TIDMJMI
RNS Number : 6272H
JPMorgan Smaller Cos IT PLC
25 March 2020
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN SMALLER COMPANIES INVESTMENT TRUST PLC
UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHSED
31ST JANUARY 2020
Legal Entity Identifier: 549300PXALXKUMU9JM18
Information disclosed in accordance with DTR 4.2.2
CHAIRMAN'S STATEMENT
Performance and discount
In his outgoing statement my predecessor sagely observed that,
despite challenging circumstances and market volatility, patient
and selective investment in good companies should be rewarded over
time. Therefore, I am pleased to report that your company has
performed strongly over the six months period ended 31st January
2020. Whilst unfolding events have overtaken this good news, the
Company's total return on net assets of +24.1% (with net dividends
reinvested) significantly outperformed the benchmark, the Numis
Small Cap plus AIM (ex Investment Companies) Index, which delivered
+8.9% (in sterling terms). In addition, the total return to
shareholders was +31.9% as the net asset return was enhanced by a
narrowing of the discount over the period.
This outperformance relative to the benchmark index is explained
in the Investment Managers' Report which provides a detailed
commentary on the portfolio positioning and their current outlook
for investing in the UK.
Loan Facility and Gearing
The Company has a highly flexible borrowing facility of GBP25
million in place with Scotiabank which expired on 4th October 2019
and was then renewed with Scotiabank for a further year. Under the
terms of the agreement, the Company has the option to increase the
facility commitment amount to GBP35.0 million in two increments of
GBP5.0 million subject to certain conditions. In January 2020, the
Board increased the amount drawn down on the facility to GBP30.0
million, therefore taking advantage of the accordion facility in
place. Given the increase in the net asset value of the company,
this gave the managers sufficient additional funding to continue to
adjust the gearing tactically within the guidelines.
During a period of low interest rates, the use of gearing is an
attractive way of amplifying the effect of rising markets, but
inevitably increases the risk of loss if markets fall and
volatility. The Company has maintained a fairly constant level of
gearing, with the Board giving the Investment Managers flexibility
to adjust the gearing tactically within guidelines. During the
reporting period, the Company's gearing ranged from 6.1% to 10.2%,
ending the half year at 9.8% geared. As at 24th March 2020 the
Company's gearing had been reduced to 4.1%, with total borrowings
of GBP30.0 million.
Share buybacks
During the six months to 31st January 2020 the Company
repurchased 514,217 shares into Treasury for possible re-issue.
These shares were acquired at an average discount of 15.2%
enhancing net asset value per share by 0.254 pence. Our objective
remains to reduce the volatility of the discount and our action
during this period demonstrates the Board's aim to act in the best
interests of shareholders by making purchases should supply and
demand for shares become unbalanced.
Board succession
As noted in the previous Annual Report, I took over as Chairman
of the Company following the retirement of Michael Quicke at the
Annual General Meeting ('AGM') in November 2019.
Looking ahead, the Board's next priority is to appoint a
successor to the Audit Committee Chairman, Andrew Robson, who will
retire from the Board at the AGM in 2020. The Board has commenced
the search for a suitable candidate.
Outlook
Since the end of the reporting period, markets have been
substantially affected by the economic uncertainty caused by the
spread of COVID-19. This has been exacerbated by a slump in the
price of oil and the unprecedented measures taken to combat the
virus. The progression of the pandemic and its economic fallout is
highly uncertain and markets dislike uncertainty. Consequently,
share prices have been under severe pressure globally and, a
result, your company's net asset value has fallen by 37.9% to
199.6p as at 24th March 2020. The discount has also widened
markedly. Globally, governments are taking extraordinary measures
to try and limit the effect of the virus and the UK government and
Bank of England have coordinated a series of significant
initiatives. Whilst we await the progression and eventual economic
outcome of these events, your managers' focus is, as ever, on
assessing the quality and prospects for your investments. Current
events not only present heightened risk but also opportunity and,
given time, we hope to capitalise on these.
Andrew Impey
Chairman
25th March 2020
INVESTMENT MANAGERS' REPORT
Performance and Market Background
2019 proved to be quite a year! While the global backdrop was
one of continuing Middle Eastern agitation, ongoing (although
slowly de-escalating) trade wars between China and the USA, and
slowing global growth notably in Europe, caused by those trade
wars, the main story for the UK stockmarket was all political. The
first half of the financial year saw a new Prime Minister in situ,
followed by the 31st October Brexit cliff-hanger, stalemate in
Parliament, and then the December 2019 election. The outcome of the
Election with its decisive victory and significant majority for the
Conservatives, and the disappearance of the risk associated with a
Corbyn-led Labour government, provided a level of certainty to UK
politics that had been lacking for several years.
Against this backdrop, the UK small and mid cap indices
performed very strongly. The Numis Smaller Companies plus AIM (ex
Investment Companies) Index was up 8.9% over the six months. Your
Company outperformed this significantly and produced a total return
on net asset value of 24.1%. The decisive Conservative victory in
the Election ended the political impasse and removed a significant
degree of uncertainty over Brexit. This led to a sharp narrowing of
the discount, leading to a share price total return of 31.9%
Portfolio
The strong outperformance of your Company over the first half of
the financial year was broad-based. Many of our long-held positions
produced very strong returns, among them Games Workshop, Judges
Scientific and Avon Rubber. Other notable contributors included
Dunelm, which we bought at the start of 2019, and Team 17,
purchased at IPO in 2018. The only notable detractor from
performance was not owning Frasers (the re-named Sports
Direct).
We made a number of changes to the portfolio in the period. We
exited two bid stocks, EI Group and Eland, some mining companies
such as Ferrexpo and Hochschild, and sold Marstons, Fevertree and
Vitec. The money was re-invested into a range of new businesses,
both domestic and international, including CVS (a veterinary
company), Bank of Georgia and an IPO, Pebble Group (a supplier of
promotional merchandise). As we drew closer to the UK Election, and
the outcome became more clear, we also added to a number of our
more domestically focussed holdings. Post the Election, we
increased this tilt further, and at the end of January we had
positioned the portfolio to have a 10% overweight exposure to the
UK relative to our index. The last time we had any notable
overweight exposure to the UK versus International companies was
prior to the Referendum in 2016.
Outlook
Post the Election and Parliamentary approval of a withdrawal
agreement from the EU, we believe the political outlook for the UK
is clearer than it has been for several years. We now have a pro
growth, pro investment Government in place and have already seen
Government spending accelerating at its fastest pace in 15 years.
The recent Budget confirmed this. Low interest rates, low inflation
and very low unemployment all add to the more positive picture.
There are two caveats. First, this positive view is dependent on
the outcome of the EU withdrawal negotiations this year, and also
the progress of trade talks with the USA, Japan and other
countries. Second, and clearly dominant, is the threat to the
global economy from the coronavirus, COVID-19. If this pandemic is
contained in a timely manner then, given the extraordinary measures
of support we have seen from the Government, we would expect a very
strong bounce back in markets, and the UK, and in particular the
harder hit smaller companies, should participate. If, however, the
rest of the world does not recover from the COVID-19 impact at the
rate that China appears to have, then all markets, including the
UK, will continue to struggle.
As discussed above, we repositioned the portfolio to benefit
from the more positive outlook in the UK and at the end of the half
year on 31st January 2020, we were 9.8% geared. As the impact of
COVID-19 began to take effect, we have reduced our gearing level,
in order to provide ourselves with firepower when we believe it is
time to add to our holdings. Current valuations were supportive
prior to the recent very sharp decline in stockmarkets, but clearly
it is difficult if not impossible to foresee where earnings levels
will turn out for this year. When the current situation, and
companies' earnings, normalise, we believe valuation levels will
look very attractive, but the timing is highly uncertain. Overall
your Company holds a portfolio of high quality and strong
cash-generating companies, many of which we expect to come out of
the current situation with stronger market positions. As we have
said before, our focus is on owning long term winners, and while
there may of course be exceptions, we think that this testing time
will prove this to be the case.
Georgina Brittain
Katen Patel
Investment Managers
25th March 2020
INTERIM MANAGEMENT REPORT
The Company is required to make the following disclosures in its
half year report:
Principal Risks and Uncertainties
During 2020, the emergence of the virus COVID-19 (coronavirus)
has created significant uncertainty for markets, and therefore risk
to the value of investments and volatility. Other than this, the
principal risks and uncertainties faced by the Company have not
changed significantly and fall into the following broad categories:
corporate strategy; investment and performance; discount; smaller
company investment; political (including Brexit) and economic;
investment management team; market; accounting, legal and
regulatory; corporate governance and shareholder relations;
operational and counterparty failure; cybercrime; 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 31st July 2019.
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 (including its
liquidity) 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 operational existence
for at least twelve months from the date of the approval of this
half year 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 January 2019, 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
Andrew Impey
Chairman
25th March 2020
STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHSED 31ST JANUARY 2020
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st January 2020 31st January 2019 31st July 2019
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- -------- -------- -------- -------- --------- --------- -------- ---------- ---------
Gains/(losses) on
investments held at
fair value through
profit or loss - 46,515 46,515 - (37,967) (37,967) - (15,909) (15,909)
Net foreign currency
gains/(losses) - 10 10 - 5 5 - (4) (4)
Income from
investments 3,281 - 3,281 3,043 - 3,043 6,376 - 6,376
Interest receivable
and similar income 21 - 21 39 - 39 71 - 71
----------------------- -------- -------- -------- -------- --------- --------- -------- ---------- ---------
Gross return/(loss) 3,302 46,525 49,827 3,082 (37,962) (34,880) 6,447 (15,913) (9,466)
Management fee (265) (618) (883) (272) (633) (905) (534) (1,245) (1,779)
Other administrative
expenses (210) - (210) (225) - (225) (441) - (441)
----------------------- -------- -------- -------- -------- --------- --------- -------- ---------- ---------
Net return/(loss)
before finance costs
and taxation 2,827 45,907 48,734 2,585 (38,595) (36,010) 5,472 (17,158) (11,686)
Finance costs (32) (74) (106) (57) (133) (190) (166) (387) (553)
----------------------- -------- -------- -------- -------- --------- --------- -------- ---------- ---------
Net return/(loss)
before taxation 2,795 45,833 48,628 2,528 (38,728) (36,200) 5,306 (17,545) (12,239)
Taxation (19) - (19) (40) - (40) (268) - (268)
----------------------- -------- -------- -------- -------- --------- --------- -------- ---------- ---------
Net return/(loss)
after taxation 2,776 45,833 48,609 2,488 (38,728) (36,240) 5,038 (17,545) (12,507)
----------------------- -------- -------- -------- -------- --------- --------- -------- ---------- ---------
Return/(loss) per
share (note 3) 3.55p 58.65p 62.20p 3.12p (48.63)p (45.51)p 6.33p (22.05)p (15.72)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 net return after taxation represents the profit for the
period and also the total comprehensive income.
STATEMENT OF CHANGES IN EQUITY
for the six months ended 31st january 2020
Called Capital
up
share Share redemption Capital Revenue
capital premium reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- ----------- --------- --------- ---------
Six months ended 31st January
2020 (Unaudited)
At 31st July 2019 3,981 25,895 2,903 167,440 7,521 207,740
Repurchase of shares into Treasury - - - (1,142) - (1,142)
Net return on ordinary activities - - - 45,833 2,776 48,609
Dividend paid in the period (note
4) - - - - (4,293) (4,293)
------------------------------------- -------- -------- ----------- --------- --------- ---------
At 31st January 2020 3,981 25,895 2,903 212,131 6,004 250,914
------------------------------------- -------- -------- ----------- --------- --------- ---------
Six months ended 31st January
2019 (Unaudited)
At 31st July 2018 3,985 25,895 2,899 187,547 6,782 227,108
Repurchase and cancellation of
the Company's
own shares (4) - 4 (190) - (190)
Net (loss)/return on ordinary
activities - - - (38,728) 2,488 (36,240)
Dividend paid in the period (note
4) - - - - (4,299) (4,299)
------------------------------------- -------- -------- ----------- --------- --------- ---------
At 31st January 2019 3,981 25,895 2,903 148,629 4,971 186,379
------------------------------------- -------- -------- ----------- --------- --------- ---------
Year ended 31st July 2019 (Audited)
At 31st July 2018 3,985 25,895 2,899 187,547 6,782 227,108
Repurchase and cancellation of
the
Company's own shares (4) - 4 (190) - (190)
Repurchase of shares into Treasury - - - (2,354) - (2,354)
Costs relating to sub-division
of shares - - - (18) - (18)
Net (loss)/return - - - (17,545) 5,038 (12,507)
Dividend paid in the year (note
4) - - - - (4,299) (4,299)
------------------------------------- -------- -------- ----------- --------- --------- ---------
At 31st July 2019 3,981 25,895 2,903 167,440 7,521 207,740
------------------------------------- -------- -------- ----------- --------- --------- ---------
STATEMENT OF FINANCIAL POSITION
at 31st january 2020
(Unaudited) (Unaudited) (Audited)
31st January 31st January 31st July
2020 2019 2019
GBP'000 GBP'000 GBP'000
----------------------------------------------- ------------- ------------- ----------
Fixed assets
Investments held at fair value through profit
or loss 275,392 197,392 225,773
----------------------------------------------- ------------- ------------- ----------
Current assets
Debtors 1,014 1,689 2,489
Cash and cash equivalents 5,775 11,552 5,589
----------------------------------------------- ------------- ------------- ----------
6,789 13,241 8,078
Current liabilities
Creditors: amounts falling due within one
year (31,267) (24,254) (26,111)
----------------------------------------------- ------------- ------------- ----------
Net current liabilities (24,478) (11,013) (18,033)
----------------------------------------------- ------------- ------------- ----------
Total assets less current liabilities 250,914 186,379 207,740
----------------------------------------------- ------------- ------------- ----------
Net assets 250,914 186,379 207,740
----------------------------------------------- ------------- ------------- ----------
Capital and reserves
Called up share capital 3,981 3,981 3,981
Share premium 25,895 25,895 25,895
Capital redemption reserve 2,903 2,903 2,903
Capital reserves 212,131 148,629 167,440
Revenue reserve 6,004 4,971 7,521
----------------------------------------------- ------------- ------------- ----------
Total shareholders' funds 250,914 186,379 207,740
----------------------------------------------- ------------- ------------- ----------
Net asset value per share (note 5) 321.5p 234.1p 264.4p
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHSED 31ST JANUARY 2020
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
31st January 31st January 31st July
2020 2019 2019
GBP'000 GBP'000 GBP'000
---------------------------------------------- ------------- ------------- -----------
Net cash outflow from operations before
dividends and
interest (1,138) (1,164) (2,264)
Dividends received 3,048 3,008 6,079
Interest received 38 51 119
Interest paid (166) (186) (355)
---------------------------------------------- ------------- ------------- -----------
Net cash inflow from operating activities 1,782 1,709 3,579
---------------------------------------------- ------------- ------------- -----------
Purchases of investments (53,339) (45,975) (104,183)
Sales of investments 51,243 59,490 110,307
---------------------------------------------- ------------- ------------- -----------
Net cash (outflow)/inflow from investing
activities (2,096) 13,515 6,124
---------------------------------------------- ------------- ------------- -----------
Dividend paid (4,293) (4,299) (4,299)
Repurchase and cancellation of the Company's
own shares - (190) (190)
Repurchase of shares into Treasury (1,171) - (2,325)
Costs relating to sub-division of shares - - (18)
Fees in relation to aborted CULS issue (33) - (99)
Repayment of bank loans (4,000) (3,000) (6,000)
Drawdown of bank loan 10,000 - 5,000
Loan renewal fees (3) - -
---------------------------------------------- ------------- ------------- -----------
Net cash inflow/(outflow) from financing
activities 500 (7,489) (7,931)
---------------------------------------------- ------------- ------------- -----------
Increase in cash and cash equivalents 186 7,735 1,772
---------------------------------------------- ------------- ------------- -----------
Cash and cash equivalents at start of period 5,589 3,817 3,817
Cash and cash equivalents at end of period 5,775 11,552 5,589
---------------------------------------------- ------------- ------------- -----------
Increase in cash and cash equivalents 186 7,735 1,772
---------------------------------------------- ------------- ------------- -----------
Cash and cash equivalents consist of:
Cash and short term deposits 253 286 722
Cash held in JPMorgan Sterling Liquidity
Fund 5,522 11,266 4,867
---------------------------------------------- ------------- ------------- -----------
Total 5,775 11,552 5,589
---------------------------------------------- ------------- ------------- -----------
RECONCILIATION OF NET DEBT
As at Other As at
31st July non-cash 31st January
2019 Cash flows charges 2020
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----------- ----------- ---------- --------------
Cash and cash equivalents
Cash 722 (480) 11 253
Cash equivalents 4,867 655 - 5,522
--------------------------- ----------- ----------- ---------- --------------
5,589 175 11 5,775
Borrowings
Debt due within one year (24,000) (6,000) - (30,000)
--------------------------- ----------- ----------- ---------- --------------
(24,000) (6,000) - (30,000)
--------------------------- ----------- ----------- ---------- --------------
Total (18,411) (5,825) 11 (24,225)
--------------------------- ----------- ----------- ---------- --------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31ST JANUARY 2020
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 2019 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 including 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 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
October 2019.
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 January 2020.
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 31st July 2019.
3. Return/(loss) per share
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st January 31st January 31st July
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------------------------------- ----------------- ----------------- ------------
Return per share is based
on the following:
Revenue return 2,776 2,488 5,038
Capital return/(loss) 45,833 (38,728) (17,545)
--------------------------------- ----------------- ----------------- ------------
Total return/(loss) 48,609 (36,240) (12,507)
--------------------------------- ----------------- ----------------- ------------
Weighted average number of
shares in issue 78,152,078 79,635,219 79,561,385
Revenue return per share 3.55p 3.12p 6.33p
Capital return/(loss) per share 58.65p (48.63)p (22.05)p
--------------------------------- ----------------- ----------------- ------------
Total return/(loss) per share 62.20p (45.51)p (15.72)p
--------------------------------- ----------------- ----------------- ------------
4. Dividend paid
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st January 31st January 31st July
2020 2019 2019
GBP'000 GBP'000 GBP'000
----------------------------- ----------------- ----------------- -----------
2019 final dividend of 5.5p
(2018: 5.4p(1) ) 4,293 4,299 4,299
----------------------------- ----------------- ----------------- -----------
(1) The dividend rate has been restated following the
sub-division of each existing ordinary share of 25p into 5p each on
30th November 2018.
All dividends paid in the period have been funded from the
revenue reserve.
No interim dividend has been declared in respect of the six
months ended 31st January 2020 (2019: nil).
5. Net asset value per share
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st January 31st January 31st July
2020 2019 2019
--------------------------- ----------------- ----------------- ------------
Net assets (GBP'000) 250,914 186,379 207,740
Number of shares in issue 78,051,669 79,611,410 78,565,886
--------------------------- ----------------- ----------------- ------------
Net asset value per share 321.5p 234.1p 264.4p
--------------------------- ----------------- ----------------- ------------
25th March 2020
For further information, please contact:
Lucy Dina
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 FUNDS LIMITED
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.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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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