Interim Results

JPMorgan Smaller Cos IT PLC 25 March 2008 LONDON STOCK EXCHANGE ANNOUNCEMENT JPMORGAN SMALLER COMPANIES INVESTMENT TRUST PLC HALF YEAR RESULTS CHAIRMAN'S STATEMENT Performance In my last statement in October 2007 I noted that it was too early to judge whether the portfolio of investments would be undermined by weaker confidence and changing credit conditions. It is disappointing to report that market conditions for smaller capitalisation stocks have been exceptionally difficult since then and although we took steps to reduce risk and lower gearing the portfolio has suffered. The FTSE Small Cap Index (excluding investment trusts) fell by 25.5%, whilst the Company assets fell by 25.9% in total return terms over the six month period to 31st January, 2008. The return to shareholders was worse at -29.4% as the discount to net asset value widened. A full review of the Company's performance for the first six months is given in the Investment Managers' Report below. Since the half year end, markets have continued to be volatile. However, at the time of writing the Company's net asset value has risen 2.6% in capital terms, compared to a fall of 0.7% in the Company's benchmark index, outperforming its benchmark by 1.9%. Share Buybacks The Company repurchased 744,000 of its shares over the six month period at an average discount of 18.1% and a total cost of £3,677,130. In common with other smaller companies stocks investing in the UK, the discount on the ordinary shares widened substantially during the period as shareholders and market-makers became concerned about market volatility and the volume of shares traded reduced substantially. The Board has continued with its policy of utilising share buybacks to reduce discount volatility. I can report that since the year-end the discount at which the Company's shares trade has reduced to 15.5%. Gearing Gearing remained at an average of just over 5% throughout the review period, reflecting the Board's cautious stance to gearing. The Company has a one year committed loan facility of £13.5m with the Bank of Ireland. As at the end of January 2008 gearing stood at 3.1%. VAT on Management Fees In 2004, JPMorgan Claverhouse Investment Trust and the AIC made a joint application for the payment of investment trust management fees to be exempt from VAT. In November 2007 the case was found in their favour. With effect from November 2007, VAT is no longer being charged on our management fees and we intend to seek reimbursement in relation to the VAT paid in the past. The Company is in discussions with JPMAM on the recoverable amount but, in the absence of a definitive agreement with JPMAM, or specific guidance from HM Revenue and Customs as to how any reclaims will be effected, it is not yet possible to say how much will be recovered. Outlook The Investment Managers' Report below comments in more detail on the outlook for the remainder of the year. Clearly the outlook for both UK smaller companies and the stock market is particularly uncertain. The Board remains confident that the investment management team has the necessary expertise to take advantage of this turbulent period. Strone Macpherson Chairman, 25th March 2008 INVESTMENT MANAGERS' REPORT Market Background It has been a rollercoaster ride in the first six months of the Company's financial year. After the summer sell-off brought about by the credit crisis and growing concerns over the US economy, the market recovered strongly in the autumn, only to be followed by a precipitous decline towards the end of 2007, which continued into January 2008. This was brought about by a number of factors. Investors became nervous that the US slowdown would be reflected in the UK economy; the Northern Rock debacle caused concern over the British banking system, leading to a squeeze on lending criteria to consumers and companies alike; it became clear that the fiscal situation in the UK meant that there could be little or no headroom for tax cuts; the inflation outlook meant that rates could not be cut as aggressively as in the US. All of these factors led to mid and smaller companies stocks being hit particularly hard in the period due to their domestic bias. Portfolio Review It was a very disappointing period for the Company. The index declined by 25.5 % in the half year to January 2008, and the Company was fractionally worse, declining by 25.9 % in net asset value. While gearing was low throughout the period, it was in place, and it is this that caused the underperformance relative to the benchmark, outweighing the positive stock selection that occurred. Notable strong performers included Wellstream (flexible pipes into the oil industry), Chemring (defence company long held in the portfolio) and Imperial Energy (oil company). In terms of sector positions, the underweight position in financials relative to the Small Cap benchmark was significantly increased, and this and consumer services remain notable underweights in the portfolio. The very large overweight position in industrials was reduced in the half year, but still remains the largest position in the portfolio, and the overweight in the oil & gas sector was increased. Both of these sectors have retained net upgrades through the period, reinforcing our confidence. Despite the 'credit crunch', corporate activity remained a feature in the smaller companies arena, and three positions in the portfolio were bid for - Foseco, Tradus (formerly called QXL) and Inspicio. Conversely, while the IPO or new issue market slowed down markedly during the second half of 2007, a number of new stocks did come to the market. New issues which the Company participated in included CVS, a provider of vetinary services, and New Britain Palm Oil, a palm oil producer in Papua New Guinea. The investment process underlying the fund, as discussed in our report in October 2007, remains unchanged. The methodology uses a quantitative screen which breaks down the individual stocks in the investible universe and ranks them according to four factors: value, earnings momentum, price momentum and growth. After fundamental research to check the data, the balance sheet and the market environment, our aim is to construct the portfolio around stocks which demonstrate these tilts. This aims to ensure not only that the portfolio is constructed around our underlying philosophy of fast-growing cheap stocks with good newsflow, but also ensures that the portfolio has both growth and value characteristics, which academic evidence has demonstrated to be the two long-term drivers of outperformance in the stockmarket. This quantitative approach is the starting point for the stock selection that is the bedrock of the portfolio; it is then overlaid by the fund managers' extensive knowledge of individual companies and their markets, and their own research efforts. Companies Market Outlook Volatility is going to be an ongoing feature of stock markets until the extent of the economic slowdown in the US and in Europe becomes clearer, the credit freeze ends and the poor newsflow in the financial sector abates. There is currently a clear mismatch between what many companies are saying and seeing on the ground, and stockmarket expectations of significant earnings declines. Analysts have become very cautious and are now downgrading on macro-economic concerns, despite companies' confidence in their outlook. Recessionary concerns are reflected in very cheap valuations. Smaller companies are on a discount to the rest of the market, and now trade on a price/earnings ratio of 10x and a prospective dividend yield of 3.7%. Given that growth forecasts for smaller companies are still in double digits, this looks extremely attractive. The key question is the extent to which this growth forecast is likely to be revised downwards as the economic environment becomes more difficult. Our view is that while downgrades are to be expected, smaller company valuations already reflect much of the bad news that is now anticipated. We are currently facing a difficult first half of 2008, and crucial to the outlook for the year as a whole will be the degree to which corporate earnings are downgraded. However, when the recent interest rate reductions start to take effect, and investors begin to have more certainty about the extent of the slowdown in the economy, then we would expect to see better market trends establishing themselves. We are positioning ourselves accordingly, and taking advantage of some huge opportunities that have been thrown up by the rapid and fairly indiscriminate decline in share prices in the last three months. Georgina Brittain Sarah-Jane Morley Investment Managers, 25th March 2008 For further information: Lucy Dina For and on behalf of JPMorgan Asset Management (UK) Limited - Secretary 020 7742 6000 JPMorgan Smaller Companies Investment Trust plc Unaudited figures for the six months ended 31st January 2008 Income Statement (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 31st January 2008 31st January 2007 31st July 2007 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 (Losses)/gains from investments held at fair value through profit or loss - (37,870) (37,870) - 28,056 28,056 - 35,973 35,973 Net foreign currency gains/ (losses) - 1 1 - - - - (2) (2) Income from investments 1,259 - 1,259 1,108 - 1,108 2,519 - 2,519 Other interest receivable and similar income 20 - 20 8 - 8 21 - 21 _______ ________ _______ _______ ________ _______ _______ _______ _______ Gross return/(loss) 1,279 (37,869) (36,590) 1,116 28,056 29,172 2,540 35,971 38,511 Management fee (307) (307) (614) (321) (321) (642) (697) (697) (1,394) Other administrative expenses (144) - (144) (172) - (172) (351) - (351) _______ _______ _______ _______ _______ _______ _______ _______ _______ Net return/(loss) on ordinary activities before finance costs and taxation 828 (38,176) (37,348) 623 27,735 28,358 1,492 35,274 36,766 Finance costs (178) (178) (356) (147) (147) (294) (319) (319) (638) _______ _______ _______ _______ _______ _______ _______ _______ _______ Net return/(loss) on ordinary activities before taxation 650 (38,354) (37,704) 476 27,588 28,064 1,173 34,955 36,128 Taxation (1) - (1) - - - (1) - (1) ______ _______ _______ ______ _______ _______ _______ _______ _______ Net return/(loss) on ordinary activities after taxation 649 (38,354) (37,705) 476 27,588 28,064 1,172 34,955 36,127 ===== ===== ===== ===== ===== ===== ===== ===== ===== Return/(loss) per share (note 4) 3.11p (183.54)p (180.43)p 2.09p 120.94p 123.03p 5.22p 155.62p 160.84p 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. The 'Total' column represents all the information that is required to be disclosed in a 'Statement of Total Recognised Gains and Losses' ('STRGL'). For this reason a STRGL has not been presented. JPMorgan Smaller Companies Investment Trust plc Reconciliation of Movements in Shareholders' Funds (Unaudited) Unaudited figures for the six months ended 31st January 2008 Called up Capital Share Share redemption Capital Revenue Capital premium reserve reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 At 31st July 2007 5,312 18,360 1,354 117,213 1,418 143,657 Shares bought back and cancelled (186) - 186 (3,704) - (3,704) Total (loss)/return from ordinary - - - (38,354) 649 (37,705) activities Dividends appropriated in the period - - - - (1,046) (1,046) _______ _______ ________ _______ _______ ________ At 31st January 2008 5,126 18,360 1,540 75,155 1,021 101,202 ===== ===== ===== ===== ===== ===== Unaudited figures for the six months ended 31st January 2007 Called up Capital Share Share redemption Capital Revenue Capital premium reserve reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 At 31st July 2006 5,757 18,360 909 92,075 1,225 118,326 Shares bought back and cancelled (147) - 147 (2,925) - (2,925) Total return from ordinary activities - - - 27,588 476 28,064 Dividends appropriated in the period - - - - (979) (979) _______ _______ ________ _______ _______ ________ At 31st January 2007 5,610 18,360 1,056 116,738 722 142,486 ===== ===== ===== ===== ===== ===== Audited figures for the year ended 31st July 2007 Called up Capital Share Share redemption Capital Revenue Capital premium reserve reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 At 31st July 2006 5,757 18,360 909 92,075 1,225 118,326 Shares bought back and cancelled (445) - 445 (9,817) - (9,817) Total return from ordinary activities - - - 34,955 1,172 36,127 Dividends appropriated in the year - - - - (979) (979) _______ _______ ________ _______ _______ ________ At 31st July 2007 5,312 18,360 1,354 117,213 1,418 143,657 ===== ===== ===== ===== ===== ===== JPMorgan Smaller Companies Investment Trust plc Unaudited figures for the six months ended 31st January 2008 Balance Sheet (Unaudited) (Unaudited) (Audited) 31st January 2008 31st January 2007 31st July 2007 £'000 £'000 £'000 Fixed assets Investments at fair value through profit or loss 104,297 151,056 154,170 Investments in liquidity funds at fair value through 6,620 4,210 - profit or loss _______ _______ _______ Total portfolio 110,917 155,266 154,170 Current assets Debtors 1,696 796 984 Cash at bank and in hand 225 23 - _______ _______ _______ 1,921 819 984 Creditors : amounts falling due within one year (11,636) (13,599) (11,497) _______ _______ _______ Net current liabilities (9,715) (12,780) (10,513) _______ _______ _______ Total assets less current liabilities 101,202 142,486 143,657 _______ _______ _______ Total net assets 101,202 142,486 143,657 ===== ===== ===== Capital and reserves Called up share capital 5,126 5,610 5,312 Share premium 18,360 18,360 18,360 Capital redemption reserve 1,540 1,056 1,354 Capital reserve 75,155 116,738 117,213 Revenue reserve 1,021 722 1,418 _______ _______ _______ Shareholders' funds 101,202 142,486 143,657 ===== ===== ===== Net asset value per share (note 5) 493.5p 634.9p 676.1p Share price 393.0p 550.8p 562.0p Discount 20.4% 13.2% 16.9% JPMorgan Smaller Companies Investment Trust plc Unaudited figures for the six months ended 31st January 2008 Cash Flow Statement (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 31st January 31st January 31st July 2008 2007 2007 £'000 £'000 £'000 Net cash inflow from operating activities (note 6) 541 322 932 Net cash outflow from returns on investments and servicing of finance (415) (253) (586) Net cash inflow /(outflow) from capital expenditure and financial investment 5,005 (536) 7,501 Dividends paid (1,046) (979) (979) Net cash (outflow)/inflow from financing (3,704) 675 (7,817) _______ _______ ______ Increase / (decrease) in cash for the period 381 (771) (949) ===== ===== ==== Reconciliation of net cash flow to movement in net funds Net cash movement 381 (771) (949) Exchange movements 1 - (2) _______ _______ ______ Movement in net funds/(debt) in the period 382 (771) (951) Net (debt)/funds at the beginning of the period (157) 794 794 _______ _______ ______ Net funds/(debt) at the end of the period 225 23 (157) ===== ===== ==== Represented by: Cash at bank and in hand/(bank overdraft) 225 23 (157) ===== ===== ==== Notes to the Accounts 1. Financial Statements The information contained within the Financial Statements in this preliminary announcement has not been audited or reviewed by the Company's auditors. The figures and financial information for the year ended 31st July 2007 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 237(2) or 237 (3) of the Companies Act 1985. 2. Accounting policies The accounts have been prepared in accordance with 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. All of the Company's operations are of a continuing nature. The accounting policies applied to these interim accounts are consistent with those applied in the accounts for the year ended 31st July 2007. 3. Dividends (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 31st January 2008 31st January 2007 31st July 2007 £'000 £'000 £'000 Final dividend in respect of the year ended 31st July 2007 of 1,046 * 979 979 5.0p (2006: 4.25p) ====== ====== ===== * The Company declared a dividend of £1,062,000 but the dividend paid amounted to £1,046,000 as a result of share buybacks. No interim dividend has been declared in respect of the six months ended 31st January 2008 (2007: nil). 4. Return/(loss) per share (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 31st January 2008 31st January 2007 31st July 2007 £'000 £'000 £'000 Return per share is based on the following: Revenue return 649 476 1,172 Capital (loss)/return (38,354) 27,588 34,955 _______ _______ ______ Total (loss)/return (37,705) 28,064 36,127 ====== ====== ===== Weighted average number of shares in issue: 20,896,483 22,810,148 22,462,361 Revenue return per share 3.11p 2.09p 5.22p Capital (loss)/return per share (183.54)p 120.94p 155.62p _______ _______ ______ Total (loss)/return per share (180.43)p 123.03p 160.84p ====== ====== ===== 5. Net asset value per share Net asset value per share is calculated by dividing shareholders' funds by the number of shares in issue at 31st January 2008 of 20,504,983 (31st January 2007: 22,441,186 and 31st July 2007: 21,248,983). 6. Reconciliation of operating revenue to net cash inflow from operating activities (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 31st January 2008 31st January 2007 31st July 2007 £'000 £'000 £'000 Net (loss)/return before finance costs and taxation (37,348) 28,358 36,766 Capital loss/(return) before finance costs and taxation 38,176 (27,735) (35,274) Scrip dividends received as income - (11) (11) Decrease in accrued income 46 42 130 Increase in other debtors (3) (1) - (Decrease)/increase in accrued expenses (22) (10) 19 Tax on unfranked investment income (1) - (1) Expenses charged to capital (307) (321) (697) _______ _______ ______ Net cash inflow from operating activities 541 322 932 ===== ===== ==== 7. Contingent asset In 2004 the AIC lodged a joint appeal for the payment of investment trust management fees to be exempt from VAT. In November 2007 HM Revenue and Customs ('HMRC') announced their withdrawal from the case. This means that henceforth, VAT will no longer be charged on investment management fees and that the Company is entitled to seek reimbursement of VAT paid in the past. The Manager ceased charging VAT on management fees with effect from 1st October 2007 and has filed protective claims for the period subsequent to 1st February 2001. As a result an amount is potentially recoverable for this period. In addition, a decision in the court of appeal has opened the possibility for further VAT recovery from HMRC for the period from 1st January 1990 to 4th December 1996. The Company is unlikely to recover any VAT paid in the intervening period from 5th December 1996 to 31st January 2001. In the absence of a definitive agreement with the Manager or specific guidance from HMRC as to how the reclaims will be effected, there is not any certainty as to the amount or timing of any recovery. Accordingly, no asset has been recognised in the accounts as at 31st January 2008. JPMORGAN ASSET MANAGEMENT (UK) LIMITED 25th March 2008 This information is provided by RNS The company news service from the London Stock Exchange

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