Final Results for the Year Ended 30th Sept 2022
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN MID CAP INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED 30TH JUNE 2022
Legal Entity Identifier: 549300QED7IGEP4UFN49
Information disclosed in accordance with the DTR 4.1.3
The Directors of JPMorgan Mid Cap Investment Trust plc announce the Company's results for the year ended 30th June 2022.
CHAIRMAN'S STATEMENT
Investment Performance
The year to 30th June 2022 has been yet another period of volatility and uncertainty. The year began with a focus on the speed of economic recovery from COVID-19 and its associated lockdowns. My interim statement to you, published in late March, made only passing reference to the conflict in the Ukraine. As the figures that are discussed below show, it has been the direct and indirect effects of this conflict that have dominated absolute and relative performance for the financial year under review.
To recap, for the six months to 31st December 2021 the Net Asset Value ('NAV') total return for your Company was +5.5% and the equivalent return for the FTSE 250 Index (excluding investment trusts) was +5.7%.
The returns for the second half of the financial year bore the full brunt of the market's reaction to the invasion of Ukraine, with consequent rising commodity and energy prices leading to a surge in inflation well above previous expectations.
For the year to 30th June 2022 the NAV total return was -30.4%, well behind the FTSE 250 Index (excluding investment trusts) return of -16.1%. In addition, the Company's share price discount to NAV widened from 2.1% on 30th June 2021 to 13.6% on 30th June 2022 resulting in a very disappointing share price total return of -38.4%. I will comment further on the share price discount later in this statement.
The Russian invasion of Ukraine occurred at a time when financial markets across the globe were anticipating tighter monetary conditions, as the financial support provided by governments and Central Banks to deal with the economic dislocation caused by COVID-19 was being withdrawn. Higher interest rates were anticipated to deal with already rising rates of inflation caused by, among other factors, supply and labour shortages.
The surge in energy, food and many commodity prices has raised the (current) forecast peak in the CPI in the UK to 13%, which may yet prove to be optimistic. The Bank of England has raised base lending rates to 1.75%, not a high rate by long term standards, but a very significant increase by recent comparators. The triumvirate of substantial and unforeseen rises in energy costs, rising interest rates and a widespread rise in consumer prices in general, has created an extremely challenging backdrop for the UK Consumer.
The Company's portfolio had a bias to the consumer discretionary sectors reflecting long term outperformance from a number of the Company's most successful investments. A combination of a general derating of 'growth' stocks (reflecting anticipated higher rates of inflation and the impact of higher interest rates on the valuation of future cashflows) and general concerns about the trading outlook for consumer stocks, led to significant declines in the share prices of a number of these larger holdings. This has been a major contributor to the poor relative performance in the second half of the financial year. In addition, your Company entered 2022 with gearing of 7.7% and while this level of borrowing was reduced it had a negative effect, as is the case when stocks fall, on total returns. At present the gearing sits below 6%.
Your Investment Managers reacted to the change in market dynamics and the most significant portfolio activity is described in their report below.
The speed at which changed circumstances are priced into markets has become a notable feature of current day markets and is reflected in higher levels of volatility. It is therefore vital to have a consistent investment process that is diligently applied over market cycles. The Manager's investment process works best when markets are focused on the fundamentals of the stocks the Investment Managers invest in, rather than the extreme sentiments witnessed so far this year. With the market having already priced in a recession, it is hoped that much of the emotive volatility is behind us and that the market will revert, generally, to focusing on the stocks themselves.
Revenue and Dividends
The Company's revenue position has recovered, having been adversely impacted by the dividend cuts made by UK companies across all indices and sectors, during the initial ravages of the pandemic in 2020 and 2021. Net revenue after taxation for the year rose from £4.77 million to £7.94 million and earnings per share increased by 68% from 20.32 pence to 34.07 pence. This is a significant and most encouraging recovery, with earnings per share for the year just short of the 2019 peak of 35.01 pence per share.
Shareholders will recall that the Board paid uncovered dividends in the Company's financial years ended 30th June 2020 and 30th June 2021, so benefiting from its ability to utilise the revenue reserves built up in previous years to smooth dividend payments and maintain the 2019 pre-pandemic total dividend level for its 2020 and 2021 financial years. To maintain the total dividend of 29.5 pence per share in both 2020 and 2021, a total of £4,471,000 from the Company's revenue reserves (19.1 pence per share) was utilised, reducing the revenue reserves to approximately 21.8 pence per share (£5,111,000) at the end of June 2021.
The Board has decided to maintain the dividend this year by proposing a final dividend of 21.5 pence which, when added to the interim dividend paid in April of 8.0 pence, amounts to a total dividend payable of 29.5 pence (2021: 29.5 pence) for the full year. The final dividend will be paid on 15th November 2022 to shareholders on the register at the close of business on 14th October 2022. Based upon the year end share price of 854.0 pence, the 29.5 pence dividend represents a dividend yield of 3.5%.
After the payment of the final dividend the Company will have revenue reserves of approximately 28.1 pence per share.
Whilst the Company has a capital growth objective, the Board considers that dividends are an important component of shareholder total return over the long term and the Company has maintained or grown its dividend every year since 2005. However, I would remind shareholders that there is no pressure on the Investment Managers to position the portfolio to earn a given income target - rather income is an outcome of the investment process, not an objective.
Gearing and Borrowing Facilities
The Board has determined that in normal circumstances the Company's overall gearing range is 10% net cash to 20% geared. Within this range, and after due consideration at each Board meeting, the Board normally sets a narrower, short term gearing range for the ensuing period. The Company's gearing strategy is implemented using bank borrowing facilities. The Company currently has access to two loan facilities totalling £55 million, expiring in February 2023 and March 2024, with the option of further increasing the March 2024 facility by £20 million (subject to credit approval by the lender). The Board is satisfied that the quantum, terms and tenure of the facilities give the Investment Managers a flexible structure to use with the objective of enhancing shareholder returns.
Share Price Rating to NAV per Share
The Company's share price discount to NAV fluctuated widely over the year with highs and lows of 0.6% and 15.0% respectively, averaging 9.5%. This compares favourably with its direct peers who had average discounts over the comparable period of more than 10%. The Company ended the reporting period at a 13.6% discount compared with 2.1% on 30th June 2021.
The Company has been active in buying shares into Treasury during the year. The Board monitors the Company's premium/discount level and seeks, when deemed appropriate, to address imbalances in the supply and demand of the Company's shares through either buybacks or issuance. Treasury shares or any new ordinary shares will only be sold or issued respectively at a premium to the then net asset value per share.
The NAV total return was assisted to some extent by the Company's activity in its own shares. 919,040 shares were purchased and held in Treasury. These shares were purchased at an average discount to NAV of 12.3%, producing an accretion to the NAV of 5.6 pence per share for continuing shareholders.
Increased Marketing Promotion of JPMorgan Mid Cap Investment Trust plc
At the end of 2021 the Board agreed to commence a targeted media campaign with the objective of increasing the awareness and engagement of the Company with retail and self-directed investors and to reinforce its key attractions to this audience, particularly given the strong performance the Company has enjoyed over the longer term. The purpose of this campaign, which commenced in November 2021, is to generate increased awareness of the Company and subsequent demand for its shares, therefore benefiting current shareholders by contributing to a better rating for their shares.
The Company's website has also recently been enhanced to improve the user experience and a new strapline, 'Selecting the stars of the FTSE 250', and accompanying branding has been developed to support clear communication of the Company's value proposition to investors.
The Board firmly believes that the Company continues to present an attractive investment opportunity and that the Company's new marketing campaign will heighten interest in the asset class and bring the Company to the attention of potential investors.
The Board and the Investment Managers are also keen to increase dialogue with the Company's existing shareholders. Investors holding their shares through online platforms will shortly receive a letter inviting them to sign up to receive email updates from the Company. These updates will deliver regular news and views, as well as the latest performance statistics. If shareholders wish to sign up to receive these communications, please visit https://tinyurl.com/3vv4rez7 or scan the QR code which can be found in the Annual Report & Financial Statements for the year ended 30th September 2022 ('2022 Annual Report').
Environmental, Social and Governance Considerations
Through the investment process, the Investment Managers look beyond the pure financial attributes of a company or its shares. In looking for sustainable business models and long-lasting competitive advantages, they are increasingly assessing the environmental, social and governance ('ESG') aspects of the companies in which the Company invests. ESG considerations are fully integrated into the investment process and the Board shares the Manager's view of the importance of ESG factors when making investments for the long term and of the necessity of continued engagement with investee companies throughout the duration of the investment. Further information on the Manager's ESG process and engagement is set out in the ESG section within the 2022 Annual Report.
Board of Directors
Having been on the Board since 2013, and in line with best standards of corporate governance, Richard Huntingford will be standing down from the Board at the end of September 2022.
On behalf of the Board, I would like to thank Richard for the very substantial contribution he has made to the Company and the wise counsel that he provided the Board during his tenure. We wish him well for the future. Richard Huntingford is the Board's Senior Independent Director and it has been agreed by the Board that Richard Gubbins will be his successor in this role. Richard Gubbins has also agreed to take on the role of Chairman of the Company's Management Engagement Committee, a role previously held by the Chairman of the Board.
Following a recent selection process the Board is pleased to report that Lisa Gordon was appointed as a Non-Executive Director from 1st May 2022. Lisa has more than 25 years of board experience, in both executive and non-executive roles at both listed and private companies. Having started her career in financial services as an analyst, she was founding Director and the Corporate Development Director of Local World plc (prior to its acquisition by Trinity Mirror), the Chief Operating Officer of Yattendon Group, a private conglomerate, and the Director of Corporate Development of Chrysalis Group PLC, the media group. Lisa is currently Non-Executive Chairman of Cenkos Securities Plc and a Non-Executive Director of Alpha FX Group plc, M&C Saatchi Plc and Magic Light Pictures Limited.
Following Richard Huntingford's retirement the Board will once again comprise five Directors.
Annual General Meeting
The Company's fiftieth Annual General Meeting ('AGM') will be held at 60 Victoria Embankment, London EC4Y 0JP on 1st November 2022 at 2.30 p.m.
We are delighted that this year we will once again be able to invite shareholders to join us in person for the Company's AGM, to hear from the Investment Managers. Their presentation will be followed by a question and answer session. Shareholders wishing to follow the AGM proceedings but those choosing not to attend, will be able to view them live and ask questions (but not vote) through conferencing software. Details on how to register, together with access details, will be available shortly on the Company's website at www.jpmmidcap.co.uk or by contacting the Company Secretary at invtrusts.cosec@jpmorgan.com.
My fellow Board members, representatives of JPMorgan and I look forward to the opportunity to meet and speak with shareholders after the formalities of the meeting have been concluded.
Shareholders who are unable to attend the AGM are strongly encouraged to submit their proxy votes in advance of the meeting, so that they are registered and recorded at the AGM. Proxy votes can be lodged in advance of the AGM either by post or electronically: detailed instructions are included in the Notes to the Notice of Annual General Meeting within the 2022 Annual Report.
If there are any changes to the above AGM arrangements, the Company will update shareholders through an announcement to the London Stock Exchange and on the Company's website.
Outlook
Stock markets adjusted rapidly to the deterioration in the economic background that emerged in the first half of this year. As always, the key to future returns will be whether current expectations are subject to revision (in either direction). However, value is now evident in many sectors and constituents of the FTSE 250, and your Investment Managers have been taking advantage of these opportunities.
The strapline for your Company 'Selecting the stars of the FTSE 250' was chosen with good reason - it is what your Investment Managers seek to do. They have excellent companies to select from, currently trading at historically attractive valuations. While economic conditions are very difficult for consumers and companies alike, good companies with strong market positions have the attributes to deal with tougher trading conditions and crucially protect themselves and their shareholders from the effects of rising prices.
The long-term record of your Company and Manager shows that the philosophy of finding the best opportunities in the FTSE 250 and holding them for the long term has been successful in both absolute and relative terms. While the recent period has been disappointing, there are grounds for optimism, underpinning the belief that taking advantage of current opportunities will prove to be rewarding as the next phase of the cycle unfolds.
John Evans
Chairman
20th September 2022
INVESTMENT MANAGERS' REPORT
Performance and Market Background
Your Company's financial year ended 30th June 2022, was dominated in the first half by COVID-19. While the vaccines took effect, and the country started to re-open, the new Omicron variant re-awakened fears and concerns towards the end of 2021. As expected, in December the Bank of England ('BoE') raised rates for the first time since the COVID-19-induced reduction to 0.1%. Coming into 2022, the picture looked positive, despite clear concerns over the impact of rising inflation and rising interest rates from their historic low. Forecasts at that time were for a continued strong rebound in GDP growth of approximately 4.5% in 2022 as the economy continued to recover, and the BoE expected inflation to peak in April at around the 6% level. Events however intervened, with the Russian invasion of Ukraine upending these forecasts and driving up the cost of staples as well as having a huge impact on energy prices. This led to sharply worsening inflationary issues, and to cost of living pressures for many, as wages failed to keep up with spiralling inflation, and bills kept rising for consumers and companies. In addition, ongoing logistic bottlenecks and constrained labour supply added to inflationary pressures. The BoE continued to raise interest rates, in an attempt to combat inflation, and they ended our financial year at 1.25%.
Against this very testing backdrop, the FTSE 250 Index (excluding investment trusts) declined by -20.6% in the second half of the financial year, bringing the full year decline to -16.1%. Your Company produced a decline on net assets of -30.4%. The share price total return was -38.4 %, as the discount of the share price relative to net assets widened, due to a sell-off in the more domestically focused FTSE 250 in light of the economic outlook.
Performance Attribution
As at 30th June 2022
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12 months to 30th June 2022 |
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% |
% |
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Contributions to total returns |
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|
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Benchmark returnAPM |
|
-16.1 |
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Stock selection |
-2.1 |
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Gearing/net cash |
-1.7 |
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Investment Manager contribution |
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-13.8 |
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Portfolio total return |
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-29.9 |
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Management fees/other expenses |
-0.9 |
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|
Share repurchases |
0.4 |
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Other effects |
|
-0.5 |
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Return on net assetsAPM |
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-30.4 |
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Return to shareholdersAPM |
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-38.4 |
Source: PAT, JPMAM and Morningstar. All figures are on a total return basis.
Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark index.
APM Alternative Performance Measure ('APM').
A glossary of terms and APMs is provided within the 2022 Annual Report.
Portfolio
A few of the portfolio's largest and long-held positions positively contributed to performance over the year, such as OSB and Computacenter, (our two largest holdings at the time of writing), and we also benefited from the outperformance of holdings such as Indivior and Man Group, and the bid for Brewin Dolphin. However, the share prices of a number of our largest positions such as Future, Dunelm, JD Sports and Games Workshop declined precipitously as the market de-rated these consumer exposed names, despite a notable lack of downgrades from company guidance. With hindsight, we should have acted more quickly, but our analysis of the specific outcome for these individual companies was very much counter to the market perception.
While we did reduce the sizing in several of these positions, the magnitude of the market de-ratings (averaging a 35% decline on minimal analyst downgrades) has led us to maintain holdings in all of the above names, given their current valuations and long-term prospects.
That said, we have of course made a number of significant changes to the portfolio in 2022, given the dramatic change in outlook in both inflation and consumer confidence in the first quarter of 2022. Among the many changes to the portfolio, we have increased the energy exposure with positions in Energean and Serica (gas producers) and Harbour Energy (oil and gas producer), and also bought into the defence company Chemring and the utility play, Telecom Plus. At the same time we have significantly reduced our consumer exposure as the outlook worsened. Among the exits from the portfolio are Moonpig, Curry's, Mitchells & Butler and Restaurant Group. We have also sold out of DIY companies such as Wickes and Travis Perkins. Other sells of note have included Royal Mail and Rank Group.
Overall we have significantly reduced our exposure to the UK consumer, but continue to believe that a number of consumer-facing companies will weather the economic downturn well and continue to take market share; and we strongly believe this is not reflected in current share prices. At the same time, we have increased our holdings in a number of more counter-cyclical names, such as Indivior, Beazley and Serco. We believe we have positioned the portfolio to have a balance between the more defensive and counter-cyclical companies and the very undervalued more cyclical holdings; on all the key metrics that we look at, the portfolio compares favourably with the benchmark, which will hopefully serve us well when market sentiment shifts.
Outlook
Some things we know. Inflation is going to worsen in the UK, and remain high, for some time to come, driven in significant part by energy costs. Wage inflation will not keep up. The cost of living pressures will get worse before they get better. Some things we do not know. How long will energy costs remain elevated? When will the Russian war with Ukraine end? Will there be gas shortages in Europe and the UK this winter? Will UK taxes continue to rise, or will they be cut as our new Prime Minister Liz Truss has strongly suggested? The answer to this last question will have a direct impact on the looming recession in the UK - small and short, or long and severe, as suggested by the recent BoE forecast.
Shortly before writing this report, the BoE raised interest rates for the sixth consecutive time to 1.75% and forecast a recession commencing in Q4 2022 and lasting for five quarters, with inflation now being forecast to peak only in Q4 at 13% and remain elevated through 2023. The UK stock market did not react to these shocking forecasts. This is for two reasons. First, stock markets are forward-looking and were already pricing in much of the poor news. And secondly, the BoE uses the current status quo in making its forecasts, so it assumes taxes continue to rise, as per the last Budget, and that both gas and oil prices will remain at their current elevated levels. In one of her very first actions, our new Prime Minister has already announced a two year energy price cap for consumers, which of itself will lower inflation somewhat, and we await news on fiscal policy.
Our current view is that there is likely to be a recession in the UK, but it will be of a short and shallow duration. Currently, key metrics in the UK such as employment levels, PMIs (purchasing manager indices), the housing market and retail sales are all holding up - and indeed that is the message we are receiving when talking to the companies that we hold. We are obviously monitoring the potential recessionary impact on Europe, and then the UK, if gas shortages emerge in the coming winter. But the key metric we are focusing on is inflation, and in particular a fall in core inflation. If this starts to emerge, then we believe stock markets will start to rally. If history provides a reliable guide, markets will rally prior to the GDP data turning more positive.
The long-term drivers that have driven the outperformance of the FTSE 250 arena over the last 50 plus years have not changed. Periods of extreme volatility, and drawdowns (such as we experienced during the Brexit referendum and the initial onset of COVID-19, and now again in 2022 when the domestic UK market has fallen dramatically out of favour) have historically proven to be very advantageous buying opportunities in this area of the market, and we do not believe this is different in this economically challenging time.
Georgina Brittain
Katen Patel
Investment Managers
20th September 2022
PRINCIPAL RISKS
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Principal risk |
Description |
Mitigating activities |
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Investment Management and Performance |
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Underperformance |
Poor implementation of the investment strategy, for example as to thematic exposure, sector allocation, stock selection, undue concentration of holdings, factor risk exposure or the degree of total portfolio risk, may lead to underperformance against the Company's benchmark index and peer companies. |
The Board manages these risks by diversification of investments and 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, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, at least one of whom attends all Board meetings, and reviews data which show measures of the Company's risk profile. The Investment Managers employ the Company's gearing tactically, within a strategic range set by the Board. The Board holds a separate meeting devoted to strategy each year. |
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Discount Control Risk |
Investment trust shares often trade at discounts to their underlying NAVs; they can also trade at a premium. Discounts and premiums can fluctuate considerably leading to volatile returns for shareholders. |
The Board monitors the share price against the absolute and sector relative premium/discount levels. The Board reviews sales and marketing activity and sector relative performance (considered the primary drivers of the relative discount level). The Company also has authority to buy back its existing shares to enhance the NAV per share for remaining shareholders and to reduce the absolute level of discount and discount volatility. |
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Market and Economic Risk |
Market risk arises from uncertainty about the future prices of the Company's investments, which may reflect underlying uncertainties arising from economic, social, fiscal, climate and regulatory changes. In the past few years Brexit and the ongoing COVID-19 pandemic have been major sources of uncertainty and have contributed to elevated levels of market volatility. Geopolitical risks have risen markedly this year with the Russian invasion of Ukraine. While direct linkages to the UK from Russia tend to be small, the impact of sanctions is significant and the rise in commodity prices has caused further disruption to supply chains which in turn is exacerbating inflationary pressure. These risks represent the potential loss the Company might suffer through holding investments in the face of negative market movements. |
This risk is managed to some extent by diversification of investments and by regular communication with the Manager on matters of investment strategy and portfolio construction which will directly or indirectly include an assessment of these risks. The Board receives regular reports from the Manager regarding market outlook and gives the Investment Mangers discretion regarding acceptable levels of gearing and/or cash. Currently the Company's gearing policy is to operate within a range of 10% net cash to 20% geared. The Board considers thematic and factor risks, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Manager. The Board can, with shareholder approval, look to amend the investment policy and objectives of the Company to gain exposure to or mitigate the risks arising from geopolitical instability. |
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Inappropriate Gearing Levels (both over and under gearing of the portfolio) |
The Company borrows money for investment purposes. If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, either because banks stop lending or the Company cannot borrow at an appropriate rate or tenor, the Company may have to sell investments to repay borrowings and/or a lack of borrowing facilities would leave the Company unable to access potential opportunities and lag behind the performance of its geared peers. |
To mitigate this risk all borrowing arrangements are monitored by the Board and those requiring Board approval, as well as leverage levels, are discussed with the investment managers at every Board meeting. Covenant levels are monitored regularly. The Company's investments are in quoted securities that are readily realisable. The Board ensures that any renewal or replacement of such facilities is addressed early; the Manager has regular discussions with banks on lending appetite and pricing throughout the year. Further information on leverage can be found within the 2022 Annual Report. |
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Operational Risks |
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Outsourcing |
Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary or Custodian's records may cause inaccurate reporting and monitoring of the Company's financial position or result in a misappropriation of assets. |
Details of how the Board monitors the outsourced services and the key elements of the risk management and internal control framework governing these services are included within the Risk Management and Internal Controls section of the Corporate Governance Statement within the 2022 Annual Report. The Manager has a comprehensive business continuity plan to safeguard the continued operation of the business in the event of a service disruption (including from COVID-19). Throughout the period of restrictions arising from the COVID-19 pandemic, Directors received assurances that the Manager and its key third party service providers all maintained service levels. |
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Cyber Crime |
The threat of cyber attack is regarded as at least as important as more traditional physical threats to business continuity and security. In addition to threatening the Company's operations, such an attack is likely to raise reputational issues which may damage the Company's share price and reduce demand for its shares. |
The Company benefits directly and/or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around physical security of JPMorgan's data centres, security of its networks and security of its trading applications, are tested by independent auditors and reported every six months against the AAF Standard. |
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Regulatory Risks |
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ESG Requirements from Investors |
The Company's policy on ESG and climate change may be out of line with ESG practices which investors are looking to invest in accordance with. |
The Manager has integrated the consideration of ESG factors into the Company's investment process. Further details are set out in the ESG report within the 2022 Annual Report. |
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Regulatory Change |
The Company's business model could become non-viable as a result of new or revised rules or regulations arising from, for example, policy change or financial monitoring pressure. |
The Board receives regular reports from its broker, depositary, registrar and Manager as well as its legal advisers and the Association of Investment Companies on changes to regulations which could impact the Company and its industry. The Company monitors events and relies on the Manager and its other key third party providers to manage this risk by preparing for any changes, adverse or otherwise. |
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Pandemic Risks |
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Pandemics |
The emergence of COVID-19 has highlighted the speed and extent of economic damage that can arise from a pandemic. There is the risk that emergent strains may not respond to current vaccines and may be more lethal and that they may spread as global travel increases. |
The Board receives reports on the business continuity plans of the Manager and other key service providers. The effectiveness of these measures has been assessed throughout the course of the COVID-19 pandemic and the Board will continue to monitor developments as they occur and seek to learn lessons which may be of use in the event of future pandemics. To date the portfolio's holdings have not exhibited a material long-term impact and have recovered as the containment measures eased, although the pandemic has yet to run its course. |
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Economic Responses to the COVID-19 Pandemic |
The response to the Pandemic by the UK and other governments may potentially fail to mitigate the economic damage created by the Pandemic and public health responses to it, or may create new risks in their own right. |
The Board seeks to manage these risks through: a broadly diversified equity portfolio, appropriate asset allocation, reviewing key economic and political events and regulatory changes, active management of risk and the application of relevant policies on gearing and liquidity. |
Emerging Risks
The AIC Code of Corporate Governance also requires the Audit & Risk Committee to put in place procedures to identify emerging risks. Emerging risks, which are not deemed to represent an immediate threat, are considered by Audit & Risk Committee as they come into view and are incorporated into the existing review of the Company's risk register. However, since emerging risks are likely to be more dynamic in nature, they are considered on a more frequent basis, through the remit of Board when the Audit & Risk Committee does not meet. The Board considers that the following are emerging risks:
Monetary Policy - Efforts by central banks and governments to unwind many years of non-conventional monetary policy, including quantitative easing, which may significantly depress investment returns from risk assets which have been supported for many years by low-risk free rates and an implied central bank 'put'.
Economic Contraction - A long term reduction in returns available from investments as a result of recession, stagnation, inflation or other extended exogenous factor which may render the Company's investment objectives and policies unattractive or unachievable.
Technology - the emergence of technology (i.e. artificial intelligence) or new technological standards which are incompatible with existing procedures and practices within the industry or sector may have the potential to increase the complexity of the systemic dependencies and interactions across various sectors.
Societal Breakdown - Modern society has contributed to rising inequality, resource depletion and increasingly complex and interrelated financial, political and technological systems. Looking over history, these factors have been the precursors to societal collapses resulting in periods of wide-ranging disruption and economic simplification. Even limited or localised societal breakdown may threaten both the ability of the Company to operate, the ability of investors to transact in the Company's securities and ultimately the ability of the Company to pursue its investment objective and purpose.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTY TRANSACTIONS
Details of the management contract are set out in the Directors' Report within the 2022 Annual Report. The management fee payable to the Manager for the year was £2,244,000 (2021: £1,949,000) of which £nil (2021: £nil) was outstanding at the year end.
Included in administration expenses in note 6 within the 2022 Annual Report are safe custody fees amounting to £8,000 (2021: £5,000) payable to JPMorgan Chase, N.A. of which £1,000 (2021: £3,000) 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. The commission payable to JPMorgan Securities Limited for the year was £nil (2021: £2,000) of which £nil (2021: £nil) was outstanding at the year end.
The Company also holds cash in the JPMorgan Sterling Liquidity Fund, which is managed by JPMorgan. At the year end this was valued at £15,559,000 (2021: £12,593,000). Interest amounting to £36,000 (2021: £3,000) was receivable during the year of which £nil (2021: £nil) was outstanding at the year end.
Handling charges on dealing transactions amounting to £3,000 (2021: £12,000) were payable to JPMorgan Chase, N.A. during the year of which £1,000 (2021: £7,000) was outstanding at the year end.
At the year end, total cash of £272,000 (2021: £254,000) was held with JPMorgan Chase, N.A. A net amount of interest of £5,000 (2021: £1,000) was receivable by the Company during the year from JPMorgan Chase, N.A. of which £nil (2021: £nil) was outstanding at the year end.
The Directors are related parties and full details of their remuneration and shareholdings can be found within the 2022 Annual Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report & Financial Statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', and applicable law). Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable United Kingdom Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed in the Directors' Report within the 2022 Annual Report confirm that, to the best of their knowledge:
• the Company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 102, give a true and fair view of the assets, liabilities, financial position and return of the Company; and
• the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
For and on behalf of the Board
John Evans
Chairman
20th September 2022
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30TH JUNE 2022
|
|
2022 |
2021 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
(Losses)/gains on investments held at fair value through profit or loss |
- |
(107,110) |
(107,110) |
- |
108,764 |
108,764 |
|
Net foreign currency losses |
- |
(7) |
(7) |
- |
- |
- |
|
Income from investments |
9,516 |
- |
9,516 |
5,960 |
- |
5,960 |
|
Interest receivable and similar income |
41 |
- |
41 |
4 |
- |
4 |
|
Gross return/(loss) |
9,557 |
(107,117) |
(97,560) |
5,964 |
108,764 |
114,728 |
|
Management fee |
(673) |
(1,571) |
(2,244) |
(585) |
(1,364) |
(1,949) |
|
Other administrative expenses |
(675) |
- |
(675) |
(433) |
- |
(433) |
|
Net return/(loss) before finance costs and taxation |
8,209 |
(108,688) |
(100,479) |
4,946 |
107,400 |
112,346 |
|
Finance costs |
(204) |
(476) |
(680) |
(146) |
(341) |
(487) |
|
Net return/(loss) before taxation |
8,005 |
(109,164) |
(101,159) |
4,800 |
107,059 |
111,859 |
|
Taxation |
(68) |
- |
(68) |
(29) |
- |
(29) |
|
Net return/(loss) after taxation |
7,937 |
(109,164) |
(101,227) |
4,771 |
107,059 |
111,830 |
|
Return/(loss) per share |
34.07p |
(468.65)p |
(434.58)p |
20.32p |
455.96p |
476.28p |
All revenue and capital items in the above statement derive from continuing operations.
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. Net return/(loss) after taxation represents the profit/(loss) for the year and also Total Comprehensive Income.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30TH JUNE 2021
|
|
Called up |
|
Capital |
|
|
|
|
|
share |
Share |
redemption |
Capital |
Revenue |
|
|
|
capital |
premium |
reserve |
reserves1 |
reserve1 |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 30th June 2020 |
6,350 |
- |
3,650 |
215,093 |
12,299 |
237,392 |
|
Issue of shares from Treasury |
- |
454 |
- |
299 |
- |
753 |
|
Repurchase of shares into Treasury |
- |
- |
- |
(2,699) |
- |
(2,699) |
|
Net return |
- |
- |
- |
107,059 |
4,771 |
111,830 |
|
Dividends paid in the year (note 3) |
- |
- |
- |
- |
(6,915) |
(6,915) |
|
At 30th June 2021 |
6,350 |
454 |
3,650 |
319,752 |
10,155 |
340,361 |
|
Repurchase of shares into Treasury |
- |
- |
- |
(9,317) |
- |
(9,317) |
|
Net (loss)/return |
- |
- |
- |
(109,164) |
7,937 |
(101,227) |
|
Dividends paid in the year (note 3) |
- |
- |
- |
- |
(6,909) |
(6,909) |
|
At 30th June 2022 |
6,350 |
454 |
3,650 |
201,271 |
11,183 |
222,908 |
1 The capital and revenue reserves are distributable. The amount of these reserves that are distributable is not necessarily the full amount of the reserves as disclosed in these financial statements. These reserves may be used to fund distributions to investors.
STATEMENT OF FINANCIAL POSITION
AT 30TH JUNE 2022
|
|
2022 |
2021 |
|
|
£'000 |
£'000 |
|
Fixed assets |
|
|
|
Investments held at fair value through profit or loss |
235,322 |
371,795 |
|
Current assets |
|
|
|
Debtors |
6,921 |
892 |
|
Cash and cash equivalents |
15,831 |
12,847 |
|
|
22,752 |
13,739 |
|
Current liabilities |
|
|
|
Creditors: amounts falling due within one year |
(20,166) |
(15,173) |
|
Net current assets/(liabilities) |
2,586 |
(1,434) |
|
Total assets less current liabilities |
237,908 |
370,361 |
|
Creditors: amounts falling due after more than one year |
(15,000) |
(30,000) |
|
Net assets |
222,908 |
340,361 |
|
Capital and reserves |
|
|
|
Called up share capital |
6,350 |
6,350 |
|
Share premium |
454 |
454 |
|
Capital redemption reserve |
3,650 |
3,650 |
|
Capital reserves |
201,271 |
319,752 |
|
Revenue reserve |
11,183 |
10,155 |
|
Total shareholders' funds |
222,908 |
340,361 |
|
Net asset value per share |
988.8p |
1,450.6p |
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30TH JUNE 2022
|
|
2022 |
2021 |
|
|
£'000 |
£'000 |
|
Net cash outflow from operations before dividends and interest |
(2,948) |
(2,388) |
|
Dividends received |
9,286 |
5,623 |
|
Interest received |
41 |
4 |
|
Overseas tax (paid)/recovered |
(15) |
119 |
|
Interest paid |
(693) |
(443) |
|
Net cash inflow from operating activities |
5,671 |
2,915 |
|
Purchases of investments |
(113,532) |
(127,383) |
|
Sales of investments |
142,071 |
113,201 |
|
Net cash inflow/(outflow) from investing activities |
28,539 |
(14,182) |
|
Dividends paid |
(6,909) |
(6,915) |
|
Re-issue of shares from Treasury |
- |
753 |
|
Repurchase of shares into Treasury |
(9,317) |
(2,699) |
|
Drawdown of bank loan |
- |
42,000 |
|
Repayment of bank loan |
(15,000) |
(15,000) |
|
Net cash (outflow)/inflow from financing activities |
(31,226) |
18,139 |
|
Increase in cash and cash equivalents |
2,984 |
6,872 |
|
Cash and cash equivalents at start of year |
12,847 |
5,973 |
|
Exchange movements |
- |
2 |
|
Cash and cash equivalents at end of year |
15,831 |
12,847 |
|
Increase in cash and cash equivalents |
2,984 |
6,872 |
|
Cash and cash equivalents consist of: |
|
|
|
Cash and short term deposits |
272 |
254 |
|
Cash held in JPMorgan Sterling Liquidity Fund |
15,559 |
12,593 |
|
Total |
15,831 |
12,847 |
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
(a) 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 July 2022.
All of the Company's operations are of a continuing nature.
The financial statements have been prepared on a going concern basis. In forming this opinion, the Directors have considered any potential impact of the COVID-19 pandemic and the direct and indirect consequences arising from the Russian invasion of Ukraine on the going concern and viability of the Company. In making their assessment, the Directors have reviewed income and expense projections and the liquidity of the investment portfolio, and considered the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience.
The policies applied in these financial statements are consistent with those applied in the preceding year.
2. (Loss)/return per share
|
|
2022 |
2021 |
|
|
£'000 |
£'000 |
|
Revenue return |
7,937 |
4,771 |
|
Capital (loss)/return |
(109,164) |
107,059 |
|
Total (loss)/return |
(101,227) |
111,830 |
|
Weighted average number of shares in issue during the year |
23,293,115 |
23,479,879 |
|
Revenue return per share |
34.07p |
20.32p |
|
Capital (loss)/return per share |
(468.65)p |
455.96p |
|
Total (loss)/return per share |
(434.58)p |
476.28p |
3. Dividends
Dividends paid and proposed
|
|
2022 |
2021 |
|
|
£'000 |
£'000 |
|
Dividends paid |
|
|
|
2021 Final dividend of 21.5p (2010: 21.5p) per share |
5,044 |
5,042 |
|
2022 Interim dividend of 8.0p (2021: 8.0p) per share |
1,865 |
1,873 |
|
Total dividends paid in the year |
6,909 |
6,915 |
|
Dividend proposed |
|
|
|
2022 Final dividend proposed of 21.5p (2021: 21.5p) per share |
4,847 |
5,044 |
|
Total dividends proposed for year |
4,847 |
5,044 |
All dividends paid and proposed in the year have been funded from the revenue reserve.
The Final dividend proposed in respect of the year ended 30th June 2021 amounted to £4,847,000.
The dividend proposed in respect of the year ended 30th June 2022 is subject to shareholder approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 30th June 2023.
4. Net asset value per share
|
|
2022 |
2021 |
|
Net assets (£'000) |
222,908 |
340,361 |
|
Number of shares in issue |
22,543,730 |
23,462,770 |
|
Net asset value per share |
988.8p |
1,450.6p |
5. Status of results announcement
2021 Financial Information
The figures and financial information for 2021 are extracted from the Annual Report and Accounts for the year ended 30th June 2021 and do not constitute the statutory accounts for the year. The Annual Report and Accounts include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Register of Companies in due course.
2022 Financial Information
The Figures and financial information for 2022 are extracted from the published Annual Report and Accounts for the year ended 30th June 2022 and do not constitute the statutory accounts for that year. The Annual Report and Accounts has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.
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.
20th September 2022
For further information:
Alison Vincent,
JPMorgan Funds Limited
020 7742 4000
ENDS
A copy of the 2022 Annual Report will shortly be submitted to the FCA's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The 2022 Annual Report will 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.
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