Half Yearly Report

RNS Number : 9524A

JPMorgan Smaller Cos IT PLC

26 March 2013

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN SMALLER COMPANIES INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST JANUARY 2013

Chairman's Statement

Investment Performance

In the period under review, the six months to 31st January 2013, I am glad to report that the Company recorded a significantly positive total return on net assets of 22.8% in absolute terms, albeit behind the +26.4% total return delivered by the benchmark, the FTSE Small Cap (excluding Investment Trusts) Index during the six months reporting period. By comparison, the total return to shareholders over the reporting period was +32.2% as a result of the narrowing discount. Markets have continued to rise since the period end and the Company's trend of out-performance against its benchmark has been re-established, with net asset value and share price having increased by 6.1% and 9.1% respectively compared with the rise in benchmark of 2.7% during February 2013. This is reflected in the year to date performance for this financial year. For the seven months to 28th February 2013, total return on net assets was 30.2% compared with 29.8% returned by the benchmark.

The long term performance record at 31st January 2013 remains very strong as shown below:

					Since
	1 year	3 years	5 years	10 years	inception
Net Asset Value Total Return	+29.7%	+63.9%	+57.3%	+351.7%	+1036.1
Share Price Total Return	+34.9%	+74.4%	+66.6%	+354.6%	+858.1
Benchmark Total Return	+33.6%	+38.9%	+28.0%	+134.4%	+309.4

The Investment Manager provides a detailed commentary on markets and the portfolio performance in her Report.

Share Repurchases

During the six months to 31st January 2013, the Company has continued to use the authority given by shareholders to repurchase its shares in the market to help maintain an orderly market for the Company's shares, thereby reducing the volatility of the discount. The Company repurchased a total of 73,156 ordinary shares for cancellation for a total consideration of £348,436 representing 0.40% of the issued share capital at the beginning of the year. The shares were repurchased at a discount of 22% and added approximately 0.53p per share to the net asset value for continuing shareholders. The Company has not repurchased any shares since 21st September 2012 and the discount at the time of writing is 19.1%.

Gearing and Loan Facility

Following the markets rally, the Company's gearing level reduced during the period from 7.4% at the beginning of the period to 6.1% at 31st January 2013. This was after drawing down fully on the £10 million flexible loan facility with ING Bank N.V. in January 2013, reflecting the Investment Manager's more positive view of the outlook for the sector. The loan facility which expires in April 2013 has been reviewed by the Board. A new £15 million flexible loan facility will be provided by Scotia Bank upon expiry of the current facility. The Board continues to believe that modest borrowings should improve shareholder returns, as they have done since the Company's inception.

Board

As part of good corporate governance practice and the Board's succession planning, the Board is again being refreshed and has appointed Frances Davies as from 1st March 2013. Her breadth of knowledge and experience will prove valuable to the Board. Frances Davies is a partner of Opus Corporate Finance, a corporate finance advisory business providing independent strategic advice to businesses. Prior to this, she held senior positions at Morgan Grenfell Asset Management and Gartmore Investment Limited.

Having had the honour of being the founding Chairman of this Investment Trust in 1990, and the pleasure of chairing the Board for the last 23 years, I asked my colleagues on the Board to nominate a successor. After an evaluation of internal and external candidates, they have chosen Michael Quicke, who currently chairs the Audit Committee, as my successor with effect from 1st June 2013. I am pleased that both the share price and the net asset value per share reached record high levels in the last few weeks.

Outlook

Even though markets have risen rapidly over a relatively short time, valuations do not yet appear stretched in those UK smaller companies in which your manager is interested. Shareholders should, however, continue to expect volatility in markets as policymakers continue to grapple with the many longer term issues, which still remain unresolved.

Strone Macpherson

Chairman

26th March 2013

Investment Manager's Report

Market Background

Stockmarkets soared in the first half of your Company's financial year, as they recovered from the declines of spring and early summer. Notably, it was the smaller end of the UK market that performed most strongly. This rebound in equity markets was caused by a variety of factors, key amongst which was the monetary easing by the Central Banks around the world, as they sought to inject liquidity into the system. Additional factors included the realisation that concerns over a Chinese slowdown and a faltering recovery in the US were overdone, and a belief that the sovereign crisis in the Eurozone was past the worst.

Portfolio

In the six months to the end of January 2013, the FTSE Small Cap (ex Investment Trusts) Index returned a remarkable 26.4%. Your portfolio did not keep up with this rise, and the return on net assets was 22.8% for reasons explained below. However, the narrowing of the discount to net assets meant that the share price return in the period was 32.2%. At the time of writing, your portfolio has enjoyed very strong performance post the half year end, and is now back above benchmark for the financial year to date.

Key positive stock contributors included Ashtead and Tribal Group, both long-term holdings in the fund, and Thomas Cook and Iomart, both of which were bought in mid 2012. On the negative side the main underperforming stock we owned was Cape. What detracted more from performance were a number of highly indebted stocks which we did not own, which bounced very strongly in the period from their very low valuations. These included Enterprise Inns and Northgate, amongst others, and these stocks hurt the performance of your Company relative to its benchmark.

Two notable changes to the portfolio were a significant reduction in the Industrials weighting, and a large increase in the Consumer Services position. We remain overweight in the former, but we reduced the overweight due to negative newsflow in particular in Europe for industrial companies. In Consumer Services, while we remain underweight relative to the benchmark, especially in General Retail, the purchase of a holding in Thomas Cook and a significant increase in our position in 888 Holdings reduced the large deviation from the benchmark.

The death of the IPO (or new issue) market has been frequently reported in the press. This is much exaggerated in the smaller companies arena, where we continue to invest selectively in exciting new opportunities coming to the stockmarket. In the past six months, our IPO investments included Fusionex International, a software technology company, and Rangers International, the newly-formed company behind Rangers football club. Takeover activity was quieter in the period, but we benefitted from the takeover of Sportingbet by William Hill.

Outlook

The economic backdrop remains uncertain. Newsflow in the USA has been generally positive, with the housing market and job creation data trending in the right direction, but budgetary concerns remain. China continues to expand, with forecast GDP growth of 8% this year and Germany, the key Eurozone-market, looks likely to see a pick-up in output, as evidenced by the recent strong IFO survey on economic confidence. Yet at the same time, the deadlocked outcome of the Italian election has once again heightened concerns over the sovereign crisis in the Eurozone.

Following the strong rally in share prices over the last several months, some volatility is to be expected. However, with global growth on an upward trend and Central Bank-induced liquidity flowing through the system both globally and in the UK, we remain positive. In addition the decline in yields on bonds is likely to lead to a shift in asset allocation away from bonds and into equities - some evidence of which is already being seen - which will be positive for shares.

UK equities, and in particular smaller company shares, still remain attractively valued. 2012 saw downgrades to profit estimates across the market, but we are starting to see stabilisation and upgrades in analysts' forecasts, which augurs well for share prices. Smaller companies are the growth engine of the UK, and our focus remains on those companies which are growing, both in revenue and profit terms, and we continue to find opportunities to invest in a broad spread of exciting growth companies. We also continue to believe that mergers and acquisitions have moved up the agenda of larger companies - the recent weakness of sterling will be an added incentive for overseas buyers - and we expect smaller companies, and their shareholders, to be the beneficiaries.

Georgina Brittain

Investment Manager                                                                                                                                                                                     

26th March 2013

Interim Management Report

The Company is required to make the following disclosures in its half year report:

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into the following broad categories: investment and strategy; discount; political; corporate governance and shareholder relations; market; accounting, legal and regulatory; 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 July 2012.

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. 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 year financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half Yearly Financial Reports'; and

(ii)  the half year 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.

For and on behalf of the Board

Strone Macpherson

Chairman                                                                                                                                                                                                      

26th March 2013

For further information, please contact:

Divya Amin

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 4000

Please note that up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can be found at www.jpmsmallercompanies.co.uk

Income Statement

for the six months ended 31st January 2013

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st January 2013			31st January 2012			31st July 2012
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments
held at fair value through profit
or loss	-	23,349	23,349	-	(15,614)	(15,614)	-	(10,786)	(10,786)
Income from investments	1,477	-	1,477	1,129	-	1,129	2,593	-	2,593
Other interest receivable and
similar income	-	-	-	1	-	1	1	-	1
Gross return/(loss)	1,477	23,349	24,826	1,130	(15,614)	(14,484)	2,594	(10,786)	(8,192)
Management fee	(247)	(247)	(494)	(223)	(223)	(446)	(459)	(459)	(918)
Other administrative expenses	(181)	-	(181)	(140)	-	(140)	(348)	-	(348)
Net return/(loss) on ordinary
activities before finance costs
and taxation	1,049	23,102	24,151	767	(15,837)	(15,070)	1,787	(11,245)	(9,458)
Finance costs	(55)	(55)	(110)	(60)	(60)	(120)	(120)	(120)	(240)
Net return/(loss) on ordinary
activities before taxation	994	23,047	24,041	707	(15,897)	(15,190)	1,667	(11,365)	(9,698)
Taxation	(9)	-	(9)	(1)	-	(1)	(1)	-	(1)
Net return/(loss) on ordinary
activities after taxation	985	23,047	24,032	706	(15,897)	(15,191)	1,666	(11,365)	(9,699)
Return/(loss) per share (note 4)	5.40p	126.41p	131.81p	3.81p	(85.81)p	(82.00)p	9.01p	(61.47)p	(52.46)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		Capital
Six months ended	share	Share	redemption	Capital	Revenue
31st January 2013	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2012	4,571	18,360	2,095	79,585	2,671	107,282
Repurchase and cancellation of the
Company's own shares	(16)	-	16	(307)	-	(307)
Net return on ordinary activities	-	-	-	23,047	985	24,032
Dividends appropriated in the period	-	-	-	-	(1,640)	(1,640)
At 31st January 2013	4,555	18,360	2,111	102,325	2,016	129,367
	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
31st January 2012	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2011	4,660	18,360	2,006	92,516	2,584	120,126
Repurchase and cancellation of the
Company's own shares	(40)	-	40	(676)	-	(676)
Net (loss)/return on ordinary activities	-	-	-	(15,897)	706	(15,191)
Dividends appropriated in the period	-	-	-	-	(1,579)	(1,579)
At 31st January 2012	4,620	18,360	2,046	75,943	1,711	102,680
	Called up		Capital
Year ended	share	Share	redemption	Capital	Revenue
31st July 2012	capital	premium	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2011	4,660	18,360	2,006	92,516	2,584	120,126
Repurchase and cancellation of the
Company's own shares	(89)	-	89	(1,566)	-	(1,566)
Net (loss)/return on ordinary activities	-	-	-	(11,365)	1,666	(9,699)
Dividends appropriated in the year	-	-	-	-	(1,579)	(1,579)
At 31st July 2012	4,571	18,360	2,095	79,585	2,671	107,282

Balance Sheet

at 31st January 2013

	(Unaudited)	(Unaudited)	(Audited)
	31st January 2013	31st January 2012	31st July 2012
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	137,895	108,544	115,302
Investments in liquidity funds held at fair value through
profit or loss	1,100	2,190	800
Total investments	138,995	110,734	116,102
Current assets
Debtors	680	1,071	2,736
Cash and short term deposits	1,001	41	286
	1,681	1,112	3,022
Creditors: amounts falling due within one year	(11,309)	(166)	(11,842)
Net current (liabilities)/assets	(9,628)	946	(8,820)
Total assets less current liabilities	129,367	111,680	107,282
Creditors: amounts falling due after more than one year	-	(9,000)	-
Net assets	129,367	102,680	107,282
Capital and reserves
Called up share capital	4,555	4,620	4,571
Share premium	18,360	18,360	18,360
Capital redemption reserve	2,111	2,046	2,095
Capital reserves	102,325	75,943	79,585
Revenue reserve	2,016	1,711	2,671
Total equity shareholders' funds	129,367	102,680	107,282
Net asset value per share (note 5)	710.1p	555.7p	586.8p

Cash Flow Statement

for the six months ended 31st January 2013

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2013	31st January 2012	31st July 2012
	£'000	£'000	£'000
Net cash inflow from operating activities (note 6)	758	571	1,280
Net cash outflow from returns on investments and
servicing of finance	(124)	(115)	(237)
Net cash inflow from capital expenditure
and financial investment	1,028	527	1,075
Dividend paid	(1,640)	(1,579)	(1,579)
Net cash inflow/(outflow) from financing	693	(676)	(1,566)
Increase/(decrease) in cash for the period	715	(1,272)	(1,027)
Reconciliation of net cash flow to movement in
net debt
Net cash/(debt) movement	715	(1,272)	(1,027)
Net drawdown of loans	(1,000)	-	-
Movement in net debt in the period	(285)	(1,272)	(1,027)
Net debt at the beginning of the period	(8,714)	(7,687)	(7,687)
Net debt at the end of the period	(8,999)	(8,959)	(8,714)
Represented by:
Cash and short term deposits	1,001	41	286
Debt falling due after more than one year	(10,000)	(9,000)	(9,000)
Net debt	(8,999)	(8,959)	(8,714)

Notes to the Accounts

for the six months ended 31st January 2013

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 July 2012 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 and Venture Capital Trusts' 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 July 2012.

3.   Dividend paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2013	31st January 2012	31st July 2012
	£'000	£'000	£'000
Final dividend in respect of the year ended 31st July 2012
of 9.0p (2011: 8.5p)	1,640	1,579	1,579

      No interim dividend has been declared in respect of the six months ended 31st January 2013 (2012: nil).

4.   Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2013	31st January 2012	31st July 2012
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	985	706	1,666
Capital return/(loss)	23,047	(15,897)	(11,365)
Total return/(loss)	24,032	(15,191)	(9,699)
Weighted average number of shares in issue:	18,232,484	18,524,648	18,488,809
Revenue return per share	5.40p	3.81p	9.01p
Capital return/(loss) per share	126.41p	(85.81)p	(61.47)p
Total return/(loss) per share	131.81p	(82.00)p	(52.46)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 31st January 2013 of 18,219,372 (31st January 2012: 18,477,064 and 31st July 2012: 18,283,028).

6.   Reconciliation of net (loss)/return 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
	31st January 2013	31st January 2012	31st July 2012
	£'000	£'000	£'000
Net return/(loss) on ordinary activities before finance cost
and taxation	24,151	(15,070)	(9,458)
Add back capital (return)/loss before finance costs
and taxation	(23,102)	15,837	11,245
Scrip dividends received as income	(7)	(2)	(26)
(Increase)/decrease in accrued income	(101)	78	(8)
Decrease/(increase) in other debtors	4	1	(4)
Increase/(decrease) in accrued expenses	26	(49)	(9)
Tax on unfranked investment income	(9)	(1)	(1)
Management fee charged to capital	(204)	(223)	(459)
Net cash inflow from operating activities	758	571	1,280

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 interim report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM 

The interim report will also shortly be available on the Company's website at www.jpmsmallercompanies.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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