Half-year Report

RNS Number : 5351X

JPMorgan Emerging Mkts Invest Trust

22 February 2017

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EMERGING MARKETS INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST DECEMBER 2016

Chairman's Statement

Performance

The first half of the Company's financial year was a positive period for emerging markets investors. Over the six months to 31st December 2016 the Company's benchmark index, the MSCI Emerging Markets Index (in sterling terms), rose 13.0%.

For the same period, the Company produced a total return on net assets of +7.4%. Whilst this is a significant underperformance against our benchmark, it follows a period of exceptional outperformance. Our Investment Manager continues to focus on quality growth stocks and the portfolio is underweight in the more cyclical stocks in energy and resources. Therefore, in a period where these cyclical stocks performed well, the portfolio lagged behind the benchmark. Such periods of underperformance are to be expected from time to time but I would emphasise that the Investment Manager's impressive long term performance record remains intact, the Company having outperformed the benchmark index over two, three, five and ten years to 31st December 2016.

The return to shareholders over the first half of the financial year was higher, at +10.2%. This reflects a narrowing of the discount at which the Company's shares trade, from 13.2% as at 30th June 2016 to 11.7% at the half year end. 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 to their net asset value ranged between 9.6% and 14.0%, averaging 12.1%. At the period end, the discount was 11.7%.

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 550,402 shares into Treasury at an average discount of 12.1% and a total cost of £3.8 million, though that was insufficient to move the discount down to levels the Board feels appropriate.

The Board

Nigel Kenny retired at the conclusion of the AGM held in November 2016. Richard Laing has succeeded him as chairman of the Audit Committee and Anatole Kaletsky has become the Senior Independent Director.

Ruary Neill was appointed a Director of the Company with effect from 1st January 2017. He worked in investment banking for 28 years where he most recently managed the multi asset sales business at UBS Investment Bank. Prior to that he spent a number of years working in the Asian Equity Markets for UBS Investment Bank and Schroder Securities. He is Chairman of The Investment Committee, Great Ormond Street Children's Charity and a member of The Advisory Council, The SOAS China Institute, London University.

As previously advised, I will stand down from the Board at the conclusion of the 2017 AGM, having been a Director of your Company for fifteen years. The Board has agreed that Sarah Arkle will succeed me as Chairman and I am sure she will prove to be an excellent choice.

Outlook

The start of the new calendar year has seen further progress by emerging markets, supported by some signs of economic progress as well as recovery in commodity markets. I need hardly add that uncertainties have increased in the post-Trump world, especially with regard to international trade so we must expect some volatility in the months ahead. Nevertheless, valuations are reasonable and the long term case for emerging markets remains solid.

Alan Saunders

Chairman

22nd February 2017

Investment Manager's Report

In last year's half year report, I addressed a period in which the Company's net asset value per share had decreased, yet done better than our benchmark index. This time, the opposite has happened; while the Company's NAV per share has increased by 7.4%, we have failed to keep up with the index, which rose by 13% over the last half year.

Such an outcome, while not welcome from our point of view, will inevitably happen from time to time, as I sought to explain in the Company's last annual report. I had hoped that my comments would not prove so immediately prophetic. We know, however, and will continue to affirm, that an outcome which differs from the benchmark is necessary if we are to add value to the Company in the long term; this means that sometimes the Company's portfolio will do worse. Shareholders should always expect that I will try to learn from individual mistakes which have affected performance, but not that I will significantly alter the investment approach that we have followed for more than twenty years, when such periods occur.

Why has this been a challenging time? Obviously part of the answer lies in the tumultuous political events of 2016, which have brought great uncertainty for investors in terms of trade and other aspects of economic policy. We do not really know what the new regimes will bring. Higher inflation, which was not widely expected a year ago, has implications for commodity prices, for the US dollar, for interest rates and for all kinds of macro-economic factors which affect the valuation of equities in emerging markets and elsewhere. Similarly, big changes in trade policy and tariffs can have consequences for exporters everywhere. One particular event which bears brief comment is the startling decision taken last November in India to cancel a significant part of the money in circulation in the country, in an attempt to demonetise the economy - in other words, to force the large informal cash economy to move into the formal financial system. This is likely to be very good for the Indian economy in the long term, reducing graft, increasing tax and helping productivity; but the abruptness with which it was announced produced a short term economic squeeze which did affect share prices and had a visible impact on our investment results; I believe this will prove to be only a temporary effect. But I do not want to use politics as an excuse; in recent months your Company's portfolio has, not unusually, lagged somewhat in a period when share prices have risen and cyclical sectors have been among the best performing areas. As well as our investments in India, some of the leading contributors to underperformance have been stable businesses in sectors like consumer staples, whose share prices have not moved much; conversely, sectors like energy and materials, which we do not find appealing on a long term view and where the portfolio has little exposure, have rallied sharply as investors have begun to think about the prospect of rising inflation ahead.

In general, however, I should emphasise that I put much more store by the achievements and results of the businesses that are owned in the portfolio than I do in trying to second guess macroeconomic trends. I believe that we have a collection of strong, and in many cases outstanding, businesses in the portfolio; in general they have continued to deliver good results in the last six months and I think they can continue to do so in the future. Unless their share prices are at very elevated levels, which I do not believe to be the case, I am happy to continue to own them.

Austin Forey

Investment Manager

22nd February 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 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 Accounts for the year ended 30th June 2016.

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 the 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 2015, 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

Alan Saunders
Chairman

22nd February 2017

Statement of Comprehensive Income
for the six months ended 31st December 2016

	(Unaudited) Six months ended 31st December 2016			(Unaudited) Six months ended 31st December 2015			(Audited) Year ended 30th June 2016
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss	-	66,201	66,201	-	(59,173)	(59,173)	-	91,226	91,226
Net foreign currency gains	-	1,139	1,139	-	59	59	-	4,723	4,723
Income from investments	8,373	-	8,373	6,054	-	6,054	16,978	-	16,978
Interest receivable and similar income	71	-	71	40	-	40	141	-	141
Gross return/(loss)	8,444	67,340	75,784	6,094	(59,114)	(53,020)	17,119	95,949	113,068
Management fee	(1,424)	(3,322)	(4,746)	(1,203)	(2,806)	(4,009)	(2,406)	(5,613)	(8,019)
Other administrative expenses	(793)	-	(793)	(664)	-	(664)	(1,326)	-	(1,326)
Net return/(loss) on ordinary activities before finance costs and taxation	6,227	64,018	70,245	4,227	(61,920)	(57,693)	13,387	90,336	103,723
Finance costs	-	(1)	(1)	-	-	-	-	-	-
Net return/(loss) on ordinary activities before taxation	6,227	64,017	70,244	4,227	(61,920)	(57,693)	13,387	90,336	103,723
Taxation	(715)	-	(715)	(439)	-	(439)	(1,251)	-	(1,251)
Net return/(loss) on ordinary activities after taxation	5,512	64,017	69,529	3,788	(61,920)	(58,132)	12,136	90,336	102,472
Return/(loss) per share (note 4)	4.38p	50.86p	55.24p	2.95p	(48.21)p	(45.26)p	9.49p	70.63p	80.12p

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by The Association of Investment Companies.

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

Statement of Changes in Equity�
for the six months ended 31st December 2016

	Called up		Capital
	share	Share	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
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	-	-	-	-	-	(11,324)	(11,324)
At 31st December 2016	33,091	173,657	1,665	69,939	695,049	15,609	989,010
Six months ended 31st December 2015 (Unaudited)
At 30th June 2015	33,091	173,657	1,665	69,939	557,345	16,992	852,689
Repurchase of shares into Treasury	-	-	-	-	(1,089)	-	(1,089)
Net (loss)/return on ordinary activities	-	-	-	-	(61,920)	3,788	(58,132)
Dividend paid in the period	-	-	-	-	-	(7,707)	(7,707)
At 31st December 2015	33,091	173,657	1,665	69,939	494,336	13,073	785,761
Year ended 30th June 2016 (Audited)
At 30th June 2015	33,091	173,657	1,665	69,939	557,345	16,992	852,689
Repurchase of shares into Treasury	-	-	-	-	(12,812)	-	(12,812)
Net return on ordinary activities	-	-	-	-	90,336	12,136	102,472
Dividend paid in the year	-	-	-	-	-	(7,707)	(7,707)
At 30th June 2016	33,091	173,657	1,665	69,939	634,869	21,421	934,642

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 2016

	(Unaudited)	(Unaudited)	(Audited)
	31st December 2016	31st December 2015	30th June 2016
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	983,311	750,872	901,025
Current assets
Debtors	1,176	3,966	2,771
Cash and cash equivalents1	5,436	32,168	31,052
	6,612	36,134	33,823
Current liabilities
Creditors: amounts falling due within one year	(913)	(1,245)	(206)
Net current assets	5,699	34,889	33,617
Total assets less current liabilities	989,010	785,761	934,642
Net assets	989,010	785,761	934,642
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	695,049	494,336	634,869
Revenue reserve	15,609	13,073	21,421
Total equity shareholders' funds	989,010	785,761	934,642
Net asset value per share (note 5)	787.3p	612.7p	740.8p

¹ This line item combines the two lines of 'Investment in liquidity fund held at fair value through profit or loss' and 'Cash and short term deposits' in the financial statements for the half year ended 31st December 2015 into one. Under FRS 102, liquidity funds are considered cash equivalents as they are held for cash management purposes.

Statement of Cash Flows
for the six months ended 31st December 2016

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st December 2016	31st December 2015	30th June 2016
	£'000	£'000	£'000
Net cash outflow from operations before dividends and interest (note 6)	(4,437)	(3,003)	(4,648)
Dividends received	9,291	7,744	15,694
Interest received	68	39	141
Overseas tax recovered	(23)	56	57
Interest paid	(1)	-	-
Net cash inflow from operating activities	4,898	4,836	11,244
Purchases of investments	(40,097)	(10,897)	(20,794)
Sales of investments	24,004	13,643	28,918
Settlement of foreign currency contracts	39	67	(37)
Net cash (outflow)/inflow from investing activities	(16,054)	2,813	8,087
Dividends paid	(11,324)	(7,707)	(7,707)
Repurchase of shares into Treasury	(3,150)	-	(12,812)
Net cash outflow from financing activities	(14,474)	(7,707)	(20,519)
Decrease in cash and cash equivalents	(25,630)	(58)	(1,188)
Cash and cash equivalents at start of period	31,052	32,219	32,219
Exchange movements	14	7	21
Cash and cash equivalents at end of period	5,436	32,168	31,052
Decrease in cash and cash equivalents	(25,630)	(58)	(1,188)
Cash and cash equivalents consist of:
Cash and short term deposits	1,354	909	697
Cash held in JPMorgan US Dollar Liquidity Fund	4,082	31,259	30,355
Total	5,436	32,168	31,052

Notes to the Financial Statements
for the six months ended 31st December 2016

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 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

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 'SORP') issued by the Association of Investment Companies in November 2014.

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 2016.

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 2016.

3.     Dividends paid

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st December 2016	31st December 2015	30th June 2016
		£'000	£'000	£'000
	2016 Final dividend of 9.0p (2015: 6.0p)	11,324	7,707	7,707
	Total dividends paid in the period/year	11,324	7,707	7,707

All dividends paid and declared in the period have been funded from the Revenue Reserve.

4.     Return/(loss) per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st December 2016	31st December 2015	30th June 2016
		£'000	£'000	£'000
	Return/(loss) per share is based on the following:
	Revenue return	5,512	3,788	12,136
	Capital return/(loss)	64,017	(61,920)	90,336
	Total return/(loss)	69,529	(58,132)	102,472
	Weighted average number of Ordinary shares in issue (excluding shares held in Treasury)	125,881,804	128,447,289	127,893,440
	Revenue return per share	4.38p	2.95p	9.49p
	Capital return/(loss) per share	50.86p	(48.21)p	70.63p
	Total return/(loss) per share	55.24p	(45.26)p	80.12p

5.     Net asset value per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st December 2016	31st December 2015	30th June 2016
	Net assets (£'000)	989,010	785,761	934,642
	Number of shares in issue	125,624,301	128,248,376	126,174,703
	Net asset value per share	787.3p	612.7p	740.8p

6.     Reconciliation of net return/(loss) 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 2016	31st December 2015	30th June 2016
		£'000	£'000	£'000
	Net return/(loss) on ordinary activities before finance costs and taxation	70,245	(57,693)	103,723
	(Less capital return)/add capital loss on ordinary activities before finance costs and taxation	(64,018)	61,920	(90,336)
	Decrease in accrued income and other debtors	1,546	2,198	20
	Increase/(decrease) in accrued expenses	27	(116)	(60)
	Overseas withholding tax	(643)	(480)	(1,286)
	Management fee charged to capital	(3,322)	(2,806)	(5,613)
	Dividends received	(9,291)	(7,744)	(15,694)
	Interest received	(68)	(39)	(141)
	Realised gain on liquidity transactions	1,689	1,772	4,655
	Realised (loss)/gain on foreign exchange transactions	(602)	(15)	84
	Net cash outflow from operations before dividends and interest	(4,437)	(3,003)	(4,648)

7.     Fair valuation of investments

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

		(Unaudited) Six months ended 31st December 2016		(Unaudited) Six months ended 31st December 2015		(Audited) Year ended 30th June 2016
		Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
		£'000	£'000	£'000	£'000	£'000	£'000
	Level 1	983,311	-	750,872	-	901,025	-
	Total value of investments	983,311	-	750,872	-	901,025	-

For further information, please contact:

Jonathan Latter

For and on behalf of

JPMorgan Funds Limited, 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 here 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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