Interim Results
JPMorgan Smaller Cos IT PLC
26 March 2007
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN SMALLER COMPANIES INVESTMENT TRUST PLC
PRELIMINARY ANNOUNCEMENT OF INTERIM RESULTS
The Directors of JPMorgan Smaller Companies Investment Trust plc announce the
Company's results for the period ended 31st January 2007.
CHAIRMAN'S STATEMENT
Performance
Following on from the excellent results achieved in the last financial year, I
am pleased to report that the Company has enjoyed another period of strong
investment performance in the six months to 31st January 2007. Georgina
Brittain and Mark Davids are again to be congratulated for the Company's
consistent performance.
The FTSE Small Cap Index (excluding investment trusts) rose by 19.4%, whilst the
Company achieved a total return on net assets of +25.5%, an outperformance of
6.1%. The return to shareholders was better still at +26.1%, reflecting a
further narrowing of the discount to 13.2%.
The Company repurchased 589,000 of its shares over the six month period, at an
average discount of 13.1% and a total cost of £2,925,000. Subsequent to the
period end, the Company has bought back a further 100,000 shares for
cancellation.
Gearing remained at an average of just over 7% 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, of which £12.6m is
currently drawn. This loan facility will be renewed when it matures in April of
this year.
Change of Name
Following shareholder approval at the 2006 Annual General Meeting, the Company
changed its name from JPMorgan Fleming Smaller Companies Investment Trust plc to
JPMorgan Smaller Companies Investment Trust plc.
Strone Macpherson
Chairman, 26th March 2007
INVESTMENT MANAGERS' REVIEW
Market Background
Stockmarkets around the globe continued to enjoy the fourth successive year of
the bull market in the second half of 2006, and the UK stockmarket was no
exception. Buoyed by global and domestic liquidity, by generally benign economic
data, and by positive newsflow on the ground from companies themselves, share
prices in the UK continued their upward trend.
Fifty-seven consecutive quarters of economic growth in the UK provided a stable
and robust backdrop to the market. That said, inflationary concerns were an
issue in the period, and the Monetary Policy Committee came close to having to
write a letter to the Chancellor explaining why the CPI data (inflation
statistics) was so significantly above the 2% target. However, this did not
unsettle the stockmarket, as the view was taken that the three interest rate
rises during the six month period would bring inflation back under control. By
January 2007 UK interest rates were at 5.25%, a level last seen in 2001.
In addition to the pre-emptive interest rate rises, inflationary pressures were
assuaged by falling oil prices, slowdown in the meteoric commodity price rises
and, towards the end of the year, a significant decline in energy prices.
Despite increasing their level of savings, the UK consumer did not collapse; and
the fourth quarter business investment, which has been very muted in this
recovery, was up significantly.
Portfolio Review
The portfolio had a strong start to the new financial year. The net asset value
total return for the six months to the end of January 2007 was +25.5%, which
compares to a return of +19.4% for the FTSE Small Companies (ex Investment
Trusts) benchmark. Key to this outperformance was stock selection. Gearing,
which remained fairly constant throughout the period at around 7%, was also a
contributor.
Sector allocation was also positive in the period. Notable sectoral contributors
included Support Services and Construction & Materials, which were overweight
positions relative to the benchmark, and Pharmaceuticals & Biotechnology, where
we had a large underweight position. On the negative side were Mining, where the
absence of a holding in UK Coal detracted from performance, and General
Financials, where the position in Accuma Group, a debt solution company, was a
disappointment.
As the investment managers have emphasised, stock selection is their key focus,
and a broad spread of stocks contributed to the outperformance. Familiar names
which have been held for some time in the portfolio, such as Hunting (oil
services), Axon (IT services) and Carter & Carter (support services),
contributed to performance very strongly. A recent addition to the fund,
Tanfield Group (electric vehicle manufacturer) was notable for its strong share
price rise, as was Teesland, which was bid for.
The investment process underlying the fund, as discussed in the last annual
report, 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, the portfolio is constructed 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
that the portfolio has both growth and value signatures, 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.
Market Outlook
The stockmarket has been through a significantly riskseeking period in the last
few years, as evidenced by the shrinking of credit spreads and the very strong
performance from high-risk assets such as emerging market equities. An
occasional retrenchment and reassessment of risk, much as was seen in markets
last May and more recently at the end of February 2007, is not unexpected.
There remain potential areas of concern: inflationary pressures, especially wage
inflation which has been highly subdued for a long period; the unwinding of the
Yen carry trade; US sub-prime lending and any knock-on to the spending patterns
of the US consumer.
That said, the growth and inflation forecasts for the UK still paint a very
positive picture, company newsflow remains good, corporate activity is ongoing
and we are seeing continuing evidence of management desire to invest their cash
for growth. Combining this with valuations that remain unstretched, and pockets
of the stockmarket where real value is beginning to re-emerge, provides the
investment managers with confidence for the outlook.
Georgina Brittain
Mark Davids
Investment Managers, 26th March 2007
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 2007
Income Statement (Unaudited)
(Unaudited) (Unaudited) (Audited)
Six months ended 31st January Six months ended 31st January Year ended 31st July 2006
2007 2006
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains from investments
held at fair value
through profit or loss - 28,056 28,056 - 23,298 23,298 - 29,718 29,718
Income from investments 1,108 - 1,108 776 - 776 2,034 - 2,034
Other interest receivable
and similar income 8 - 8 8 - 8 23 - 23
Gross return 1,116 28,056 29,172 784 23,298 24,082 2,057 29,718 31,775
Management fee (321) (321) (642) (248) (248) (496) (552) (552) (1,104)
Other administrative
expenses (172) - (172) (102) - (102) (277) - (277)
Net return on ordinary
activities before finance
costs and taxation 623 27,735 28,358 434 23,050 23,484 1,228 29,166 30,394
Finance costs (147) (147) (294) (87) (87) (174) (203) (203) (406)
Net return on ordinary
activities before
taxation 476 27,588 28,064 347 22,963 23,310 1,025 28,963 29,988
Taxation - - - - - - - - -
Net return on ordinary
activities after taxation 476 27,588 28,064 347 22,963 23,310 1,025 28,963 29,988
Return per share (note 3) 2.09p 120.94p 123.03p 1.47p 97.41p 98.88p 4.37p 123.54p 127.91p
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
Unaudited figures for the six months ended 31st January 2007
Reconciliation of Movements in Shareholders' Funds (Unaudited)
Called up Capital
share redemption
capital Share reserve Capital Revenue
premium reserve reserve
£'000 £'000 Total
£'000 £'000 £'000
£'000
At 31st July 2005 (as restated)1 5,986 18,360 680 68,649 1,078 94,753
Adjustment to opening shareholders'
funds at 1st August 2005 to reflect
the adoption of bid prices - - - (1,991) - (1,991)
Shares bought back and cancelled (229) - 229 (3,546) - (3,546)
Total return from ordinary activities - - - 28,963 1,025 29,988
Dividends appropriated in the year - - - - (878) (878)
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
1 The results for the year ended 31st July 2005 have been restated in accordance
with Financial Reporting Standards 21, 25 and 26.
JPMorgan Smaller Companies Investment Trust plc
Unaudited figures for the six months ended 31st January 2007
Balance sheet (Unaudited) (Unaudited) (Audited)
31st January 31st January 31st July
2007 2006 2006
£'000 £'000 £'000
Fixed assets
Investments at fair value through profit or loss 151,056 123,569 125,529
Investments in liquidity funds at fair value through
profit or loss 4,210 - 1,518
Total Portfolio 155,266 123,569 127,047
Current assets
Debtors 796 315 676
Cash at bank and in hand 23 17 794
819 332 1,470
Creditors :
amounts falling due within one year (13,599) (8,347) (10,191)
Net current liabilities (12,780) (8,015) (8,721)
Total assets less current liabilities 142,486 115,554 118,326
Total net assets 142,486 115,554 118,326
Capital and reserves
Called up share capital 5,610 5,869 5,757
Share premium 18,360 18,360 18,360
Capital redemption reserve 1,056 797 909
Capital reserve 116,738 89,983 92,075
Revenue reserve 722 545 1,225
Shareholders' funds 142,486 115,554 118,326
Net asset value per share (note 4) 634.9p 492.2p 513.8p
Share price 550.8p 427.8p 440.5p
Discount 13.2% 13.1% 14.3%
Cash flow statement (Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended 31st
July 2006
31st January 2007 31st January 2006
£'000 £'000 £'000
Net cash inflow from operating activities 322 140 485
Net cash outflow from returns on investments and
servicing of finance (253) (214) (347)
Net cash (outflow)/inflow from capital expenditure and
financial investment (536) 1,481 2,614
Dividends paid (979) (878) (878)
Net cash inflow/(outflow) from financing 675 101 (466)
(Decrease)/increase in cash for the period (771) 630 1,408
Notes to the Accounts
1. 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 2006.
2. Dividends
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st July 2006
31st January 2007 31st January 2006
£'000 £'000 £'000
Final dividend in respect of the year ended
31st July 2006 of 4.25p (2005: 3.75p) 979 878 878
No interim dividend has been declared in respect of the six months ended 31st
January 2007 (2006: nil).
3. Return per share
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st July 2006
31st January 2007 31st January 2006
£'000 £'000 £'000
Return per share is based on the following:
Revenue return 476 347 1,025
Capital return 27,588 22,963 28,963
Total return 28,064 23,310 29,988
Weighted average number of shares in issue 22,810,148 23,573,686 23,445,186
Revenue return per share 2.09p 1.47p 4.37p
Capital return per share 120.94p 97.41p 123.54p
Total return per share 123.03p 98.88p 127.91p
4. Net asset value per share
Net asset value per share is calculated by dividing shareholders funds by the
number of ordinary shares in issue at 31st January 2007 of 22,441,186 (31st
January 2006: 23,476,186 and 31st July 2006: 23,030,186).
5. Accounts for the year ended 31st July 2006
The figures and financial information for the year ended the 31st July 2006 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.
JPMORGAN ASSET MANAGEMENT (UK) LIMITED
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