Half-year Results

RNS Number : 3516G

JPMorgan Asian Investment Tst PLC

26 May 2017

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN ASIAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST MARCH 2017

Legal Entity Identifier: 5493006R74BNJSJKCB17

Information disclosed in accordance with DTR 4.2.2

chairman's statement

In what is my first statement as Chairman of your Company, I can report that the Company's return on net assets was 9.1%, and pleasingly, the return to Ordinary shareholders was 12.8%, reflecting a narrowing of the Company's discount over the period. The Company marginally underperformed its benchmark, the MSCI Asia ex Japan Index, which returned 10.4%.

The narrowing in our discount is welcome as the Board has been dissatisfied with the Company's discount level over a number of years. It reflects an improved investment performance since Richard Titherington and Ayaz Ebrahim took over as Investment Managers, with the Company's three and five year NAV total return performance now outperforming the benchmark index by 7.8 and 8.1 percentage points respectively. The change in our dividend policy, alongside the more traditional use of buybacks has further assisted with the narrowing of the discount. Shareholders at the Company's Annual General Meeting held on 2nd February 2017 approved the new dividend policy; we hope this change will assist in reducing the discount on a sustainable basis in the future.

I can also report that, at the same meeting, shareholders voted in favour of the Company's continuation as an investment trust for a further three year period. Your Board is aware that shareholders need to be rewarded for their ongoing support and we will continue to monitor closely the Manager's performance and the level of the Company's discount.

The market review, an appraisal of performance and portfolio positioning, together with their outlook can be found in the accompanying Investment Managers' report.

Dividend Policy and Discount Management

Following the necessary approval from shareholders, the Company has now implemented its revised dividend policy. The new dividend policy aims to pay, in the absence of unforeseen circumstances, a regular quarterly dividend equivalent to 1% of the Company's NAV on the last business day of each financial quarter, being the end of December, March, June and September. These dividends will be paid from a combination of revenues and capital reserves. However, this change in dividend policy is not accompanied by a change in the investment policy of the Company, which is to deliver capital growth to shareholders. In respect of the quarters to 31st December 2016 and to 31st March 2017 dividends of 3.1p and 3.4p respectively were declared.

Over the reporting period the Company has conducted a number of share buybacks, repurchasing a total of 805,500 shares when the discount has widened beyond acceptable levels. It appears that to some extent, a combination of these two mechanisms has assisted in the narrowing of the Company's discount at a time when the discount widened for the majority of our peers.

For full details of the rationale behind both the change of distribution policy and the increase in the use of the buyback powers, shareholders should refer to my predecessor's statement within the Company's financial statements for the year ended 31st December 2016.

Gearing

In December 2016, the Company put in place a new £40 million three year multi currency loan facility with Scotiabank, with the option of further increasing the facility to £60 million. The investment managers use this facility to gear the portfolio in periods when they believe this leverage will enhance shareholder returns. The Company was not geared at the end of the reporting period.

Board of Directors

Following many years of service to the Company, James Long retired as a Director and Chairman at the conclusion of the Annual General Meeting held in January this year. James Strachan also made the decision to retire at this juncture. The Board gives thanks to Messrs. Long and Strachan from their service over the years and wishes them well. I was appointed Chairman at the conclusion of the Annual General Meeting and the Board as it currently stands comprises four Directors with an appropriate balance of tenure and experience.

Outlook

The Company's performance since the end of March 2017 has been strong and the Company is now outperforming its benchmark over its financial year to date. Our Investment Management Team continues to remain positive on the outlook for Asian equities going forward, and whilst there remains a broad mix of economic and political threats to consider, valuations look appealing when compared with both the US and Europe.

Bronwyn Curtis OBE

Chairman

26th May 2017

Investment managers' report

During the period under review, Asian stock markets delivered strong gains for investors. Your Company delivered a total return on net assets of 9.1%, underperforming the benchmark's total return of 10.4%. In this report, we will discuss the major events during the period under review, the portfolio's current structure and the outlook for the remainder of 2017.

Review

The last quarter of 2016 saw Asian equities decline, underperforming global equities as a whole. Economic momentum over this period stabilised, and we saw the beginning of a recovery in earnings and a rally in commodity prices such as coal and crude oil. This was a catalyst for the rotation from quality growth to value cyclical stocks, with sectors such as healthcare, consumer staples and telecommunication services underperforming materials, finance and energy as we advanced into the quarter.

The election of Donald Trump further exacerbated this trend and led to a rise in bond yields, the US dollar and inflation expectations in response to aggressive rhetoric surrounding increasing fiscal stimulus. After a short hiatus, the 0.25% rise in US rates announced by the Fed in December drove the continued strengthening of the dollar through to the end of the year.

Within the region, the Indian government announced its intention to regulate the informal economy through replacing its high-value bank notes. The market fell in response as several parts of the economy were expected to suffer in the near term. Crude oil continued to strengthen on the back of a successful deal fostered by Saudi Arabia to manage production levels of the commodity, while coal prices started to weaken as the Chinese government eased supply restrictions imposed earlier in the year.

As we entered 2017, Asian equities rallied strongly and registered one of the strongest starts in many years. Global economic indicators, such as the purchasing managers' index (PMI) and manufacturing numbers, continued to show an upward trend. Companies within Asia continued to see improving earnings expectations alongside an encouraging round of earnings releases. The technology and real estate sectors provided some particularly notable positive surprises.

A major factor in the equity market rally was the strong inflows into emerging markets, which amounted to around USD 13.1 billion and were the highest first-quarter equity inflows since 2013. India rallied as the incumbent government (BJP) won two state elections with a clear majority (one of those being the most populous states in India, Uttar Pradesh) and formed a government in four of the five states. The cabinet also approved four draft laws on the Goods and Services Tax needed to implement these business-friendly tax reforms from July 2017.

In Korea, politics and decreasing concerns regarding anti-free trade policies from the new US administration drove the won's appreciation. Equities rallied, reflecting strong performance from information technology stocks on the back of upgrades and new product cycles from both Samsung and Apple. This positive economic news allowed investors to look beyond political concerns arising from the impeachment of President Park and the announcement that elections will take place in early May. Geopolitical tensions between China and Korea remained strained. Chinese equities performed in line with the region on the back of strong economic momentum, a stable yuan and strong flows into Hong Kong-listed H-shares.

Portfolio

The Company underperformed during the period under review, with both country allocation and stock selection detracting from performance. In terms of asset allocation, our overweight positions in China, Vietnam and Indonesia were notable detractors as they underperformed the broader regional equity markets. The biggest detractor was in fact the underweight position in Singapore, which was one of the best performing markets over the period.

At the stock level, the key contributor to performance was stock selection in the Information Technology and Consumer sectors. We were correctly overweight Samsung Electronics, which rallied on strong results and an announcement of intentions to improve shareholder returns and despite the large write down taken by the company in recalling the Galaxy Note 7 range of smartphones. Our holdings in those Taiwanese and other firms in the region exposed to Apple performed well ahead of the release of the new phone in the third quarter. These include AAC Technologies (China - acoustics) and Largan Precision (Taiwan - camera lens).

Our holding in IndusInd Bank in India continued to rally as it reported strong results ahead of expectations, driven by higher revenues, indicating that the bank like others in the sector appear to have withstood the negative impact of demonetisation. Across the portfolio, the financial sector remains our largest single sector exposure and our largest overweight position relative to the benchmark with our continued exposure to insurers, particularly in China, being augmented by increased positions in HDFC (India) and TMB (Thailand) banks. Chinese e-commerce stocks were also strong performers over the period.

In contrast, some of stock picks in North Asia were detractors from performance. In Korea, our holding in Korea Electric Power (Kepco) fell as crude oil prices rose over the period which affects earnings and speculation that both the ruling and opposition party in Korea, are looking to pass legislation that would adversely impact the company's fuel mix. Hyundai Glovis, the Korea logistics firm, underperformed in response to concerns over further tightening policies and the challenges that may arise from a broader restructuring of the Hyundai Group.

AIA fell towards the end of the period on the announcement that the current CEO will be stepping down to take on the Chairman's position at HSBC and on concerns over capital outflow restrictions. Éclat in Taiwan and Regina Miracle in Hong Kong, both sports/leisure wear apparel underperformed as they continued to see weak sales from key retail clients. CR Phoenix Healthcare in China underperformed, because of short-term policy uncertainty given that the Beijing government is looking to fully implement the zero mark-up policy on drug sales in public hospitals in 2017.

Outlook

We continue to remain positive on the outlook for Asian equities, whilst nominal economic momentum has yet to be reflected in hard data such as real GDP growth. The continued improvement in economic sentiment has also led to upward revisions in consensus estimates for earnings. Policy risk has been the biggest concern among would-be investors in equity markets since the US election, and the lack of action on the trade or currency front so far is encouraging.

The pickup in intra-regional trades supports our positive view on markets and companies that can benefit from increasing activity in this area, such as technology in Korea, Taiwan and China. We are also positive towards Indian equities given numerous structural growth opportunities, but valuations are near the higher end of the historical range. Indonesia should also benefit from recovering commodity prices, which, along with political stability, should be sufficient to get the private sector started and drive an earnings recovery.

Our three key sector positions in the portfolio include overweight allocations to the information technology sector, the insurance sector, particularly in China, and selected private sector banks in India.

The overweight positioning in information technology comprises semiconductors, components and also exposure to the internet. We look for companies that have the ability to innovate, increase penetration and benefit from a rising functionality of consumer devices. These include component companies in the Apple i-Phone supply-chain as well as leading edge technology companies such as Taiwan Semiconductor and Samsung Electronics.

We are also well-positioned in companies in the e-commerce sector which are seeing strong growth, particularly in China. Our overweight positioning in the insurance sector aims to benefit from a long-term underlying structural growth story in Asia of rising incomes and rising urbanisation. We continue to be very selective in the banking sector, preferring domestically-oriented private-sector banks to state-owned ones. This explains our position in private sector banks in India, which are well managed with a focus on asset quality, geared to the upside of consumer lending and are well-positioned for continued growth in the demand for full banking services in the region.

Ayaz Ebrahim

Richard Titherington

Investment Managers

26th May 2017

Interim Management Report

The Company is required to make the following disclosures in its half year report.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company have not changed since the Company's year end and fall into the following broad categories: investment and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th September 2016.

Related Party Transactions

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

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, liquid nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)  the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with FRS 104 'Interim Financial Reporting' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st March 2017, as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; and

(ii) the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•    select suitable accounting policies and then apply them consistently;

•    make judgements and accounting estimates that are reasonable and prudent;

•    state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board

Bronwyn Curtis OBE

Director

26th May 2017

STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31st March 2017

	(Unaudited) Six months ended 31st March 2017			(Unaudited) Six months ended 31st March 2016			(Audited) Year ended 30th September 2016
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	27,424	27,424	-	19,577	19,577	-	87,626	87,626
Net foreign currency losses	-	(566)	(566)	-	(189)	(189)	-	(1,700)	(1,700)
Income from investments	1,455	-	1,455	1,159	-	1,159	5,965	-	5,965
Interest receivable and similar income	1	-	1	4	-	4	4	-	4
Gross return	1,456	26,858	28,314	1,163	19,388	20,551	5,969	85,926	91,895
Management fee	(822)	-	(822)	(600)	-	(600)	(1,277)	-	(1,277)
Other administrative expenses	(419)	-	(419)	(373)	-	(373)	(737)	-	(737)
Net return on ordinary activities before finance costs and taxation	215	26,858	27,073	190	19,388	19,578	3,955	85,926	89,881
Finance costs	(83)	-	(83)	(152)	-	(152)	(292)	-	(292)
Net return/(loss) on ordinary activities before taxation	132	26,858	26,990	38	19,388	19,426	3,663	85,926	89,589
Taxation	61	-	61	11	-	11	(356)	-	(356)
Net return/(loss) on ordinary activities after taxation	193	26,858	27,051	49	19,388	19,437	3,307	85,926	89,233
Return per share (note 4)	0.20p	28.30p	28.50p	0.05p	20.40p	20.45p	3.48p	90.40p	93.88p

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.

The net return on ordinary activities after taxation represents the profit for the period and also the total comprehensive income.

statement of changes in equity
for the six months ended 31st March 2017

	Called		Exercised	Capital
	up share	Share	warrant	redemption	Capital	Revenue
	capital	premium	reserve	reserve	reserves1	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 31st March 2017 (Unaudited)
At 30th September 2016	23,762	31,646	977	25,121	218,124	5,683	305,313
Repurchase of shares into Treasury	-	-	-	-	(2,392)	-	(2,392)
Net return on ordinary activities	-	-	-	-	26,858	193	27,051
Dividends paid in the period	-	-	-	-	-	(5,798)	(5,798)
At 31st March 2017	23,762	31,646	977	25,121	242,590	78	324,174
Six months ended 31st March 2016 (Unaudited)
At 30th September 2015	23,762	31,646	977	25,121	132,198	4,752	218,456
Net return on ordinary activities	-	-	-	-	19,388	49	19,437
Dividend paid in the period	-	-	-	-	-	(2,376)	(2,376)
At 31st March 2016	23,762	31,646	977	25,121	151,586	2,425	235,517
Year ended 30th September 2016 (Audited)
At 30th September 2015	23,762	31,646	977	25,121	132,198	4,752	218,456
Net return on ordinary activities	-	-	-	-	85,926	3,307	89,233
Dividend paid in the year	-	-	-	-	-	(2,376)	(2,376)
At 30th September 2016	23,762	31,646	977	25,121	218,124	5,683	305,313

¹       These reserves form the distributable reserves of the Company and may be used to fund distribution of profits to investors via dividend payments.

statement of financial position
at 31st March 2017

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2017	31st March 2016	30th September 2016
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	322,572	243,513	319,185
Current assets
Derivative financial assets	1	-	1
Debtors	2,275	1,500	2,475
Cash and cash equivalents	715	3,128	1,065
	2,991	4,628	3,541
Creditors: amounts falling due within one year	(1,388)	(12,622)	(17,413)
Derivative financial liabilities	(1)	(2)	-
Net current assets/(liabilities)	1,602	(7,996)	(13,872)
Total assets less current liabilities	324,174	235,517	305,313
Net assets	324,174	235,517	305,313
Capital and reserves
Called up share capital	23,762	23,762	23,762
Share premium	31,646	31,646	31,646
Exercised warrant reserve	977	977	977
Capital redemption reserve	25,121	25,121	25,121
Capital reserves	242,590	151,586	218,124
Revenue reserve	78	2,425	5,683
Total shareholders' funds	324,174	235,517	305,313
Net asset value per share (note 5)	344.0p	247.8p	321.2p

statement of cash flows
for the six months ended 31st March 2017

	(Unaudited)	(Unaudited)
	Six months ended	Six months ended	(Audited) Year ended
	31st March 2017	31st March 2016	30th September 2016
	£'000	£'000	£'000
Net cash outflow from operations before dividends and interest (note 6)	(1,385)	(851)	(1,935)
Dividends received	570	431	5,197
Interest received	1	4	4
Overseas tax recovered	271	156	164
Interest paid	(112)	(165)	(294)
Net cash (outflow)/inflow from operating activities	(655)	(425)	3,136
Purchases of investments	(81,262)	(51,795)	(124,394)
Sales of investments	105,253	46,601	112,291
Settlement of foreign currency contracts	(24)	115	113
Net cash inflow/(outflow) from investing activities	23,967	(5,079)	(11,990)
Dividends paid	(5,798)	(2,376)	(2,376)
Repurchase of shares into Treasury	(2,261)	-	-
Repayment of bank loans	(15,602)	(10,000)	(10,000)
Drawdown of bank loans	-	11,970	13,273
Net cash (outflow)/inflow from financing activities	(23,661)	(406)	897
Decrease in cash and cash equivalents	(349)	(5,910)	(7,957)
Cash and cash equivalents at start of period/year	1,065	9,017	9,017
Exchange movements	(1)	21	5
Cash and cash equivalents at end of period/year	715	3,128	1,065
Decrease in cash and cash equivalents	(349)	(5,910)	(7,957)
Cash and cash equivalents consist of:
Cash and short term deposits	715	3,128	1,065
	715	3,128	1,065

Notes to the financial statements
for the six months ended 31st March 2017

1.     Financial statements

The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended 30th September 2016 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies and including the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.     Accounting policies

Basis of accounting

The financial statements are prepared 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 November 2014.

FRS 104, 'Interim Financial Reporting', issued by the FRC in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 31st March 2017.

All of the Company's operations are of a continuing nature.

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 30th September 2016, except for the following addition:

        Repurchase of shares to hold in Treasury

The cost of repurchasing shares into Treasury, including the related stamp duty and transaction costs is charged to 'capital reserves' and dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis. Where shares held in Treasury are subsequently cancelled, the nominal value of those shares is transferred out of called up share capital and into capital redemption reserve.

Should shares held in Treasury be reissued, the sales proceeds will be treated as a realised profit up to the amount of the purchase price of those shares and will be transferred to capital reserves. The excess of the sales proceeds over the purchase price will be transferred to share premium.

3.     Dividends paid¹

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2017	31st March 2016	30th September 2016
		£'000	£'000	£'000
	Dividends paid
	Final dividend paid in respect of the year ended 30th September 2016 of 3.0p (2015: 2.5p)	2,851	2,376	2,376
	2017 first interim dividend of 3.1p (2016: nil)2	2,947	-	-
	Total dividends paid in the period	5,798	2,376	2,376

¹         All dividends paid in the period have been funded from the revenue reserve.

²         No interim dividends were paid in 2016, as the Company's new dividend policy was not in existence.

A second interim dividend of 3.4p has been declared for payment on 10th May 2017 for the financial year ending 30th September 2017.

4.     Return per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2017	31st March 2016	30th September 2016
		£'000	£'000	£'000
	Return per share is based on the following:
	Revenue return	193	49	3,307
	Capital return	26,858	19,388	85,926
	Total return	27,051	19,437	89,233
	Weighted average number of shares in issue	94,913,858	95,046,993	95,046,993
	Revenue return per share	0.20p	0.05p	3.48p
	Capital return per share	28.30p	20.40p	90.40p
	Total return per share	28.50p	20.45p	93.88p

5.     Net asset value per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2017	31st March 2016	30th September 2016
	Net assets (£'000)	324,174	235,517	305,313
	Number of shares in issue	94,241,493	95,046,993	95,046,993
	Net asset value per share	344.0p	247.8p	321.2p

6.     Reconciliation of net return on ordinary activities before finance costs and taxation to net cash outflow from operations before dividends and interest

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2017	31st March 2016	30th September 2016
		£'000	£'000	£'000
	Net return on ordinary activities before finance costs and taxation	27,073	19,578	89,881
	Less capital return on ordinary activities before finance costs and taxation	(26,858)	(19,388)	(85,926)
	Scrip dividends received as income	-	-	(57)
	Increase in accrued income and other debtors	(671)	(620)	(221)
	Decrease in accrued expenses	(8)	(79)	(14)
	Overseas withholding tax	(208)	(136)	(508)
	Dividends received	(570)	(431)	(5,197)
	Interest received	(1)	(4)	(4)
	Realised (losses)/gains on foreign currency transactions	(132)	156	28
	Exchange (loss)/gain on liquidity fund	(10)	73	83
	Net cash outflow from operating activities	(1,385)	(851)	(1,935)

7.     Fair valuation of investments

The fair value hierarchy disclosures required by FRS 102 are given below:

		(Unaudited) Six months ended 31st March 2017		(Unaudited) Six months ended 31st March 2016		(Audited) Year ended 30th September 2016
		Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
		£'000	£'000	£'000	£'000	£'000	£'000
	Level 1	315,132	-	238,429	-	311,979	-
	Level 21	7,441	(1)	5,084	-	7,206	-
	Total	322,573	(1)	243,513	-	319,185	-

¹       Includes investment in JPMorgan Vietnam Opportunities Fund, an Open Ended Investment Company (OEIC) and forward foreign currency contracts.

JPMORGAN FUNDS LIMITED

26th May 2017

For further information, please contact:

Alison Vincent

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

ENDS

A copy of the Half Year Report has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

The Half Year Report will also shortly be available on the Company's website at www.jpmasian.co.uk  where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 

END

 

 

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