Final Results for year to 31 Dec 2022
14/03/2023 07:00
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RNS Number : 8291S JPMorgan Claverhouse IT PLC 14 March 2023
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN CLAVERHOUSE INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2022
Legal Entity Identifier: 549300NFZYYFSCD52W53
Information disclosed in accordance with the DTR 4.1.3
The Directors of JPMorgan Claverhouse Investment Trust plc (the "Company")
announce the Company's results for the year ended 31st December 2022.
CHAIRMAN'S STATEMENT
Performance and Manager Review
2022 proved to be another very challenging year in general for investors. Just
as it seemed that the worst of the pandemic was behind us, and the way was
clear for economies to recover from the virus' severe economic impact,
Russia's invasion of Ukraine in February 2022 dealt a fresh blow to the
economic outlook and investor confidence. As well as escalating geopolitical
tensions to post WWII highs, the war added to upward pressures on energy and
commodity prices, driving already rising inflation even higher. Markets were
shocked by central banks' aggressive policy response and fears that high and
still rising rates would push the major economies, including the UK, into
recession this year now seem more likely to be realised.
These developments weighed heavily on financial markets. The MSCI Word Index
closed the year down 17.7%, and the FTSE All Share Index also dropped sharply
during the first half of the year. UK domestic political instability was an
additional source of uncertainty during this period, but the appointment of
Rishi Sunak as Prime Minister in October calmed investors' jitters and the UK
market experienced a steep recovery, outperforming other major markets, to
close the year up slightly +0.3%. The Company underperformed its benchmark
over the 12 months to end December 2022, declining by 4.6% on a net asset
value ('NAV') basis (with debt at fair value), and 5.1% in share price terms
over the period, compared to a positive return of 0.3% for the benchmark.
This is clearly a disappointing result; however, it is important to understand
that this underperformance occurred in the first half of the year, during the
worst of the financial turmoil. Portfolio performance improved in the second
half of the year and the Company outperformed its benchmark in this six-month
period, recouping some of its underperformance, as market conditions steadied,
and the portfolio changes implemented by the Portfolio Managers to strengthen
its resilience to the year's challenges began to pay off.
The year was also characterised by a small percentage of stocks outperforming
the relevant index. For example, only 23% of stocks outperformed the FTSE All
Share Index over the year. This made it particularly challenging for active
managers operating for risk management reasons within agreed investment
guidelines and restrictions. These are summarised in the Strategic Report in
the full annual report. During the year, the Board reviewed these guidelines
with the Portfolio Managers, in particular the range of 60 to 80 stocks, and
confirmed that they remained appropriate.
Shareholders should also bear in mind that the Portfolio Managers invest for
the long-term, so they should be judged by their performance over a longer
timeframe. Over the ten years to 31st December 2022, the Company achieved an
average annual return of 7.9% on an NAV basis and 9.1% in share price terms,
outperforming the benchmark return of 6.5% on the same basis.
The Investment Manager's report below provides more detail on performance
during 2022, and how the Portfolio Managers have adapted the Company's
portfolio in light of the new lower growth, higher inflation environment. They
also discuss the outlook for 2023.
As at 10th March 2023, the Company's NAV per share (with debt at fair value)
was 722.54p and the share price was 684.00p.
Revenue and Dividends
The Directors have declared a fourth quarterly interim dividend of 10.5p per
share for the year ended 31st December 2022, to be paid on 17th March 2023,
which brought the total dividend per share for the year to 33.0p (2021 total:
30.5p), an increase of 8.2% on the year. I am very pleased to say that this is
the 50th successive year in which the dividend has been raised - a record
which very few investment trusts have achieved. The dividend has grown each
year from 0.48p per share in 1972 to 33.0p per share in 2022, a compound
dividend growth of 8.8% per annum, comfortably exceeding inflation and UK
dividend growth.
At a time when rising inflation is making dramatic inroads into household
budgets, I am sure shareholders will be equally appreciative of the fact that
following payment of the fourth quarterly interim dividend, the Company will
have continued to pay dividends in excess of inflation over each of the past
3, 5 and 10 year periods, and above the dividend growth of the UK market as a
whole (as measured by the constituents of the FTSE All-Share Index) as
illustrated in the chart in the full annual report and table below.
Source: Bloomberg.
Claverhouse UK Market
CPI DPS Growth Dividend Growth
(% per annum) (% per annum) (% per annum)
3 Year 4.1% 4.4% -7.1%
5 Year 3.3% 4.9% -1.2%
10 year 2.4% 5.7% 2.5%
Source: Office of National Statistics.
The Board's dividend policy remains to seek to increase the dividend each year
and, taking a run of years together, to increase dividends at a rate close to
or above the rate of inflation. With UK inflation now at a 30 year high, the
Board will continue to monitor carefully the outlook for dividend income.
However, given the Company's revenue reserves, built up over a number of
years, and its ability, as an investment trust, to utilise these reserves if
necessary to support the dividend, the Board currently expects future dividend
increases to enable the Company to continue to meet its dividend policy
objectives. The Board intends to increase the first three quarterly interim
dividends in 2023 to 8.0p per share from 7.5p per share in the previous
financial year.
Premium/Discount and Share Issuance/Repurchases
During 2022, the discount to NAV at which the shares traded ranged from a
premium of +3.7% to a discount of -3.6%. As a result, in the year to 31st
December 2022, the Company issued 710,000 new shares at times when the shares
were trading at a premium. The Company did not repurchase any of its shares
during the year. The Board's objective is to use the repurchase and allotment
authorities to manage imbalances between the supply and demand of the
Company's shares, with the intention of reducing the volatility of the
discount or premium, in normal market conditions.
As at 31st December 2022, the Company's discount (to its cum-income, debt at
fair value, NAV) was -0.3%, and at the time of writing it currently stands at
-5.33%.
At this year's Annual General Meeting ('AGM'), to be held on 28th April 2023,
the Company will be seeking renewed authority from shareholders to sell shares
from Treasury at a small discount, to issue new shares and to repurchase its
own shares.
Since the year end, the Company's discount at which its shares trade has
widened, the Board has deemed it necessary to utilise the Company's buy back
authority, buying in a total of 465,000 shares as at the date of this report.
The comparison between the debt at par and fair value NAV reflects the
difference between the interest paid on the Company's long-term debt (the
3.22% £30 million private placement loan) and current interest rates. The two
calculations of NAV will therefore vary in accordance with prevailing interest
rates and will change over the life of the long-term debt. At present, the
difference between the two methods of calculation is approximately 2%. The
Investment Manager's contribution to NAV performance should be assessed
without regard to the long-term debt interest rate, over which it has no
control; the cum income NAV with debt at par will therefore continue to be
reported in the annual and interim reports. However, as mentioned above, the
cum income NAV, with debt at fair value, will be used for the purposes of
decisions on share buybacks and issues, as it is the basis upon which the NAV
is announced to the market.
Gearing/Long Term Borrowing
The Portfolio Managers can use FTSE 100 index futures to effect reductions in
the level of gearing by reducing the portfolio's market exposure. The
Company's gearing policy (excluding the effect of any futures) is to operate
within a range of 5% net cash and 20% geared in normal market conditions. The
Investment Manager has discretion from the Board to vary the gearing level
between 5% net cash and 17.5% geared (including the effect of any futures).
The Board believes that over the long-term a moderate level of gearing is an
efficient way to enhance shareholder returns.
In order that the Portfolio Managers could retain the flexibility to maintain
gearing up to the maximum permitted level, in May 2022 the Company secured a
new two-year revolving credit facility of £80 million with Mizuho Bank
following the expiry of the Company's loan facility with the National
Australia Bank.
Taking into account borrowings, net of cash balances held and the effect of
futures, the Company ended 2022 approximately 7.2% geared. During the year
gearing varied between 1.8% net cash and 9.7% geared. Gearing is currently
8.0%. The Company has a £30 million 3.22% private placement loan, maturing in
March 2045. In addition, £10 million of the Mizuho revolving credit facility
was drawn down as at 31st December 2022. See note 13 in the full annual
report.
Environmental, Social and Governance ('ESG')
ESG considerations are integrated into the Investment Manager's investment
process and within the broader decision making framework. This annual report
includes a separate Environmental, Social and Governance Report from the
Investment Manager in the full annual report. During the year, the Investment
Manager became a new signatory to the UK Stewardship Code.
Investment Management Fees and Manager Evaluation
Since the year end, the Board has agreed with the Manager to amend the
Company's investment management fees.
With effect from 1st July 2023, the investment management fee will be charged
on a tiered basis at an annual rate of 0.45% of the Company's net assets on
the first £400 million and at 0.40% of net assets above that amount. The fee
will continue to be calculated and paid monthly.
During the year under review, the Management Engagement Committee undertook a
formal review of the Manager and Investment Manager, covering the investment
management, performance of the Portfolio Managers and company secretarial,
administrative and marketing services provided to the Company. The review took
into account the Investment Manager's investment performance record,
management processes, investment style, resources and risk control mechanisms.
I am pleased to report that the Board agreed with the Committee's
recommendation that the continued appointment of the Manager is in the
interests of shareholders.
Keeping in Touch
The Board would like 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://web.gim.jpmorgan.com/emea_investment_trust_subscription/welcome?targetFund=JCH.
Annual General Meeting
We are planning to hold this year's AGM in person at JPMorgan's offices at
60 Victoria Embankment, London EC4Y 0JP, on Friday, 28th April 2023 at
12 noon. The Company's Portfolio Managers; William Meadon and Callum Abbot
will give a presentation to shareholders, review the past year and comment on
the outlook for the current year. The meeting will be followed by a sandwich
lunch and provide shareholders with the opportunity to meet the Directors and
representatives of the Manager. We look forward to welcoming as many
shareholders as possible at the AGM.
For shareholders wishing to follow the AGM proceedings but choosing not to
attend, we will be able to welcome you through conferencing software. Details
on how to register, together with access details, will be available on the
Company's website: www.jpmclaverhouse.co.uk, or by contacting the Company
Secretary at invtrusts.cosec@jpmorgan.com.
As is normal practice, all voting on the resolutions will be conducted by a
poll. Shareholders viewing the meeting via conferencing software will not be
able to vote on the poll and we therefore encourage all shareholders, and
particularly those who cannot physically attend, to exercise their votes in
advance of the meeting by completing and submitting their form of proxy.
If you have any detailed or technical questions, it would be helpful if you
could raise them in advance with the Company Secretary at 60 Victoria
Embankment, London EC4Y 0JP or via the 'Ask a Question' link on the Company's
website. Shareholders who are unable to attend the AGM are encouraged to use
their proxy votes.
If there are any changes to the arrangements for the AGM, the Company will
update shareholders through the Company's website and, if appropriate, through
an announcement on the London Stock Exchange.
Board Succession
This is my first Annual Report since becoming Chairman following the
retirement of Andrew Sutch at the conclusion of the AGM on 29th April 2022.
Andrew had served as a Director of the Company since 2013, holding the
position of Chairman from 2015. I would like to once again take this
opportunity, on behalf of the entire Board, to thank him for all his hard work
and his effective stewardship of the Board and the Company during his tenure.
At the time of Andrew's retirement, Jill May became the Senior Independent
Director, Nicholas Melhuish took over as Audit Committee Chair and Victoria
Stewart became Chair of the Remuneration Committee. Led by the Nomination
Committee, following a search for a suitably qualified candidate to replenish
the Board after Andrew's departure, I am delighted to welcome Joanne Fintzen
as a Non-Executive Director of the Company with effect from 3rd October
2022. Joanne brings a wealth of experience to her new role, and my Board
colleagues and I look forward to working with her. The Board therefore
recommend that shareholders vote in favour of her appointment at the
forthcoming AGM.
Outlook
While it has been very challenging over recent months and years, I share the
Portfolio Managers' cautious optimism regarding the outlook for UK equity
markets. The likelihood of recession in 2013 is already well-discounted by
investors at current market levels and should sentiment continue to improve
substantially investors may be further tempted by the attractive valuations of
many UK stocks relative to their foreign peers.
We are also positive about the Company's prospects. It is invested
predominantly in large, high-quality, well-diversified FTSE 100 stocks, many
of which are continuing to pay growing dividends. Attributable in part to the
portfolio adjustments implemented by the Portfolio Managers, the portfolio's
holdings began to recover in the second half of 2022 once equity market
conditions stabilised, and in the new lower growth, higher inflation
environment, stocks offering high, predictable and rising income should
continue to do especially well, benefitting our shareholders over coming
years.
We are pleased to have experienced Portfolio Managers who are working hard to
preserve and grow shareholders' assets and their success in doing so is
evident in their long-term record of outperformance.
David Fletcher
Chairman
13th March 2023
INVESTMENT MANAGER'S REPORT
Investment Approach
Claverhouse is a diversified portfolio of JPMorgan's best UK ideas, comprising
both quality growth and value stocks. A handful of very large stocks, which
represent a significant part of the benchmark, are held for risk-control
reasons.
We adopt a long-term, patient investment perspective and we believe that this
approach will produce outperformance of the index in a steady, consistent
manner, irrespective of market conditions. We also aim to maintain
Claverhouse's multi-decade dividend growth record.
Market Review
2022 was a significant and sobering year in many ways. Asset prices tumbled
as a veritable witches' brew of unexpected global challenges were thrown at
investors and policy makers alike.
Encouraged by the final lifting of Covid-19 restrictions, the new year started
in good heart. Such optimism was, however, short lived, as Russia shocked the
world by its invasion of Ukraine in February, and the economic consequences
were immediate. Russian gas pipelines to Europe closed, sparking the
Continent's biggest ever energy crisis. Inflation, which was already becoming
a problem, soon rose to multi decade highs, fuelled by increases in both
energy and commodity prices. This in turn precipitated the fastest interest
rate rises for decades, as central banks scrambled to curb surging prices. The
decade-long era of easy, cheap money came to an abrupt and painful end. Such
events were toxic for most assets. Unusually, equities and bonds fell in
tandem. For much of the year there were no safe investment havens in which to
hide.
To add to UK investors' woes, as the cost of living crisis deepened,
politicians struggled to maintain authority. In a surreal three-month period,
the UK had three Prime Ministers and four Chancellors of the Exchequer! A
badly judged mini-budget in September triggered turmoil - bond prices
plummeted and sterling dropped to a historic low of $1.03 - forcing the Bank
of England to intervene to stabilise markets.
Global equities experienced their worst year since 2008, with US tech stocks
and emerging markets being particularly badly hit. Many crypto currencies
collapsed. The UK equity market, however, did relatively well by comparison.
Investors welcomed the appointment of Rishi Sunak as Prime Minister in
October, and a strong rally in the final quarter saw the FTSE All-Share Index
finish just ahead for the year (+0.3%), led by a handful of large oil and
mining stocks which investors saw as being beneficiaries of surging commodity
prices. China maintained harsh lockdowns for most of the year as it struggled
to contain the spread of the Covid-19 virus. The end of the year, however, saw
some loosening of restrictions, and an associated resumption of economic
activity, which gave further impetus to equities' year-end market rally.
Performance Review
We are bottom-up stock pickers. Developments at the sector and macroeconomic
levels generally have less influence on the portfolio than our assessment of
the companies themselves. For much of 2022, geopolitical and macro issues were
of much more concern to investors than usual and this explains, in part, our
under-performance. The portfolio struggled in the first half of the year as
markets nose-dived in the wake of the unexpected Russian invasion of Ukraine.
It declined by 12.8% on an NAV basis, 8.2 percentage points below the
benchmark decline of 4.6%. However, some significant portfolio changes
(discussed below), intended to improve the Company's resilience to the year's
many unexpected challenges, combined with our risk-controlled approach to
sizing positions at both a stock and sector level, helped the portfolio
navigate the storm. Performance improved in the second half and the portfolio
clawed back some of its H1 underperformance. In sum, in the year to
31st December 2022 as a whole, Claverhouse delivered a total return on net
assets (capital plus dividends re-invested) of -4.6%, 4.3 percentage points
weaker than the benchmark return of +0.3%. With the Company's shares moving
from a premium of +0.2% to a small discount of -0.3% at the year end, the
total annual return for shareholders was -5.1%.
Further detail of Claverhouse's performance over the year is given in the
accompanying table below.
Performance attribution
Year ended 31st December 2022
% %
Contributions to total returns
Benchmark return 0.3
Stock & Sector selection -7.1
Gearing & cash 0.2
Investment Manager contribution -6.9
Cost of debt -0.2
Portfolio total return -6.8
Management fee/other expenses -0.7
Share buyback/share issuance -
Sub total -0.7
Return on net assets with debt at par value(A) -7.5
Change in the fair value of the long term debt 2.9
Return on net assets with debt at fair value(A) -4.6
Source: JPMAM/Morningstar. All figures are on a total return basis.
Performance attribution analyses how the Company achieved its recorded
performance relative to its benchmark.
(A) Alternative Performance Measure ('APM').
A list of APMs, with explanations and calculations, and a glossary of terms
are provided on pages 96 to 98 in the full annual report.
The Company delivered a dividend increase for the 50th consecutive year, a
notable milestone. Dividends in respect of the financial year ended 31st
December 2022 (FY22) totalled 33.0p per share, an 8.2% rise on the previous
year's dividend of 30.5p per share. The dividend yield in respect of the year
is 4.7% (based on the share price as at 9th March 2023).
Across the market, the year's outperformers were very limited, mainly
comprising commodity companies and traditionally defensive names investors
thought could benefit from, or at least cope with, the challenging economic
environment. By contrast, financials and consumer stocks were particularly
hard hit, as were very small companies. Accordingly, the most significant
positive contributors to the Company's performance over the year included
several energy and commodity companies as illustrated in the table below.
Top Contributors and Detractors to Performance vs FTSE All-Share Index
Top Five Contributors Top Five Detractors
Shell +1.5% JPMorgan UK Smaller Cos IT -1.5%
BP +1.1% Intermediate Capital -1.3%
AstraZeneca +1.0% Watches of Switzerland -0.7%
Glencore +0.5% Dunelm -0.6%
Prudential +0.3% Impax Asset Management -0.6%
Source: JPMAM, as at 31st December 2022.
Oil stocks continued to outperform in all major markets, and BP and Shell were
no exception, making them the largest contributors to returns over the year.
The Russian invasion of Ukraine exposed the fragility of global energy markets
and caused oil and gas prices to soar. Years of underinvestment has led to
capacity constrained supply issues which were compounded by the closure of
Russia's pipelines. The resultant supernormal cash flows generated by BP and
Shell are being returned to shareholders. Additionally, management teams are
investing in the energy transition and have recently increased capex guidance
for upstream oil and gas projects. However, management teams are aware that
investors want to see strong returns on investment and will not tolerate
squandering of capital chasing volumes, as has been the case historically.
Focusing on shareholder returns rather than growing volumes should provide a
good outcome for shareholders over the medium term.
Pharmaceutical companies, including portfolio holding AstraZeneca, performed
strongly as investors sought out companies with reliable earnings streams.
AstraZeneca is finally reaping the reward of a decade long strategy shift
towards improving R&D efficacy in high margin areas such as oncology.
A number of the drugs developed as a result have proved extremely effective,
and earnings growth should be boosted for many years ahead as these drugs come
to market.
Glencore is a diversified mining company with substantial exposure to metals
such as copper, zinc and nickel which are essential to the electrification of
vehicles. Higher commodity prices have led to an improvement in Glencore's
trading division, allowing the company to pay down debt and return excess
capital to shareholders. In addition, a change in the management team has seen
a substantial improvement in the company's ESG credentials, marking a new,
greener era for this miner. Many outstanding legal cases against Glencore have
been settled, including one involving the US Department of Justice.
It was a tale of two halves for the Asian insurance company, Prudential. For
most of the year, China's harsh zero Covid-19 policies prevented Chinese
nationals from travelling into Hong Kong to buy insurance products. However,
towards the end of the year, when the Chinese government began to re-open the
economy, we bought shares in Prudential at a very depressed valuation and they
have since enjoyed a meaningful recovery.
The Company's position in JPMorgan's Smaller Companies Investment Trust, run
by JPMAM's in-house small companies' team, was the largest detractor from
returns during the year. It underperformed as investors sought the perceived
safety of larger, more liquid stocks. However, over the years, this fund has
not only contributed materially to the performance of Claverhouse, but as
stocks have grown out of the smaller companies' index and into the FTSE 350,
it has also provided a rich source of new direct investment ideas for us. We
therefore intend to maintain our holding.
General market panic at the start of 2022, combined with rapidly rising
interest rates, led to a substantial sell off in many financials such as
private market specialist, Intermediate Capital and ESG-focused asset manager,
Impax. Intermediate Capital remains in the portfolio as we continue to be
happy with the company's operational performance. However, we sold our holding
in Impax as we became concerned about the high level of the business's
operating leverage and the potential for outflows.
The sharp pickup in inflation led to a severe sell off in consumer stocks, as
the cost of living crisis limited discretionary spending and investors began
to fear an imminent recession. While Dunelm and the retailer of luxury
watches, Watches of Switzerland sold off on these fears, both companies are
coping well with this challenging backdrop and remain holdings.
Highlighted Company: Natwest
Rising rates are beneficial for banks' net interest margins, which have been
severely depressed throughout the past decade of low/zero interest rates.
Higher rates should thus pave the way for Natwest to deliver double digit
returns on equity after years of economic suppression. Accompanying this,
stringent post GFC banking regulations have left NatWest's balance sheet very
well capitalised and able to weather downturns in the macro environment.
Highlighted Company: Shell
This oil major is undergoing a significant restructuring to position itself as
a diversified energy company. Part of the strategic shift involves returning
surplus capital to shareholders, rather than growing volumes through low
return projects, as it has done in previous cycles. This marks an important
change to their capital discipline and signals an improvement in the quality
of the business. In addition, the company has benefited from soaring energy
prices as years of underinvestment by the sector has led to supply constraints
which has been compounded by the closure of Russia's pipelines. Shell trades
at a significant discount to Exxon Mobil, a US listed peer, and the broader UK
market.
Portfolio Review
The portfolio held 63 stocks at the end of the year, towards the lower end of
our normal range, as we focused on the very limited number of companies which
could cope with the year's economic storm. Indeed, less than a quarter of
shares in the FTSE All Share outperformed compared to a more normal year,
where this number is generally closer to 50%. While we are stock-focused, we
do run a sector-diversified portfolio, as the following discussion on the
year's portfolio activity illustrates.
Top Over and Under-weight positions vs FTSE All Share Index
Top Five Overweight Positions Top Five Underweight Positions
Glencore +2.2% Unilever -1.3%
SSE +2.2% Vodafone -0.9%
NatWest +2.1% Flutter -0.9%
AstraZeneca +2.1% Haleon -0.7%
BP +2.0% HSBC -0.7%
Source: JPMAM, as at 31st December 2022.
Purchases
Some significant portfolio changes were necessary to ensure it was best-placed
to weather the year's many challenges.
For the past three years, the Asian life insurance company Prudential has been
hamstrung by the covid-induced closure of China's borders. As discussed above,
this prohibited Chinese nationals crossing into Hong Kong to take out
insurance policies. This business provides a significant portion of the
revenues of Prudential. Now the Chinese border has re-opened, there should be
plenty of pent-up demand for Prudential's products.
JD Sports is an international retailer of sports and leisure wear. The company
has exclusive relationships with big brands like Nike, adidas and Levi Jeans
which give them security of supply and a strong competitive advantage versus
peers. We sold out of the shares at beginning of 2022 as consumer spending
pressures loomed, but after the sharp fall in the share price, we reopened the
position.
Oil and gas companies were some of the few beneficiaries of events, due to the
energy supply shock. We therefore added to our existing holdings in BP and
Shell, and opened new holdings in other energy names such as Drax, SSE,
Centrica and Serica, which we thought would also benefit from higher gas and
oil prices. Glencore's exposure to copper, nickel and zinc also means it is
well positioned to benefit from the global transition to EVs and other clean
energy users and we opened a position/added to our position.
As the economy turned down, we added to several defensive businesses including
Tesco, Imperial Brands and Unilever, which we expected to be relatively
resilient.
Higher defence budgets following the Russian invasion of Ukraine will be
beneficial for BAE and this prompted us to add a new holding.
We added a new position in the catering services company Compass Group, which
struggled during the pandemic, however, its diverse client base (offices,
hospitals and sports venues, to name a few) means revenues are relatively
immune to normal economic slowdowns. The company has emerged from the pandemic
stronger than ever, and recent results showed continued operational momentum.
We also added to several utilities names which have inflation-linked,
regulated asset bases. These included National Grid and Severn Trent.
We also added a new position in Bunzl, a B2B distributor of non-food
consumable products such as food packaging and cleaning and hygiene supplies,
across a diverse range of end markets. Its contracts are typically on a cost
plus basis.
Man Group, a new position, is an alternative asset manager which continues to
deliver strong operational momentum, despite the challenging backdrop. Its
recent good performance in key strategies has attracted new business,
particularly in its higher fee absolute return strategies. As a purely
institutional manager, its asset base is likely to be relatively sticky and we
expect the company to return significant amounts of excess cash to its
shareholders if performance remains strong.
4imprint, a new position, produces promotional merchandise and is benefitting
from the continuing shift away from physical catalogues towards online
merchandising.
The UK insurer, Aviva, has been on a multi-year restructuring to sell off
non-core assets and re-focus on markets where they have a strong (top 3)
market position. The disposals are now complete, and the business is extremely
well capitalised as a result, so we added a new position.
Telecom Plus is a multiservice utilities provider to residential and small
business customers in the UK. The company can price at a discount to the
government price cap due to its scale and long-term supply contracts with
partners. The competitive environment has greatly improved, as many of their
smaller, aggressive competitors have not survived the recent period of energy
price volatility.
Sales
Even before the Russian invasion of Ukraine, we had, thankfully, sold our
holdings in Polymetal and EVRAZ both of which have operations in Russia. EVRAZ
shares have subsequently been suspended.
After the Russian invasion, we sold a number of cyclicals as we looked to
position the portfolio more defensively. These companies were either directly
exposed to the economic cycle or lack the pricing power to pass through cost
inflation. They included software company AVEVA, Breedon, a supplier of
building materials, fashion house Burberry, B&M, owner of variety stores,
and retailer Marks and Spencer.
In addition, we also closed our exposure to bus company National Express,
budget airline WIZZ Air, Synthomer, a producer of specialist chemicals, Unite
Group, a diversified REIT, and asset managers Scottish Mortgage Investment
Trust, Polar Capital and Liontrust Asset Management, which have exposure to
highly rated growth names.
We sold several highly-rated companies where we grew concerned about their
expensive rating in a rising rate environment. These included Ergomed, a
biotech company, Games Workshop, which sells toys and games, and Oxford
Instruments, a producer of semiconductor equipment and materials.
We also sold Rightmove, a provider of online information related to UK
residential real estate, Spirax-Sarco, a specialist industrial machinery and
Team 17, a video game designer.
Although global media platform Future and ad agency WPP are quite different
businesses, they are both exposed to economic cycles, as expenditure on
marketing is one of the first areas to be cut in a downturn. Commentary from
several large US tech names suggests that media budgets are already being cut
and we expect more to follow. As a result, we sold out of both.
We also closed positions in international gambling companies Flutter and
Entain. We still think that the US gambling market is an attractive
structural growth story. However, these are consumer-exposed companies and
they both have significant European operations which may struggle in the
current macroeconomic environment.
Asset management is a highly operationally geared business, and we grew
increasingly concerned about the downside risk at Impax, as poor performance
may lead to outflows. Although we think they are well-placed in the ESG space,
we sold our position due to these near term headwinds.
Hilton Food Group processes, packs and distributes meat and fish products to
international food retailers. We bought Hilton on the premise that is had many
long-dated, cost-plus contracts, which should have given visibility of
revenues and protection from inflation. Management commentary in meetings and
in shareholder communications supported these beliefs. However, at the time of
their H1 results, management announced that they had been unable to pass on
rampant cost inflation in some of their contracts, and interest costs had
ballooned. This led to a material profit warning and the shares sold off
sharply. We sold the stock on the news, together with our exposure to the
producer of chicken and pork products, Cranswick, which we expected to
experience similar issues.
We sold out of our residual holdings in Vodafone and BT, as price competition
in the telecoms industry intensified.
Reluctantly, we sold out of two good companies, BHP and Ferguson, both of
which delisted from the main UK stockmarket.
Claverhouse's portfolio was geared throughout the year, but much less so than
usual. We use FTSE 100 futures to manage gearing and, to a slightly greater
extent than usual, to protect income. At the year-end the Company was 7.2%
geared, compared to 8.8% at the end of the previous year, but by the time of
writing, this had risen to 8.0%.
Highlighted Company: Ashtead Group
Ashtead is a rental company servicing industrial and construction end markets.
We expect Ashtead to continue to benefit from the structural trend of
increased rental penetration, and to win market share in what is a highly
fragmented industry. Ashtead current market share is only just over 10% and
management is hoping to double this over the medium term. The company's scale
and technology give it a competitive advantage over small operators, as they
have better equipment availability and utilisation rates are better. This has
allowed Ashtead to generate returns well ahead of its cost of capital and it
has a long runway for reinvestment of that capital - the perfect recipe for
the business to keep creating value for shareholders.
Highlighted Company: 3i Group
3i is a private equity investor. It owns companies that operate in four core
sectors: Business and Technology Services, Consumer, Healthcare and Industrial
Technology. The company targets investments which it believes can double in
size over their holding period, and it has an excellent track record of
achieving this goal. Its largest portfolio company is Action, a discount
retailer, which is rapidly rolling out its stores across Europe. Action has
been phenomenally successful, yet its expansion is still in its early stages.
While many private equity companies have been doing bigger and more expensive
deals, 3i has focused on smaller transactions and bolt-on deals for existing
portfolio companies. This acute focus on valuation should enhance returns over
the long run. Current CEO, Simon Borrows, took over in 2012 and has
consistently grown the value of the portfolio.
Environmental, Social, and Governance ('ESG') factors
Whilst Claverhouse holds stocks based primarily on companies' fundamentals, we
also consider the potential impact of ESG factors on a company's ability to
deliver shareholder value. We assess each company's strategy for dealing with
these important matters and the consequent risks arising from them. Our
analysis helps determine whether relevant ESG factors are financially material
and, if so, whether they are reflected in the valuation of the company. Such
analysis may influence not only our decision to own a stock but also, if we
do, the size of that position in the portfolio.
For example, we own several stocks in the mining, energy and tobacco sectors,
all of which face significant ESG challenges. Our analysis suggests that the
risks posed by these ESG challenges are currently adequately reflected in most
of those companies' valuations and do not outweigh the investment attractions
of the shares. As owners of these companies, we strive to influence management
in their efforts to address these important issues and we hold them
accountable for their ESG targets.
We explained our case for holding mining companies in our 2020 annual report.
Our view remains that many of the commodities that miners' produce are not
only the building blocks of economic growth but are essential to facilitating
electrification of the global economy. Hence, while the sector undoubtedly
faces many ESG challenges, there are good reasons to believe it has a key role
to play in developing a more sustainable future.
Accordingly, we added Glencore to the portfolio in early 2022. Whilst the
company has had a chequered past, culminating in fines from several regulators
relating to corruption and bribery, it has since undergone a significant
transformation, including changes to senior management. We are now observing
much improved ESG credentials. At a recent capital markets day, Glencore set
itself ambitious climate targets, including reaching net zero emissions from
its own activities (Scope 1 and 2 emissions) and emissions generated
indirectly by its actions (Scope 3 emissions) by 2050. At the same event, the
new CEO, Gary Nagle, committed to strengthening the company's Value and Code
of Conduct and firmly embedding its principles in the business. In the years
to come we will, of course, closely monitor management's progress in reaching
these targets. With a much-improved approach to ESG considerations, the
production of metals essential for electrification of the global economy and
consequent exceptional cash generation, we now believe Glencore to be an
attractive investment.
Company meetings continue to be an important opportunity to engage with our
portfolio companies on ESG issues. As an example, we recently engaged with
both Lloyds Banking Group and NatWest Group regarding their progress towards
realising their climate goals. The meetings provided us with the chance to
understand the challenges these two banks face in achieving their net zero
targets. Both companies are significant providers of mortgages. Decarbonising
the UK housing stock presents one of the greatest challenges for the UK in
reducing the country's carbon emissions and will require commitment from
multiple stakeholders. Understanding the role that mortgage lenders can play
in addressing this challenge was insightful.
Market Outlook
We continue to observe a fragile world characterised by heightened risks.
Global growth will be slower in 2023 and some economies, including the UK, may
slip into recession. The end of the decade-long era of cheap money will
require investors to factor in structurally higher inflation and interest
rates than those they have enjoyed for so long. In addition, the UK economy
faces several unique challenges (some of them self-inflicted!).
However, despite these negatives, a likely peaking of both inflation and
interest rates this year, combined with the long-awaited re-opening of China,
and the sheer depth of universal investor pessimism, makes us more optimistic
on markets than we have been for some time. We are particularly attracted to
large, blue chip FTSE 100 stocks, many of which are genuinely global in their
operations, but whose shares continue to trade on significant discounts to
their international peers. Indeed, the attractive valuations of many UK stocks
could see the UK market continuing to be one of the better performing global
markets over the coming year and beyond.
In a lower growth environment, dividend income is likely to comprise a higher
proportion of future total returns. Consequently, stocks offering high,
predictable income should be re-rated - as, hopefully, will high income
Investment Trusts like Claverhouse, which have a long track record of dividend
growth. This trend is likely to be supported by investors' increased need for
income given the current cost of living crisis.
The dangerous 'get rich quick' era of recent years, which placed crypto
currencies, Nasdaq stocks and profitless technology names in the ascendancy,
is well and truly over. In this new, more challenged world, investors will
need to extend their time horizons and re-learn to appreciate traditional
investment virtues such as slow, steady compounding and the certainty of
access to their money.
Further tough economic times no doubt lie ahead. But the arrival of a new,
more cautious era should play to Claverhouse's strengths - its long-term
prudent approach of investing in good value, dividend-paying, quality UK
companies - and we are confident that shareholders will be rewarded for their
patience.
For and on behalf of the Investment Manager
William Meadon
Callum Abbot
Portfolio Managers
13th March 2023
PRINCIPAL AND EMERGING RISKS
The Board, through delegation to the Audit Committee, has undertaken a robust
assessment and review of the principal risks facing the Company, together with
a review of any new and emerging risks that may have arisen during the year to
31st December 2022, including those that would threaten its business model,
future performance, solvency or liquidity.
With the assistance of the Investment Manager, the Audit Committee has drawn
up a risk matrix, which identifies the key risks to the Company, as well as
emerging risks. The risk matrix, including emerging risks, are reviewed
formally by the Audit Committee every six months or more regularly as
appropriate. At each meeting, the Board considers emerging risks which it
defines as potential trends, sudden events or changing risks which are
characterised by a high degree of uncertainty in terms of occurrence
probability and possible effects on the Company. As the impact of emerging
risks is understood, they may be entered on the Company's risk matrix and
mitigating actions considered as necessary. In assessing the risks and how
they can be mitigated, the Board has given particular attention to those risks
that might threaten the viability of the Company. These key and emerging risks
are listed below, in alphabetical order:
Principal risk Description Mitigating activities
Climate change Climate change can have a significant impact on the business models, The Board receives ESG reports from the Investment Manager on the portfolio
sustainability and viability of individual companies, whole sectors and even and how ESG considerations are integrated into investment decision making so
asset classes. as to mitigate risk at the level of stock selection and portfolio
construction. The analysis conducted by the Investment Manager includes the
approach investee companies take to recognising and mitigating climate change
risks.
The Board is also considering the threat posed by the direct impact on climate
change on the operations of the Manager, Investment Manager and other major
service providers. As extreme weather events become more common, the
resilience, business continuity planning and the location strategies of the
Company's services providers will come under greater scrutiny.
The Investment Manager is reviewing the core disclosure elements of the Task
Force on Climate-related Financial Disclosures ('TCFD') reporting framework.
As an investment trust, the Company is not required to provide information in
compliance with TCFD.
Cybersecurity Threat of cyber-attack, in all its guises including threats from the work from The Company benefits directly or indirectly from all elements of JPMorgan's
home processes is regarded as at least as important as more traditional cyber security programme. The Board reviews the cyber security precautions
physical threats to business continuity and security. taken by its third party suppliers on a regular basis.
In addition to threatening the Company's operations, such an attack is likely The controls around the physical security of JPMorgan's data centres, security
to raise reputational issues which may damage the Company's share price and of its networks and security of its trading applications are tested by
reduce demand for its shares. independent reporting auditors and reported on every six months against the
AAF 01/06 Standard.
Geopolitical and macro-economic There is an increasing risk to market stability and investment environment The Investment Manager continuously monitors geopolitical developments and
from geopolitical conflicts (for example, the Russian invasion of the Ukraine societal issues relevant to its business. These are also considered as part of
as well as growing tensions in Southeast Asia), which may impact both portfolio construction.
investment performance and/or the operating environment for the Company,
Manager, Investment Manager or the Company's other third party suppliers. The Company is a closed-end vehicle and, unlike open-ended funds, does not
have to sell investments at low valuations in volatile markets.
Investment and strategy Inappropriate investment strategy. For example, poorly calibrated asset The Board reviews investment strategy at each board meeting.
allocation or inappropriate levels of gearing, may lead to poor long-term
investment performance (significantly below agreed benchmark or The Board manages these risks by ensuring a diversification of investments.
market/industry average) resulting in the Company's shares trading at a wider The Investment Manager operates in accordance with investment limits and
discount to NAV per share. restrictions determined by the Board. The Board reviews its investment limits
and restrictions regularly and the Manager confirms its compliance with them
each month.
The Investment Manager also provides the directors with regular management
information, including risk and performance reports as well as competitor and
shareholder analysis.
The Board monitors the implementation and results of the investment process
with the Portfolio Managers, who attend all board meetings.
The performance of the Company relative to its benchmark and its peers and the
discount/ premium to NAV per share are key performance indicators measured by
the Board on a regular basis and are reported on pages 31 and 32 in the full
annual report.
Legal and Regulatory/ Corporate Governance As an investment trust, the Company's operations are subject to wide ranging The Company has procedures to monitor the status of its compliance with the
regulations. The financial services sector continues to experience significant relevant requirements to maintain its Investment Trust status, including
regulatory change at national and international levels. Failure to act in receiving and reviewing information and reporting from the Manager and
accordance with these regulations could cause fines, censure or other losses Investment Manager. The Depositary (The Bank of New York Mellon
including taxation or reputational loss. Breach of Company Law or UK Listing (International) Limited) reports regularly on third party suppliers and their
Rules resulting in suspension. compliance with expected standards of performance and these reports are
reviewed by the Audit Committee.
Loss of Investment Team Loss of key staff by the Investment Manager, such as the Portfolio Managers, The Board keeps the services of the Manager, Investment Manager and
could affect the performance of the Company. third-party suppliers under continual review. The Board obtains assurances
from the Investment Manager that the team is suitably resourced, and
appropriately remunerated and incentivised in its role.
The Board also considers the succession plan for the portfolio management team
on an annual basis.
Market factors such as interest rates, inflation and equity market performance Market factors such as interest rates, inflation and equity market performance The Board considers asset allocation, stock selection and levels of gearing on
may impact the value of investments and the performance of the Company. a regular basis and has set investment restrictions and guidelines, which are
monitored and reported on by the Investment Manager.
Government/Central Bank fiscal/monetary response to the high levels of
inflation in the UK affecting economic growth directly or valuation levels and The Board monitors the implementation and results of the investment process
a subsequent increase in interest rates. and regularly discusses portfolio positioning with the portfolio management
team.
The Board monitors the changing risk landscape and potential threats to the
Company with the support of regular reports and ad hoc reports as required,
the directors' own experience and external insights gained from industry and
shareholder events.
Operational Disruption to, or failure of, the Manager's accounting, dealing or payments Details of how the Board monitors the services provided by the Manager and its
systems or the depositary's or custodian's records could prevent accurate associates and the key elements designed to provide effective internal control
reporting and monitoring of the Company's financial position. are included within the Risk Management and Internal Control section of the
Corporate Governance report on pages 52 and 53 in the full annual report. The
risk of fraud or other control failures or weaknesses within the Manager or
other service providers could result in losses to the Company. The Audit
Committee receives independently audited reports on the Manager's, the
Investment Manager's and other service providers' internal controls, as well
as regular reporting from the Manager's Compliance function. The Company's
management agreement obliges the Manager to report on the detection of fraud
relating to the Company's investments and the Company is afforded protection
through its various contracts with suppliers, of which one of the key
protections is the Depositary's indemnification for loss or misappropriation
of the Company's assets held in custody.
Share price volatility The shares of the Company are traded freely and are therefore subject to the The Board seeks to narrow the discount by undertaking measured buybacks of the
influences of supply and demand and investors' perception to the markets the Company's shares taking account of market conditions and having established
Company invests in. The share price is therefore subject to fluctuations and explicit guidelines.
like all investment trusts may trade at a discount to the NAV.
The Company and Manager work with the Corporate Broker to understand demand
for the Company's shares.
Strategy and Performance Inappropriate investment strategy, for example asset allocation or the level The Board manages these risks by setting its objectives carefully and through
of gearing, may lead to underperformance against the Company's benchmark index diversification of Investments. The Company operates various investment
and peer companies, resulting in the Company's shares trading on a wider restrictions and guidelines designed to ensure that the mandate given to the
discount. Investment Manager is properly executed and these guidelines are monitored and
reported on by the Manager. JPMF 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 Portfolio Managers, who attend all Board meetings, and reviews data
which show statistical measures of the Company's risk profile. The Investment
Manager has been delegated powers from the Board to determine appropriate
levels of gearing within a strategic range set by the Board.
The Board holds a separate meeting devoted to strategy each year and also
spends time considering potential emerging risks which might impact the
Company in the future.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors' Report on
page 44 in the full annual report. The management fee payable to the Manager
for the year was £2,222,000 (2021: £2,206,000) of which £nil (2021: £nil)
was outstanding at the year end.
Included in administration expenses in note 6 on page 76 in the full annual
report are safe custody fees amounting to £8,000 (2021: £11,000) payable to
JPMorgan Chase Bank N.A. of which £2,000 (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 £31,000
(2021: £19,000) of which £nil (2021: £nil) was outstanding at the year end.
The Company holds an investment in JPMorgan Smaller Companies Investment Trust
plc which is also managed by JPMAM. At the year end this was valued at £13.3
million (2021: £20.4 million) and represented 3.0% (2021: 3.7%) of the
Company's investment portfolio. During the year, the Company made £nil (2021:
£nil) purchases of this investment and sales with a total value of £811,000
(2021: £8,940,000). Dividend income amounting to £334,000 (2021: £292,000)
was receivable during the year, 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 £9.4 million (2021:
£4.7 million). Interest amounting to £325,000 (2021: £6,000) was receivable
during the year, of which £nil (2021: £nil) was outstanding at the year end.
Handling charges on dealing transactions amounting to £8,000 (2021: £6,000)
were payable to JPMorgan Chase Bank N.A. during the year of which £1,000
(2021: £2,000) was outstanding at the year end.
At the year end, total cash of £157,000 (2021: £2,188,000) was held with
JPMorgan Chase Bank N.A. A net amount of interest of £14,000 (2021: £nil)
was receivable by the Company during the year from JPMorgan Chase Bank N.A. of
which £nil (2021: £nil) was outstanding at the year end.
Full details of Directors' remuneration and shareholdings can be found on
pages 56 to 57 in the full annual report and in note 6 on page 76 in the full
annual report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations.
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, 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.
The accounts are published on the www.jpmclaverhouse.co.uk website, which is
maintained by the Company's Manager. The maintenance and integrity of the
website maintained by the Manager is, so far as it relates to the Company, the
responsibility of the Manager. The work carried out by the auditors does not
involve consideration of the maintenance and integrity of this website and,
accordingly, the auditors accept no responsibility for any changes that have
occurred to the accounts since they were initially presented on the website.
The accounts are prepared in accordance with UK legislation, which may differ
from legislation in other jurisdictions.
The Strategic Report and Directors' Report include 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 the
Company faces.
Under applicable law and regulations the Directors are also responsible for
preparing a Directors' Report and Directors' Remuneration Report that comply
with that law and those regulations.
Each of the directors, whose names and functions are listed on page 43 in the
full 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 and Directors' 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.
The Board confirms that it is satisfied that the Annual Report and Financial
Statements taken as a whole are fair, balanced and understandable and provide
the information necessary for shareholders to assess the performance, business
model and strategy of the Company.
For and on behalf of the Board
David Fletcher
Chairman
13th March 2023
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31st December 2022
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments and derivatives
held at fair value through profit or loss - (53,403) (53,403) - 67,191 67,191
Net foreign currency gains/(losses) - 285 285 - (4) (4)
Income from investments 22,346 - 22,346 20,224 - 20,224
Interest receivable and similar income 339 - 339 6 - 6
Gross return/(loss) 22,685 (53,118) (30,433) 20,230 67,187 87,417
Management fee (778) (1,444) (2,222) (772) (1,434) (2,206)
Other administrative expenses (716) - (716) (668) - (668)
Net return/(loss) before finance costs
and taxation 21,191 (54,562) (33,371) 18,790 65,753 84,543
Finance costs (658) (1,222) (1,880) (589) (1,094) (1,683)
Net return/(loss) before taxation 20,533 (55,784) (35,251) 18,201 64,659 82,860
Taxation credit/(charge) 3 - 3 (99) - (99)
Net return/(loss) after taxation 20,536 (55,784) (35,248) 18,102 64,659 82,761
Return/(loss) per share 34.27p (93.10)p (58.83)p 30.77p 109.92p 140.69p
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
The 'Total' column of this statement is the profit and loss account of the
Company and the 'Revenue' and 'Capital' columns represent supplementary
information prepared under guidance issued by the Association of Investment
Companies.
Net return/(loss) after taxation represents the return/(loss) for the year and
also Total Comprehensive Income/(Expense).
STATEMENT OF CHANGES IN EQUITY
For the year ended 31st December 2022
Called up Share Capital Total
share premium redemption Capital Revenue Shareholders'
capital account reserve reserves reserve(1) funds
£'000 £'000 £'000 £'000 £'000 £'000
At 31st December 2020 14,651 165,378 6,680 184,483 21,667 392,859
Issuance of the Company's shares from Treasury - 412 - 3,247 - 3,659
Issue of ordinary shares 208 6,073 - - - 6,281
Repurchase of shares into Treasury - - - (2,329) - (2,329)
Net return - - - 64,659 18,102 82,761
Dividends paid in the year - - - - (18,209) (18,209)
At 31st December 2021 14,859 171,863 6,680 250,060 21,560 465,022
Issue of ordinary shares 178 5,004 - - - 5,182
Net (loss)/return - - - (55,784) 20,536 (35,248)
Dividends paid in the year - - - - (19,156) (19,156)
At 31st December 2022 15,037 176,867 6,680 194,276 22,940 415,800
(1) This reserve is distributable. The amount that is
distributable is not necessarily the full amount as disclosed in these
financial statements of £22,940,000 as at 31st December 2022. This reserve
may be used to fund distributions to shareholders.
STATEMENT OF FINANCIAL POSITION
At 31st December 2022
2022 2021
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 445,552 553,180
Current assets
Debtors 1,098 1,403
Cash held at broker - 4,969
Cash and cash equivalents 9,556 6,886
10,654 13,258
Current liabilities
Creditors: amounts falling due within one year (10,406) (70,480)
Derivative financial liabilities - (936)
Net current assets/(liabilities) 248 (58,158)
Total assets less current liabilities 445,800 495,022
Creditors: amounts falling due after more than one year (30,000) (30,000)
Net assets 415,800 465,022
Capital and reserves
Called up share capital 15,037 14,859
Share premium account 176,867 171,863
Capital redemption reserve 6,680 6,680
Capital reserves 194,276 250,060
Revenue reserve 22,940 21,560
Total shareholders' funds 415,800 465,022
Net asset value per share 691.3p 782.4p
STATEMENT OF CASH FLOWS
For the year ended 31st December 2022
2022 2021
£'000 £'000
Net cash outflow from operations before dividends and interest (2,609) (2,888)
Dividends received 22,677 19,322
Interest received 316 6
Overseas tax recovered 1 -
Interest paid (1,971) (1,587)
Net cash inflow from operating activities 18,414 14,853
Purchases of investments (226,611) (191,662)
Sales of investments 280,403 156,615
Settlement of forward currency contracts - (1)
Settlement of futures contracts (504) (2,635)
Transfer of Company cash to be held at the broker 4,969 (4,969)
Net cash inflow/(outflow) from investing activities 58,257 (42,652)
Dividends paid (19,156) (18,209)
Issuance of the Company's shares from Treasury - 3,659
Repurchase of the Company's shares into Treasury - (2,329)
Issue of Ordinary shares 5,182 6,281
Repayment of bank loan (100,000) (25,000)
Drawdown of bank loan 40,000 45,000
Net cash (outflow)/inflow from financing activities (73,974) 9,402
Increase/(decrease) in cash and cash equivalents 2,697 (18,397)
Cash and cash equivalents at start of year 6,886 25,283
Exchange movements (27) -
Cash and cash equivalents at end of year 9,556 6,886
Cash and cash equivalents consist of:
Cash and short term deposits 157 2,188
Cash held in JPMorgan Sterling Liquidity Fund 9,399 4,698
Total 9,556 6,886
Reconciliation of net debt
As at Other non-cash As at
31st December 2021 Cash flows charges 31st December 2022
£'000 £'000 £'000 £'000
Cash and cash equivalents
Cash 2,188 (2,004) (27) 157
Cash equivalents 4,698 4,701 - 9,399
6,886 2,697 (27) 9,556
Borrowings
Debt due within one year (70,000) 60,000 - (10,000)
Debt due after one year
£30m 3.22% Private Placement loan (30,000) - - (30,000)
(100,000) 60,000 - (40,000)
Total (93,114) 62,697 (27) (30,444)
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st December 2022
1. Accounting policies
(a) Basis of accounting
The financial statements are prepared under 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
making their assessment, the Directors have reviewed income and expense
projections, the liquidly of the investment portfolio and considered the
impact of stressed conditions on the portfolio liquidity and income. In
addition, the Directors have also considered the measures in place with key
service providers, including the Manager, to maintain operational resilience.
The disclosures on going concern on page 50 of the Directors' Report form
part of these financial statements.
The policies applied in these financial statements are consistent with those
applied in the preceding year.
2. Dividends
(a) Dividends paid and declared
2022 2021
£'000 £'000
Dividends paid
2021 fourth quarterly dividend of 9.50p (2020: 10.00p) paid in March 2022 5,665 5,826
First quarterly dividend of 7.50p (2021: 7.00p) paid in June 2022 4,497 4,083
Second quarterly dividend of 7.50p (2021: 7.00p) paid in September 2022 4,497 4,150
Third quarterly dividend of 7.50p (2021: 7.00p) paid in December 2022 4,497 4,150
Total dividends paid in the year of 32.00p (2021: 31.00p) 19,156 18,209
Dividend declared
Fourth quarterly dividend declared of 10.50p (2021: 9.50p) paid in March 2023 6,315 5,646
All dividends paid and declared in the period have been funded from the
Revenue Reserve.
The dividend proposed in respect of the year ended 31st December 2021 amounted
to £5,646,000. However, the amount paid amounted to £5,665,000 due to new
shares issued after the balance sheet date but prior to the record date.
The fourth quarterly dividend has been declared and paid in respect of the
year ended 31st December 2022. This dividend will be reflected in the
financial statements for the year ending 31st December 2023.
(b) Dividends for the purposes of Section 1158 of the Corporation Tax
Act 2010 ('Section 1158')
The requirements of Section 1158 are considered on the basis of dividends
declared in respect of the financial year, shown below.
The revenue available for distribution by way of dividend for the year is
£20,536,000 (2021: £18,102,000). Brought forward revenue reserves amounting
to £nil (2021: £nil) have been utilised in order to finance the dividend in
respect of the year.
2022 2021
£'000 £'000
First quarterly dividend of 7.50p (2021: 7.00p) paid in June 2022 4,497 4,083
Second quarterly dividend of 7.50p (2021: 7.00p) paid in September 2022 4,497 4,150
Third quarterly dividend of 7.50p (2021: 7.00p) paid in December 2022 4,497 4,150
Fourth quarterly dividend of 10.50p (2021: 9.50p) paid in March 2023 6,315 5,646
Total dividend declared in respect of the year of 33.00p (2021: 30.50p) 19,806 18,029
The revenue reserve after payment of the fourth dividend will amount to
£16,625,000 (2021: £15,914,000).
3. Return/(loss) per share
2022 2021
£'000 £'000
Revenue return 20,536 18,102
Capital (loss)/return (55,784) 64,659
Total (loss)/return (35,248) 82,761
Weighted average number of shares in issue during the year 59,917,311 58,822,971
Revenue return per share 34.27p 30.77p
Capital (loss)/return per share (93.10)p 109.92p
Total (loss)/return per share (58.83)p 140.69p
4. Net asset value per share
The net asset value per Ordinary share and the net asset value attributable to
the Ordinary shares at the year end follow. These were calculated using
60,145,653 (2021: 59,435,653) Ordinary shares in issue at the year end
(excluding Treasury shares).
2022 2021
Net asset value attributable Net asset value attributable
£'000 pence £'000 pence
Net asset value - debt at par 415,800 691.3 465,022 782.4
Add: amortised cost of £30 million 3.22% private placement loan March 2045 30,000 49.9 30,000 50.5
Less: fair value of £30 million 3.22% private placement loan March 2045 (23,466) (39.0) (36,967) (62.2)
Net asset value - debt at fair value 422,334 702.2 458,055 770.7
5. Non-statutory accounts
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2022 but is derived from
those accounts. Statutory accounts for the year ended 31 December 2022 will be
delivered to the Registrar of Companies in due course. The Auditors have
reported on those accounts; their report was (i) unqualified, (ii) did not
include a reference to any matters to which the Auditors drew attention by way
of emphasis without qualifying their report and (iii) did not contain a
statement under Section 498 (2) or (3) of the Companies Act 2006. The text of
the Auditors' report can be found in the Company's full Annual Report and
Accounts on the Company's website at www.jpmclaverhouse.co.uk
(http://www.jpmclaverhouse.co.uk) .
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 FUNDS LIMITED
13 March 2023
For further information, please contact:
Emma Lamb
For and on behalf of
JPMorgan Funds Limited
020 7742 4000
ENDS
A copy of the annual report will shortly be submitted to the Financial Conduct
Authority's National Storage Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
The annual report will shortly be available on the Company's website at
www.jpmclaverhouse.co.uk (http://www.jpmclaverhouse.co.uk) where up-to-date
information on the Company, including daily NAV and share prices, factsheets
and portfolio information can also be found.
JPMORGAN FUNDS LIMITED
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