Half Yearly Report

RNS Number : 2301D

JPMorgan Glb Emerging Mkts Inc Tst

26 March 2014

 

JPMORGAN GLOBAL EMERGING MARKETS INCOME TRUST PLC

LONDON STOCK EXCHANGE ANNOUNCEMENT

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31^ST JANUARY 2014

Chairman's Statement

Performance

For the six months ended 31st January 2014, the Company reported a 12.0% decrease in net assets per share which was unfavourable when compared against the 8.1% reduction (in sterling terms, with dividends reinvested) experienced by the MSCI Emerging Markets Index.

The Investment Managers' Report reviews the Company's performance and comments on the investment strategy.

Dividends

For the year ended 31st July 2013, the total dividend paid was 4.90p per share, an increase of 1.0% on the prior year. A first interim dividend of 1.0p per share was paid to shareholders on 16th January 2014. On 27th February 2014, the Board declared a second interim dividend of 1.0p per share to be paid on 16th April 2014 to shareholders on the register as at 14th March 2014 (ex-dividend date 12th March 2014), giving a total of 2.0p per share for the first six months (2013: 1.8p).

The Company invests globally, receiving dividends in many currencies including those of developing countries. There is an inherent risk that performance and the amount of dividends that the Company will be able to pay are impacted by movements in foreign currency exchange rates. Trends in exchange rates vary and can result in a positive or negative impact on the Company's performance. During the six months under review, sterling strengthened against those currencies in which the underlying investments are denominated and in which dividends are received. This adversely impacted the Company's performance.

Although one of the Board's primary objectives is to grow the dividend, the Company is restricted in the payments it may make by the receipts from the investee companies.

Share Issuance

In the six months to 31st January 2014, the Company issued a total of 24.2 million new ordinary shares representing an increase of approximately 10%; and, since that date, a further 3.1 million new ordinary shares have been issued.

In line with the share issuance policy, all new shares have been issued at a premium to the cum income net asset value, thereby enhancing the net asset value for continuing shareholders.

Outlook

Emerging Markets have performed dismally in comparison to developed markets for over a year. The Investment Managers' Report discusses in detail the reasons for this; but it also presents the prospects with a guarded optimism which your Board fully shares.

The implications of current events in Ukraine are far from clear. The Company's five positions in Russia represented 7.5% of total assets as at 31st January 2014 and the impact of this crisis on the value of the Company is therefore limited. Should this crisis escalate, it would be unhelpful for developed as well as Emerging Markets.

The other main concern influencing Emerging Markets is Chinese growth and financial stability. The long term trajectory is towards a more stable and balanced economy but it will not be easy transition.

The history of Emerging Markets is of sizeable movements, both up and down, brought about by economic, political and company-specific factors. Investing in Emerging Markets was never for the faint-hearted. However, the history also suggests that the patient investor is rewarded through the judicious selection of well-managed companies that are able to take advantage of the opportunities available in these economies.

Andrew Hutton

Chairman                                                                                                                                                                                                 

26th March 2014

Investment Managers' Report

The six month period to 31st January 2014 was a story of two halves. Initially markets experienced a period of relative calm. However, the second half saw Emerging Markets under pressure as investors focused on the US Federal Reserve winding down its quantitative easing programme. This period of declining liquidity and rising risk aversion ignited a cycle of capital outflows from Emerging Markets, resulting in weak currencies and forcing central banks to increase interest rates.

The Company's benchmark, the MSCI Emerging Markets Index, fell 8.1% (on a total return basis in sterling terms). Against this backdrop it was disappointing to see the Company underperform, with a net asset value loss of 12.0%, particularly given the focus on investing in companies with more stable cash flows and a history of paying dividends.

Performance

The key feature of the period was the generally poor returns from those countries with current account deficits which are vulnerable to more stringent monetary policies (the so-called 'Fragile Five', Brazil, India, South Africa, Turkey and Indonesia), compared to those with current account surpluses. This became particularly apparent as currencies weakened in these deficit countries.

As a result, the investments in South Africa (11.5% of the portfolio) and Turkey (4.8%) were significant detractors of performance as was the underweight exposure to South Korea (5.8%), a country with a current account surplus. Stock selection exacerbated this as many of the companies with strong dividend paying characteristics that the portfolio targets are found in the 'Fragile Five' markets.

Dividends

Although payout ratios have remained constant, dividends have come under pressure from reduced corporate earnings. In addition, weaker Emerging Market currencies have meant that the Company has received lower levels of dividends in sterling terms. In spite of this more challenging environment, only one company, the Asian real estate company Midland, failed to pay an anticipated interim dividend and this holding was subsequently sold.

Portfolio Changes

The portfolio changes over the period have been modest, with investments being made on a case by case basis. Purchases included First Gulf Bank, which has a yield of 5.5% with the prospect of double digit dividend growth and Arcelik, where the investment case remained robust but shares had fallen on general concerns over Turkey. Apart from selling the investment in Midland (driven by the omission of the dividend), we also reduced the size of holdings in stocks whose valuations no longer appeared as attractive, such as SJM and PZU. In addition, holdings in those stocks with bond-like characteristics were either reduced or sold, such as Energias do Brasil, AES Tiete and Philippines Long Distance Telecom.

Outlook

The focus of the portfolio on stable growth from sectors such as consumer discretionary, telecommunications and industrials, rather than the cyclicality of natural resources, has remained constant. Diversification by stock, country and sector is an important part of the portfolio and the Company is expected to continue to invest in 60 to 80 companies.

The resumption of sustained Emerging Markets performance requires a recovery in Emerging Markets earnings, which remains elusive. Multiple waves of currency weakness and central bank tightening measures in recent months have not helped, dampening expectations for profits further. Currency risk has topped the list of investor concerns and this is quite understandable given last year's volatility. However, the significant recent move in Emerging Markets currencies has a silver lining: it helps to bring about the external adjustment needed to enable these markets to recover. Many Emerging Markets currencies, including the Indian rupee, Turkish lira and the South African rand, now look decidedly cheap on a real-effective exchange rate (REER) basis, a measure of fair value. This important price adjustment is helping to restore Emerging Markets' competitiveness.

Another key issue for Emerging Markets is the trajectory of the Chinese economy. The Chinese leadership is attempting to change the growth model of China - moving away from an investment-led economy, and addressing the build-up of debt in the financial system. The end result will be a more balanced economy, but the path to get there is unlikely to be smooth, and is something that we need to consider carefully with our stock selection.

The recent and ongoing events in Ukraine have clearly had a negative impact on the Russian market. We are monitoring this volatile situation closely. Currently we think the direct impact on our five Russian holdings in that market is limited (and more than reflected in cheap valuations).

In spite of the short term outlook for earnings remaining difficult, with the potential knock-on impact for dividends, the long term dividend story for Emerging Markets remains intact, along with the expectation that the growing dividend culture amongst Emerging Markets companies will continue. We recognise that there may continue to be periods of turbulence in these markets in the shorter term but highlight that, on a longer term basis, Emerging Markets look cheap relative to other equity markets.

Richard Titherington

Investment Manager

Omar Negyal

Deputy Investment Manager                                                                                                                                                                   

26th March 2014

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 and strategy; foreign currency; financial; accounting, legal and regulatory; corporate governance and shareholder relations; and operations. Information on each of these areas is given in the Business Review within the Company's Annual Report and Accounts for the year ended 31st July 2013.

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 foreseeable future. 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 the Accounting Standards Board's Statement 'Half Yearly Financial Reports' and gives a true and fair view of the state of the affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st January 2014, 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 DTR 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

Andrew Hutton

Chairman

26th March 2014

Income Statement

for the six months ended 31st January 2014

	(Unaudited)				(Unaudited)			(Audited)
	Six months ended				Six months ended			Year ended
	31st January 2014				31st January 2013			31st July 2013
	Revenue	Capital	Total	Revenue		Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000		£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments
held at fair value through
profit or loss	-	(42,323)	(42,323)	-		28,454	28,454	-	21,718	21,718
Income from investments	6,485	-	6,485	3,480		-	3,480	13,711	-	13,711
Net foreign currency gains/(losses)	-	1,995	1,995	-		33	33	-	(1,104)	(1,104)
Other interest and similar
income	1	-	1	2		-	2	2	-	2
Gross return/(loss)	6,486	(40,328)	(33,842)	3,482		28,487	31,969	13,713	20,614	34,327
Management fee	(436)	(1,016)	(1,452)	(307)		(716)	(1,023)	(721)	(1,681)	(2,402)
Performance fee	-	-	-	-		(693)	(693)	-	(597)	(597)
Other administrative expenses	(306)	-	(306)	(263)		-	(263)	(550)	-	(550)
Net return/(loss) on ordinary
activities before finance costs
and taxation	5,744	(41,344)	(35,600)	2,912		27,078	29,990	12,442	18,336	30,778
Finance costs	(167)	(389)	(556)	(109)		(255)	(364)	(236)	(551)	(787)
Net return/(loss) on ordinary
activities before taxation	5,577	(41,733)	(36,156)	2,803		26,823	29,626	12,206	17,785	29,991
Taxation	(610)	-	(610)	(344)		-	(344)	(1,257)	-	(1,257)
Net return/(loss) on ordinary
activities after taxation	4,967	(41,733)	(36,766)	2,459		26,823	29,282	10,949	17,785	28,734
Return/(loss) per share (note 4)	1.99p	(16.76)p	(14.77)p	1.35p		14.74p	16.09p	5.45p	8.85p	14.30p

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.

Statement of Total Recognised Gains and Losses

for the six months ended 31st January 2014

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st January 2014			31st January 2013			31st July 2013
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Movement in the fair value of
the cash flow hedge during
the period	-	50	50	-	15	15	-	52	52
Net return/(loss) on ordinary
activities	4,967	(41,733)	(36,766)	2,459	26,823	29,282	10,949	17,785	28,734
Total recognised gains/(losses)
in the period	4,967	(41,683)	(36,716)	2,459	26,838	29,297	10,949	17,837	28,786

Reconciliation of Movements in Shareholders' Funds

	Called up	Capital
Six months ended	share	redemption	Share	Other	Capital	Revenue
31st January 2014	capital	reserve	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2013	2,344	13	148,189	101,276	30,450	6,255	288,527
Issue of ordinary shares	242	-	28,520	-	-	-	28,762
Share issue expenses	-	-	(88)	-	-	-	(88)
Movement in the fair value of the
cash flow hedge	-	-	-	-	50	-	50
Net (loss)/return on ordinary activities	-	-	-	-	(41,733)	4,967	(36,766)
Dividends appropriated in the period	-	-	-	-	-	(7,549)	(7,549)
At 31st January 2014	2,586	13	176,621	101,276	(11,233)	3,673	272,936
	Called up	Capital
Six months ended	share	redemption	Share	Other	Capital	Revenue
31st January 2013	capital	reserve	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2012	1,737	13	74,011	101,276	12,613	5,001	194,651
Issue of ordinary shares	267	-	31,368	-	-	-	31,635
Share issue expenses	-	-	(60)	-	-	-	(60)
Movement in the fair value of the
cash flow hedge	-	-	-	-	15	-	15
Net return on ordinary activities	-	-	-	-	26,823	2,459	29,282
Dividends appropriated in the period	-	-	-	-	-	(5,492)	(5,492)
At 31st January 2013	2,004	13	105,319	101,276	39,451	1,968	250,031
	Called up	Capital
Year ended	share	redemption	Share	Other	Capital	Revenue
31st July 2013	capital	reserve	premium	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2012	1,737	13	74,011	101,276	12,613	5,001	194,651
Issue of ordinary shares	607	-	74,578	-	-	-	75,185
Expenses of new share issue	-	-	(400)	-	-	-	(400)
Movement in the fair value of the
cash flow hedge	-	-	-	-	52	-	52
Net return on ordinary activities	-	-	-	-	17,785	10,949	28,734
Dividends appropriated in the year	-	-	-	-	-	(9,695)	(9,695)
At 31st July 2013	2,344	13	148,189	101,276	30,450	6,255	288,527

Balance Sheet

at 31st January 2014	(Unaudited)	(Unaudited)	(Audited)
	31st January 2014	31st January 2013	31st July 2013
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	291,650	274,160	309,721
Investments in liquidity fund held at fair value
through profit or loss	3,590	4,194	1,748
Total investments	295,240	278,354	311,469
Current assets
Derivative financial instrument	-	21	-
Debtors	1,446	2,407	1,942
Cash and short term deposits	823	3,183	3,874
	2,269	5,611	5,816
Creditors: amounts falling due within one year	(233)	(20,855)	(15,516)
Derivative financial instruments	-	(90)	(50)
Net current assets/(liabilities)	2,036	(15,334)	(9,750)
Total assets less current liabilities	297,276	263,020	301,719
Creditors: amounts falling due after more than
one year	(24,340)	(12,615)	(13,192)
Provisions for liabilities and charges
Performance fee	-	(374)	-
Net assets	272,936	250,031	288,527
Capital and reserves
Called up share capital	2,586	2,004	2,344
Capital redemption reserve	13	13	13
Share premium	176,621	105,319	148,189
Other reserve	101,276	101,276	101,276
Capital reserves	(11,233)	39,451	30,450
Revenue reserve	3,673	1,968	6,255
Total equity shareholders' funds	272,936	250,031	288,527
Net asset value per share (note 5)	105.5p	124.8p	123.1p

Company registration number: 7273382.

Cash Flow Statement

for the six months ended 31st January 2014

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2014	31st January 2013	31st July 2013
	£'000	£'000	£'000
Net cash inflow from operating activities (note 6)	2,669	1,930	8,514
Net cash outflow from servicing of finance	(513)	(349)	(757)
Overseas tax recovered	64	16	37
Net cash outflow from capital expenditure and
financial investment	(26,041)	(36,680)	(81,770)
Dividends paid	(7,549)	(5,492)	(9,695)
Net cash inflow from financing	28,510	42,942	86,693
(Decrease)/increase in cash in the period	(2,860)	2,367	3,022
Reconciliation of net cash flow to movement in
net debt
Net cash movement	(2,860)	2,367	3,022
Net drawdown of short term loan	(141)	(12,393)	(12,393)
Exchange movements	1,996	15	(1,104)
Other movements	(2)	(3)	(7)
Movement in net debt in the period	(1,007)	(10,014)	(10,482)
Net debt at the beginning of the period	(22,510)	(12,028)	(12,028)
Net debt at the end of the period	(23,517)	(22,042)	(22,510)
Represented by:
Cash and short term deposits	823	3,183	3,874
Foreign currency bank loan falling due within one year	-	(12,610)	(13,192)
Foreign currency bank loan falling due after more
than one year	(12,170)	(12,615)	(13,192)
Debt falling due in more than two years but not
more than five years	(12,170)	-	-
Net debt	(23,517)	(22,042)	(22,510)

Notes to the Accounts

for the six months ended 31st January 2014

1.    Financial statements

      The information contained within the Financial Statements in this interim report has not been audited or reviewed by the Company's auditors.

2.   Accounting policies

      The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the AIC in January 2009.

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

      The accounts have been prepared on a going concern basis.

3.   Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2014	31st January 2013	31st July 2013
	£'000	£'000	£'000
2013 fourth interim dividend of 2.10p (2012 final: 2.15p)	5,005	3,760	3,760
First interim dividend paid of 1.00p (2013: 0.90p)	2,544	1,732	1,732
Second interim dividend paid of n/a (2013: 0.90p)	n/a	n/a	1,908
Third interim dividend paid of n/a (2013: 0.90p)	n/a	n/a	2,295
Total dividends paid in the period	7,549	5,492	9,695

      A second interim dividend of 1.00p per share, amounting to £2,600,000 has been declared payable in respect of the six months ended 31st January 2014.

4.   Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2014	31st January 2013	31st July 2013
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	4,967	2,459	10,949
Capital (loss)/return	(41,733)	26,823	17,785
Total (loss)/return	(36,766)	29,282	28,734
Weighted average number of shares in issue during
the period	249,014,927	182,033,568	200,902,726
Revenue return per share	1.99p	1.35p	5.45p
Capital (loss)/return per share	(16.76)p	14.74p	8.85p
Total (loss)/return per share	(14.77)p	16.09p	14.30p

5.   Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	31st January 2014	31st January 2013	31st July 2013
Funds attributable to ordinary shareholders (£'000)	272,936	250,031	288,527
Number of ordinary shares in issue	258,604,438	200,419,438	234,369,438
Net asset value per ordinary share (pence)	105.5	124.8	123.1

6.   Reconciliation of (loss)/total return on ordinary activities before finance costs and taxation to net cash inflow from operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2014	31st January 2013	31st July 2013
	£'000	£'000	£'000
Net (loss)/return on ordinary activities before finance
costs and taxation	(35,600)	29,990	30,778
Less: capital loss/(return) on ordinary activities
before finance costs and taxation	41,344	(27,078)	(18,336)
Decrease in accrued income	657	1,339	558
Decrease/(increase) in other debtors	8	(20)	(28)
(Decrease)/increase in accrued expenses	(58)	21	(4)
Management fee charged to capital	(1,016)	(583)	(1,678)
Overseas withholding tax	(613)	(357)	(1,394)
Performance fee paid	(2,053)	(1,382)	(1,382)
Net cash inflow from operating activities	2,669	1,930	8,514

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 annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The annual report will also shortly be available on the Company's website at www.jpmglobalemergingmarketsincome.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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