Half-Year Results

RNS Number : 0205R

JPMorgan Mid Cap Invest Trust PLC

25 February 2019

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN MID CAP INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST DECEMBER 2018

Legal Entity Identifier: 549300QED7IGEP4UFN49

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Performance

The UK stock market suffered its worst year in a decade in 2018, as concerns over global growth increased sharply, and Brexit related risks intensified. The second half of the year, in particular, saw considerable stock market volatility and a marked deterioration in investor sentiment towards the UK, leading to a major market sell-off. As a consequence, in the six month period under review to 31st December 2018, the Company's total return on net assets was -20.8%, representing an underperformance of the Company's benchmark, which returned -16.8%. The discount level remained almost unchanged over the half year, although this masks intra-period volatility, particularly around the market correction in October. This resulted in a share price total return of -20.6%. Whilst it is disappointing to report an underperformance, the Board focusses on longer term performance, which remains strong. Shareholders will be pleased to note that the share price rebounded in January 2019, returning just under 10%.

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.

Revenue and Dividends

Net revenue after taxation for the six months to 31st December 2018 was £3.45 million (2017: £3.45 million) and earnings per share, calculated on the weighted average number of shares in issue, were 14.50p (2017: 14.47p). The Board has declared an interim dividend of 8.0p (2017: 8.0p) to be paid on 17th April 2019 to shareholders on the register at the close of business on 15th March 2019.

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. In the run-up to the scheduled withdrawal of the UK from the European Union, the Investment Managers have reduced the gearing level to 1.1%. More information on the Company's portfolio positioning ahead of the withdrawal is detailed within the Investment Managers' Report.

The Company is in the process of refinancing its multi-currency loan facility with Scotiabank. The refinanced £30 million five year facility will have an option of further increasing the amount available to £50 million.

Management of the Discount

The Board believes that the repurchase authority remains an important tool in the management of discount volatility and powers were again sought and approved by shareholders at the Company's 2018 Annual General Meeting. The Company will only repurchase shares at a discount to their prevailing net asset value. The Company repurchased 50,000 shares over the reporting period when the discount significantly widened over a particularly volatile period.

Board of Directors

Ahead of the retirement of Margaret Littlejohns at the conclusion of the Company's 2019 Annual General Meeting, Margaret Payn has been appointed to the Board with effect from 1st March 2019. Margaret has extensive experience across the financial sector, most recently at AMP where she was CFO/COO. After qualifying as an accountant with KPMG, she worked for several organisations including nine years at Schroders (latterly as CFO/COO of the Asian business based in Hong Kong) and three years at ANZ in similar roles.

Prospects

The increased stock market volatility experienced in the second half of 2018 has been attributed to the expectations of tightening credit conditions and greater political and trade tensions. The net result was to see reduced forecasts for economic and profits growth for this year and possibly next. It is therefore reassuring to see Central Banks rein in their expectations of policy tightening. However, at the time of writing there is no confirmation of any softening in the US position on trade tariffs and a final Brexit deal is still awaited. While these global uncertainties have led to a more cautious stance by companies, it is worth noting that the holdings of cash by UK companies is now approaching the equivalent of 40% of GDP.¹ This has steadily increased since the financial crisis of 2008 and accelerated sharply since the referendum result. There is therefore the scope for a boost to the economy when business confidence returns and companies are ready to re-establish their investment plans. It is also a timely reminder that most UK companies remain in good health.

It is also worth noting that increased stock market volatility did not lead to a reduction in M&A activity in the FTSE 250 universe. This is a feature we have identified before as being one of the attractions of this sector.

The ability of our investment team to identify likely out-performers and to react swiftly in cutting our exposures to under-performers has been proven over many years. We therefore remain confident that their ability to outperform their benchmark will be re-established after the underperformance in the period under review. This, together with the potential for the FTSE 250 to be re-rated once confidence has returned, leads us to believe that your Company will provide attractive total returns to both existing and new investors over the longer term.

¹ Pantheon Macroeconomics

Michael Hughes

Chairman                                                                                                                                     

25th February 2019

INVESTMENT MANAGERS' REPORT

Performance and Market Background

UK economic growth remained positive in 2018, but pedestrian at 1.4%. On a more optimistic note unemployment continued to fall, reaching 4% in December 2018, and inflation also declined to its lowest level in almost two years, ending 2018 at 2.1%. However, the second half of the year saw a notable rise in stock market volatility and a sharp deterioration in investor sentiment. This led to significant declines in stock markets around the world. In the UK the FTSE 100 Index fell 10.2% but the FTSE 250 (ex-Investment Trusts) Index fell more and was down 16.8% in the six months to December 2018. 2019 has started with a positive tone, with almost half the losses recovered in January alone.

The global economic backdrop is mixed. Global growth was 3.7% in 2018, with forecasts now indicating a slowdown to 3.5% for 2019. The slowdown in Chinese GDP and the on-going trade dispute between China and the US, allied with a number of interest rates rises in the US during 2018, have been the key causes. It is important to emphasise that the level of growth still remains healthy.

Against this sharp decline in the index, it is disappointing to report that your Company underperformed its benchmark during the period, with a total return on net assets of -20.8%. The discount remained largely static, providing a share price return of -20.6%

Portfolio

While a number of positions in the portfolio performed well, such as our holdings in Marshalls, John Laing, Plus 500 and a recent IPO, Avast, we underperformed in the period under review for three key reasons. Firstly, while gearing had been reduced and ended the year at 1.1%, it was clearly negative in the falling market. Secondly, there were a number of takeovers in the FTSE 250 Index, including BTG, JLT and NEX, none of which we owned. These impacted on our performance relative to the Index. The third reason was due to underperformance by three of our large holdings. Ashtead and Electrocomponents both suffered significant share price declines, despite producing only positive news flow. The former was on misplaced fears of a US recession, the latter on concerns around global industrial capital spending. The third, and most disappointing company was Sophos (an IT security company), which suffered very poor trading, and that position has been significantly reduced.

We made several changes to the portfolio in the half year. New additions include the pub group EI, the cinema chain Cineworld, and Telecom Plus, a UK multi-utility supplier. We exited a number of holdings including Card Factory, Weir, UDG, IMI and BBA. There were also some notable changes to sector positioning. Software, Industrial Engineering and General Retailers were all reduced, while the weights in the Financial Services and Travel & Leisure sectors were significantly increased.

Outlook

At the time of writing, the day we are due to leave the EU is only just over one month away. At this stage in negotiations, the outcome remains very uncertain. As we have indicated before, our stance had been to plan, and to position the portfolio, for a 'hard Brexit'. As can be seen from some of the recent portfolio changes outlined above, we have softened this approach over recent months and increased our domestic exposure. In part, this action has been taken due to the decline in valuation of a number of domestic companies, but in addition recent data has shown a significant improvement in the financial position of the British worker. This was demonstrated by the Asda Income Tracker, which showed that disposable income had risen by +5.8% year on year in December 2018. Lower inflation, very low unemployment and this significant rise in real wages should in normal times be extremely positive for consumer-facing stocks. However, a recent collapse in consumer confidence, due to Brexit uncertainties, has cast a pall. There is a clear disconnect between these two data points. If the Government is able to negotiate its way out of the current impasse, we should see sterling rise, inflation fall further and consumer confidence rebound strongly, which would be very positive for the share prices of domestic-facing companies.

Further contradictions abound at present. The UK has just been rated by Forbes as the most business friendly of the world's biggest economies, but according to the Bank of England UK investment intentions have collapsed in recent months. Overall the UK remains out of favour, as evidenced by the valuation of the UK market, and the FTSE 250 in particular, and by a recent BAML fund managers' survey which showed that a net 38% of global investors are underweight the UK. If, and it is a big if, the UK can exit the EU gracefully, then the UK market will enjoy significant buying interest, and in particular the more domestically focussed FTSE 250 will reap the benefit.

Georgina Brittain

Katen Patel

Investment Managers                                                                                                             

25th February 2019

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 2018.

Related Parties Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future 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 2018, 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 2019

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2018

		(Unaudited)				(Unaudited)				(Audited)
		Six months ended				Six months ended				Year ended
		31st December 2018				31st December 2017				30th June 2018
	Revenue		Capital	Total	Revenue		Capital	Total	Revenue		Capital	Total
	£'000		£'000	£'000	£'000		£'000	£'000	£'000		£'000	£'000
(Losses)/gains on investments
held at fair value through
profit or loss	-		(67,422)	(67,422)	-		34,427	34,427	-		38,395	38,395
Net foreign currency
gains/(losses)	-		17	17	-		(2)	(2)	-		(2)	(2)
Income from investments	4,076		-	4,076	4,052		-	4,052	9,238		-	9,238
Interest receivable and similar
income	60		-	60	15		-	15	37		-	37
Gross return/(loss)	4,136		(67,405)	(63,269)	4,067		34,425	38,492	9,275		38,393	47,668
Management fee	(296)		(690)	(986)	(287)		(671)	(958)	(593)		(1,386)	(1,979)
Other administrative expenses	(232)		-	(232)	(228)		-	(228)	(490)		-	(490)
Net return/(loss) on ordinary
activities before finance
costs and taxation	3,608		(68,095)	(64,487)	3,552		33,754	37,306	8,192		37,007	45,199
Finance costs	(85)		(196)	(281)	(57)		(134)	(191)	(107)		(250)	(357)
Net return/(loss) on ordinary
activities before taxation	3,523		(68,291)	(64,768)	3,495		33,620	37,115	8,085		36,757	44,842
Taxation	(74)		-	(74)	(49)		-	(49)	(197)		-	(197)
Net return/(loss) on ordinary
activities after taxation	3,449		(68,291)	(64,842)	3,446		33,620	37,066	7,888		36,757	44,645
Return/(loss) per share (note 3)	14.50p		(287.06)p	(272.56)p	14.47p		141.17p	155.64p	33.12p		154.35p	187.47p

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 2018

	Called up	Capital
	share	redemption	Capital	Revenue
	capital	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000
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 on ordinary activities	-	-	(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
Six months ended 31st December 2017 (Unaudited)
At 30th June 2017	6,350	3,650	254,676	11,260	275,936
Repurchase of shares into Treasury	-	-	(259)	-	(259)
Net return on ordinary activities	-	-	33,620	3,446	37,066
Dividends paid in the period (note 4)	-	-	-	(4,286)	(4,286)
At 31st December 2017	6,350	3,650	288,037	10,420	308,457
Year ended 30th June 2018 (Audited)
At 30th June 2017	6,350	3,650	254,676	11,260	275,936
Repurchase of shares into Treasury	-	-	(260)	-	(260)
Net return on ordinary activities	-	-	36,757	7,888	44,645
Dividends paid in the period (note 4)	-	-	-	(6,191)	(6,191)
At 30th June 2018	6,350	3,650	291,173	12,957	314,130

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 2018

	(Unaudited)	(Unaudited)	(Audited)
	31st December 2018	31st December 2017	30th June 2018
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	246,738	316,947	328,569
Current assets
Debtors	926	5,349	4,399
Cash and cash equivalents	13,512	6,729	10,906
	14,438	12,078	15,305
Current liabilities
Creditors: amounts falling due within one year	(9,196)	(568)	(29,744)
Net current assets	5,242	11,510	(14,439)
Total assets less current liabilities	251,980	328,457	314,130
Creditors: amounts falling due after more than one year	(8,000)	(20,000)	-
Net assets	243,980	308,457	314,130
Capital and reserves
Called up share capital	6,350	6,350	6,350
Capital redemption reserve	3,650	3,650	3,650
Capital reserves	222,326	288,037	291,173
Revenue reserve	11,654	10,420	12,957
Total shareholders' funds	243,980	308,457	314,130
Net asset value per share (note 5)	1,026.7p	1,295.3p	1,319.2p

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2018

	(Unaudited)	(Unaudited)	(Audited)
	31st December 2018	31st December 2017	30th June 2018
	£'000	£'000	£'000
Net cash outflow from operations before dividends and interest (note 6)	(1,197)	(1,291)	(2,514)
Dividends received	4,487	4,588	8,807
Interest received	34	12	27
Overseas tax recovered	48	4	-
Interest paid	(219)	(117)	(315)
Net cash inflow from operating activities	3,153	3,196	6,005
Purchases of investments	(46,239)	(54,767)	(124,434)
Sales of investments	59,002	50,411	118,351
Settlement of forward currency contracts	(2)	-	-
Net cash inflow/(outflow) from investing activities	12,761	(4,356)	(6,083)
Dividends paid	(4,752)	(4,286)	(6,191)
Repurchase of shares into Treasury	(556)	(259)	(260)
Drawdown of bank loan	8,000	16,000	21,000
Repayment of bank loan	(16,000)	(14,000)	(14,000)
Net cash (outflow)/inflow from financing activities	(13,308)	(2,545)	549
Increase/(decrease) in cash and cash equivalents	2,606	(3,705)	471
Cash and cash equivalents at start of period	10,906	10,434	10,434
Exchange movements	-	-	1
Cash and cash equivalents at end of period	13,512	6,729	10,906
Increase/(decrease) in cash and cash equivalents	2,606	(3,705)	471
Cash and cash equivalents consist of:
Cash and short term deposits	1,287	347	251
Cash held in JPMorgan Sterling Liquidity Fund	12,225	6,382	10,655
Total	13,512	6,729	10,906

NOTES TO THE FINANCIAL STATEMENTS 

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2018

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 2018 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 revised 'SORP') issued by the Association of Investment Companies in November 2014, and updated in February 2018.

FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 31st December 2018.

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 2018.

3.  Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2018	31st December 2017	30th June 2018
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	3,449	3,446	7,888
Capital (loss)/return	(68,291)	33,620	36,757
Total (loss)/return	(64,842)	37,066	44,645
Weighted average number of shares in issue	23,789,582	23,815,805	23,814,255
Revenue return per share	14.50p	14.47p	33.12p
Capital (loss)/return per share	(287.06)p	141.17p	154.35p
Total (loss)/return per share	(272.56)p	155.64p	187.47p

4.  Dividends paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2018	31st December 2017	30th June 2018
	£'000	£'000	£'000
2018 Final dividend of 18.5p (2017: 15.0p) per share	4,396	3,572	3,572
2018 Special dividend of 1.5p (2017: 3.0p) per share	356	714	714
2018 Interim dividend of 8.0p	-	-	1,905
Total dividends paid	4,752	4,286	6,191

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 2018, to be paid on 17th April 2019.

5.  Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2018	31st December 2017	30th June 2018
Net assets (£'000)	243,980	308,457	314,130
Number of shares in issue	23,762,680	23,812,680	23,812,680
Net asset value per share	1,026.7p	1,295.3p	1,319.2p

JPMORGAN FUNDS LIMITED

25th February 2019

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.

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

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.

 

END

 

 

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