Half-year Report

RNS Number : 2863G

JPMorgan Indian Invest Trust PLC

26 May 2017

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN INDIAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31ST MARCH 2017

Legal Entity Identifier: 549300OHW8R1C2WBYK02

Information disclosed in accordance with DTR 4.2.2

chairman's statement

Performance

The first six months of the Company's financial year have been positive for investors in India, with the Company's benchmark index, the MSCI India Index (in sterling terms), returning +12.0% over the period. The Company produced a total return on net assets of +7.6% over the same period. Whilst it is disappointing to have underperformed the benchmark index in the first half of the financial year, the Board judges performance over the longer term and I am pleased to report that long term performance remains strong, the Company having outperformed the benchmark over the three, five and ten years to 31st March 2017.

The return to shareholders was +10.5%, reflecting a narrowing of the discount over the six months from 13.7% to 11.4% at the period end. The background against which the Company performed is discussed in more detail in the Investment Managers' Report.

Accounting Changes

Following an amendment to International Financial Reporting Standard 10 ('IFRS 10'), the Company is no longer permitted to consolidate a subsidiary company that operates as an 'investment entity'. The Company's Mauritian subsidiary qualifies as an investment entity and as a result, with effect from the current financial year onwards, the Company will no longer present consolidated group financial statements. Therefore, the subsidiary company's assets are shown in the financial statements as an investment at fair value. This change has no effect on net assets. Further details are set out in Note 3 to the financial statements within the half year report. To assist shareholders, a reconciliation of some of the key figures is included in the Glossary within the half year report.

Gearing

The subsidiary company has a three year floating rate £100 million loan facility with Scotiabank to provide the Investment Managers with the flexibility to gear the portfolio when they think it is appropriate to do so. As at 31st March 2017, the Company's portfolio was 5.3% geared. Please note that gearing continues to be calculated on a pro forma group basis in order to give shareholders clarity on the overall levels of borrowing.

Discount Management

The Board has guidelines in place with regard to the management of the discount of the share price to net asset value at which the Company's shares trade. During the six months under review, the Company bought back a total of 29,000 shares into Treasury. The Company currently holds 20,329,971 shares in Treasury and, under current guidelines, they may only be reissued at a premium to the prevailing net asset value at the time of reissue.

Taxation

As I have reported previously, the India-Mauritius tax treaty has been amended and the advantages of investing in India via Mauritius, whereby gains made on investments held for less than 12 months are not currently subject to capital gains tax, will be removed as a result (the capital gains tax rate on investments held for more than 12 months will continue to be zero). Transitional arrangements, with tax applied on short term gains at half of the prevailing rate (i.e. at 8.1%), are now in place until March 2019. The new treaty rules become fully effective thereafter but the amendments are not expected to have a material effect on the Company, given that our Investment Managers tend to hold investments for longer than 12 months. Nevertheless, your Board is considering whether to continue to invest via the Company's Mauritius subsidiary or whether to invest directly from the UK. The matter is not straightforward however and the Board is continuing to take professional advice to ensure the best outcome for shareholders. We will keep shareholders advised as to developments.

Outlook

Following positive returns from the Indian equity market in the first six months of the Company's financial year, valuations of small and mid cap stocks in particular look quite stretched. There are, as always, a number of political and economic uncertainties to navigate in the short term and corporate earnings remain challenged. However, the last two quarters have shown some stability and earnings appear to be improving, with the messaging more positive. The effects of the banking sector's non-performing loans and of the so-called 'demonetisation' appear to be reducing and our Investment Managers are cautiously optimistic on the prospects for Indian equities in the medium term.

Richard Burns

Chairman

26th May 2017

Investment managers' report

Market Review

The first half of the Company's financial year turned out to be particularly eventful and volatile for financial markets, from the unexpected election of Donald Trump as the President of United States, to the abrupt cancellation of 86% of the Indian currency in circulation by the Modi government. The Indian equity market corrected sharply after that, but recovered in January to March 2017 to touch an all time high. The MSCI India index rose 12% in the period, with the rise in the Indian Rupee boosting sterling returns. Domestic retail investors continued to increase their exposure to equities, as the appeal of alternatives such as gold and real estate waned. Over the last three years inflows into domestic mutual funds have averaged over US$1bn per month.

The most striking event of the six month period was the Modi government's abrupt decision, in November, to cancel all 500 and 1,000 rupee notes ('Demonetisation'). This was a dramatic move since these denominations accounted for around 85% of the currency in circulation. The objective was to clamp down on the informal economy and unaccounted wealth, held in cash. Remarkably, most of the demonetised cash seems to have been deposited into the banking system, raising the prospect of the unaccounted money being laundered back into the system. The scarcity of valid currency stoked fears about economic momentum. However the reality was mixed: while the sale of cars in December was impacted only modestly, two wheeler sales fell sharply. On the other hand, Titan, which is a leading retailer of gold jewellery, reported strong sales post Demonetisation, mainly due to market share gains at the expense of the unorganised sector. In fact, headline GDP growth for the December quarter decelerated only modestly to 7%. Normality has now been restored and most of the restrictions on cash withdrawals from banks were removed in March.

A positive consequence of Demonetisation has been a surge in bank deposits, leading to a fall in domestic interest rates, even though the newly constituted Monetary Policy Committee of the Reserve Bank of India ('MPC'), left interest rates unchanged after cutting them by 25 basis points in October. The MPC, also surprisingly, changed the accommodative policy stance to neutral in February, citing an upside risk to inflation from higher commodity prices and the improving economic outlook. The federal budget (for FY2017-18) announced in February was fiscally prudent, with plans to boost spending on various social schemes and public capital expenditure, to offset the deflationary impact of Demonetisation and revive investment activity.

Politics boosted market sentiment as the B.J.P party performed very strongly in the provincial elections in several states, particularly in the large state of Uttar Pradesh. Those elections were seen as a key test of Mr. Modi's popularity in the aftermath of Demonetisation. The B.J.P's resounding victory is expected to improve the prospect of Mr. Modi winning a second term in national elections in 2019.

Overall, corporate performance during the six month period was broadly in line with expectations and not as bad as feared. Revenues, margins and profits were up. Some of this was led by a strong rebound in commodity linked earnings which will enable some of the overleveraged companies to service their debt more easily.

The corporate sector was shocked by the sudden removal of Mr. Cyrus Mistry as the Chairman of Tata Sons Ltd. However, the market's concerns were eased with the appointment of the CEO of TCS, Mr. Natarajan Chandrasekaran, as the new Chairman of Tata Sons and Mr. Mistry's resignation from the boards of the Tata group operating companies.

Performance Review

The Company's net asset value total return of +7.6% lagged the benchmark (+12.0%) in the first six months of its financial year, as the emphasis in the portfolio on domestic cyclicality hurt performance in the immediate aftermath of Demonetisation. While this reversed as the market rebounded sharply in the first quarter, the underweight position in global cyclicals offset this, causing the portfolio to underperform in the period, even though gearing was a positive contributor. The largest detractor was the underweight position in Reliance Industries, which rose sharply following the strong response to the recent launch of its telecom business. The long standing holding in Divi's Laboratories was another detractor as the stock fell sharply following disappointing third quarter results, followed by the subsequent import alert issued by the US FDA. Oddly, the long standing overweight position in HDFC Bank also detracted from performance even though its domestic shares outperformed the market. This was because the premium on the shares available to overseas investors shrank over the six months under review. On the other hand, the main overweight positions in other financials such as Indusind Bank and Kotak Mahindra Bank, were positive contributors. Several of our holdings in mid and small caps also contributed positively as this sector of the market outperformed large cap stocks.

Outlook

In the near term, valuations could pose a challenge, especially in small and mid-caps, where absolute and relative multiples are near decadal highs. The launch of the nationwide Goods and Services Tax in the next few months could be another factor to hamper returns in the short term. While the longer term implications are positive, there is a risk that economic activity is adversely impacted in the short term as supply chains realign and the informal economy gets potentially disrupted.

Nonetheless, the key to equity performance has to be a revival in the earnings cycle and improvement in balance sheet fundamentals. In this context, commodity companies are certainly faring better; the shock value of the size of banks' non-performing loans and the worst of the Demonetisation shock is also behind us. So, in the absence of further negative surprises, the basis for reasonable returns is in place.

Rukhshad Shroff

Raj Nair

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 fall into the following broad categories: investment and strategy; market; legal and regulatory; taxation; corporate governance and shareholder relations; operational; financial; and political and economic. 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 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 during the period.

Going Concern

The Directors believe, having considered the Company's investment objective, 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 and more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operation 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 the Accounting Standards Board's Statement 'Half Yearly Financial Reports' 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

Richard Burns

Chairman

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
Investment income	217	-	217	171	-	171	382	-	382
Other income	18	-	18	11	-	11	24	-	24
Gains on investments held at fair value through profit or loss	-	58,286	58,286	-	13,173	13,173	-	167,475	167,475
Foreign exchange gains	-	170	170	-	325	325	-	746	746
Total income	235	58,456	58,691	182	13,498	13,680	406	168,221	168,627
Management fee	(89)	-	(89)	(91)	-	(91)	(182)	-	(182)
Other administrative expenses	(384)	(22)	(406)	(429)	-	(429)	(775)	-	(775)
(Loss)/profit before finance costs and taxation	(238)	58,434	58,196	(338)	13,498	13,160	(551)	168,221	167,670
Finance costs	-	-	-	-	-	-	-	-	-
(Loss)/profit before taxation	(238)	58,434	58,196	(338)	13,498	13,160	(551)	168,221	167,670
Taxation	-	-	-	-	-	-	-	-	-
Net (loss)/profit	(238)	58,434	58,196	(338)	13,498	13,160	(551)	168,221	167,670
(Loss)/earnings per share (note 3)	(0.23)p	55.50p	55.27p	(0.32)p	12.77p	12.45p	(0.52)p	159.45p	158.93p

The Company does not have any income or expense that is not included in the net (loss)/profit for the period. Accordingly the 'Net

(loss)/profit' for the period, is also the 'Total comprehensive income' for the period, as defined in IAS1 (revised).

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

The 'Total' column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary 

'Revenue' and 'Capital' columns are prepared under guidance published by the Association of Investment Companies.

All of the (loss)/profit and total comprehensive income is attributable to the equity shareholders of JPMorgan Indian Investment Trust plc, the Company. There 

are no minority interests.

This is the Company's Statement of Comprehensive Income. Previously, the Group's Statement of Comprehensive Income was presented. Due to an amendment 

to IFRS 10 (see note 2), this is no longer permitted.

Comparative figures have been restated in accordance with the change in accounting policy set out in note 2.

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

	Called			Exercised	Capital
	up share	Share	Other	warrant	redemption	Capital	Revenue
	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 31st March 2017 (Unaudited)
At 30th September 2016	31,404	97,316	41,929	5,886	6,362	610,605	(22,764)	770,738
Repurchase of shares into Treasury	-	-	-	-	-	(197)	-	(197)
Profit/(loss) for the period	-	-	-	-	-	58,434	(238)	58,196
At 31st March 2017	31,404	97,316	41,929	5,886	6,362	668,842	(23,002)	828,737
Six months ended 31st March 2016 (Unaudited)
At 30th September 2015	31,404	97,316	41,929	5,886	6,362	444,268	(22,213)	604,952
Repurchase of shares into Treasury	-	-	-	-	-	(1,641)	-	(1,641)
Profit/(loss) for the period	-	-	-	-	-	13,498	(338)	13,160
At 31st March 2016	31,404	97,316	41,929	5,886	6,362	456,125	(22,551)	616,471
Year ended 30th September 2016 (Audited)
At 30th September 2015	31,404	97,316	41,929	5,886	6,362	444,268	(22,213)	604,952
Repurchase of shares into Treasury	-	-	-	-	-	(1,884)	-	(1,884)
Profit/(loss) for the year	-	-	-	-	-	168,221	(551)	167,670
At 30th September 2016	31,404	97,316	41,929	5,886	6,362	610,605	(22,764)	770,738

This is the Company's Statement of Changes in Equity. Previously, the Group's Statement of Changes in Equity was presented. Due to an

amendment to IFRS 10 (see note 2), this is no longer permitted.

Comparative figures have been restated in accordance with the change in accounting policy set out in Note 2 to the financial statements.

statement of financial position
at 31st March 2017

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2017	31st March 2016	30th September 2016
	£'000	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	14,565	13,784	14,029
Investments in subsidiaries held at fair value through profit and loss	810,365	598,557	752,615
Total non current assets	824,930	612,341	766,644
Current assets
Other receivables	45	24	46
Cash and cash equivalents	3,851	4,178	4,147
	3,896	4,202	4,193
Current liabilities
Other payables	(89)	(72)	(99)
Net current assets	3,807	4,130	4,094
Total assets less current liabilities	828,737	616,471	770,738
Net assets	828,737	616,471	770,738
Amounts attributable to equity holders
Called up share capital	31,404	31,404	31,404
Share premium	97,316	97,316	97,316
Other reserve	41,929	41,929	41,929
Exercised warrant reserve	5,886	5,886	5,886
Capital redemption reserve	6,362	6,362	6,362
Capital reserves	668,842	456,125	610,605
Revenue reserve	(23,002)	(22,551)	(22,764)
Total equity shareholders' funds	828,737	616,471	770,738
Net asset value per share (note 4)	787.1p	585.1p	731.8p

This is the Company's Statement of Financial Position. Previously, the Group's Statement of Financial Position was presented. Due to an

amendment to IFRS 10 (see note 2), this is no longer permitted.

Comparative figures have been restated in accordance with the change in accounting policy set out in Note 2 to the financial statements.

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

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2017	31st March 2016	30th September 2016
	£'000	£'000	£'000
Operating activities
Profit before taxation	58,196	13,160	167,670
Deduct dividends received	(217)	(170)	(382)
Deduct bank interest received	(18)	(11)	(24)
Deduct gains on investments held at fair value through profit or loss	(58,286)	(13,173)	(167,475)
Decrease in prepayments, VAT and other receivables	2	23	1
Decrease in other payables	(10)	(35)	(8)
Net cash outflow from operating activities before interest and taxation	(333)	(206)	(218)
Dividends received	217	170	382
Interest received	18	11	24
Net cash (outflow)/inflow from operating activities	(98)	(25)	188
Investing activities
Purchases of investments held at fair value through profit or loss	(1)	(830)	(831)
Net cash outflow from investing activities	(1)	(830)	(831)
Financing activities
Repurchase of shares into Treasury	(197)	(1,641)	(1,884)
Net cash outflow from financing activities	(197)	(1,641)	(1,884)
Decrease in cash and cash equivalents	(296)	(2,496)	(2,527)
Cash and cash equivalents at the start of the period	4,147	6,674	6,674
Cash and cash equivalents at the end of the period	3,851	4,178	4,147

This is the Company's Statement of Cash Flows. Previously, the Group's Statement of Cash Flows was presented. Due to an amendment to

IFRS 10 (see note 2), this is no longer permitted.

Comparative figures have been restated in accordance with the change in accounting policy set out in Note 2 to the financial statements.

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

1.     Financial statements

The financial information for the six months ended 31st March 2017 and 2016 has not been audited or reviewed by the Company's auditors.

The financial information contained in these half year financial statements does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.

The information for the Company for the year ended 30th September 2016 has been extracted from the latest published audited financial statements. Those financial statements have been delivered to the Registrar of Companies and included 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. Due to an amendment to IFRS 10 (see note 2), the information for the Group for the year ended 30th September 2016 has not been included in this Half Year Report and Accounts.

2.     Accounting policies

The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board to the extent that they have been adopted by the European Union.

Where presentational guidance set out in the Statement of Recommended Practice (the 'SORP') for investment trusts issued by the Association of Investment Companies in November 2014 is consistent with the requirements of IFRS, the financial statements have been prepared on a basis compliant with the recommendations of the SORP.

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 with the exception of the application of the latest IFRS 10 'Consolidated Financial Statement' amendment.

The amendment no longer allows the Company to consolidate subsidiaries that operate as an 'Investment entity' which is defined as an entity that "obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services, commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and measures and evaluates the performance of substantially all of its investments on a fair value basis". JPMorgan Indian Investment Trust plc has a 100% holding in JPMorgan Indian Investment Company (Mauritius) Limited, which qualifies as an investment entity. Further information will be provided in the next Annual Report & Accounts ending 30th September 2017.

3.     (Loss)/earnings 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
	(Loss)/earnings per share is based on the following:
	Revenue loss	(238)	(338)	(551)
	Capital return	58,434	13,498	168,221
	Total return	58,196	13,160	167,670
	Weighted average number of shares in issue	105,289,681	105,656,280	105,496,718
	Revenue loss per share	(0.23)p	(0.32)p	(0.52)p
	Capital return per share	55.50p	12.77p	159.45p
	Total return per share	55.27p	12.45p	158.93p

4.     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)	828,737	616,471	770,738
	Number of shares in issue excluding shares held in Treasury	105,287,615	105,357,115	105,316,615
	Net asset value per share	787.1p	585.1p	731.8p

The Company will only re-issue shares held in Treasury at a premium and therefore these shares have no dilutive potential.

5.     Disclosures regarding financial instruments measured at fair value

The disclosures required by the IFRS 13: 'Fair Value Measurement' are given below. The Company's financial instruments within the scope of IFRS 13 that are held at fair value comprise its investment portfolio.

The investments are categorised into a hierarchy consisting of the following three levels:

Level 1 - valued using unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2 - valued by reference to valuation techniques using other observable inputs not included within Level 1.

Level 3 - valued by reference to valuation techniques using unobservable inputs.

The recognition and measurement policies for financial instruments measured at fair value are consistent with those disclosed in the last annual financial statements.

The following tables set out the fair value measurements using the IFRS 13 hierarchy at the relevant period/year end:

		(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	14,565	-	13,784	-	14,029	-
	Level 2	810,365	-	598,557	-	752,615	-
	Total	824,930	-	612,341	-	766,644	-

Within the year, there was a transfer between Level 1 and Level 2 for the current and comparative results. The transfer is a result of the amendment to IFRS 10 'Consolidated Financial Statements'. Subsidiary holdings under the amendment should be classed as Level 2 under the Fair Value Measurement definitions of IFRS 13.

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.jpmindian.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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