Half Year Results

RNS Number : 4473N

JP Morgan Mid Cap Invest Trust PLC

17 February 2009

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN MID CAP INVESTMENT TRUST plc

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 

31st DECEMBER 2008

Chairman's Statement

Performance

Investing in equities proved particularly challenging over the course of 2008, especially so in the second half of the year. The speed with which the economy and banking system contracted in the second half of 2008 was dramatic and unprecedented in post war years and led to major falls in almost all asset classes. Fundamental investment analysis proved of little value as investors generally and hedge funds in particular became indiscriminate forced sellers of equities at distressed prices as they deleveraged their portfolios to meet margin and redemption calls. In my Chairman's Statement for the last financial year, I referred to an improvement in stock selection in the second half. I am afraid this improvement has not carried through in the difficult environment of the first half of this financial year. During the six months under review the Company achieved a total return on net assets per share of negative 37.1%, underperforming the benchmark's return of negative 28.8%. This underperformance arose from a combination of being geared in a falling market and misjudged stock selection. The Company's return to shareholders (share price and net dividend) was negative 38.5%, reflecting a widening of the discount from 15.2% to 15.7%. 

A more detailed review of the Company's performance is given in the Investment Manager's report below.

Revenue and dividends

Revenue after taxation for the six months to 31st December 2008 was £3,282,000 (2007: £2,136,000) and earnings per share, calculated on the average weekly number of shares in issue, were 12.89p (2007: 7.65p). The significant increase in revenue received over the first half of the year reflects the successful conclusion of the action brought by JPMorgan Claverhouse Investment Trust and the Association of Investment Companies, against HMRC, for the recovery of VAT previously charged on management fees. Following agreement with JPMorgan Asset Management (UK) limited, the Company received £2.05 million in settlement, which was allocated appropriately between income and capital. 

The Board recognises the importance of income to shareholders and, despite pressure on corporate earnings and dividends, proposes to maintain the interim dividend at 5.50p this year. In addition, the Company has declared a special dividend of 4.90p, representing the amount of the VAT recovery and the associated interest taken to income. Both dividends will be paid on 22nd April 2009 to shareholders on the register at the close of business on 20th March 2009.

Loan facilities and Gearing

The Company remained modestly geared throughout the half year, reflecting the Board's view regarding the benefits of long term gearing, ending the period at 104%. The Company has a £9.5 million debenture, which is redeemable at par in 2016 or at the option of the Company after 1st December 2011, and a three year £45 million revolving credit facility with the Bank of Ireland, which expires in April 2009. While the loan facility was undrawn as at the period end, the Board are exploring opportunities to extend or renew the facility. 

Share Buybacks

Over the course of the six months under review the Company repurchased 607,500 ordinary shares into Treasury, representing 2.3% of its issued share capital. No shares were purchased for cancellation. The total number of ordinary shares held in Treasury as at the period end was 820,500. 

Prospects

The UK is in recession and it is difficult to forecast when an economic recovery will take place. However the Bank of England has cut interest rates to the lowest level in its history and there are major efforts to bail out the banks and boost the economy. These actions will take time to show positive results but hopefully the tight credit conditions should soon ease, leading to some economic recovery by the end of 2009 or first half 2010.

Our Investment Managers consider that mid cap equities are already discounting the bleak outlook and that these equities now represent good value. In our opinion, equities should outperform other asset classes over time. Equity dividend yields, even after taking some cuts into account, are significantly higher than government bond yields and deposit rates, which is an important bullish factor. The Company, with its large revenue reserve, is in a strong position at least to maintain dividends despite a likely reduction in dividend income this year.

Andrew Barker 

Chairman

17th February 2009

Investment Managers' Report

Market Background

At the final reckoning 2008 has earned the dubious ranking as the second worst year for UK stock market returns since the Second World War. For investors in the headline FTSE 100 Index, blue chip shares lost about 31% of their value over the course of the calendar year, with the greater part of the falls (just over 21%) coming in the latest six months. 2008 was also the year when received stock market wisdoms were unmasked as little more than wishful thinking amongst market participants; these included the reputation for economic competency of governments, the wisdom of central bankers and market regulators and the safety of banks and of bricks and mortar investing. Since the start of the current financial year for the JPMorgan Mid Cap Investment Trust on 1st July 2008, we have witnessed a dramatic reversal in the price of most commodities, with oil falling from a high of $147 a barrel in July to around $40 a barrel in December, as Western consumers have reduced their demand. Above target inflation, which was the focus of policy attention in the summer of 2008, has since been converted into month on month price deflation. Since October this has led to a complete reversal in policy from the Monetary Policy Committee with interest rates down from 5.0% to 1.0% in four months. Banks, once seen as safe, dividend paying investments, have proved anything but, with the failure and nationalisation of Bradford and Bingley in the UK mid cap market, echoing the collapse of Lehman Brothers in the US and the huge government rescue packages for Royal Bank of Scotland and HBOS/Lloyds TSB in the large cap market. The lending crisis that has paralysed so much economic activity in the UK economy has triggered a 20% fall in house prices and a 45% fall in housing transactions. It has also seen economic activity in the UK shrink at its fastest rate in the final quarter since 1981 and the failure of the High Street veteran Woolworths. Amidst this storm of awful news investors became increasingly risk averse and withdrew from mid cap stocks in greater numbers than from large caps. The general perception that mid cap stocks are more cyclical in nature, and are more dependent on the domestic UK economy (currently a weakness), meant that the mid cap market fell further than the large cap market in the interim period, with the FTSE 250 Index falling 30.5% to close the year at 6361. Since the peak of the market in May 2007, mid caps have lost about half of their value.

Portfolio 

It is our investment philosophy that cheap companies, and fast growing companies, with improving fundamentals, will outperform the overall market over the long term. We therefore aim to build consistently a portfolio for the Company that is overweight in both the best of value companies and the best of growth companies, whilst also ensuring that the management of the companies selected for the portfolio demonstrate capital discipline. Overall the portfolio should therefore be more lowly valued than the FTSE 250 Index, have more growth expected of it, and have better fundamentals.

Over the half year the Company's net assets per share (NAV) fell 37.1%, which compared to a total return on the FTSE 250 ex IT Index of negative 28.8%. Over the same period the Company's shares fell from a mid price of 488.0p to 289.0p and, with dividends, gave a negative total return to shareholders of 38.5%. The difference between the return to shareholders and the NAV return over the period was accounted for by a widening of the discount from 15.2% to 15.7%.

The last six months has been a particularly tough period for the JPMorgan Mid Cap Investment Trust. Against a backdrop of a declining FTSE 250 Index benchmark, the companies we have invested in have not on the whole performed well, so that stock selection has reduced shareholders' returns by 7.3% in this period. In addition, our strategic and tactical decisions to be geared even modestly adversely impacted performance by a further 2.9%. Fees and other costs reduced the return by 1.0%. Whilst we expected the economy to fall into recession, we did not anticipate the complete collapse of investor confidence that swept over the market following the failure of Lehman Brothers; this pushed already cheap mid cap equities into extreme valuation territory as distressed sellers deleveraged their portfolios. This misjudgement meant we were not sufficiently defensively positioned in either stock selection, or overall exposure to the mid cap market, to avoid the worst of the autumn crash in share prices.

For the six months under review, the five biggest positive contributors to portfolio performance among stocks held were Amlin, Catlin, Halfords, United Business Media, and De La Rue; stocks held which detracted most from performance were Cookson, Wellstream, Tullett Prebon, Aquarius Platinum, and Weir Group. Of the stocks adding the most to relative performance in the interim period, all were substantial overweight positions within the portfolio; three delivered positive absolute returns and two only fell modestly compared to the sharp falls for the mid cap market as a whole. Amlin and Catlin, both Lloyds based specialist insurance companies, enjoyed very healthy trading conditions as the general scarcity of capital in the global economy allowed these companies to earn good returns on their available capital. Decent trading updates from United Business Media, the global business information and publishing company, Halfords, the car accessories and bike retailer, and De La Rue, the bank note papermaker and printer, helped their shares resist the worst of the market falls. Of the detractors, which delivered negative returns of 67% or more, all are economically sensitive or cyclical companies, and all suffered as market sentiment turned down savagely in the latest period. Of the companies, four are exposed in one way or another to the downturn in global commodity markets and one to financial markets. Aquarius Platinum has been impacted by a substantial downturn in prices for platinum group metals, reducing near term profits from its mines; Cookson has been impacted by a downturn in the demand from steel makers, who make up 40% of its sales base; and the oil services company, Wellstream, and the pump manufacturer, Weir, have both been affected by the collapse in oil prices, as oil companies are key customers. Tullett Prebon, the inter-dealer broker, reported healthy, 20% plus profits growth during the interim period, but the shares were marked down heavily, as analysts adopted a very cautious stance on 2009 earnings, leaving the shares on a price likely prospective price earnings ratio of about four times.

Future Outlook

When we last wrote in the full year accounts about the outlook for mid cap equities, we highlighted that investors were implicitly expecting a recession to develop in the UK economy in the latter part of 2008, with the consequence of reduced profits from mid cap companies. What has changed in the last six months is that not only has the predicted recession become a reality but it is now forecast to be deeper and longer lasting than was previously feared. According to the International Monetary Fund 2009 will be the worst year for the UK economy since 1946. It is widely accepted that the economy is in dire straits, with the government providing open ended support to the domestic banking system, as well as financial support to other sectors of the economy; tax incentives have been introduced to encourage consumers to spend and the Monetary Policy Committee is operating a near zero interest rate policy. Mid cap company valuations already seem to be discounting this bleak economic operating environment. For the mid cap market as a whole, profits and earnings will probably decline by as much as 40% in 2009, but even after adjusting valuations to reflect this, mid cap equities represent good value. With the yields on government bonds, and returns on cash at all time lows, 2009 may be a rather better year for equity investors (just as 1975 was), in spite of the weak economy. 

Jeremy Wells 

Christopher Llewelyn

Investment Managers

17th February 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 30th June 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.

Andrew Barker

Chairman    

17th February 2009

For further information, please contact:

Andrew Norman

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.jpmmidcap.co.uk

JPMorgan Mid Cap Investment Trust plc

Unaudited figures for the six months ended 31st December 2008

Income Statement  

	(Unaudited) Six months ended 31st December 2008			(Unaudited) Six months ended  31st December 2007			(Audited) Year ended  30th June 2008
	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000
Losses from investments held at fair value through profit or loss	-	(59,626)	(59,626)	-	(36,494)	(36,494)	-	(61,675)	(61,675)
Income from investments	2,479	-	2,479	2,833	-	,833	5,938	-	5,938
Other interest receivable and similar income (note3)	474	-	474	7	-	7	25	-	25
	_______	________	_______	_______	________	_______	_______	_______	_______
Gross return/(loss)	2,953	(59,626)	(56,673)	2,840	(36,494)	(33,654)	5,963	(61,675)	(55,712)
Management fee	(81)	(190)	(271)	(160)	(375)	(535)	(270)	(631)	(901)
VAT recoverable (note 3)	766	819	1,585	-	-	-	-	-	-
Other administrative expenses	(172)	-	(172)	(163)	-	(163)	(306)	-	(306)
	_______	_______	_______	_______	_______	_______	_______	_______	_______
Net return/(loss) on ordinary activities before finance costs and taxation	3,466	(58,997)	(55,531)	2,517	(36,869)	(34,352)	5,387	(62,306)	(56,919)
Finance costs	(182)	(424)	(606)	(381)	(889)	(1,270)	(602)	(1,405)	(2,007)
	_______	_______	_______	_______	_______	_______	_______	_______	_______
Net return/(loss) on ordinary activitiesbefore taxation	3,284	(59,421)	(56,137)	2,136	(37,758)	(35,622)	4,785	(63,711)	(58,926)
Taxation	(2)	-	(2)	-	-	-	-	-	-
	______	_______	_______	______	_______	_______	_______	_______	_______
Net return/(loss) on ordinary activities after taxation	3,282	(59,421)	(56,139)	2,136	(37,758)	(35,622)	4,785	(63,711)	(58,926)
	=====	=====	=====	=====	=====	=====	=====	=====	=====
Return/(loss) per share (note 5)	12.89p	(233.29)p	(220.40)p	7.65p	(135.23)p	(127.58)p	17.64p	(234.86)p	(217.22)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.

JPMorgan Mid Cap Investment Trust plc

Reconciliation of Movements in Shareholders' Funds (Unaudited)

Unaudited figures for the six months ended 31st December 2008

	Called up share capital £'000	Capital redemption reserve £'000	Capital reserve  £'000	Revenue reserve £'000	Total £'000
At 30th June 2008	6,533	3,467	132,365	8,547	150,912
Repurchase of shares into Treasury	-	-	(2,793)	-	(2,793)
Net (loss)/return on ordinary activities	-	-	(59,421)	3,282	(56,139)
Dividends appropriated in the period	-	-	-	(2,791)	(2,791)
	_______	________	_______	_______	________
At 31st December 2008	6,533	3,467	70,151	9,038	89,189
	=====	=====	=====	=====	=====

Unaudited figures for the six months ended 31st December 2007

	Called up share capital £'000	Capital redemption reserve £'000	Capital reserve  £'000	Revenue reserve £'000	Total £'000
At 30th June 2007	7,308	2,692	215,810	7,841	233,651
Shares bought back and cancelled	(518)	518	(13,244)	-	(13,244)
Net (loss)/return on ordinary activities	-	-	(37,758)	2,136	(35,622)
Dividends appropriated in the period	-	-	-	(2,643)	(2,643)
	_______	________	_______	_______	________
At 31st December 2007	6,790	3,210	164,808	7,334	182,142
	=====	=====	=====	=====	=====

Audited figures for the year ended 30th June 2008

	Called up share capital £'000	Capital redemption reserve £'000	Capital reserve  £'000	Revenue reserve £'000	Total £'000
At 30th June 2007	7,308	2,692	215,810	7,841	233,651
Shares bought back and cancelled	(775)	775	(18,594)	-	(18,594)
Repurchase of shares into Treasury	-	-	(1,140)	-	(1,140)
Net (loss)/return on ordinary activities	-	-	(63,711)	4,785	(58,926)
Dividends appropriated in the year	-	-	-	(4,079)	(4,079)
	_______	________	_______	_______	________
At 30th June 2008	6,533	3,467	132,365	8,547	150,912
	=====	=====	=====	=====	=====

JPMorgan Mid Cap Investment Trust plc

Unaudited figures for the six months ended 31st December 2008

Balance Sheet	(Unaudited) 31st December 2008	(Unaudited) 31st December 2007	(Audited) 30th June 2008
	£'000	£'000	£'000
Fixed assets
Equity investments at fair value through profit or loss	92,795	210,422	161,155
Investments in liquidity funds at fair value through profit or loss	3,540	2,600	700
	_______	_______	_______
Total investments	96,335	213,022	161,855
Current assets
Debtors	2,377	294	701
Cash and short term deposits	165	223	225
	_______	_______	_______
	2,542	517	926
Creditors : amounts falling due within one year	(211)	(21,927)	(2,395)
	_______	_______	_______
Net current assets/(liabilities)	2,331	(21,410)	(1,469)
	_______	_______	_______
Total assets less current liabilities	98,666	191,612	160,386
Creditors : amounts falling due after more than one year	(9,477)	(9,470)	(9,474)
	_______	_______	_______
Total net assets	89,189	182,142	150,912
	=====	=====	=====
Capital and reserves
Called up share capital	6,533	6,790	6,533
Capital redemption reserve	3,467	3,210	3,467
Capital reserve	70,151	164,808	132,365
Revenue reserve	9,038	7,334	8,547
	_______	_______	_______
Shareholders' funds	89,189	182,142	150,912
	=====	=====	=====
Net asset value per share (note 6)	352.4p	670.6p	582.2p

JPMorgan Mid Cap Investment Trust plc Unaudited figures for the six months ended 31st December 2008 Cash Flow Statement
	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December	31st December	30th June
	2008	2007	2008
	£'000	£'000	£'000
Net cash inflow from operating activities (note 7)	2,431	2,239	4,500
Net cash outflow from returns on investments and servicing of finance	(607)	(1,242)	(2,030)
Net cash inflow from capital expenditure and financial investment	5,888	14,673	40,666
Dividends paid	(2,875)	(2,643)	(4,079)
Net cash outflow from financing	(4,897)	(13,096)	(39,124)
	_______	_______	_______
Decrease in cash for the period	(60)	(69)	(67)
	=====	=====	=====
Reconciliation of net cash flow to movement in net debt
Decrease in cash for the period	(60)	(69)	(67)
Cash outflow/(inflow) from changes in debt	2,000	(700)	18,800
	_______	_______	_______
Changes in net funds/(debt) arising from cash flows	1,940	(769)	18,733
Net debt at the beginning of the period	(11,249)	(29,974)	(29,974)
Amortisation of issue expenses	(3)	(4)	(8)
	_______	_______	_______
Net debt at the end of the period	(9,312)	(30,747)	(11,249)
	=====	=====	=====
Represented by:
Cash and short term deposits	165	223	225
Debt due within one year	-	(21,500)	(2,000)
Debt due after five years	(9,477)	(9,470)	(9,474)
	_______	_______	_______
Net debt	(9,312)	(30,747)	(11,249)
	=====	=====	=====

  Notes to the Accounts

1. Financial Statements

The information contained within the financial statements in this preliminary announcement has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended the 30th June 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 interim accounts are consistent with those applied in the accounts for the year ended 30th June 2008.

3. VAT recoverable

No VAT has been charged on management fees since November 2007 when HM Revenue & Customs announced acceptance that VAT was not chargeable on investment trust management fees. The Company has since recovered VAT amounting to £1,585,000 and interest of £467,000 in respect of VAT paid in the past. The VAT recovered has been allocated between income and capital in the proportions in which it was originally expensed to income and capital. The interest has been credited wholly to income and is included within 'other interest receivable and similar income'.

4. Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2008	31st December 2007	30th June 2008
	£'000	£'000	£'000
Unclaimed dividends refunded to the Company	-	-	(14)
Final dividend in respect of the year ended 30th June 2008 of 11.0p (2007: 9.5p)1	2,791	2,643	2,643
Interim dividend in respect of the six months ended 31st December 2007 of 5.5p	N/a	N/a	1,450
	_______	_______	______
	2,791	2,643	4,079
	======	======	=====

An interim dividend of 5.5p has been declared in respect of the six months ended 31st December 2008 costing £1,392,000.

In addition, a special dividend of 4.9p has been declared, representing the amount of the VAT recovered and the associated interest taken to income.

1 The Company declared a dividend of £2,851,000 (2007: £2,777,000) but the dividend paid amounted to £2,791,000 (2007: £2,643,000) as a result of share buybacks after the year end but prior to the record date.

5. Return/ (loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2008	31st December 2007	30th June 2008
Return /(loss) per share is based on the following:	£'000	£'000	£'000
Revenue return	3,282	2,136	4,785
Capital loss	(59,421)	(37,758)	(63,711)
	_______	_______	______
Total loss	(56,139)	(35,622)	(58,926)
	======	======	=====
Weighted average number of shares in issue	25,471,199	27,921,446	27,127,678
Revenue return per share	12.89p	7.65p	17.64p
Capital loss per share	(233.29)p	(135.23)p	(234.86)p
	_______	_______	______
Total loss per share	(220.40)p	(127.58)p	(217.22)p
	======	======	=====

6. Net asset value per share

Net asset value per share is calculated by dividing shareholders' funds by the number of shares in issue at 31st December 2008 of 25,311,680 (31st December 2007: 27,159,380 and 30th June 2008: 25,919,180), excluding shares held in Treasury.

7. Reconciliation of total loss on ordinary activities before finance costs and taxation to net cash inflow from operating activities	(Unaudited) Six months ended 31st December 2008 £'000	(Unaudited) Six months ended 31st December 2007 £'000	(Audited) Year ended 30th June 2008 £'000
Net loss on ordinary activities before finance costs and taxation	(55,531)	(34,352)	(56,919)
Add back capital loss before finance costs and taxation	58,997	36,869	62,306
(Increase)/decrease in accrued income	(74)	428	83
Increase in other debtors	(1,563)	(5)	(18)
Decrease in accrued expenses	(27)	(100)	(321)
VAT recoverable included in capital	819	-	-
Expenses charged to capital	(190)	(601)	(631)
	_______	_______	______
Net cash inflow from operating activities	2,431	2,239	4,500
	=====	=====	====

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

 

END

 

 

IR ILFELFRIDLIA