Half-year Report

RNS Number : 1447G

JPMorgan Emerging Mkts Invest Trust

28 February 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EMERGING MARKETS Investment Trust plc

(the 'Company')

Half Year Report & FINANCIAL STATEMENTS

for the six months ended 31st DECEMBER 2017

Legal Entity Identifier: 5493001VPQDYH1SSSR77

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Performance

I am very pleased to present my first half year statement as Chairman of the Company, having succeeded Alan Saunders in November 2017. The Investment Manager's focus on finding and investing in long-term winners across the emerging markets' spectrum, backed by the strong and experienced analytical resource of JPMorgan, has enabled the Company to continue to outperform its benchmark consistently over the longer term.

The first half of the Company's financial year was another positive six months for emerging markets investors, with the Company's benchmark index, the MSCI Emerging Markets Index (in sterling terms), increasing by 11.3%. In the same period, the Company's performance was in line with the benchmark, producing a return on net assets of +11.2%. Return to shareholders over the first half of the financial year was higher, at +12.0%. This reflects a slight narrowing of the discount at which the Company's shares trade. This builds on the Investment Manager's very strong long term track record and the Company's net asset value and share price have outperformed the benchmark index over one, three, five and ten years to 31st December 2017.

A review of the Company's performance for the first six months and the outlook for the remainder of the year is provided in the Investment Manager's report which follows.

Discount

During the first six months of this financial year, the discount on the Company's shares (calculated using the capital-only net asset value, on which the Board's share buyback programme is operated) ranged between 9.6% and 13.2%, averaging 11.4%. At the period end, the discount was 10.9%.

The Board's policy on discount management remains unchanged: it is prepared to take action to try to ensure that the discount does not exceed 10.0% for an extended period, but only if the discount is out of line with our peer group and market conditions are orderly. During the six months the Company repurchased a total of 292,498 shares into Treasury at an average discount of 11.5% and a total cost of £2.47 million.

The Board

Alan Saunders retired at the conclusion of the Annual General Meeting ('AGM') held in November 2017, having served as a Director since 2002 and as Chairman for the last eight years. On behalf of the Board, I would like to thank him for his service to the Company and its shareholders.

Having been a Director since 2003, Anatole Kaletsky, the Company's Senior Independent Director, will stand down from the Board at the conclusion of the 2018 AGM. It is the Board's intention to recruit a new Director in the second half of 2018 to succeed him.

Outlook

The interest rate cycle in major economies is now beginning to turn which may cause some dislocation in developed equity markets in 2018. However, in many emerging economies the cycle is behind that of developed economies with profits at a fairly early stage of their recovery and valuations not yet showing signs of being overextended. As the Manager notes at the end of his commentary, there are plenty of structural features across emerging markets, such as strong entrepreneurial spirit in China and other emerging economies, which suggest that they will remain fertile territory for equity investment. I believe that shareholders can continue to look forward to the opportunities that lie ahead.

Sarah Arkle

Chairman                                                                                                                               

28th February 2018

INVESTMENT MANAGER'S REPORT

The six months to 31st December 2017 were an unusually calm period for emerging market equities; in fact 2017 as a whole was the first calendar year in twenty in which the asset class did not suffer a decline of more than 10% at some point in the year. Instead, smooth upwards movement was the order of the day and although the factors pushing markets higher shifted as the months went by, overall, returns were notably positive. Such an environment might normally present us with some challenges, since the kind of companies we tend to like most for the long term are not usually the most cyclical and sometimes look dull by comparison with strongly rising markets. In the event, however, the portfolio performed in line with the benchmark during the six months, both rising by a little over 11% over the period: in the context of the absolute and relative performance of the Company's portfolio over the last few years, I am not too disappointed by this result; and I hope that shareholders will see the last six months in the same way.

Why have markets been so strong? The first point to make is that the gains seen in emerging markets since early 2016 came after several years in which corporate profits declined and share prices fell; so of course there is an element of cyclical recovery at work and that recovery began from low valuation levels. In 2016, valuations rose while underlying profits did not move much; but throughout 2017, we began to see a significantly better outcome, with reported profits growing healthily. Some of this was down to big structural shifts taking place in the corporate world in emerging markets, where many of the same patterns that we see in our own country can be observed; the most obvious is the continuing impact of digital technology on all sorts of industries, including commerce and advertising, in which online models are rapidly displacing more traditional formats. But in the last six months, alongside such structural trends, we have seen a broader upturn in corporate profits which points to an improving underlying economic situation. Although it is hard to generalise about a very diverse group of countries, many emerging markets are experiencing rising economic growth rates, while inflationary pressures are still abating. That has been a good environment for equity prices.

Can it continue? Usually when people put this question to me, I respond by muttering that I just invest in companies and that I try to pick long term winners rather than worrying about making market forecasts. And I say it because it is true: we do try to take long term views and we do try to identify businesses with enduring competitive advantages that can be translated into financial returns over many years. When we have successfully done this, it is also the case that macroeconomic issues seem largely unimportant in retrospect. Because stock selection is what we really concentrate on, then, I will limit myself to a few simple observations about the general outlook. First, valuations in emerging markets today are normal rather than extreme. Second, we are really only in the second year of profit recovery; third, currencies do not look horribly over-priced to us. If there are big risks ahead, I suspect they will have more to do with the direction of US interest rates and investor complacency than with most other causes.

But overall, I still see a lot of opportunity; there are always new companies to look at, all the more so now that China's huge and liquid domestic stock market is accessible to us through the Hong Kong-Shanghai Connect scheme. Emerging markets continue to offer many things that investors of capital should be looking for: growing economies, better demographics in most if not all cases than the developed world and still great scope to improve productivity. There is plenty of entrepreneurial activity in most countries and plenty of stocks competing for a place in the portfolio. So if, from all that, we can assemble a portfolio of companies with lasting competitive advantages, then it is hard to look into the future without a degree of optimism about our chances of compounding the value of the portfolio in the years ahead, as we have done in the past.

Austin Forey

Investment Manager                                                                                                                  

28th February 2018

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 and fall into the following broad categories: investment underperformance; political, economic and governance; loss of investment team or investment manager; share price discount; change of corporate control of the manager; legal and regulatory; corporate governance and shareholder relations; operational and cyber crime; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Financial Statements for the year ended 30th June 2017.

Related Parties 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.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, 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 forseeable 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 year 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 December 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

Sarah Arkle

Chairman                                                                                                                                   

28th February 2018

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2017

	(Unaudited)			(Unaudited)				(Audited)
	Six months ended			Six months ended				Year ended
	31st December 2017			31st December 2016				30th June 2017
	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	-	123,601	123,601	-	66,201	66,201	-		204,432	204,432
Net foreign currency
(losses)/gains	-	(446)	(446)	-	1,139	1,139	-		939	939
Income from investments	8,359	-	8,359	8,373	-	8,373	21,816		-	21,816
Interest receivable and
similar income	97	-	97	71	-	71	86		-	86
Gross return	8,456	123,155	131,611	8,444	67,340	75,784	21,902		205,371	227,273
Management fee	(1,610)	(3,758)	(5,368)	(1,424)	(3,322)	(4,746)	(2,915)		(6,801)	(9,716)
Other administrative expenses	(610)	-	(610)	(793)	-	(793)	(1,478)		-	(1,478)
Net return on ordinary
activities before finance
costs and taxation	6,236	119,397	125,633	6,227	64,018	70,245	17,509		198,570	216,079
Finance costs	-	-	-	-	(1)	(1)	-		-	-
Net return on ordinary
activities before taxation	6,236	119,397	125,633	6,227	64,017	70,244	17,509		198,570	216,079
Taxation	(773)	-	(773)	(715)	-	(715)	(1,537)		-	(1,537)
Net return on ordinary
activities after taxation	5,463	119,397	124,860	5,512	64,017	69,529	15,972		198,570	214,542
Return per share (note 3)	4.41p	96.47p	100.88p	4.38p	50.86p	55.24p	12.75p		158.45p	171.20p

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31ST DECEMBER 2017

	Called up		Capital
	share	Share	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve	reserves	Reserve 1	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 31st December 2017 (Unaudited)
At 30th June 2017	33,091	173,657	1,665	69,939	816,561	26,069	1,120,982
Repurchase of shares into Treasury	-	-	-	-	(2,488)	-	(2,488)
Net return on ordinary activities	-	-	-	-	119,397	5,463	124,860
Dividend paid in the period (note 4)	-	-	-	-	-	(13,616)	(13,616)
At 31st December 2017	33,091	173,657	1,665	69,939	933,470	17,916	1,229,738
Six months ended 31st December 2016 (Unaudited)
At 30th June 2016	33,091	173,657	1,665	69,939	634,869	21,421	934,642
Repurchase of shares into Treasury	-	-	-	-	(3,837)	-	(3,837)
Net return on ordinary activities	-	-	-	-	64,017	5,512	69,529
Dividend paid in the period (note 4)	-	-	-	-	-	(11,324)	(11,324)
At 31st December 2016	33,091	173,657	1,665	69,939	695,049	15,609	989,010
Year ended 30th June 2017 (Audited)
At 30th June 2016	33,091	173,657	1,665	69,939	634,869	21,421	934,642
Repurchase of shares into Treasury	-	-	-	-	(16,878)	-	(16,878)
Net return on ordinary activities	-	-	-	-	198,570	15,972	214,542
Dividend paid in the year (note 4)	-	-	-	-	-	(11,324)	(11,324)
At 30th June 2017	33,091	173,657	1,665	69,939	816,561	26,069	1,120,982

¹ This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

STATEMENT OF FINANCIAL POSITION AT 31ST DECEMBER 2017

	(Unaudited)	(Unaudited)	(Audited)
	31st December 2017	31st December 2016	30th June 2017
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	1,227,205	983,311	1,109,292
Current assets
Debtors	1,024	1,176	3,285
Cash and cash equivalents	2,184	5,436	10,580
	3,208	6,612	13,865
Current liabilities
Creditors: amounts falling due within one year	(675)	(913)	(2,173)
Derivative financial liabilities	-	-	(2)
Net current assets	2,533	5,699	11,690
Total assets less current liabilities	1,229,738	989,010	1,120,982
Net assets	1,229,738	989,010	1,120,982
Capital and reserves
Called up share capital	33,091	33,091	33,091
Share premium	173,657	173,657	173,657
Capital redemption reserve	1,665	1,665	1,665
Other reserve	69,939	69,939	69,939
Capital reserves	933,470	695,049	816,561
Revenue reserve	17,916	15,609	26,069
Total equity shareholders' funds	1,229,738	989,010	1,120,982
Net asset value per share (note 5)	994.8p	787.3p	904.7p

STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 31ST DECEMBER 2017

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2017	31st December 2016	30th June 2017
	£'000	£'000	£'000
Net cash outflow from operations before
dividends and interest (note 6)	(6,374)	(4,437)	(10,218)
Dividends received	9,931	9,291	19,551
Interest received	90	68	86
Overseas tax recovered	(91)	(23)	229
Interest paid	-	(1)	-
Net cash inflow from operating activities	3,556	4,898	9,648
Purchases of investments	(32,859)	(40,097)	(80,427)
Sales of investments	38,877	24,004	76,582
Settlement of foreign currency contracts	(150)	39	110
Net cash inflow/(outflow) from investing activities	5,868	(16,054)	(3,735)
Dividends paid	(13,616)	(11,324)	(11,324)
Repurchase of shares into Treasury	(4,202)	(3,150)	(15,045)
Net cash outflow from financing activities	(17,818)	(14,474)	(26,369)
Decrease in cash and cash equivalents	(8,394)	(25,630)	(20,456)
Cash and cash equivalents at start of period	10,580	31,052	31,052
Exchange movements	(2)	14	(16)
Cash and cash equivalents at end of period	2,184	5,436	10,580
Decrease in cash and cash equivalents	(8,394)	(25,630)	(20,456)
Cash and cash equivalents consist of:
Cash and short term deposits	326	1,354	3,871
Cash held in JPMorgan US Dollar Liquidity Fund	1,858	4,082	6,709
Total	2,184	5,436	10,580

NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31ST DECEMBER 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 June 2017 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

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 the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the revised 'SORP') issued by the Association of Investment Companies in November 2014 and updated in January 2017.

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

3.  Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2017	31st December 2016	30th June 2017
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	5,463	5,512	15,972
Capital return	119,397	64,017	198,570
Total return	124,860	69,529	214,542
Weighted average number of Ordinary shares in issue (excluding shares held
in Treasury)	123,772,751	125,881,804	125,320,130
Revenue return per share	4.41p	4.38p	12.75p
Capital return per share	96.47p	50.86p	158.45p
Total return per share	100.88p	55.24p	171.20p

4.  Dividends paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2017	31st December 2016	30th June 2017
	£'000	£'000	£'000
2017 Final dividend of 11.0p (2016: 9.0p)	13,616	11,324	11,324
Total dividends paid in the period/year	13,616	11,324	11,324

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

5.  Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2017	31st December 2016	30th June 2017
Net assets (£'000)	1,229,738	989,010	1,120,982
Number of shares in issue	123,615,346	125,624,301	123,907,844
Net asset value per share	994.8p	787.3p	904.7p

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 December 2017	31st December 2016	30th June 2017
	£'000	£'000	£'000
Net return on ordinary activities before finance costs and taxation	125,633	70,245	216,079
Less capital return on ordinary activities before finance costs and taxation	(119,397)	(64,018)	(198,570)
Decrease/(increase) in accrued income and
other debtors	2,245	1,546	(507)
(Decrease)/increase in accrued expenses	(114)	27	144
Overseas withholding tax	(666)	(643)	(1,773)
Management fee charged to capital	(3,758)	(3,322)	(6,801)
Dividends received	(9,931)	(9,291)	(19,551)
Interest received	(90)	(68)	(86)
Realised gain/(loss) on foreign currency transactions	155	(602)	(633)
Realised (loss)/gain on liquidity fund	(451)	1,689	1,480
Net cash outflow from operations before
dividends and interest	(6,374)	(4,437)	(10,218)

7.  Fair valuation of investments

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

	(Unaudited)		(Unaudited)		(Audited)
	Six months ended		Six months ended		Year ended
	31st December 2017		31st December 2016		30th June 2017
	Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
	£'000	£'000	£'000	£'000	£'000	£'000
Level 1	1,227,205	-	983,311	-	1,109,292	-
Total value of investments	1,227,205	-	983,311	-	1,109,292	-

For further information, please contact:

Jonathan Latter

For and on behalf of JPMorgan Funds Limited, Company Secretary 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 FUNDS LIMITED

ENDS

A copy of the half year will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

The half year will also shortly be available on the Company's website at www.jpmemergingmarkets.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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