Final Results
JP Morgan Mid Cap Invest Trust PLC
25 September 2007
The following replaces the 'Final Results' announcement released today at 9.48
a.m. under RNS number 4264E.
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN MID CAP INVESTMENT TRUST PLC
UNAUDITED FINAL RESULTS FOR THE YEAR ENDED 30TH JUNE 2007
RESULTS
+ 27.3% Return to shareholders (2006: + 48.9%)
+ 25.9% Return on net assets (2006: + 41.3%)
+ 25.9% Benchmark return (2006: + 31.8%)
+ 16.0% Dividend 14.50p (2006: 12.50p)
CHAIRMAN'S STATEMENT
Investment Performance
The year under review has seen considerable further gains for mid cap stocks and
for the Company. Over the twelve months to 30th June 2007, the Company achieved
a total return on net assets per share of 25.9%, exactly mirroring the
benchmark's return. This result continues the sequence of strong gains achieved
over the last four years which has seen the Company's NAV increase by 93.8%,
whilst the benchmark rose by 62.7%. The Company's return to shareholders (i.e.
share price plus net dividends) was 27.3%, and the discount, taking debt at fair
value, finished the year at 12.4%.
The objective we set our Manager is to achieve capital growth through investing
in medium-sized UK companies. The main measurement of the Managers' performance
we take as the FTSE 250 Index (excluding investment trusts). The major positive
contributor to performance this year was gearing, with share buybacks also
adding to returns. The Board thoroughly and regularly reviews the Managers'
investment strategy and process.
Revenue and Dividends
Net revenue after taxation for the year was £4,689,000 (2006: £4,380,000) and
earnings per share were 15.53p (2006: 13.15p). The Board has established a
policy to increase dividends annually at least in line with inflation, as long
as normal market conditions prevail, and also undertook to rebalance the split
between the interim and final dividends. To this end, the Company paid an
interim dividend of 5.00p per share (2006: 4.00p) in April 2007. Having
increased the interim dividend in this way, the Board is pleased to recommend an
increased final dividend of 9.50p per share making a total of 14.50p (2006:
12.50p) which is an increase in the total dividend of 16.0% on last year. This
dividend is payable on 8th November 2007 to shareholders on the close of
business on 3rd October 2007.
Gearing
The Managers successfully employed gearing of up to 117% during the first half
of the financial year. After trimming it back tactically to 108%, to moderate
the impact of the market volatility witnessed towards the end of the year, the
Managers are now prepared to increase it again to take advantage of buying
opportunities.
Discount Management
It is the present intention of the board to continue its policy of buying back
shares, where appropriate, to enhance net asset value per share. This policy
will be reviewed regularly in the light of market conditions. The Company
repurchased a total of 1,876,000 shares, representing 6.0% of the issued share
capital, since the renewal of the Board's authority to repurchase up to 14.99%
of the Company's shares for cancellation on 7th November 2006. This process
added 0.8% to the net asset value of the remaining shares.
Since 30th June 2007 the Company has repurchased a further 1,229,120 shares
representing 4.2% of the issued share capital. This process has added 0.6% to
the net asset value of the remaining shares. The Directors continue to believe
that this mechanism is of benefit to shareholders and therefore propose and
recommend that powers to repurchase up to 14.99% of the Company's shares for
cancellation be renewed for a further period.
The Board has for some time considered the use of treasury shares to further
improve the liquidity of the Company's shares. The ability to repurchase up to
10% of the Company's issued shares into treasury and then reissue them at a
limited discount to net asset value would give greater flexibility in the
management of imbalances between supply and demand, minimise volatility and
enhance the net asset value by issuing shares at a narrower discount than that
at which they were purchased. Whilst we recognise that the reissue of shares
from treasury is a controversial matter for some shareholders, the Board
considers that by specifying clear criteria on which such reissues would be
made, such concerns should be minimised. Shares held in treasury could be
reissued at a price that is below the then NAV, but would not be reissued at a
wider discount than the size-weighted average buying-in level or at below the
prevailing bid price at that time. The aggregate dilution associated with any
reissues will not exceed 0.5% of the net asset value over the full period of the
authority. The Board recommends that shareholders grant the Company authority to
reissue shares from treasury at a discount.
Board of Directors
The Board has put procedures in place to ensure that the Company complies fully
with the revised Combined Code and the AIC Code on Corporate Governance. In
accordance with the Company's Articles of Association, the Director retiring by
rotation at this year's Annual General Meeting is Gordon McQueen. In addition,
John Emly and Alexander Scott retire on grounds of tenure (both have served as
Directors for ten years). The Nomination Committee has met to consider the
attributes and contributions of the individuals concerned and, following this
review, have no hesitation in recommending their re-election at the forthcoming
Annual General Meeting.
Investment Manager
The Board has reviewed the investment management, secretarial and marketing
services provided to the Company by JPMorgan Asset Management (UK) Limited ('
JPMAM'). This annual review has included their performance record, management
processes, investment approach, resources and risk control mechanisms. The Board
was satisfied with the results of the review and therefore in the opinion of the
Directors, the continuing appointment of JPMAM for the provision of these
services is in the best interests of shareholders.
VAT Case
In 2004 the AIC lodged a joint appeal, with JPMorgan Claverhouse Investment
Trust plc, for the payment of investment trust management fees to be exempt from
VAT. The European Court of Justice (ECJ) has found in favour of the AIC in
declaring that the management fees of investment trusts are eligible for
exemption from VAT. We now await the Government's response to this ruling. On
the basis of the ECJ ruling it seems that a refund of some past payments of VAT
is probable. However, in the absence of a final outcome on the AIC appeal and a
definitive agreement with the Manager as to the basis of the calculation of any
refund, it is not practical at this stage to quantify the amount of any VAT
recoverable.
Annual General Meeting
This year's Annual General Meeting will be held on 7th November 2007 at 12.00
noon at The Armourers' Hall, 81 Coleman Street, London EC2R 5BJ. As in previous
years, in addition to the formal part of the meeting, there will be a
presentation from the Investment Managers who will answer questions on the
portfolio and performance.
Prospects
The recent weakness and volatility in global markets was sparked by concerns
over the state of the US sub-prime mortgage and global capital and credit
markets. However, our Managers believe that the UK mid cap market, with its
strong domestic bias, should avoid much of the fallout from these problems and
that earnings and profits growth will continue into 2008. With interest rates
near their peak and valuations at attractive levels our Managers have been
looking for opportunities selectively to increase their market exposure.
Andrew Barker
Chairman
25th September 2007
For further information please contact:
Andrew Norman, JPMorgan Asset Management (UK) Limited ............ 020 7742 6000
INVESTMENT MANAGERS' REPORT
In the twelve months to 30th June 2007, the Company's net asset value per share
('NAV') rose to 799.30p, giving a total return with net income reinvested of
25.9%, in line with the total return on the FTSE 250 Index (excluding investment
trusts) of 25.9%. Over the same period the Company's shares rose from a mid
price of 558.00p to 695.50p and with dividends gave a total return to
shareholders of 27.3%.
Market Background
In the financial year to 30th June 2007, the Company has again delivered a very
strong return to investors. In headline price terms, the FTSE All Share Index
rose from 2,968 in June 2006 to 3,404 by June 2007, a gain of 14.7% in capital
only terms, whilst with income included the FTSE All Share delivered a total
return of 18.4%. As has been the case in each of the preceding three financial
years, in the latest period the mid cap market in the UK delivered higher
returns to investors than the All Share. In index price terms the FTSE 250 Index
rose from 9,422 to 11,528, a capital only gain of 22.4%. The benchmark for the
Company, the FTSE 250 Index (ex Investment Trusts), delivered a total return for
the period of 25.9%.
Looking behind the headline numbers, much of the gain within the mid cap market
came in the last six months of 2006. So far in 2007 the mid cap index has been
treading water, advancing just 3.1% in capital terms in the six months to 30th
June 2007. Over this same period, the mid cap index has for the time being
surrendered market leadership to the FTSE 100 Index, which gained 6.2% in
capital terms in the first six months. As 2007 has evolved, investor sentiment
has progressively become more cautious towards the mid cap universe as bid
activity has dried up from debt funded private equity funds, and as the Bank of
England has continued to edge interest rates higher. With mid cap stocks in
general trading at a healthy premium to large cap stocks, this switch in
sentiment was not unexpected.
Portfolio
It is our investment philosophy that cheap companies, and fast growing
companies, with improving fundamentals, will outperform the overall market over
the long term. We therefore aim consistently to build a portfolio for the
Company that is overweight in both the best of value companies and the best of
growth companies, whilst also ensuring that the management of the companies
selected for the portfolio demonstrate capital discipline. The portfolio should
therefore represent better value than the FTSE 250 Index, have more growth
expected of it and have better fundamentals.
In the twelve months to 30th June 2007, the Company's NAV rose to 799.3p, giving
a total return with net income reinvested of 25.9%, in line with the total
return on the FTSE 250 Index (excluding investment trusts) of 25.9%. Over the
same period, the Company's shares rose from a mid price of 558.0p to 695.5p and
with dividends gave a total return to shareholders of 27.3%. Positive absolute
returns for investors in the Company were boosted by the decision to maintain a
reasonable level of gearing for both strategic and tactical purposes, a decision
that has been restated and reconfirmed at each of the last two annual general
meetings. Tactically, gearing was held fairly constant in the first half of the
period, before being gently reined in by net selling within the portfolio from
December onwards. Over the period as a whole, £11.3 million was raised from the
portfolio, equivalent to approximately 5% of the underlying portfolio. Gearing
decisions overall added 2.6% to shareholder returns and helped to offset a more
disappointing stock selection return within the portfolio, with an impact of -
2.8%, giving an overall net management effect of -0.2% in the latest financial
year.
The investment management approach of the managers is to target performance at
the stock level, and predominantly to use sector exposure to mitigate risk
within the portfolio. Among the stocks held in the portfolio that benefited
stock selection in the last financial year, the top five were Aggreko, Michael
Page International, easyJet, Petrofac and Great Portland Estates. Amongst these
names, Michael Page International, the recruitment company, also featured last
year, and continued to enjoy buoyant market conditions and deliver very strong
year on year profits growth. Buoyant trading conditions in the mobile power
generation market also saw Aggreko repeatedly delivering better than expected
trading results, propelling the shares higher. easyJet performed strongly,
particularly in the first part of the period, as the low cost airline was able
to project year on year profits growth of 40-50% as the company continues to win
market share from full service airlines. Petrofac, the oil services company,
benefited from very busy end markets, as oil exploration companies stepped up
their activity, benefiting both Petrofac's sales and margins. Great Portland
Estates also delivered its outperformance in the first six months, as strong
rental growth and positive valuation shifts on its West End property portfolio
pushed the shares to all time highs. Among the stocks held which cost the
portfolio performance, the worst five were the Paragon Group of Companies, VT
Group, Carpetright, Kensington, and Barratt Developments. Of these, the Paragon
Group of Companies and Kensington, both specialist buy to let mortgage
providers, were both adversely affected by the Bank of England's steady increase
in interest rates, which put a degree of financial strain on their end
customers, and ultimately saw Kensington drop out of the Mid Cap index after a
profits warning. Both VT Group, the defence support services company, and
Carpetright, the retailer, reported disappointing figures during the period.
Barratt Developments, in contrast, continued throughout the period to trade
well, and acquired its smaller house building rival,Wilson Bowden, in Spring
2007 in an accretive deal, but suffered a share price derating as investor
sentiment turned against house builders in general.
Future Outlook
There is an old stock market adage 'sell in May and go away, and don't come back
until St. Leger's Day', after the famous horse race held annually in mid
September. The adage has currency, because a common feature of the UK stock
market is listless and directionless conditions over the late spring and summer
months, and in some years more marked setbacks. Last year May and June were
particularly nervous months for investors, although the setback then proved
short lived. This year investor risk aversion appears to have stepped up a
little earlier, with confidence in the broad spread of mid cap names generally
ebbing from April onwards. Investors and pundits have taken the view that
stubborn inflation, and the Bank of England's response of raising interest
rates, will inevitably squeeze UK consumers and UK companies exposed to the
domestic economy, especially amongst mid caps. On the whole there is little
evidence of this so far. Recent UK economic growth figures remain around trend,
with inflation beginning to fall back, and the UK housing market gently
decelerating after five interest rate hikes in the last year. UK companies
continue to deliver profit growth in line with or ahead of expectations, with
accompanying strong dividend growth. UK interest rates are now close to their
expected peak and the focus will soon switch to when the Bank will cut rates.
Recent weak mid cap market conditions, which have now taken the mid cap index
below the level it started 2007, have therefore improved the fundamental
attractions of the mid cap market. Based on consensus market estimates of 13.6%
earnings growth in 2008, the mid cap market currently trades on a price earnings
multiple of 13.5 times for 2008. On anything other than a very short term
perspective, this represents an attractive level, and we have been responding to
this opportunity by moderately increasing gearing.
Jeremy Wells
Christopher Llewelyn
Investment Managers
25th September 2007
For further information please contact:
Andrew Norman, JPMorgan Asset Management (UK) Limited ............ 020 7742 6000
JPMorgan Mid Cap Investment Trust plc
Unaudited figures for the year ended 30th June 2007
Income Statement
(Unaudited) (Audited)
year ended 30th June 2007 year ended 30th June 2006
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains from investments held at fair value
through profit or loss
- 46,400 46,400 - 58,752 58,752
Income from investments 5,984 - 5,984 5,557 - 5,557
Other interest receivable and similar 19 - 19 54 - 54
income
_______ ________ _______ _______ ________ _______
Gross return 6,003 46,400 52,403 5,611 58,752 64,363
Management fee (360) (840) (1,200) (293) (684) (977)
Other administrative expenses (298) - (298) (311) - (311)
_______ ________ _______ _______ ________ _______
Net return on ordinary activities before
finance costs and taxation
5,345 45,560 50,905 5,007 58,068 63,075
Finance costs (656) (1,530) (2,186) (627) (1,851) (2,478)
_______ _______ _______ _______ _______ _______
Net return on ordinary activities before
taxation
4,689 44,030 48,719 4,380 56,217 60,597
Taxation - - - - - -
_______ _______ _______ _______ _______ _______
Net return on ordinary activities after
taxation
4,689 44,030 48,719 4,380 56,217 60,597
_______ _______ _______ _______ _______ _______
Return per share 15.53p 145.85p 161.38p 13.15p 168.72p 181.87p
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year. The 'Total'
column of this statement is the profit and loss account of the Company and the '
Revenue' and 'Capital' columns represent supplementary information.
JPMorgan Mid Cap Investment Trust plc
Unaudited figures for the year ended 30th June 2007
Statement of Total Recognised Gains and losses
(Unaudited) (Audited)
year ended 30th June 2007 year ended 30th June 2006
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Movement in fair value of cash flow
hedge during the year
- - - - 356 356
Net return on ordinary activities after
taxation
4,689 44,030 48,719 4,380 56,217 60,597
_______ ________ ________ _______ ________ ________
Total recognised gains for the year 4,689 44,030 48,719 4,380 56,573 60,953
_______ ________ ________ _______ ________ ________
JPMorgan Mid Cap Investment Trust plc
Unaudited figures for the year ended 30th June 2007
Reconciliation of Movements in Shareholders' Funds
Called up Capital
redemption
share reserve Capital Other Revenue
capital reserve
£'000 reserve reserve Total £'000
£'000 £'000
£'000 £'000
At 30th June 2005 8,759 1,241 148,902 - 6,995 165,897
Adjustment to opening shareholders
funds at 1st July 2005 to reflect
the adoption of bid prices
- - (659) - - (659)
Adjustment to opening shareholders
funds at 1st July 2005 to reflect
value of cash flow hedge
- - - (356) - (356)
Change in fair value of cash flow - - - 356 - 356
hedge
Shares bought back and cancelled (982) 982 (20,295) - - (20,295)
Net return on ordinary activities - - 56,217 - 4,380 60,597
Dividends appropriated in the year - - - - (4,144) (4,144)
_______ ________ ________ _______ _______ _______
At 30th June 2006 7,777 2,223 184,165 - 7,231 201,396
Shares bought back and cancelled (469) 469 (12,385) - - (12,385)
Net return on ordinary activities - - 44,030 - 4,689 48,719
Dividends appropriated in the year - - - - (4,079) (4,079)
_______ ________ ________ _______ _______ ________
At 30th June 2007 7,308 2,692 215,810 - 7,841 233,651
_______ ________ ________ _______ _______ _______
JPMorgan Mid Cap Investment Trust plc
Unaudited figures for the year ended 30th June 2007
Balance sheet (Unaudited) (Audited)
30th June 2007 30th June 2006
£'000 £'000
Fixed assets
Investments at fair value through profit or loss 263,923 229,649
Current assets
Debtors 983 757
Cash and short term deposits 292 1,798
_______ _______
1,275 2,555
Current liabilities
Creditors : amounts falling due within one year (22,081) (21,349)
_______ _______
Net current liabilities (20,806) (18,794)
_______ _______
Total assets less current liabilities 243,117 210,855
Creditors : amounts falling after more than one year (9,466) (9,459)
_______ _______
Total net assets 233,651 201,396
===== =====
Capital and reserves
Share capital 7,308 7,777
Capital redemption reserve 2,692 2,223
Capital reserve 215,810 184,165
Revenue reserve 7,841 7,231
_______ _______
Shareholders' funds 233,651 201,396
===== =====
Net asset value per share (note 3) 799.3p 647.4p
Cash flow statement (Unaudited) (Audited)
2007 2006
£'000 £'000
Net cash inflow from operating activities 4,890 4,138
Net cash outflow from returns on investments and servicing of
finance
(2,214) (2,559)
Net cash inflow from capital expenditure and financial investment
11,288 12,470
Dividends paid (4,079) (4,144)
Net cash outflow from financing (11,391) (11,041)
_______ ______
Decrease in cash and cash equivalents (1,506) (1,136)
===== ====
Notes
1. Accounting policies
The accounts are prepared in accordance with the Companies Act 1985, United
Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the
Statement of Recommended Practice 'Financial Statements of Investment Trust
Companies' dated 31st December 2005. The preliminary announcement is prepared
on the same basis as set out in the previous year's annual accounts. All of the
Company's operations are of a continuing nature.
2. Dividends
2007 2006
£'000 £'000
2006 Final dividend of 8.5p (2005: 8.3p)(1) 2,587 2,861
Interim of 5.0p (2006: 4.0p) 1,492 1,283
_______ ______
Total dividends paid in the year 4,079 4,144
_______ ______
Final dividend payable of 9.5p (2006: 8.5p) 2,777 2,644
1 The final dividend declared in respect of the year ended 30th June 2006
amounted to £2,644,000 (2005:£2,908,000), however the amount paid amounted to
£2,587,000 (2006: £2,861,000) due to share repurchases after the balance sheet
data but prior to the record date.
The final dividend has been proposed in respect of the year ended 30th June 2007
and is subject to approval at the Annual General Meeting. In accordance with the
accounting policy of the Company, this dividend will be reflected in the
accounts for the year ended 30th June 2008.
3. Net asset value per share
Net asset value per ordinary share is based on total shareholders' funds
attributable to ordinary shareholders of £233,651,000 (2006: £201,396,000) and
on the 29,232,000 ordinary shares in issue at the year end
(2006: 31,108,000).
4. Comparative figures
The above financial information does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985. The comparative financial
information is an extract from the statutory accounts for the year ended 30th
June 2006. Those accounts, upon which the auditors issued an unqualified opinion
and which contained no statement under section 237(2) and Section 237(3) of the
Companies Act 1985, have been delivered to the Registrar of Companies.
JPMORGAN ASSET MANAGEMENT (UK) LIMITED
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