25 Feb 2020 08:00
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN MID CAP INVESTMENT TRUST PLC
UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS
ENDED 31ST DECEMBER 2019
Legal Entity Identifier: 549300QED7IGEP4UFN49
Information disclosed in accordance with DTR 4.2.2
CHAIRMAN'S STATEMENT
Performance
In recent years the UK's stock market has faced two major sources of political risk: the possibility of a hard Brexit and the resulting damage to the UK economy, together with the lingering possibility of a shift in power to a more radically left-leaning Labour government. Regardless of political preferences, if the proposals put forward by Labour leader Jeremy Corbyn, including renationalising key industries such as utilities, higher corporate and wealth taxes, had come to fruition, there would have been considerable pressure on corporate profits. The emphatic Conservative victory in December 2019 neutralised this 'Corbyn' risk for a period until at least 2024. UK corporates breathed a huge sigh of relief and UK stock indices rallied, including the Company's benchmark index (the FTSE 250 excluding investment trusts) which returned +15.6% over the six months ended 31st December 2019.
Pleasingly the Company's total return on net assets over the period was +17.6%, representing an outperformance of the Company's benchmark. However, the standout highlight over the period, is the Company's share price total return of +29.0%, reflecting the significant turnaround in sentiment following the election result, as investors flooded back into quality UK focused investment vehicles. Having ended the fiscal year on 30th June 2019 with its shares trading at a discount to net asset value ('NAV') of 10.2%, the Company's shares were trading on a discount of just 1.7% on 31st December 2019.
Brexit uncertainty has not gone away and is set to cast a shadow over further recovery this year. The UK has until the end of the year to agree on a future partnership with the EU, while hoping to replace some of the trade lost with the EU through trade agreements with the US and other partners around the globe. However, with the general election behind us and the promise of supportive fiscal policies, the relatively attractive valuation on an international basis should continue to tempt investors back to the UK market.
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.
Discount Management
The Board monitors the premium/discount level on which the Company's shares trade to NAV and will seek, where deemed prudent, to address imbalances in the supply and demand for the Company's shares through share buybacks and issuances. The Company repurchased 6,321 shares over the period. Any shares repurchased are held in Treasury for possible re-issue. Treasury shares and any new Ordinary shares will only be sold or issued respectively at a premium to net asset value.
Revenue and Dividends
Net revenue after taxation for the six months to 31st December 2019 was £3.54 million (2018: £3.45 million) and earnings per share, calculated on the weighted average number of shares in issue, were 14.93p (2018: 14.50p). The Board has declared an interim dividend of 8.0p (2018: 8.0p) to be paid on 23rd April 2020 to shareholders on the register at the close of business on 20th March 2020.
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. The Company's gearing strategy is implemented through the use of bank borrowing facilities, with the Company currently having access to two loan facilities totalling £45 million, expiring in June 2020 and March 2024, with the option of further increasing the March 2024 facility by £15 million. More information on the Company's gearing position over the reporting period is detailed within the Investment Managers' Report.
Auditor Review
The Company's current audit firm, PricewaterhouseCoopers LLP, has audited the Company's financial statements since its year ended 30th June 2011. The Board is mindful of the EU regulations in relation to the statutory audits of listed companies which require the Company to conduct a tender of the position of Auditor by 2021. This process was conducted by the Audit & Risk Committee in February 2020 and a decision on whether to change the Auditor will be taken by the Board in due course and confirmed to shareholders in the Annual Report for the year ending 30th June 2020.
Board of Directors
Having chaired the Board since 2016 and having been appointed to the Board in 2008, I will be standing down from the Board at the Company's forthcoming Annual General Meeting to be held in October 2020. I am pleased to report that John Evans, who was appointed to the Board in June 2016, will be my successor.
In addition and following an externally led search process, Hannah Philp has been appointed to the Board as a Non-Executive Director with effect from 1st March 2020. Hannah has extensive experience of marketing and developing communication strategies, most recently as director of marketing for Witan Investment Trust, a FTSE 250 investment company.
Prospects
Consumer and investment spending in the UK are expected to recover with anticipated support from fiscal stimulus. The easing in global trade tensions and likely increase in global activity should also help support the earnings for mid cap companies. Moreover, with an overall dividend yield of 3.1%, the FTSE 250 Index is one of the highest dividend payers in the developed world and looks very attractive in an environment in which investors are starved of yield. As political and economic risks subside, investors are likely to be tempted by the relatively attractive valuations of the UK market and the potential for currency uplift from a recovery in sterling.
The Board remains very supportive of our investment team. Georgina and Katen have stayed calm and focussed against what have been extremely challenging markets over recent years. The ability of our investment team to identify likely out-performers and to react swiftly in cutting our exposures to under-performers has provided attractive total returns to the Company's shareholders over their tenure. In what we and they hope will be calmer waters ahead, I look forward to reporting a continuation of the Company's strong performance.
Michael Hughes
Chairman
25th February 2020
INVESTMENT MANAGERS' REPORT
Performance and Market Background
What a tumultuous 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. We saw Theresa May leave Downing Street, Boris Johnson replace her, the 31st October Brexit cliff-hanger, 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 key risk of a Corbyn-led Labour government, provided a level of certainty to UK politics that had been lacking for several years.
Against this backdrop the FTSE 250 (ex Investment Trusts) index rallied significantly. It returned +15.6% in the six months to December, and was the strongest performer of the UK indices. The Company outperformed this and produced a total return on net asset value of +17.6%. The strength of the Conservative victory, and with it the removal of a significant degree of uncertainty over Brexit, led to a sharp narrowing of the discount, leading to a share price total return of +29.0%.
Portfolio
The outperformance of the Company in the first half of this financial year was broad-based. A number of our key long-term investments continued to perform strongly, among them JD Sports, Bellway and Games Workshop. In addition, we benefitted from bids in the portfolio for two pub companies, EI Group and Greene King. Performance also benefitted from gearing that was utilised by the Company. There were no large detractors from performance. Vesuvius and John Laing both underperformed the market, but we believe are undervalued and so remain in the portfolio; in addition there was a bid for Cobham, which we did not own, and thus was a detractor from relative performance.
We made a number of changes to the portfolio through the period. Amongst the changes, we sold out of Hays, Amigo and Spirax Sarco (now in the FTSE 100) but added Dart (a travel company), Rank (a gambling company), Capital & Counties Properties (London real estate) and Travis Perkins (a builders' merchant). In so doing, we increased our exposure to the UK economy and in particular to the UK consumer, which we refer to in the outlook below.
Outlook
The UK has endured a protracted period of uncertainty since the Referendum in June 2016, which affected businesses, consumers and the economy. Post the Election and parliamentary approval of the Withdrawal Agreement from the EU, the outlook for the UK both politically and economically is clearer than it has been for several years. While the Brexit negotiations are not over, the strength of the Conservative majority means they should no longer dominate all other considerations.
We now have a pro-growth, pro-investment Government in place, and already we have seen real Government spending accelerating at its fastest pace in a decade. The most recent economic data has seen improving CBI surveys, a sharp pick up in the important Purchasing Manager Indices and an improvement in consumer confidence, helped by the very recent strengthening of the housing market. The labour market remains strong, and very low inflation (CPI of 1.3% in December 2019) is a boon to disposable income.
The progress of post Brexit trade talks this year, not only with the EU but also with the USA, Japan and other countries, will be important to the maintenance of this more positive outlook. One year ago, we wrote in our half year report that if the Government was able to negotiate its way out of the existing impasse, then we should see sterling rise, inflation fall further and consumer confidence rebound, all of which would be very positive for the share prices of UK domestic-facing companies. So far, all of this has come to pass. While we are clearly cognisant of the risks that still exist (both in the UK and globally), we feel much more confident about the outlook. We have significantly increased our exposure to domestic companies in the FTSE 250, and gearing at 31st December 2019 was 9.3%. Global investors are slowly revisiting the UK stockmarket, adding to the impetus, and while valuations have clearly risen from their lows, we still believe that the Mid Cap arena is not expensive and stands to benefit most from the changed political environment.
Georgina Brittain
Katen Patel
Investment Managers
25th February 2020
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 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 operation existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the 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 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 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
25th February 2020
STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2019
| (Unaudited) | (Unaudited) | (Audited) | ||||||
| Six months ended | Six months ended | Year ended | ||||||
| 31st December 2019 | 31st December 2018 | 30th June 2019 | ||||||
| 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 | - | 46,563 | 46,563 | - | (67,422) | (67,422) | - | (28,603) | (28,603) |
Net foreign currency gains | - | 8 | 8 | - | 17 | 17 | - | 18 | 18 |
Income from investments | 4,171 | - | 4,171 | 4,076 | - | 4,076 | 9,785 | - | 9,785 |
Interest receivable and similar |
|
|
|
|
|
|
|
|
|
income | 56 | - | 56 | 60 | - | 60 | 88 | - | 88 |
Gross return/(loss) | 4,227 | 46,571 | 50,798 | 4,136 | (67,405) | (63,269) | 9,873 | (28,585) | (18,712) |
Management fee | (299) | (698) | (997) | (296) | (690) | (986) | (564) | (1,315) | (1,879) |
Other administrative expenses | (223) | - | (223) | (232) | - | (232) | (568) | - | (568) |
Net return/(loss) before |
|
|
|
|
|
|
|
|
|
finance costs and taxation | 3,705 | 45,873 | 49,578 | 3,608 | (68,095) | (64,487) | 8,741 | (29,900) | (21,159) |
Finance costs | (93) | (218) | (311) | (85) | (196) | (281) | (118) | (275) | (393) |
Net return/(loss) before |
|
|
|
|
|
|
|
|
|
taxation | 3,612 | 45,655 | 49,267 | 3,523 | (68,291) | (64,768) | 8,623 | (30,175) | (21,552) |
Taxation | (72) | - | (72) | (74) | - | (74) | (303) | - | (303) |
Net return/(loss) after |
|
|
|
|
|
|
|
|
|
taxation | 3,540 | 45,655 | 49,195 | 3,449 | (68,291) | (64,842) | 8,320 | (30,175) | (21,855) |
Return/(loss) per share (note 3) | 14.93p | 192.54p | 207.47p | 14.50p | (287.06)p | (272.56)p | 35.01p | (126.96)p | (91.95)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/(loss) on ordinary activities after taxation represents the profit/(loss) for the period/year and also the Total Comprehensive Income.
STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2019
| Called up | Capital |
|
|
|
| share | redemption | Capital | Revenue |
|
| capital | reserve | Reserves | reserve1 | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
Six months ended 31st December 2019 (Unaudited) |
|
|
|
|
|
At 30th June 2019 | 6,350 | 3,650 | 259,930 | 14,624 | 284,554 |
Repurchase of shares into Treasury | - | - | (66) | - | (66) |
Net return | - | - | 45,655 | 3,540 | 49,195 |
Dividends paid in the period (note 4) | - | - | - | (5,098) | (5,098) |
At 31st December 2019 | 6,350 | 3,650 | 305,519 | 13,066 | 328,585 |
Six months ended 31st December 2018 (Unaudited) |
|
|
|
|
|
At 30th June 2018 | 6,350 | 3,650 | 291,173 | 12,957 | 314,130 |
Repurchase of shares into Treasury | - | - | (556) | - | (556) |
Net (loss)/return | - | - | (68,291) | 3,449 | (64,842) |
Dividends paid in the period (note 4) | - | - | - | (4,752) | (4,752) |
At 31st December 2018 | 6,350 | 3,650 | 222,326 | 11,654 | 243,980 |
Year ended 30th June 2019 (Audited) |
|
|
|
|
|
At 30th June 2018 | 6,350 | 3,650 | 291,173 | 12,957 | 314,130 |
Repurchase of shares into Treasury | - | - | (1,068) | - | (1,068) |
Net (loss)/return | - | - | (30,175) | 8,320 | (21,855) |
Dividends paid in the year (note 4) | - | - | - | (6,653) | (6,653) |
At 30th June 2019 | 6,350 | 3,650 | 259,930 | 14,624 | 284,554 |
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 2019
| (Unaudited) | (Unaudited) | (Audited) |
| 31st December 2019 | 31st December 2018 | 30th June 2019 |
| £'000 | £'000 | £'000 |
Fixed assets |
|
|
|
Investments held at fair value through profit or loss | 359,113 | 246,738 | 297,060 |
Current assets |
|
|
|
Debtors | 1,222 | 926 | 6,142 |
Cash and cash equivalents | 5,441 | 13,512 | 1,753 |
| 6,663 | 14,438 | 7,895 |
Current liabilities |
|
|
|
Creditors: amounts falling due within one year | (8,191) | (9,196) | (10,401) |
Net current (liabilities)/assets | (1,528) | 5,242 | (2,506) |
Total assets less current liabilities | 357,585 | 251,980 | 294,554 |
Creditors: amounts falling due after more than one year | (29,000) | (8,000) | (10,000) |
Net assets | 328,585 | 243,980 | 284,554 |
Capital and reserves |
|
|
|
Called up share capital | 6,350 | 6,350 | 6,350 |
Capital redemption reserve | 3,650 | 3,650 | 3,650 |
Capital reserves | 305,519 | 222,326 | 259,930 |
Revenue reserve | 13,066 | 11,654 | 14,624 |
Total shareholders' funds | 328,585 | 243,980 | 284,554 |
Net asset value per share (note 5) | 1,385.9p | 1,026.7p | 1,199.9p |
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2019
| (Unaudited) | (Unaudited) | (Audited) | |
| 31st December 2019 | 31st December 2018 | 30th June 2019 | |
| £'000 | £'000 | £'000 | |
Net cash outflow from operations before dividends and |
|
|
| |
interest | (1,241) | (1,197) | (2,377) | |
Dividends received | 4,835 | 4,487 | 8,931 | |
Interest received | 29 | 34 | 60 | |
Overseas tax (paid)/recovered | (8) | 48 | 52 | |
Interest paid | (293) | (219) | (403) | |
Net cash inflow from operating activities | 3,322 | 3,153 | 6,263 | |
Purchases of investments | (75,622) | (46,239) | (109,813) | |
Sales of investments | 64,151 | 59,002 | 107,119 | |
Settlement of forward currency contracts | - | (2) | (2) | |
Net cash (outflow)/inflow from investing activities | (11,471) | 12,761 | (2,696) | |
Dividends paid | (5,098) | (4,752) | (6,653) | |
Repurchase of shares into Treasury | (66) | (556) | (1,068) | |
Drawdown of bank loan | 19,000 | 8,000 | 10,000 | |
Repayment of bank loan | (2,000) | (16,000) | (15,000) | |
Net cash inflow/(outflow) from financing activities | 11,836 | (13,308) | (12,721) | |
Increase/(decrease) in cash and cash equivalents | 3,687 | 2,606 | (9,154) | |
Cash and cash equivalents at start of period | 1,753 | 10,906 | 10,906 | |
Exchange movements | 1 | - | 1 | |
Cash and cash equivalents at end of period | 5,441 | 13,512 | 1,753 | |
Increase/(decrease) in cash and cash equivalents | 3,687 | 2,606 | (9,154) | |
Cash and cash equivalents consist of: |
|
|
| |
Cash and short term deposits | 258 | 1,287 | 287 | |
Cash held in JPMorgan Sterling Liquidity Fund | 5,183 | 12,225 | 1,466 | |
Total | 5,441 | 13,512 | 1,753 | |
RECONCILIATION OF NET DEBT |
|
|
| |
| As at |
| Other | As at |
| 30th June 2019 | Cash flows | non-cash charges | 31st December 2019 |
| £'000 | £'000 | £'000 | £'000 |
Cash and cash equivalents |
|
|
|
|
Cash | 287 | (30) | 1 | 258 |
Cash equivalents | 1,466 | 3,717 | - | 5,183 |
| 1,753 | 3,687 | 1 | 5,441 |
Borrowings |
|
|
|
|
Debt due within one year | (10,000) | 2,000 | - | (8,000) |
Debt due after one year | (10,000) | (19,000) | - | (29,000) |
| (20,000) | (17,000) | - | (37,000) |
Total | (18,247) | (13,313) | 1 | (31,559) |
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31ST DECEMBER 2019
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 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 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.
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 '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, and updated in March 2018, has been applied in preparing this condensed set of financial statements for the six months ended 31st December 2019.
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 2019.
3. Return/(loss) per share
| (Unaudited) | (Unaudited) | (Audited) |
| Six months ended | Six months ended | Year ended |
| 31st December 2019 | 31st December 2018 | 30th June 2019 |
| £'000 | £'000 | £'000 |
Return/(loss) per share is based on the following: |
|
|
|
Revenue return | 3,540 | 3,449 | 8,320 |
Capital return/(loss) | 45,655 | (68,291) | (30,175) |
Total return/(loss) | 49,195 | (64,842) | (21,855) |
Weighted average number of shares in issue | 23,711,386 | 23,789,582 | 23,766,861 |
Revenue return per share | 14.93p | 14.50p | 35.01p |
Capital return/(loss) per share | 192.54p | (287.06)p | (126.96)p |
Total return/(loss) per share | 207.47p | (272.56)p | (91.95)p |
4. Dividends paid
| (Unaudited) | (Unaudited) | (Audited) |
| Six months ended | Six months ended | Year ended |
| 31st December 2019 | 31st December 2018 | 30th June 2019 |
| £'000 | £'000 | £'000 |
2019 Final dividend of 21.5p (2018: 18.5p) per share | 5,098 | 4,396 | 4,396 |
2019 Special dividend of nil (2018: 1.5p) per share | - | 356 | 356 |
2019 Interim dividend of 8.0p per share | - | - | 1,901 |
Total dividends paid | 5,098 | 4,752 | 6,653 |
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 2019, to be paid on 23rd April 2020 to shareholders on the register at the close of business on 20th March 2020.
5. Net asset value per share
| (Unaudited) | (Unaudited) | (Audited) |
| Six months ended | Six months ended | Year ended |
| 31st December 2019 | 31st December 2018 | 30th June 2019 |
Net assets (£'000) | 328,585 | 243,980 | 284,554 |
Number of shares in issue | 23,709,359 | 23,762,680 | 23,715,680 |
Net asset value per share | 1,385.9p | 1,026.7p | 1,199.9p |
JPMORGAN FUNDS LIMITED
25th February 2020
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.
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.