Half-year Results 2016

RNS Number : 7758A

JPMorgan Asian Investment Tst PLC

09 June 2016

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN ASIAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE

SIX MONTHS ENDED 31ST MARCH 2016

Chairman's Statement

Over the six months ended 31st March 2016, the Company's return on net assets was 9.0% and the return to Ordinary shareholders 8.3%, reflecting a widening of the Company's discount over the period. The Company underperformed its benchmark, the MSCI Asia ex Japan Index, which returned 11.4%.

Having started the first three months of the reporting period strongly, early 2016 proved to be difficult for the Company and although the returns generated are satisfactory, it is disappointing to report an underperformance against the benchmark at the half year stage. Performance has now stabilised, but will need to improve over the second half of the Company's financial year. The market review, commentary on performance and portfolio positioning, together with their outlook can be found in the accompanying Investment Managers' report.

Investment Management Team

The Company was recently informed by JPMorgan that one of the Company's portfolio managers, Sonia Yu, has left JPMAM to pursue other interests. The Board has approved the appointment of Ayaz Ebrahim, a managing director and portfolio manager at JPMAM, as her replacement. Mr Ebrahim, who is based in Hong Kong, chairs the Asia Pacific Asset Allocation Committee within the Emerging Markets and Asia Pacific (EMAP) equities team. The Board is satisfied that Mr Ebrahim has the necessary experience to fulfil the role as an investment manager for your Trust. Richard Titherington, the current CIO of JPMAM's EMAP team will continue to manage the Company's portfolio alongside Mr Ebrahim, with both receiving the additional support of JPMAM's EMAP equities team.

Discount Management

The Board monitors the level of discount at which the Company's shares trade relative to their NAV and believes that the Company's buyback powers can be effective in stabilising the discount. The Board has undertaken to buy back shares in normal market conditions in order to ensure that, as far as possible, its shares trade at no wider than discounts of between 8% and 10%. As I have reported in previous statements, continued volatility in Asian markets has meant that the Company has refrained from automatically implementing share buybacks when the discount has widened beyond 10%, as there was no certainty that such actions would assist in stabilising the discount.

Gearing

The Company has a £30 million three year multi currency loan facility with Scotiabank in place which will expire in December 2016. The investment managers draw down from this facility to gear the portfolio in periods when they believe this leverage will enhance shareholder returns. As at 31st March 2016 your Company's gearing was 4.0%.

Board of Directors

As I reported in my annual statement within the Company's 2015 Annual Report, I will be retiring as a Director and Chairman at the conclusion of the Company's 2017 annual general meeting. The process of recruiting a new Director is underway and shareholders will be informed once an appointment has been made. My replacement as Chairman will also be notified to shareholders. I very much hope to be able to report positive absolute and relative returns to shareholders in my final Chairman's Statement.

James M Long

Chairman                                                                                                                                                 

9th June 2016

 

Investment Managers' Report

During the period under review, Asian stock markets delivered satisfactory gains for investors. Your Company delivered a total return on net assets of 9.0%, underperforming the Benchmark's total return of 11.4%. In this report, we will discuss the major events during the period under review, the portfolio's current structure and the outlook for the remainder of 2016.

Review

After faring poorly throughout most of 2015, the market finally saw some respite for Asian equities towards the end of the year. As widely anticipated, the US Federal Open Markets Committee (FOMC or 'the Fed') initiated an interest rate rise of 0.25% at its December meeting; the first increase in US interest rates since 2006. Having been initially discounted by the markets, it then contributed to considerable equity volatility at the start of 2016, adding to heightened concerns over Chinese currency devaluation and policy direction.

This rise in global volatility in early 2016 reduced the market's expectations of future rate rises by the Fed, to the extent that, by early February, markets were pricing in the probability of less than one further US rate rise in 2016. This contributed to an easing of the US dollar's strength and, as a result, the best performing markets were emerging ASEAN countries such as Indonesia and Malaysia whose performance is closely linked to their local currency exchange rates against the dollar. As we moved to the end of the period under review, markets recovered in response to the stabilisation of China's macroeconomic data and the expectation of a more muted pace of increase in US interest rates. As developments in China remained centre-stage for the region, economic data from the region's largest economy proved mildly positive, suggesting a stabilisation or modest acceleration in key parts of the economy, such as retail sales, service-sector activity and property transactions in 'tier-one' cities. The People's Bank of China added to the benign newsflow by announcing additional easing measures including cuts in interest rates and reserve requirement ratios.

However, the critical confidence builder for global markets as much as for China was a series of explicit public commitments to basic Renminbi stability by senior Chinese policymakers beginning in early February and reinforced by stronger 'fixings' in the exchange rate markets. Improving investor perception of China's macro risks were further bolstered by March's annual session of China's National People's Congress (NPC), at which the leadership reinforced its commitment to a raft of market-friendly structural reforms.

Portfolio

The Company underperformed during the period under review, with both country allocation and stock selection detracting from performance. In terms of asset allocation, our overweight positions in China and India were notable detractors as these proved to be the two worst performing equity markets in the region over the past six months. We held a neutral weight, relative to our benchmark, in Malaysia which rose strongly over the period as the currency rebounded in response to stabilising oil prices and improving macroeconomic conditions. Another detractor at the country level was our minor underweight position in Indonesia; the top performing market during the period with a rise of over 40%.

At the stock level, the key contributor to performance was stock selection in Taiwan and Thailand. We were correctly overweight semiconductor stocks in Taiwan, such as Taiwan Semiconductor Manufacturing and Silicon Motion Technology, both of which produced strong performance on the back of supportive fundamentals. In Thailand, our large overweight in Airports of Thailand was a notable contributor to performance as a result of strong levels of inbound tourism into Thailand, particularly from China. Owning Thailand's PTT Public was also beneficial as the stock benefited from resilient refining margins and expected demand growth in refined products.

In contrast, Chinese financials were notable detractors from performance. Our significant overweight positions in China Taiping Insurance and China Merchants Bank, underperformed during the period as they fell in response to concerns over their earnings sensitivity to the domestic equity market and to the wider economy. Wind power generator, China Longyuan Power, also corrected sharply over the period due to unfavourable tariff cuts. After having generated strong performance, several of our Chinese healthcare names such as Phoenix Healthcare and Sino Biopharmaceutical also fell over the period for stock specific reasons. We continue to believe in the long-term structural growth prospects of these companies.

PERFORMANCE ATTRIBUTION FOR THE SIX MONTHS TO 31ST MARCH 2016

	%	%
Contributions to total returns
Benchmark total return		+11.4
Stock selection	-1.2
Currency effect	-0.8
Gearing/cash	+0.1
Investment Manager contribution		-1.9
Dividend/residual*	-0.1
Portfolio return		+9.4
Management fees/other expenses	-0.4
Return on net assets		+9.0
Effect of movement in discount over the period	-0.7
Return to ordinary shareholders		+8.3

Source: FactSet, JPMAM and Morningstar.

All figures are on a total return basis.

* The Dividend/residual arises principally from timing differences in the treatment of income flows.

Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark index.

Outlook

Looking ahead, we are hopeful that Asian equity markets will produce positive returns as markets anticipate a pickup in US growth in the second half of the year, underpinning the global economic and equity markets. In addition, while China's aggregate economic growth is unquestionably slowing in the medium term, driven by structural and cyclical factors, the broader picture is more reassuring.

The stabilisation of China's real estate market, resilient middle-class consumption and the rise of the service sector contribute to a positive outlook. These positive themes are to some extent offset by Beijing's planned rationalisation of over-supplied heavy industries and a more aggressive curtailment of subsidy lending that will likely drive an increase in state-owned enterprise redundancies. However, while such structural reforms may further dampen near-term growth, they help reduce longer-term systemic vulnerabilities.

Our investment philosophy is to own high quality growth companies in undervalued countries. Against that backdrop, our three key positions in the portfolio include overweight allocations to the information technology sector, the insurance sector, particularly in China, and selected private sector banks in India.

The overweight positioning in information technology comprises semiconductors, components and also exposure to the internet. We look for companies that over time have the ability to innovate, increase penetration and benefit from general upgrade demand. This includes component companies in the Apple i-Phone supply chain as well as leading edge technology companies such as Taiwan Semiconductor and Samsung Electronics. In addition, we are also well-positioned in companies in the e-commerce segment which are seeing strong growth, particularly in China. Our overweight positioning in the insurance sector aims to benefit from an underlying structural growth story in Asia of rising incomes and rising urbanisation, which should benefit selected regional insurance stocks. In the case of China, we also believe that there are fewer solvency issues in the insurance sector compared to some of the other financial stocks and believe that the sector was unfairly sold down during the correction early in 2016. We continue to be very selective in the banking sector, preferring domestically-oriented private-sector banks to state-owned ones. This explains our position in private sector banks in India, which are well managed with a focus on asset quality, geared to the upside of consumer lending and well-positioned for continued growth in the penetration of full banking service.

Richard Titherington

Ayaz Ebrahim

Investment Managers                                                                                                                                   

9th June 2016

 

Interim Management Report

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

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company have not changed since the Company's year end and fall into the following broad categories: investment and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th September 2015.

Related Party Transactions

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

Going Concern

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

Directors' Responsibilities

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

(i) the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with FRS 104 'Interim Financial Reporting' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st March 2016, 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

James M Long

Director                                                                                                                                                   

9th June 2016

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST MARCH 2016

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st March 2016			31st March 2015			30th September 2015
	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	-	19,577	19,577	-	39,671	39,671	-	(9,603)	(9,603)
Net foreign currency (losses)/gains	-	(189)	(189)	-	402	402	-	328	328
Income from investments	1,159	-	1,159	1,293	-	1,293	5,609	-	5,609
Interest receivable and
similar income	4	-	4	-	-	-	1	-	1
Gross return/(loss)	1,163	19,388	20,551	1,293	40,073	41,366	5,610	(9,275)	(3,665)
Management fee	(600)	-	(600)	(648)	-	(648)	(1,317)	-	(1,317)
Other administrative expenses	(373)	-	(373)	(360)	-	(360)	(707)	-	(707)
Net return/(loss) on ordinary
activities before finance costs
and taxation	190	19,388	19,578	285	40,073	40,358	3,586	(9,275)	(5,689)
Finance costs	(152)	-	(152)	(106)	-	(106)	(229)	-	(229)
Net return/(loss) on ordinary
activities before taxation	38	19,388	19,426	179	40,073	40,252	3,357	(9,275)	(5,918)
Taxation credit/(charges)	11	-	11	(176)	-	(176)	(513)	-	(513)
Net return/(loss) on ordinary
activities after taxation	49	19,388	19,437	3	40,073	40,076	2,844	(9,275)	(6,431)
Return/(loss) per share (note 4)	0.05p	20.40p	20.45p	-	42.16p	42.16p	2.99p	(9.76)p	(6.77)p

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 CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31ST MARCH 2016

	Called up		Exercised	Capital
	share	Share	warrant	redemption	Capital	Revenue
	capital	premium	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 31st March 2016 (Unaudited)
At 30th September 2015	23,762	31,646	977	25,121	132,198	4,752	218,456
Net return on ordinary activities	-	-	-	-	19,388	49	19,437
Dividend paid in the period	-	-	-	-	-	(2,376)	(2,376)
At 31st March 2016	23,762	31,646	977	25,121	151,586	2,425	235,517
Six months ended 31st March 2015 (Unaudited)
At 30th September 2014	23,887	31,646	977	24,996	142,540	3,999	228,045
Repurchase and cancellation of the Company's
own shares	(125)	-	-	125	(1,067)	-	(1,067)
Net return on ordinary activities	-	-	-	-	40,073	3	40,076
Dividend paid in the period	-	-	-	-	-	(2,091)	(2,091)
At 31st March 2015	23,762	31,646	977	25,121	181,546	1,911	264,963
Year ended 30th September 2015 (Audited)
At 30th September 2014	23,887	31,646	977	24,996	142,540	3,999	228,045
Repurchase and cancellation of the Company's
own shares	(125)	-	-	125	(1,067)	-	(1,067)
Net (loss)/return on ordinary activities	-	-	-	-	(9,275)	2,844	(6,431)
Dividend paid in the year	-	-	-	-	-	(2,091)	(2,091)
At 30th September 2015	23,762	31,646	977	25,121	132,198	4,752	218,456

 

STATEMENT OF FINANCIAL POSITION AT 31ST MARCH 2016

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2016	31st March 2015	30th September 2015
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	243,513	261,124	218,740
Current assets
Debtors	1,500	4,863	897
Cash and cash equivalents1	3,128	15,833	9,017
	4,628	20,696	9,914
Creditors: amounts falling due within one year	(12,622)	(1,857)	(197)
Derivative financial liabilities	(2)	-	(1)
Net current (liabilities)/assets	(7,996)	18,839	9,716
Total assets less current liabilities	235,517	279,963	228,456
Creditors: amounts falling due after more than one year	-	(15,000)	(10,000)
Net assets	235,517	264,963	218,456
Capital and reserves
Called up share capital	23,762	23,762	23,762
Share premium	31,646	31,646	31,646
Exercised warrant reserve	977	977	977
Capital redemption reserve	25,121	25,121	25,121
Capital reserves	151,586	181,546	132,198
Revenue reserve	2,425	1,911	4,752
Total equity shareholders' funds	235,517	264,963	218,456
Net asset value per share (note 5)	247.8p	278.8p	229.8p

¹     This line item combines the two lines of 'Investments in liquidity funds held at fair value through profit or loss' and 'Cash and short term deposits' in the prior period/year into one.

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31ST MARCH 2016

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2016	31st March 2015	30th September 2015
	£'000	£'000	£'000
Net cash outflow from operations before dividends
and interest (note 6)	(851)	(79)	(1,331)
Dividends received	431	515	4,854
Interest received	4	7	18
Interest paid	(165)	(135)	(252)
Overseas tax recovered	156	15	71
Net cash (outflow)/inflow from operating activities	(425)	323	3,360
Purchases of investments	(51,795)	(93,607)	(174,075)
Sales of investments	46,601	106,875	182,602
Settlement of foreign currency contracts	115	(45)	(154)
Net cash (outflow)/inflow from investing activities	(5,079)	13,223	8,373
Dividends paid	(2,376)	(2,091)	(2,091)
Repayment of bank loans	(10,000)	-	(10,000)
Drawdown of bank loans	11,970	-	5,000
Repurchase and cancellation of the Company's
own shares	-	(1,067)	(1,067)
Net cash outflow from financing activities	(406)	(3,158)	(8,158)
(Decrease)/increase in cash and cash equivalents	(5,910)	10,388	3,575
Cash and cash equivalents at the start of the
period/year	9,017	5,438	5,438
Exchange movements	21	7	4
Cash and cash equivalents at end of
period/year	3,128	15,833	9,017
(Decrease)/increase in cash and cash equivalents	(5,910)	10,388	3,575
Cash and cash equivalents consist of:
Cash and short term deposits	3,128	3,708	963
Cash held in JPMorgan USD Liquidity Fund	-	12,125	8,054
	3,128	15,833	9,017

NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31ST MARCH 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 September 2015 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 including the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.   Accounting policies

Basis of accounting

The financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014.

FRS 104, 'Interim Financial Reporting', issued by the FRC in March 2015 has been applied in preparing this condensed set of financial statements for the period ended 31st March 2016.

In March 2016, the FRC published amendments to FRS 102 concerning fair value hierarchy disclosures. These amendments are effective for accounting periods beginning on or after 1st January 2017. The Company has elected to early adopt these amendments in these interim financial statements. Full disclosure is given in note 7.

As a result of the first time adoption of FRS 102 and the revised SORP, comparative numbers and presentational formats have been restated where required.

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

The accounting policies applied to these half-yearly financial statements are consistent with those applied in the financial statements for the year ended 30th September 2015.

3.   Dividend paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2016	31st March 2015	30th September 2015
	£'000	£'000	£'000
Final dividend paid in respect of the year ended
30th September 2015 of 2.5p (2015: 2.2p)	2,376	2,091	2,091

No interim dividend has been declared in respect of the six months ended 31st March 2016 (2015: nil).

All dividends paid 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 March 2016	31st March 2015	30th September 2015
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	49	3	2,844
Capital return/(loss)	19,388	40,073	(9,275)
Total return/(loss)	19,437	40,076	(6,431)
Weighted average number of shares in issue	95,046,993	95,052,488	95,049,733
Revenue return per share	0.05p	-	2.99p
Capital return/(loss) per share	20.40p	42.16p	(9.76)p
Total return/(loss) per share	20.45p	42.16p	(6.77)p

5.   Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2016	31st March 2015	30th September 2015
Net Assets (£'000)	235,517	264,963	218,456
Number of shares in issue	95,046,993	95,046,993	95,046,993
Net asset value per share	247.8p	278.8p	229.8p

 

6.   Reconciliation of total 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 March 2016	31st March 2015	30th September 2015
	£'000	£'000	£'000
Net return/(loss) on ordinary activities before
finance costs and taxation	19,578	40,358	(5,689)
(Less capital return)/add capital loss on ordinary
activities before finance costs and taxation	(19,388)	(40,073)	9,275
Scrip dividends received as income	-	-	(113)
Increase in accrued income and other debtors	(620)	(635)	(83)
Decrease in accrued expenses	(79)	(112)	(33)
Overseas withholding tax	(136)	(157)	(533)
Dividends received	(431)	(515)	(4,854)
Interest received	(4)	(7)	(18)
Realised gain on foreign exchange transactions	156	447	479
Realised gain on liquidity funds and time deposits	73	615	238
Net cash outflow from operating activities	(851)	(79)	(1,331)

7.   Fair valuation of investments

The fair value hierarchy analysis for financial instruments held at fair value at the period end is as follows:

	(Unaudited)		(Unaudited)		(Audited)
	Six months ended		Six months ended		Year ended
	31st March 2016		31st March 2015		30th September 2015
	Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
	£'000	£'000	£'000	£'000	£'000	£'000
Level 1: Quoted prices for identical instruments in
active markets	238,429	-	261,124	-	218,740	-
Level 2: Prices of recent transactions for identical
instruments	5,0841	-	-	-	-	-
Total value of investments	243,513	-	261,124	-	218,740	-

¹     JPMorgan Vietnam Opportunities Fund, an Open Ended Investment Company (OEIC).

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

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

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

 

END

 

 

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