Half-Year Results

RNS Number : 2488G

JPMorgan Mid Cap Invest Trust PLC

28 February 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN MID CAP INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST DECEMBER 2017

Legal Entity Identifier: 549300QED7IGEP4UFN49

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Performance

In the year since I first wrote to you as Chairman of your Company, the UK stock market has continued on an upward trajectory. I am delighted to report that the Company has continued to outperform its benchmark. In the six months to 31st December 2017, the total return on net assets was +13.5%, which compares favourably with the +9.1% return from the Company's benchmark, the FTSE 250 Index (excluding investment trusts).

As appetite for the Company's shares recovered, the Company's share price discount to net asset value narrowed from the levels of last summer to 7.1%, giving shareholders a share price total return of +21.8%.

A review of the Company's performance for the period and the outlook for the remainder of the year is provided in the Investment Managers' Report.

Revenue and Dividends

Net revenue after taxation for the six months to 31st December 2017 was £3.45 million (2016: £3.72 million) and earnings per share, calculated on the weighted average number of shares in issue, was 14.47p (2016: 15.51p). The Board has declared an interim dividend of 8.0p (2016: 8.0p) to be paid on 18th April 2018 to shareholders on the register at the close of business on 16th March 2018.

Loan Facilities and Gearing

The Board has determined that in normal circumstances the Company's overall gearing range is 5% net cash to 25% geared. Within this range, after due consideration at each Board meeting, the Board normally sets a narrower, short term gearing range for the ensuing period. Changes in these guidelines between meetings may be undertaken after consultation with the Board. The Company ended the half year at 2.8% geared, reflecting the Investment Managers' ability to find attractively valued companies with good growth opportunities within their universe.

At the end of the reporting period, the Company had £20 million drawn out of loan facilities in place totalling £40 million. The loan facilities available to the Company are kept under review by the Board and will be increased should the Investment Managers wish to gear the portfolio beyond 10%.

Management of the Discount

During the period under review, the Company repurchased 25,000 shares into Treasury, at a consideration of £259,000. The Board believes that the repurchase authority remains an important tool in the management of discount volatility and powers were again sought and approved by shareholders at the Company's 2017 Annual General Meeting. The Company will only repurchase shares at a discount to their prevailing net asset value.

Regulation

Shareholders may be aware that the Regulator, the FCA, has recently introduced new rules (Packaged Retail and Insurance-based Investment Products Regulation (the 'PRIIPs Regulation') that require the Manager, who is deemed to be the manufacturer of the investment product, in our case this investment trust, to prepare a Key Information Document ('KID') in respect of the Company. The Company is not responsible for the information contained in the KID and investors should note that the procedures for calculating the risks, costs and potential returns are prescribed by law. The figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed. The KID is available on the Company's website. It is recommended that the KID is not considered in isolation but is read in conjunction with other documents published by the Company and its Manager.

Board of Directors

Following many years of service to the Company, Gordon McQueen retired as a Director and Chairman of the Audit Committee in October 2017. I am delighted that Margaret Littlejohns has taken over as Chairman of the Audit Committee.

The Board and the Company benefited greatly from Gordon's dedication and guidance over the years and we wish him well.

Prospects

As the Investment Managers highlight in their report, in the 25 years since its inception the FTSE 250 Index has grown enormously and has in fact outperformed every other mainstream major global index. Your Board believes that the breadth of opportunity the Index offers and relative lack of research analyst coverage of the companies in the benchmark, give the Investment Managers a great opportunity not only to participate in one of the fastest growing markets in the world but to generate additional excess returns over the long run. After eight years of a bull market for equities and particularly after a year where the FTSE 250 has returned over 17%, a correction to market levels is not a particular surprise. However the reports from the companies in which the portfolio is invested provide reassurance that long term performance for shareholders should remain encouraging. Also the very nature of the Mid Cap sector, with its greater diversification than the large cap indices, its greater incidence of Merger and Acquisition ('M&A') activity and lower level of 'sell-side' analytical surveillance, continues to provide opportunities for the Investment Managers to outperform their benchmark.

As I said a year ago, the longer term consequences of the Brexit vote are still a source of uncertainty for the UK economy and financial markets. Despite the lack of clarity, the UK stock market has remained resilient, particularly in the Mid Cap companies that the Company is invested in. This is evidenced by the significant pick up in M&A in the FTSE 250 Index over the last 12 months. Given these uncertainties and the opportunities outlined above, I believe that active management of a portfolio remains essential, in order to react to news and events in the markets as they unfold.

The UK Mid Cap market does not appear to be overvalued given medium term expectations for growth and inflation and provides some support if European or indeed global events prove to be disruptive. In the last 18 months particularly, the Investment Managers have shown how active management can reward shareholders and the Board has every confidence that they will continue to navigate the market successfully.

Michael Hughes

Chairman                                                                                                                               

28th February 2018

INVESTMENT MANAGERS' REPORT

Performance and Market Background

The global recovery strengthened in 2017, and the consensus forecast for world GDP growth in 2018 now stands at 3.9%. Against this, the UK's GDP outcome of 1.7% in 2017 was pedestrian, but better than expected. This, combined with stubbornly strong inflation, led to a 25bp rise in interest rates in November 2017 (and the majority of economists are expecting further increases in 2018). Whilst consumer confidence appears to have improved in the most recent survey, it remains both negative and volatile, but unemployment remains very low. While real wage growth was negative in 2017, we hope to see this slowly reverse this calendar year.

Against this backdrop, the FTSE 250 (ex Investment Trusts) Index continued its strong run, and returned +9.1% in the six months (outperforming both the FTSE 100 and the FTSE small cap indices). We are pleased to report that your Company outperformed its benchmark and provided a total return on net assets of +13.5%. The share price total return bettered that, as the discount narrowed, producing a return of +21.8%.

Portfolio

The strong performance of your Company in the first half of this year was largely due to stock selection. A number of the portfolio's key holdings continued to perform well, notably Ashtead, Plus500, Intermediate Capital and NMC Health. There was only one stock detractor of note, namely JD Sports. This large and long-term holding continued to deliver strong growth and profits, but market concerns over its exposure to the UK consumer led to a share price decline. In terms of sector attribution, the two stand-out sectors in your portfolio were Support Services and Financial Services. In the former we benefited not only from the Ashtead holding, but also by not owning Capita, Aggreko and the ill-fated Carillion. Our overweight position in the financial services sector also provided strong returns.

We have mentioned Mergers and Acquisitions ('M&A') many times over the last few years. In 2017, the number of M&A deals in the UK hit a record high. In the first half of this financial year, we received cash from three of these take-overs, and our holding in Aldermore also received a bid. In addition, it should be noted that in the first month of 2018, UBM (a FTSE 250 stock we did not own) received a bid, and Melrose, another FTSE 250 constituent, bid for a FTSE 100 company, GKN.

New additions to the portfolio included a number of mid-sized companies such as Jupiter Fund Management, SSP, a food & beverage operator in travel locations worldwide, and Victoria, a highly successful carpet manufacturer with an aggressive acquisition strategy. These were funded by the M&A cash, and certain sales, including two positions that were promoted into the FTSE 100, Micro Focus and G4S. There were fewer IPOs in 2017 than in previous years, and we declined to participate in any in the first half of the financial year.

Outlook

2017 marked the 25th anniversary of the formation of the FTSE 250 Index. In 1992, the combined market capitalisation was just under £100 billion, while today that figure stands at over £450 billion, despite a significant number of the success stories now being constituents of the FTSE 100. We remain confident of the continuation of this strong growth trajectory, despite the tortuous on-going Brexit negotiations, buoyed in no small part by the backdrop of very strong global growth.

Global stock markets have recently experienced a short period of notable volatility. In no way has this shaken our confidence in the outlook for our investments, and this is evidenced by our choosing to increase gearing levels post December 2017 to over 5% today.

Georgina Brittain

Katen Patel

Investment Managers                                                                                                                

28th February 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 have not changed and fall into the following broad categories: investment and strategy; financial; accounting, legal and regulatory; corporate governance and shareholder relations and operational and cybercrime. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th June 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 during the period.

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 12 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 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 yearly 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 31st December 2017, 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 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

Michael Hughes

Chairman                                                                                                                                   

28th February 2018

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2017

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st December 2017			31st December 2016			30th June 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	-	34,427	34,427	-	28,979	28,979	-	59,181	59,181
Net foreign currency (losses)/gains	-	(2)	(2)	-	11	11	-	7	7
Income from investments	4,052	-	4,052	4,247	-	4,247	8,433	-	8,433
Interest receivable and similar
income	15	-	15	61	-	61	141	-	141
Gross return	4,067	34,425	38,492	4,308	28,990	33,298	8,574	59,188	67,762
Management fee	(287)	(671)	(958)	(232)	(542)	(774)	(497)	(1,158)	(1,655)
Other administrative expenses	(228)	-	(228)	(273)	-	(273)	(520)	-	(520)
Net return on ordinary activities
before finance costs and taxation	3,552	33,754	37,306	3,803	28,448	32,251	7,557	58,030	65,587
Finance costs	(57)	(134)	(191)	(34)	(80)	(114)	(75)	(175)	(250)
Net return on ordinary activities
before taxation	3,495	33,620	37,115	3,769	28,368	32,137	7,482	57,855	65,337
Taxation	(49)	-	(49)	(46)	-	(46)	(91)	-	(91)
Net return on ordinary activities
after taxation	3,446	33,620	37,066	3,723	28,368	32,091	7,391	57,855	65,246
Return per share (note 3)	14.47p	141.17p	155.64p	15.51p	118.22p	133.73p	30.88p	241.75p	272.63p

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 net return/(loss) on ordinary activities after taxation represents the profit/(loss) for the period and also the Total Comprehensive Income.

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2017

	Called up	Capital
	share	redemption	Capital	Revenue
	capital	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000
Six months ended 31st December 2017 (Unaudited)
At 30th June 2017	6,350	3,650	254,676	11,260	275,936
Repurchase of shares into Treasury	-	-	(259)	-	(259)
Net return on ordinary activities	-	-	33,620	3,446	37,066
Dividends paid in the period (note 4)	-	-	-	(4,286)	(4,286)
At 31st December 2017	6,350	3,650	288,037	10,420	308,457
Six months ended 31st December 2016 (Unaudited)
At 30th June 2016	6,350	3,650	198,298	9,976	218,274
Net return on ordinary activities	-	-	28,368	3,723	32,091
Dividends paid in the period (note 4)	-	-	-	(4,200)	(4,200)
At 31st December 2016	6,350	3,650	226,666	9,499	246,165
Year ended 30th June 2017 (Audited)
At 30th June 2016	6,350	3,650	198,298	9,976	218,274
Repurchase of shares into Treasury	-	-	(1,477)	-	(1,477)
Net return on ordinary activities	-	-	57,855	7,391	65,246
Dividends paid in the period (note 4)	-	-	-	(6,107)	(6,107)
At 30th June 2017	6,350	3,650	254,676	11,260	275,936

¹This 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 31ST DECEMBER 2017

	(Unaudited)	(Unaudited)	(Audited)
	31st December 2017	31st December 2016	30th June 2017
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	316,947	248,479	282,318
Current assets
Debtors	5,349	674	1,347
Cash and cash equivalents	6,729	5,386	10,434
	12,078	6,060	11,781
Current liabilities
Creditors: amounts falling due within one year	(568)	(374)	(163)
Net current assets	11,510	5,686	11,618
Total assets less current liabilities	328,457	254,165	293,936
Creditors: amounts falling due after more than one year	(20,000)	(8,000)	(18,000)
Net assets	308,457	246,165	275,936
Capital and reserves
Called up share capital	6,350	6,350	6,350
Capital redemption reserve	3,650	3,650	3,650
Capital reserves	288,037	226,666	254,676
Revenue reserve	10,420	9,499	11,260
Total shareholders' funds	308,457	246,165	275,936
Net asset value per share (note 5)	1,295.3p	1,025.8p	1,157.6p

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2017

	(Unaudited)	(Unaudited)	(Unaudited)
	Six months ended	Six months ended	Year ended
	31st December 2017	31st December 2016	30th June 2017
	£'000	£'000	£'000
Net cash outflow from operations before dividends
and interest (note 6)	(1,291)	(1,013)	(1,957)
Dividends received	4,588	4,490	7,862
Interest received	12	15	24
Overseas tax recovered	4	2	42
Interest paid	(117)	(113)	(248)
Net cash inflow from operating activities	3,196	3,381	5,723
Purchases of investments	(54,767)	(60,091)	(105,072)
Sales of investments	50,411	57,354	98,426
Settlement of forward currency contracts	-	(2)	(3)
Net cash outflow from investing activities	(4,356)	(2,739)	(6,649)
Dividends paid	(4,286)	(4,200)	(6,107)
Repurchase of shares into Treasury	(259)	-	(1,477)
Drawdown of bank loan	16,000	-	20,000
Repayment of bank loan	(14,000)	-	(10,000)
Net cash (outflow)/inflow from financing activities	(2,545)	(4,200)	2,416
(Decrease)/increase in cash and cash equivalents	(3,705)	(3,558)	1,490
Cash and cash equivalents at start of period	10,434	8,957	8,957
Exchange movements	-	(13)	(13)
Cash and cash equivalents at end of period	6,729	5,386	10,434
(Decrease)/increase in cash and cash equivalents	(3,705)	(3,558)	1,490
Cash and cash equivalents consist of:
Cash and short term deposits	347	323	30
Cash held in JPMorgan Sterling Liquidity Fund	6,382	5,063	10,404
Total	6,729	5,386	10,434

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2017

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 Auditor.

The figures and financial information for the year ended 30th June 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 and included the report of the Auditor which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

In the previous financial year, the Company elected not to prepare a Statement of Cash Flows, applying the exemption from disclosure available under FRS 102 Section 7.1A(c). The Company has since reviewed the application of the exemption and has resolved not to apply it this year as the inclusion of the Statement of Cash Flows supports fuller financial analysis for the benefit of all stakeholders.

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 January 2017.

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 2017.

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 2017.

3.  Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2017	31st December 2016	30th June 2017
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	3,446	3,723	7,391
Capital return	33,620	28,368	57,855
Total return	37,066	32,091	65,246
Weighted average number of shares in issue	23,815,805	23,997,180	23,931,396
Revenue return per share	14.47p	15.51p	30.88p
Capital return per share	141.17p	118.22p	241.75p
Total return per share	155.64p	133.73p	272.63p

4.  Dividends paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2017	31st December 2016	30th June 2017
	£'000	£'000	£'000
2017 Final dividend of 15.0p (2016: 13.0p) per share	3,572	3,120	3,120
2017 Special dividend of 3.0p (2016: 4.5p) per share	714	1,080	1,080
2017 Interim dividend of 8.0p per share	-	-	1,907
Total dividends paid	4,286	4,200	6,107

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

An interim dividend of 8.0p has been declared in respect of the six months ended 31st December 2017, to be paid on 18th April 2018.

5.  Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2017	31st December 2016	30th June 2017
Net assets (£'000)	308,457	246,165	275,936
Number of shares in issue	23,812,680	23,997,180	23,837,680
Net asset value per share	1,295.3p	1,025.8p	1,157.6p

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

	(Unaudited)	(Unaudited)	(Unaudited)
	Six months ended	Six months ended	Year ended
	31st December 2017	31st December 2016	30th June 2017
	£'000	£'000	£'000
Net return on ordinary activities before finance costs and taxation	37,306	32,251	65,587
Less capital return on ordinary activities before finance costs and taxation	(33,754)	(28,448)	(58,030)
Scrip dividends received as income	-	(154)	(186)
Decrease/(Increase) in accrued income and other debtors	604	405	(309)
(Decrease)/Increase in accrued expenses	(108)	(33)	72
Management fee charged to capital	(671)	(542)	(1,158)
Overseas withholding tax	(66)	(13)	(70)
Dividends received	(4,588)	(4,490)	(7,862)
Interest received	(12)	(15)	(24)
Realised (losses)/gains on foreign currency transactions	(2)	26	23
Net cash outflow from operations before dividends and interest	(1,291)	(1,013)	(1,957)

7.  Fair valuation of investments

The fair value hierarchy analysis for financial instruments held at fair value at the period end is as follows:

	(Unaudited)		(Unaudited)		(Audited)
	Six months ended		Six months ended		Year ended
	31st December 2017		31st December 2016		30th June 2017
	Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
	£'000	£'000	£'000	£'000	£'000	£'000
Level 1	316,947	-	248,479	-	282,318	-
Total	316,947	-	248,479	-	282,318	-

JPMORGAN FUNDS LIMITED

28th February 2018

For further information, please contact:

Alison Vincent

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.

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

ENDS

A copy of the Half Year Report 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 Report will also shortly be available on the Company's website at www.jpmmidcap.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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