7 Dec 2017 12:04
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN ELECT PLC
FINAL RESULTS FOR THE YEAR ENDED 31ST AUGUST 2017
Legal Entity Identifier: 549300FIUYKKL39ILD07
Information disclosed in accordance with the DTR 4.1.3
CHAIRMAN'S STATEMENT
Dear Shareholders,
It is encouraging to report, in this my last letter to you as Chairman, on a successful year for your Company following the previous financial year in which performance of the Managed Growth and Managed Income share classes lagged their respective benchmark indices.
Pleasingly, both Managed Growth and Managed Income portfolios outperformed their respective indices by over 2% in the year to 31st August 2017. In addition, the Managed Income share class announced another year of an above inflation rise in dividends paid.
The Company's asset base was augmented by two corporate actions in which JPMorgan Elect acted as a roll-over vehicle for the JPMorgan Income & Growth Trust plc and for M&G High Income Investment Trust plc. This had the effect of increasing the size of the Trust with the aim of improving the liquidity of the share classes and spreading the burden of costs across more shares.
Managed Growth
The Managed Growth portfolio has delivered a total return on net assets of 20.2%, compared with the portfolio's benchmark which returned 16.7%. The share price total return was 19.6%.
As you know, the objective of this share class is long term capital growth from investing in a range of investment trusts and open-ended funds managed principally by JPMorgan Asset Management. The selection of individual asset managers contributed to performance as did the continued shrinkage of discounts across the investment trust sector.
Our Managers have delivered net asset value outperformance of an average 2.7% per annum against the benchmark index over the past five years.
For the year ended 31st August 2017 the Board declared dividends of 11.00p per Managed Growth share compared to 8.70p for the year ended 31st August 2016. Shareholders should bear in mind that this share class is a growth vehicle. Any income generated during the year is generally distributed in that year and investment decisions are not made with the objective of maintaining or growing income.
Managed Income
The portfolio's objective is growing income return with potential for long term capital growth. The Managed Income portfolio has delivered a total return on net assets of 14.9% compared with the portfolio's benchmark index which returned 12.3%. The share price total return was 15.5%.
UK dividend growth has been positively impacted by the weakness in sterling since the Brexit vote and I am pleased to report that dividends for the year ended 31st August 2017 totalled 4.20p per share, an increase of 7.7% on 2016 (2016: 3.90p per share).
Our Managers have delivered net asset value outperformance of an average 2.2% per annum against the benchmark index over the past five years.
I remain very conscious that in 2010 it proved necessary to cut the dividend per share and the Board have been focused since then on growing dividends in a sustainable manner. This has manifested itself in the decision to pay dividends out of ordinary income and to use special dividends to rebuild revenue reserves. This cautious approach has allowed us to steadily increase dividends from 3.30p in 2009/2010 to 4.20p this financial year. The Managed Income share class currently has attributable revenue reserves of £4.05 million or 5.7p per share which is equivalent to 1.3x the current dividend.
In the absence of unforeseen circumstances the Board intends to declare the first three interim dividends for the year ending 31st August 2018 at 1.05p per share. The level of the fourth interim dividend will be determined by the Board towards the end of the Company's 2017/18 financial year and will depend on the level of dividends received and anticipated by the Company. It is also the Board's aim to increase the total dividends each year at least by inflation and to pay not less than 4.20p per share for the year ending 31st August 2018.
Managed Cash
The portfolio's primary objective remains capital preservation through investment in high quality liquidity funds. During the year the Bank of England base rate was maintained at 0.25% despite discussions of a rise. The Managed Cash share class in comparison returned 0.8% on net assets and a dividend of 0.35p per share was paid for the year ended 31st August 2017. An increase in interest rates was announced in early November of a quarter of a percentage point.
The Managed Cash portfolio is invested in liquidity funds with AAA ratings as measured by Standard & Poor's, or an equivalent rating agency. The Board considers this class to be an asset allocation tool which continues to benefit shareholders of all of the Company's share classes, offering the opportunity to switch into a safer share class in times of market volatility.
Further details of the performance of the three separate share class portfolios are set out below.
Corporate Transactions
In 2017 the Company was able to take advantage of its structure to grow its assets by issuing new shares in connection with the reconstruction of two investment trusts, thus helping to spread the fixed costs of managing the Company over a wider asset base and increase the liquidity for each of the share classes. The share issues resulted in the acquisition of approximately £21.5 million of net assets from JPMorgan Income and Growth and £14.0 million of assets from M&G High Income Investment Trust. The Board welcomes further opportunities to utilise its capital structure in this way.
Proposed Change in Benchmark and the Introduction of Gearing for the Managed Income Share Pool
The Managed Income share class of the Company sits in the Association of Investment Companies ('AIC') UK Equity Income sector; a highly competitive sector with a large number of competing trusts. Although the Managed Income share class's performance has been satisfactory when compared with these peers your Board has been reviewing a number of changes which may improve the share class's performance and competitive position. This review has resulted in two proposed changes to the way Managed Income's performance is assessed and its assets managed.
• Firstly, it is proposed that with effect from 1st March 2018 the benchmark for the Managed Income share class is changed from a composite benchmark comprising 85% the FTSE All-Share Index and 15% the Bloomberg Barclays Capital Global Corporate Bond Index to the FTSE All-Share Index. This brings the Managed Income share class into line with the vast majority of investment trusts in the AIC's UK Equity Income Sector and better reflects what we do in the underlying portfolio where we now have very little exposure to bonds.
• Secondly, it is proposed that the Manager be permitted to introduce modest levels of gearing into Managed Income, with a view to enhancing returns. This brings the Managed Income class into line with most of its competitors and provides the Manager with a tool we hope will benefit both the capital and income returns to shareholders. We expect the Managed Income share class to operate within a gearing range of 85% to 112.5% and have negotiated a £10 million, two year revolving credit facility with Scotiabank which the Manager will be able to deploy from the date of the Annual General Meeting in January 2018.
In introducing bank debt into the Managed Income share pool the Board has considered the extent to which this leverage may alter the risks faced by Managed Growth and Managed Cash shareholders. It is satisfied that the modest levels of gearing being introduced to the Managed Income pool and the covenants in place mean that there is no material change in the risks faced by Managed Growth and Managed Income investors.
The proposed change to the investment policy of the Managed Income portfolio will require the passing of an ordinary resolution at the Annual General Meeting on which only the Managed Income shareholders shall be entitled to vote in accordance with the Company's articles. In addition, the proposed change of investment policy will require the approval of the Managed Income shareholders at a Separate Class Meeting to be held immediately following the Company's Annual General Meeting.
Conversions and Redemptions
During the year shareholders took the opportunity to convert between share classes. This resulted in a decrease in the Managed Growth shares in issue of 51,818, an increase in the Managed Income shares in issue of 184,155 and an increase in the Managed Cash shares in issue of 157,573. In addition 285,347 Managed Cash shares were redeemed.
The Board
As mentioned in my Chairman's Statement in the Half Year Report, Karl Sternberg was appointed as a Director of the Company on 16th December 2016 and he will seek reappointment at the upcoming Annual General Meeting in January 2018.
As part of the Board's succession planning I will step down as Chairman and a Director at the Annual General Meeting. I am very pleased that Alan Hodson has agreed to replace me and I would like to wish him every success in his new role.
Annual General Meeting
The Company's Annual General Meeting will be held on 12th January 2018 at 12 noon at 60 Victoria Embankment, London EC4Y 0JP. In addition to the formal part of the meeting, there will be presentations from the Investment Managers of each share class and a question and answer session.
If you have any detailed technical questions, it would be helpful if you could raise them in advance with the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP or via the 'Ask a Question' link on the Company's website. Shareholders who are unable to attend the Annual General Meeting are encouraged to use their proxy votes.
Outlook
As the Managers comment later, the increase in global growth is positive for UK equities notwithstanding the relatively lacklustre performance of the UK economy, since overseas revenues will help to support both earnings and dividends. It is sometimes said that bull markets are built on a bank of fear. As this bull market enters its eighth year those fears persist. The productivity improvements from globalisation and technology have been to the benefit of millions worldwide but have depressed the earnings growth of unskilled and semi-skilled workers in developed economies. It is likely that their frustration will continue to dominate popular politics in western democracies. It should also be remembered that quantitative easing, a temporary measure originally intended to encourage investment in riskier assets by distorting asset prices, persists. Only time will tell what the side effects of this are. In the meantime, against this backdrop, the Managers will aim to take advantage of opportunities to deliver investment returns in accordance with the respective objectives of each share class.
Angus Macpherson
Chairman 7th December 2017
MANAGED GROWTH SHARE CLASS
INVESTMENT MANAGER'S REPORT
Performance Review
The Managed Growth portfolio outperformed its benchmark over the period, returning 20.2% versus the benchmark return of 16.7%. The return to shareholders was 19.6%.
Managed Growth | 6 Mths | 1 Yr | 3 Yrs pa | 5 Yrs pa | 10 Yrs pa |
Total return on net assets (%) | 7.5 | 20.2 | 12.9 | 15.8 | 8.5 |
Total return to shareholders (%) | 7.4 | 19.6 | 12.8 | 16.1 | 8.7 |
Benchmark total return (%) | 5.0 | 16.7 | 11.6 | 13.1 | 7.8 |
Over the financial year growth data across the globe has generally surprised positively and the momentum in the Eurozone and Japan is particularly strong. Although the level of growth remains quite modest by historical standards, its breadth is encouraging. This broad-based, trend-like growth and a favourable inflation backdrop have combined to create a supportive environment for equities. This was also a more positive backdrop for the investment managers. There was improved performance from some of the UK holdings which had experienced a more challenging time in the previous financial year. Three examples in the UK include BlackRock Smaller Companies Investment Trust, The Mercantile Investment Trust and JPM Smaller Companies Investment Trust.
At the end of August the investment trust sector (excluding private equity, hedge funds and direct property) average discount was 5.1%, compared with 7.0% at the end of August 2016 (Source: Winterflood). We estimate the discount narrowing contributed approximately 0.7% to the Managed Growth portfolio return. In summary, it was a combination of strong underlying stock selection from the portfolio holdings, combined with narrowing discounts that drove the outperformance of the Managed Growth portfolio.
There were still some strategies that underperformed their benchmarks but eight out of ten of the largest holdings outperformed their own benchmarks over the year.
| 12 Mths to |
Top 5 by absolute performance (%) | 31st August 2017 |
Allianz Technology Trust | 40.6 |
JPMorgan Chinese | 36.6 |
BlackRock Smaller Companies | 36.4 |
JPMorgan Asian | 29.1 |
JPMorgan European Investment Trust | 28.1 |
| 12 Mths to |
Bottom 5 by absolute performance (%) | 31st August 2017 |
Perpetual Income & Growth | 4.7% |
Edinburgh Investment Trust | 6.6% |
Schroder UK Growth Fund | 9.9% |
City of London Investment Trust | 10.7% |
Murray Income Trust | 11.4% |
Portfolio Review
At the end of August 2017, 43% of the portfolio was invested in JPM managed investment trusts, 29% in JPMorgan managed open-ended funds and 28% in investment trusts managed by third party managers.
Over the period the portfolio maintained its underweight position in UK equities. The rationale for this was that we expected the UK to slow relative to other developed economies, partly in response to Brexit and its effect on business investment spending, and partly as the ongoing inflation spike impacts on real household incomes. More notable changes to the portfolio allocation have been the increase in Japanese equities from an underweight to an overweight position and returning the previously overweight North American allocation closer to benchmark, both in light of broadening global growth.
During the period, holdings were reduced and profits taken in JPM US Equity All Cap Fund, JPM Smaller Companies Investment Trust, JPM European Investment Trust 'Growth' and Fidelity European Values. Proceeds were reinvested into existing holdings in Murray Income Trust, BlackRock Smaller Companies, BlackRock Frontiers Investment Trust and JPM Emerging Markets Investment Trust.
Outlook
Summer worries over geopolitics and a period of weaker US inflation data are offset by the continued and synchronized pick-up in global growth. Despite the relative maturity of the US business cycle, recession risks remain muted and a combination of global earnings upgrades and loose financial conditions are supportive for stocks.
Equity returns in the late market cycle are typically positive unless financial conditions tighten sharply. The slow pace of rate normalisation and lack of inflationary pressure create a good environment for equity market returns, but we remain watchful for any deterioration in data, in particular employment, business confidence and consumer lending metrics.
For investment trusts, we would note that discounts to net asset value have generally narrowed, and this warrants some caution. However, in a favourable environment for equities these levels of valuation should not be cause for concern.
Katy Thorneycroft
Investment Manager 7th December 2017
MANAGED INCOME SHARE CLASS
INVESTMENT MANAGERS' REPORT
Performance Review
The Managed Income portfolio outperformed its composite benchmark index, delivering a total return of +14.9%, in comparison with the benchmark return of +12.3% over the twelve months to the 31st August 2017. This encouraging result was driven by strong stock selection during both the first and second halves of the year.
Managed Income | 6 Mths | 1 Yr | 3 Yrs pa | 5 Yrs pa | 10 Yrs pa |
Total return on net assets (%) | 6.3 | 14.9 | 7.8 | 11.6 | 4.8 |
Total return to shareholders (%) | 6.3 | 15.5 | 7.9 | 11.7 | 5.0 |
Benchmark total return (%) | 4.9 | 12.3 | 7.1 | 9.4 | 5.6 |
Managed Income has increased its dividend per share by 7.7%, whilst also strengthening its revenue reserves.
Headline UK dividends were favourably impacted by the weakness of sterling during the first half of the financial year, in the aftermath of the EU Referendum result of June 2016, with some of the more internationally-oriented stocks, such as the oils and the pharmaceuticals, declaring their dividends in US dollars. Dividend growth to date in 2017 has continued to benefit from this theme. The portfolio has once again benefited from special dividends in this financial year, with incremental payouts from Jupiter Fund Management, Beazley, Taylor Wimpey and ITV, as well as a return to the dividend list of Lloyds Banking Group, which also paid a special dividend. However some of our insurance stocks that previously paid special dividends have not done so this year, Direct Line Insurance being an example. Overall it was an encouraging year for dividend growth from the UK equity market, and there are currently some £4.05 million of revenue reserves available to Managed Income shareholders to help smooth future dividend payments.
The outlook for underlying UK dividend growth remains mixed, with recent headline dividend growth flattered by the weakness of sterling over the last twelve months. The second half of 2017 is likely to show weaker growth than during the first half, as the favourable impact of sterling weakness lessens. Some sectors are currently experiencing some headwinds in terms of their profit outlook, as the domestic economic outlook becomes more uncertain. However, many companies have global operations and so are not dependent on the UK economy, whilst others will continue to make good progress and generate sufficient cash to deliver good underlying dividends and/or special dividends.
For the twelve months as a whole, the most positive contributor to performance was the overweight position in Electrocomponents, the global distributor for engineers, which strongly outperformed the rising market. This industrial company has continued to deliver excellent results, with the relatively new management team focusing on making the business more efficient. Its recent results have beaten market expectations and led to further upgrades to its earnings prospects. Our long term overweight position in the most cost efficient iron ore producer, Rio Tinto, was also a strong contributor to performance this year, particularly during the first half, although being underweight in the mining sector overall was unhelpful to performance as it was one of the strongest sector performers this year.
In contrast to last year, our holdings in selected housebuilding stocks outperformed the rising market, as these attractively valued and premium dividend yielding stocks went on to deliver robust results, despite fears over the short term impact of Brexit on the domestic economy. Our long standing positions in Persimmon, Berkeley Group and Taylor Wimpey performed particularly strongly during the second half of the year, whilst also delivering good dividend income to their shareholders. By contrast, some of the portfolio's more defensive and more globally oriented stocks, such as the international tobacco stock, Imperial Brands, and the pharmaceutical group, GlaxoSmithKline, underperformed the rising market over the year. The performance of our holding in Novae Group, the specialist Lloyds insurer, was disappointing as it announced higher loss activity and a worse combined operating ratio for 2016, before then being adversely impacted by the change in discount rate for personal injury claims (the Ogden rate). However, the share price recovered some of its earlier falls when it received a bid approach from AXIS Capital Holdings Limited. Overall the Managed Income portfolio delivered positive absolute and relative performance during the financial year ending 31st August 2017.
Portfolio Review
There has been no material change to the asset allocation of the portfolio over the course of the second half of the financial year. The portfolio remains over-weight in equities relative to its composite benchmark.
We assess individual investment opportunities on whether earnings estimates are being revised upwards, whether the valuation is attractive and whether the balance sheet and forecast cash flows allow for dividend growth. As such, portfolio construction is determined by stock selection.
Since our report at the half year stage we bought new positions in Carnival, Allied Irish Banks, Evraz and Vodafone. Carnival is a cruise ship operator offering sailing vacations globally. The demand for cruises is growing strongly allowing the company to raise prices and deliver strong profit growth. A sign of the dramatic recovery in the economic position of Ireland was evidenced by a return to the market of Allied Irish Banks. The Irish government successfully listed shares in the bank on the Irish and UK stock markets with investors attracted by a compelling valuation and the prospect of strong dividend growth as the capital strength of the business improves. Evraz mines iron ore and coal, and manufactures steel. The recovery in commodity prices from their lows in 2016 has led to a strong profits recovery and a significant shift in the cash flow profile of the company. Management committed to paying a larger dividend than expected in 2017 equating to an 8.7% yield at the time of purchase. Vodafone was bought as its revenue growth was ahead of market expectations and free cash flow should cover dividends in the future.
Sales over the same period included Fevertree Drinks, WPP and AstraZeneca. We decided to take profits in premium mixers company Fevertree Drinks. The stock had performed strongly, as warranted by excellent results, though we felt that the stock no longer offered a sufficiently interesting valuation. We sold WPP as the outlook for advertising agencies is becoming increasingly uncertain with the growth of alternative avenues such as social media for advertisers to reach their target audiences. Another meaningful sell was AstraZeneca. The company has potential to deliver growth in the medium term from the development of immuno-oncology drugs but unfortunately the company failed to meet required regulatory end points for a lung cancer drug in August leading to marked share price weakness.
Outlook
The domestic economic and political outlook for the rest of 2017 and beyond has become more uncertain, due to the unexpected UK Election result and by concerns over the Government's negotiating powers for Brexit. Whilst the domestic economy is showing some signs of faltering, the global economy is accelerating and corporate profits have done well on the back of rising global demand. UK equities continue to offer an attractive dividend yield, with the prospect for dividend growth, whilst providing a hedge against rising UK inflation. We continue to prefer equities to low yielding bonds.
John Baker
Sarah Emly
Investment Managers 7th December 2017
MANAGED CASH SHARE CLASS
INVESTMENT MANAGER'S REPORT
Performance and Portfolio Review
The Managed Cash portfolio returned 0.8% for the period, an increase on the returns achieved over the same period last year. The portfolio continues to retain its broad diversification across a range of the UK's leading AAA-rated sterling liquidity funds, each selected to provide a high level of capital security for shareholders. The primary aim of the funds the Managed Cash portfolio invests in is to provide preservation of capital and liquidity with a yield in line with money market rates as a secondary aim.
Whilst it remained a period of low returns for the Managed Cash portfolio, yields did increase slightly over the course of the financial year boosting the returns to NAV. The Bank of England's (BoE) Monetary Policy Committee (MPC) kept rates on hold at 0.25% over the period, and at the end of August 2017 voted unanimously to keep the Asset Purchase Programme unchanged at £445 billion. More recently, at the beginning of November the BoE's MPC voted to increase interest rates by a quarter of a percentage point, the first increase since 2007.
Outlook
The first rate rise in a decade was widely expected by markets and the Governor Mark Carney suggested that two more rate rises would be required over the next three years in order to return inflation to target. The immediate impact on the UK economy of the increase in interest rates should be manageable but we note that there are already signs of weakness in the housing market, consumer confidence and retail sales. Concerns that the outcome for the UK economy may be less positive than the BoE's assumption would now justify an expectation of less than two rate rises in the next three years.
Katy Thorneycroft
Investment Manager 7th December 2017
PRINCIPAL RISKS
The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.
With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. In assessing the risks and how they can be mitigated, the Board has given particular attention to those issues that threaten the viability of the Company. These key risks fall broadly under the following categories:
• Investment Strategy: An inappropriate investment strategy, for example asset allocation, or the level of indirect gearing, may lead to underperformance against the relevant benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported on by the Manager. The Manager provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, transaction reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, who attend all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Board does not intend that the Managed Growth and Managed Cash portfolios will use borrowings to increase the funds available for investment but a proposal to use gearing for the Managed Income portfolio is being put to Shareholders at the Annual General Meeting and at a Separate Class Meeting of the Managed Income Shareholders. The Board also monitors closely the level of indirect gearing through the underlying investments. The Board holds a separate meeting each year devoted to strategy.
• Market: Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. The Board considers asset allocation, stock selection and levels of indirect gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Manager. The Board monitors the implementation and results of the investment process with the Manager.
• Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Structure and Objective of the Company' above. Were the Company to breach Section 1158, it might lose investment trust status and, as a consequence, gains within the Company's portfolios could be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by the Manager and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares have premium listings on the London Stock Exchange, the UKLA Listing Rules, the Disclosure and Transparency Guidelines ('DTGs'), the Market Abuse Regulations ('MAR') and, as an investment trust, the Alternative Investment Fund Managers Directive ('AIFMD'). A breach of the Companies Act 2006 could result in the Company and/or the Directors being fined or being the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTGs could result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary, the Manager and its professional advisers to ensure compliance with the Companies Act 2006, the UKLA Listing Rules, DTGs, MAR and AIFMD. The Board conducts an annual evaluation of the Company Secretary and the Manager, further details can be found on page 38 of the Annual Report and Financial Statements.
• Corporate Governance and Shareholder Relations: Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement on pages 37 to 40 of the Annual Report and Financial Statements.
• Operational: Loss of key staff by the Manager or JPMorgan Asset Management (UK) Limited, such as the Investment Managers, could affect the performance of the Company. Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary or Custodian's records could prevent accurate reporting and monitoring of the Company's financial position. Under the terms of its agreement, the Depositary has strict liability for the loss or misappropriation of assets held in custody. Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective internal controls are included within the Risk Management and Internal Controls section of the Corporate Governance Statement on pages 37 and 40 of the Annual Report and Financial Statements.
• Cyber Crime: The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Board has received the cyber security policies for its key third party service providers and JPMF has assured Directors that the Company benefits directly or indirectly from all elements of JPMorgan's cyber security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by an independent third party and reported every six months against the AAF Standard.
• Financial: The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. Further details are disclosed in note 20 on pages 39 to 73 of the Annual Report and Financial Statements.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contracts are set out in the Directors' Report on page 34 of the Annual Report and Financial Statements. The total amount payable to the Manager for the year in respect of these contracts was £1,319,000 (2016: £1,003,000) net of rebates, of which £nil (2016: £nil) was outstanding at the year end. In addition £100,000 (2016: £175,000) was payable to the Manager for the administration of savings scheme products of which £48,000 (2016: £nil) was outstanding at the year end.
Included in other administration expenses in note 6 on page 60 of the Annual Report and Financial Statements are safe custody fees amounting to £4,000 (2016: £3,000) payable to JPMorgan Chase of which £1,000 (2016: £1,000) was outstanding at the year end.
The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. Commission amounting to £9,000 (2016: £32,000) was payable to JPMorgan Securities Limited for the year of which £nil (2016: £nil) was outstanding at the year end.
The Company holds investments in funds managed by JPMAM. At 31st August 2017 these were valued at £191.5 million (2016: £164.6 million) and represented 55.39% (2016: 61.57%) of the Company's investment portfolio. During the year the Company made £11.8 million purchases of such investments (2016: £4.3 million) and sales with a total value of £10.6 million (2016: £17.2 million). Income amounting to £3.7 million (2016: £3.2 million) was receivable from these investments during the year of which £775,000 (2016: £608,000) was outstanding at the year end.
The Managed Growth and Managed Income pools also hold cash in JPM Sterling Liquidity Fund, managed by JPMorgan. At the year end this was valued at £5.1 million (2016: £nil). Interest amounting to £18,000 (2016: £nil) was receivable during the year of which £nil (2016: £nil) was outstanding at the year end.
Handling charges on dealing transactions amounting to £10,000 (2016: £12,000) were payable to JPMorgan Chase during the year of which £2,000 (2016: £4,000) was outstanding at the year end.
At the year end, total cash of £746,000 (2016: £1,780,000) was held with JPMorgan Chase. A net amount of interest of £1,000 (2016: £1,000) was receivable by the Company during the year from JPMorgan Chase of which £nil (2016: £nil) was outstanding at the year end.
Full details of Directors' remuneration and shareholdings can be found on page 44 and in note 6 on page 60 of the Annual Report and Financial Statements.
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31ST AUGUST 2017
| 2017 | 2016 | ||||
| Revenue | Capital | Total | Revenue | Capital | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Gains on investments held at fair value |
|
|
|
|
|
|
through profit or loss | - | 48,656 | 48,656 | - | 20,470 | 20,470 |
Net foreign currency gains | - | 18 | 18 | - | 57 | 57 |
Income from investments | 8,431 | - | 8,431 | 6,484 | - | 6,484 |
Interest receivable and similar income | 22 | - | 22 | 32 | - | 32 |
Gross return | 8,453 | 48,674 | 57,127 | 6,516 | 20,527 | 27,043 |
Management fee | (425) | (894) | (1,319) | (315) | (688) | (1,003) |
Other administrative expenses | (554) | - | (554) | (615) | - | (615) |
Net return on ordinary activities |
|
|
|
|
|
|
before finance costs and taxation | 7,474 | 47,780 | 55,254 | 5,586 | 19,839 | 25,425 |
Finance costs | (1) | (2) | (3) | - | - | - |
Net return on ordinary activities |
|
|
|
|
|
|
before taxation | 7,473 | 47,778 | 55,251 | 5,586 | 19,839 | 25,425 |
Taxation | (9) | - | (9) | (6) | - | (6) |
Net return on ordinary activities |
|
|
|
|
|
|
after taxation | 7,464 | 47,778 | 55,242 | 5,580 | 19,839 | 25,419 |
Return per share (note 2): |
|
|
|
|
|
|
Managed Growth | 12.63p | 119.11p | 131.74p | 8.94p | 55.59p | 64.53p |
Managed Income | 4.83p | 11.43p | 16.26p | 4.76p | 1.10p | 5.86p |
Managed Cash | 0.22p | 0.00p | 0.22p | 0.39p | 0.00p | 0.39p |
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST AUGUST 2017
| Called up |
| Capital |
|
|
|
|
| share | Share | redemption | Other | Capital | Revenue1 |
|
| capital | premium | reserve | reserve | reserves | reserve | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
At 31st August 2015 | 24 | 84,094 | - | 56,013 | 128,468 | 3,421 | 272,020 |
Repurchase and cancellation of the |
|
|
|
|
|
|
|
Company's own shares | - | - | - | (84) | - | - | (84) |
Issue of shares from Treasury | - | 5 | - | 123 | - | - | 128 |
Repurchase of shares into Treasury | - | - | - | (10,032) | - | - | (10,032) |
Share conversions during the year | - | 1,326 | - | (1,326) | - | - | - |
Net return on ordinary activities | - | - | - | - | 19,839 | 5,580 | 25,419 |
Dividends paid in the year (note 3) | - | - | - | - | - | (4,451) | (4,451) |
At 31st August 2016 | 24 | 85,425 | - | 44,694 | 148,307 | 4,550 | 283,000 |
Repurchase and cancellation of the Company's |
|
|
|
|
|
|
|
own shares | - | - | - | (816) | - | - | (816) |
Repurchase of shares into Treasury | - | - | - | (12,388) | - | - | (12,388) |
Shares issued as a result of Company rollovers |
|
|
|
|
|
|
|
(net of costs) | - | 35,190 | - | - | - | - | 35,190 |
Share conversions during the year | - | 2,253 | - | (2,253) | - | - | - |
Adjustment on repurchase of deferred shares |
|
|
|
|
|
|
|
issued arising from share conversions | (8) | - | 8 | - | - | - | - |
Net return on ordinary activities | - | - | - | - | 47,778 | 7,464 | 55,242 |
Dividends paid in the year (note 3) | - | - | - | - | - | (6,104) | (6,104) |
At 31st August 2017 | 16 | 122,868 | 8 | 29,237 | 196,085 | 5,910 | 354,124 |
1 This reserve forms the distributable reserve of the Company and may be used to fund the distribution of profits to investors via dividend payments.
STATEMENT OF FINANCIAL POSITION AT 31ST AUGUST 2017
| 2017 | 2016 | |||
|
|
|
| Audited | Audited |
| Growth | Income | Cash | Total | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
Fixed assets |
|
|
|
|
|
Investments held at fair value through |
|
|
|
|
|
profit or loss | 259,853 | 80,810 | 5,008 | 345,671 | 267,257 |
Current assets |
|
|
|
|
|
Derivative financial assets | 119 | - | - | 119 | 1,885 |
Debtors | 743 | 858 | 386 | 1,987 | 1,084 |
Cash and cash equivalents | 4,392 | 2,163 | 7 | 6,562 | 13,334 |
| 5,254 | 3,021 | 393 | 8,668 | 16,303 |
Current liabilities |
|
|
|
|
|
Creditors: amounts falling due within one year | (134) | (47) | (3) | (184) | (124) |
Derivative financial liabilities | (31) | - | - | (31) | (436) |
Net current assets | 5,089 | 2,974 | 390 | 8,453 | 15,743 |
Net assets | 264,942 | 83,784 | 5,398 | 354,124 | 283,000 |
Capital and reserves |
|
|
|
|
|
Called up share capital | 15 | 1 | - | 16 | 24 |
Share premium | 39,009 | 61,069 | 22,790 | 122,868 | 85,425 |
Capital redemption reserve | 3 | 3 | 2 | 8 | - |
Other reserve | 44,530 | 2,178 | (17,471) | 29,237 | 44,694 |
Capital reserves | 179,815 | 16,281 | (11) | 196,085 | 148,307 |
Revenue reserve | 1,570 | 4,252 | 88 | 5,910 | 4,550 |
Total shareholders' funds | 264,942 | 83,784 | 5,398 | 354,124 | 283,000 |
| 31st August 2017 | 31st August 2016 | |||
| Net asset value | Net assets | Net asset value | Net assets |
|
| per share | attributable | per share | attributable |
|
| (pence) | £'000 | (pence) | £'000 |
|
Managed Growth (note 4) | 785.6 | 264,942 | 664.2 | 224,749 |
|
Managed Income (note 4) | 117.2 | 83,784 | 105.7 | 54,456 |
|
Managed Cash (note 4) | 102.2 | 5,398 | 101.7 | 3,795 |
|
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST AUGUST 2017
1. Accounting policies
Basis of accounting
The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' 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 November 2014 and updated in January 2017.
All of the Company's operations are of a continuing nature.
The financial statements for the Company comprise the Statement of Comprehensive Income, the Statement of Changes in Equity, the 'Total' column of the Statement of Financial Position and the 'Total' column within the Notes to the financial statements.
The Managed Growth, Managed Income and Managed Cash Statement of Comprehensive Income and Statement of Financial Position, together with the notes to those statements are not required under UK GAAP or the SORP, and have not been audited but have been disclosed to assist shareholders' understanding of the net assets and liabilities, and income and expenses of the different share classes.
The financial statements have been prepared on a going concern basis. The disclosures on going concern on page 41 of the Directors' Report in the Annual Report and Financial Statements form part of these financial statements.
The policies applied in these financial statements are consistent with those applied in the preceding year.
The Company has elected not to prepare a Statement of Cash Flows for the current year on the basis that substantially all of its investments are liquid and carried at market value and a Statement of Changes in Equity is provided.
2. Return per share
| 2017 | 2016 |
| £'000 | £'000 |
Managed Growth |
|
|
Return per Managed Growth share is based on the following: |
|
|
Revenue return | 4,268 | 3,097 |
Capital return | 40,242 | 19,267 |
Total return | 44,510 | 22,364 |
Weighted average number of shares in issue during the year | 33,786,098 | 34,658,666 |
Revenue return per share | 12.63p | 8.94p |
Capital return per share | 119.11p | 55.59p |
Total return per share | 131.74p | 64.53p |
| 2017 | 2016 |
| £'000 | £'000 |
Managed Income |
|
|
Return per Managed Income share is based on the following: |
|
|
Revenue return | 3,186 | 2,467 |
Capital return | 7,536 | 572 |
Total return | 10,722 | 3,039 |
Weighted average number of shares in issue during the year | 65,954,477 | 51,769,108 |
Revenue return per share | 4.83p | 4.76p |
Capital return per share | 11.43p | 1.10p |
Total return per share | 16.26p | 5.86p |
| 2017 | 2016 |
| £'000 | £'000 |
Managed Cash |
|
|
Return per Managed Cash share is based on the following: |
|
|
Revenue return | 10 | 16 |
Capital return | - | - |
Total return | 10 | 16 |
Weighted average number of shares in issue during the year | 4,527,799 | 3,792,884 |
Revenue return per share | 0.22p | 0.39p |
Capital return per share | 0.00p | 0.00p |
Total return per share | 0.22p | 0.39p |
3. Dividends
(a) Dividends paid
| 2017 | 2016 |
| £'000 | £'000 |
Managed Growth shares 2016 4th interim dividend paid of 3.15p (2015: 1.50p) | 1,066 | 535 |
Managed Growth shares 2017 1st interim dividend paid of 2.90p (2016: 2.55p) | 974 | 892 |
Managed Growth shares 2017 2nd interim dividend paid of 2.55p (2016: 1.50p) | 855 | 522 |
Managed Growth shares 2017 3rd interim dividend paid of 2.55p (2016: 1.50p) | 869 | 515 |
Managed Income shares 2016 4th interim dividend paid of 1.35p (2015: 1.25p) | 692 | 650 |
Managed Income shares 2017 1st interim dividend paid of 0.85p (2016: 0.85p) | 436 | 441 |
Managed Income shares 2017 2nd interim dividend paid of 0.85p (2016: 0.85p) | 584 | 441 |
Managed Income shares 2017 3rd interim dividend paid of 0.85p (2016: 0.85p) | 614 | 441 |
Managed Cash 2016 interim dividend of 0.35p (2015: 0.35p) | 14 | 14 |
Total dividends paid in the year | 6,104 | 4,451 |
In respect of dividends paid during the year ended 31st August 2017:
The 2016 4th interim dividends were paid on 23rd September 2016 to shareholders on the register as at the close of business on 26th August 2016.
The 1st interim dividends were paid on 21st December 2016 to shareholders on the register as at the close of business on 25th November 2016.
The 2nd interim dividends were paid on 22nd March 2017 to shareholders on the register as at the close of business on 17th February 2017.
The 3rd interim dividends were paid on 14th June 2017 to shareholders on the register as at the close of business on 19th May 2017.
(b) Dividends declared
| 2017 | 2016 |
| £'000 | £'000 |
Managed Growth shares 2017 4th interim dividend of 3.00p (2016: 3.15p) | 1,012 | 1,066 |
Managed Income shares 2017 4th interim dividend of 1.65p (2016: 1.35p) | 1,182 | 692 |
Managed Cash shares 2017 interim dividend of 0.35p (2016: 0.35p) | 17 | 14 |
Total dividends declared | 2,211 | 1,772 |
In respect of dividends declared, but not paid, during the year ended 31st August 2017 the dividends paid on 20th September 2017 to shareholders on the register as at the close of business on 25th August 2017.
4. Net asset value per share
The net asset values per share are calculated as follows:
| 2017 | 2016 |
| ||||
| Managed | Managed | Managed | Managed | Managed | Managed | |
| Growth | Income | Cash | Growth | Income | Cash | |
Net assets (£'000) | 264,942 | 83,784 | 5,398 | 224,749 | 54,456 | 3,795 | |
Number of shares in issue (excluding shares |
|
|
|
|
|
| |
held in Treasury) | 33,725,314 | 71,482,274 | 5,280,422 | 33,838,279 | 51,506,786 | 3,731,318 | |
Net asset value per share | 785.6p | 117.2p | 102.2p | 664.2p | 105.7p | 101.7p | |
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 Annual Report and Financial Statements will be submitted to the National Storage Mechanism and will be available shortly for inspection at www.morningstar.co.uk/uk/NSM
The Annual Report and Financial Statements will also be available shortly on the Company's website at www.jpmelect.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.
7th December 2017