fears were stoked by global economic and geopolitical headwinds that had become more powerful as the year unfolded.

Against this unsettling backdrop, the sharp global equities sell-off that occurred in October - and the volatility that followed in its aftermath - wasn't hugely surprising. Markets, having been exuberant for so long, were finally unable to ignore the rising tide of political issues that were threatening economies around the world, some of which were already looking lacklustre. Unsurprisingly, this review period has challenged investors, and that includes us, as the managers of your Company.

The Company's benchmark, the MSCI All Country World Index in sterling terms, was down 5.7% from July to December, as markets moved from optimism around strong earnings growth to fears of an impending recession. These fears were amplified by the continued trade tensions between the US and China, as well as the increased focus on the magnitude of balance sheet shrinkage by central banks around the world. Looking ahead, we believe it is important to focus on the underlying fundamentals, which continue to look very resilient. The exceptional earnings growth of 16.5% in Developed Markets in 2018 will not be repeated, as this included a number of one-offs, such as US tax reform. However, our forecast earnings growth for 2019 of 6.5% implies a good backdrop for global equities.

Portfolio Review and spotlight on stocks

Our high conviction stock picking has frequently been a key driver of the Company's outperformance of its index, so it is disappointing that stock picking was the primary reason for underperformance in 2018. Looking at the last six months specifically, ASOS, Electronic Arts, and Ryanair were the most significant detractors from performance.

British online retailer ASOS reported very challenged results in December 2018, reflecting both stock-specific and industry-wide issues. The retail environment - particularly in the UK - was very difficult, and ASOS described an 'unprecedented' level of discounting in the 4th quarter. Longer-term, we still believe its leading position in online fashion will be the most important factor, but the current uncertainty combined with already low margins makes it a difficult name to have conviction in.

Electronic Arts is an American video game company that is benefiting from some strong secular trends; continued growth in the penetration of video games, but more importantly the increasing monetisation of those games. Unfortunately, the company experienced a couple of volatile quarters relating to game delays and large events, but we firmly believe its long-term thesis remains intact.

Ryanair carries over 130 million customers a year and continues to have by far the best cost structure of any European airline; ultimately, we believe this will allow it to be successful over the long-term. A weaker fare backdrop and difficult negotiations with the unions have led to some recent weakness, but we feel confident in the medium-term outlook for the shares.

Our investments in O'Reilly Automotive, Google parent company Alphabet, and Disney were some of the strongest performers over the review period. O'Reilly continues to benefit from more ageing cars on the road, leading to growing demand for replacement parts. We see this tailwind continuing for several years. Alphabet - one of our largest holdings - has long been a high-conviction idea for us, and this remains the case. Accelerating revenue growth in its core business, coupled with success in their 'Other Bets' division, which includes autonomous driving and healthcare, have only made the stock more attractive - and that's before you even mention the $105 billion in cash they have on the balance sheet. Disney's success with its bid for Fox, coupled with optimism around its upcoming Direct-To-Consumer (DTC) streaming service launch have led to outperformance, and we see further opportunity ahead.

Our underweight exposure to Semiconductor & Hardware companies (particularly Apple), and our overweight to Basic Industries were headwinds over the review period. Our lack of a position in Apple is driven by a belief that iPhone sales will fall by 20% in the coming years, as consumers replace their mobile phones less frequently. We saw the beginnings of this in January when Apple issued a profit warning that rattled global stock markets; we expect to see the benefit of not holding Apple reflected in relative performance for the Company over the coming months.

Outlook and portfolio positioning

Over the six-month review period, we increased gearing slightly which reflects our belief that we will see healthy earnings growth in 2019. It also acknowledges that, despite the likelihood of continuing volatility, reflecting the economic and geopolitical issues we have alluded to, there are reasons for optimism. Not least of these is the fact that the recent period of weaker equity returns provides us with the opportunity to uncover exciting investments, with compelling fundamentals, that are better value now than they were six months ago. Our commitment to hunting down these quality businesses will continue unabated.

Normalisation of monetary policy is evident globally, with reducing liquidity potentially a worry for those companies that are highly leveraged. However, we are reassured by recent indications that US monetary policy will not be tightened by too much, too quickly. A balance sheet shrinkage exercise was set in motion last year, some ten years after the 2008 global financial crisis, when the US Federal Reserve had first begun to increase its balance sheet as part of efforts to revitalise the economy. Fears that this recent shrinkage signalled an era of tightening liquidity alarmed markets and triggered a December sell-off, but this has since been reversed by reassurances that the balance sheet reduction may not be a permanent feature.

Trade tensions between the US and its global trading partners have dominated the headlines over the last year, with China very much in the spotlight. At the time of writing, speculation surrounds a potential resolution to the trade dispute; this would clearly provide much-needed support for global markets. We also believe that the more data-driven approach being adopted by Central Banks globally could realistically extend the economic cycle further.

As always, our added-value is in our ability to drive insights on individual stocks through bottom-up research and a focus on cash flow generation. This insight into the value of companies over the medium-term ensures that in periods of heightened volatility, such as now, we can take full advantage of any opportunities that present themselves.

We remain resolute in our aim to invest in our best ideas from across the world's stock markets at attractive valuations. And we focus our energy on finding businesses to invest in that we believe can be successful over many years. As an example of this, we have increased our overweight exposure to Banks, to take advantage of certain stocks within the banking sector that we feel offer potentially significant investment opportunities, at very attractive valuations.

Above all, we believe our distinctive investment strategy is a compelling one. We acknowledge that global economic momentum has slowed but are confident that our expertise, combined with our global best ideas - go anywhere - portfolio and JPMorgan's award-winning and experienced global research team, can deliver significant long-term total returns for investors.

After more than 30 years as a portfolio manager, ten of which as your Investment Manager, I have recently told the board about my decision to retire from JPMorgan and the asset management industry. I am planning to pursue a Master's degree in Charity Effectiveness and a role in the non-profit sector. I leave behind an extremely talented team which is exceptionally well positioned to build on our achievements over the last decade. My best and sincerest wishes go to them and the Board. As a shareholder and wearing a different hat, I look forward to watching the Company move from strength to strength.

Jeroen Huysinga

Tim Woodhouse

Investment Managers                                                                                                                               

7th March 2019

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 have not changed and fall into the following broad categories: investment and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational; going concern; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Financial Statements for the year ended 30th June 2018.

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 operation existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the financial statements.

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 FRS 104 'Interim Financial Reporting' 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 December 2018, 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

Nigel Wightman

Chairman                                                                                                                                              

7th March 2019

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2018

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st December 2018			31st December 2017			30th June 2018
	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	-	(38,464)	(38,464)	-	31,334	31,334	-	27,402	27,402
Net foreign currency
gains/(losses)	-	1,054	1,054	-	(2,652)	(2,652)	-	(1,948)	(1,948)
Income from investments	3,194	-	3,194	2,493	-	2,493	7,483	-	7,483
Interest receivable and similar
income	46	-	46	43	-	43	115	-	115
Gross return	3,240	(37,410)	(34,170)	2,536	28,682	31,218	7,598	25,454	33,052
Management fee	(437)	(437)	(874)	(407)	(407)	(814)	(832)	(832)	(1,664)
Performance fee
write-back/(charge)	-	1,246	1,246	-	(204)	(204)	-	1,101	1,101
Other administrative expenses	(261)	-	(261)	(242)	-	(242)	(533)	(18)	(551)
Net return/(loss) on ordinary
activities before finance
costs and taxation	2,542	(36,601)	(34,059)	1,887	28,071	29,958	6,233	25,705	31,938
Finance costs	(227)	(227)	(454)	(77)	(77)	(154)	(292)	(292)	(584)
Net return/(loss) on ordinary
activities before taxation	2,315	(36,828)	(34,513)	1,810	27,994	29,804	5,941	25,413	31,354
Taxation	(218)	-	(218)	(223)	-	(223)	(599)	-	(599)
Net return/(loss) on ordinary
activities after taxation	2,097	(36,828)	(34,731)	1,587	27,994	29,581	5,342	25,413	30,755
Return/(loss) per share
(note 3)	1.62p	(28.44)p	(26.82)p	1.28p	22.56p	23.84p	4.24p	20.16p	24.40p

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2018

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves1	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 31st December 2018 (Unaudited)
At 30th June 2018	7,746	53,976	27,401	318,084	3,583	410,790
Issue of shares from Treasury	-	2,203	-	3,197	-	5,400
Net return on ordinary activities	-	-	-	(36,828)	2,097	(34,731)
Dividends paid in the period (note 4)	-	-	-	-	(7,960)	(7,960)
At 31st December 2018	7,746	56,179	27,401	284,453	(2,280)	373,499
Six months ended 31st December 2017 (Unaudited)
At 30th June 2017	7,746	46,670	27,401	282,972	12,395	377,184
Issue of shares from Treasury	-	2,575	-	3,315	-	5,890
Net return on ordinary activities	-	-	-	27,994	1,587	29,581
Dividends paid in the period (note 4)	-	-	-	-	(6,477)	(6,477)
At 31st December 2017	7,746	49,245	27,401	314,281	7,505	406,178
Year ended 30th June 2017 (Audited)
At 30th June 2017	7,746	46,670	27,401	282,972	12,395	377,184
Issue of shares from Treasury	-	7,306	-	9,699	-	17,005
Net return on ordinary activities	-	-	-	25,413	5,342	30,755
Dividends paid in the year (note 4)	-	-	-	-	(14,154)	(14,154)
At 30th June 2018	7,746	53,976	27,401	318,084	3,583	410,790

¹ These reserves form the distributable reserves of the Company and may be used to fund distributions to investors via dividend payments.

STATEMENT OF FINANCIAL POSITION

AT 31ST DECEMBER 2018

	(Unaudited)	(Unaudited)	(Audited)
	31st December	31st December	30th June
	2018	2017	2018
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	396,444	410,109	431,001
Current assets
Derivative financial assets	2,950	1,048	4,156
Debtors	833	626	1,352
Cash and cash equivalents	5,683	24,360	8,008
	9,466	26,034	13,516
Current liabilities
Creditors: amounts falling due within one year	(537)	(25,587)	(832)
Derivative financial liabilities	(1,851)	(2,068)	(1,629)
Net current assets/(liabilities)	7,078	(1,621)	11,055
Total assets less current liabilities	403,522	408,488	442,056
Creditors: amounts falling due after more than one year	(30,023)	(200)	(30,020)
Provisions for liabilities and charges
Performance fee payable	-	(2,110)	(1,246)
Net assets	373,499	406,178	410,790
Capital and reserves
Called up share capital	7,746	7,746	7,746
Share premium	56,179	49,245	53,976
Capital redemption reserve	27,401	27,401	27,401
Capital reserves	284,453	314,281	318,084
Revenue reserve	(2,280)	7,505	3,583
Total shareholders' funds	373,499	406,178	410,790
Net asset value per share (note 5)	285.6p	323.7p	318.4p

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2018

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2018	31st December 2017	30th June 2018
	£'000	£'000	£'000
Net cash outflow from operations before dividend and
interest	(908)	(1,066)	(2,227)
Dividends received	3,147	2,581	6,916
Interest received	27	24	83
Overseas tax recovered	143	3	30
Interest paid	(444)	(151)	(233)
Net cash inflow from operating activities	1,965	1,391	4,569
Purchases of investments	(158,991)	(120,821)	(301,877)
Sales of investments	154,887	142,762	298,918
Settlement of forward currency contracts	2,371	(4,514)	(7,403)
Net cash (outflow)/inflow from investing activities	(1,733)	17,427	(10,362)
Dividends paid	(7,960)	(6,477)	(14,154)
Issue of shares from Treasury	5,400	5,890	17,005
Issue of loan notes (net of costs)	-	-	29,820
Repayment of bank loans	-	-	(25,000)
Net cash (outflow)/inflow from financing activities	(2,560)	(587)	7,671
(Decrease)/increase in cash and cash equivalents	(2,328)	18,231	1,878
Cash and cash equivalents at start of period	8,008	6,131	6,131
Exchange movements	3	(2)	(1)
Cash and cash equivalents at end of period	5,683	24,360	8,008
(Decrease)/increase in cash and cash equivalents	(2,328)	18,231	1,878
Cash and cash equivalents consist of:
Cash and short term deposits	4,722	4,265	764
Cash held in JPMorgan US Dollar Liquidity Fund	961	20,095	7,244
Total	5,683	24,360	8,008

NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31ST DECEMBER 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 30th June 2018 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 and included the report of the auditors which are 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 31st December 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 30th June 2018.

3.       Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2018	31st December 2017	30th June 2018
	£'000	£'000	£'000
Return/(Loss) per share is based on the following:
Revenue return	2,097	1,587	5,342
Capital (loss)/return	(36,828)	27,994	25,413
Total (loss)/return	(34,731)	29,581	30,755
Weighted average number of shares in issue	129,483,894	124,084,328	126,044,353
Revenue return per share	1.62p	1.28p	4.24p
Capital (loss)/return per share	(28.44)p	22.56p	20.16p
Total (loss)/return per share	(26.82)p	23.84p	24.40p

4.       Dividends paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2018	31st December 2017	30th June 2018
	£'000	£'000	£'000
Unclaimed dividends refunded to the Company	-	(9)	(21)
2017 third interim dividend of 2.20p	-	2,721	2,721
2018 fourth interim dividend of 3.04p	3,922	-	-
2019 first interim dividend of 3.13p (2018: 3.04p)	4,038	3,765	3,765
2018 second interim dividend of 3.04p	-	-	3,798
2018 third interim dividend of 3.04p	-	-	3,891
Total dividends paid in the period/year	7,960	6,477	14,154

A second interim dividend of 3.13p has been paid on 3rd January 2019 for the financial year ending 30th June 2019, costing £4,082,000.

A third interim dividend of 3.13p per share has been declared for payment on 5th April 2019 for the financial year ending 30th June 2019.

5.       Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2018	31st December 2017	30th June 2018
Net assets (£'000)	373,499	406,178	410,790
Number of shares in issue	130,761,285	125,486,285	129,001,285
Net asset value per share	285.6p	323.7p	318.4p

JPMORGAN FUNDS LIMITED

7th March 2019

For further information, please contact:

Divya Amin

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

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.

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 will also shortly be available on the Company's website at www.jpmglobalgrowthandincome.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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