Annual Financial Report

RNS Number : 9079D

JPMorgan Emerging Mkts Invest Trust

12 October 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EMERGING MARKETS INVESTMENT TRUST PLC

(the 'Company')

FINAL RESULTS FOR THE YEAR ENDED 30TH JUNE 2018

Legal Entity Identifier: 5493001VPQDYH1SSSR77

Information disclosed in accordance with the DTR 4.1.3

CHAIRMAN'S STATEMENT

Performance

I am delighted to present my first annual statement as Chairman of the Company and report on a year of good performance.

The year to 30th June 2018 was another positive one for investors in emerging markets with the return to shareholders +7.0% over the year and the Company's return on net assets +8.3%. These returns are both ahead of the Company's benchmark index (the MSCI Emerging Markets Index with net dividends reinvested, in sterling terms), which returned +6.5%. This reflects the strong and experienced analytical resource of JPMorgan combined with the Investment Manager's disciplined process of investing in companies which combine superior long-term prospects with rigorous environmental, social and governance practices. This approach has consistently benefited investment performance which remains well ahead of the benchmark over three, five and ten years.

The Investment Manager's Report that follows provides more detail on the Company's performance and the distinctive investment process. It is very pleasing to note that the Investment Manager's proprietary research focusing on quality growth companies' prospects over a five year time horizon has meant that stock selection was, once again, a major factor contributing to the Company's outperformance.

Revenue and Dividends

The revenue return per share has increased in the past three financial years, allowing us to increase this year's proposed dividend by 13.6%, consistent with our commitment to increase the dividend over time, in line with earnings. However, for individual years dividends received in sterling terms may fluctuate in line with underlying earnings as well as currency movements and any changes in the portfolio, although the Board has the ability to use the Company's reserves to smooth dividends paid to shareholders from year to year. The revenue return per share for the year was 13.40p (2017: 12.75p). The Board proposes to increase the dividend from 11.0p to 12.5p this year, subject to shareholder approval at the forthcoming Annual General Meeting ('AGM').

Discount and Share Repurchases

We continue to monitor closely the share price and the discount of our share price to the net asset value. The share price rose 5.6% over the year, from 798.5p to 843.0p at the year end. The discount (calculated using the capital-only net asset value, on which the Board's share buyback programme is operated) ranged between 9.6% and 13.2%, averaging 11.4% through the year.

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% for an extended period, but only if the discount is out of line with our peer group and market conditions are orderly. During the year, we repurchased a total of 292,498 shares into Treasury at an average discount of 11.5%, primarily in the first half of the financial year as sentiment towards emerging markets deteriorated in the second half and discounts generally widened.

The Board

Anatole Kaletsky, the Company's Senior Independent Director, will retire from the Board at the conclusion of the forthcoming AGM. Anatole has served as a Director since September 2003 and I would like to thank him for his contribution to the Company over the past 15 years. The Board will certainly miss his valuable insight into global economics.

Andrew Page will succeed Anatole as Senior Independent Director and in order to ensure appropriate succession planning and continuity, the Board commenced the recruitment process to appoint a new Director in the summer. We expect to make an announcement shortly.

The Manager

The Board monitors the performance of our Manager through the Management Engagement Committee. It judges performance over the longer term and thus we remain satisfied with the Manager's overall performance, not only in terms of investment performance but also in terms of risk management, administration, controls and compliance, where we continue to be well served by JPMorgan.

AGM

This year's AGM will be held at JPMorgan's office at 60 Victoria Embankment, London EC4Y 0JP on Thursday, 22nd November 2018 at 3.00 p.m.. Austin Forey will give a presentation to shareholders, reviewing the past year and giving his view on the outlook for emerging markets for the current year. The meeting will be followed by afternoon tea, which will provide shareholders with the opportunity to meet the Directors and the Investment Manager. We look forward to seeing as many shareholders as possible at the AGM.

Outlook

As the US interest rate cycle has begun to turn, a stronger US dollar coupled with a more aggressive US trade policy has caused some weakness in emerging markets. However, this does not change the argument for investing in the quality companies in emerging markets that the Investment Manager has identified as the future winners. We believe that the long term growth story in emerging markets remains intact and that volatility in markets can give rise to attractive valuations. With its strong record of stock picking, the Company is well placed to take advantage of the opportunities that lie ahead.

Sarah Arkle

Chairman

12th October 2018

investment manager's report

Key Objectives

Our ultimate objective is to grow the value of the Company's portfolio over time. How do we do this? Our aims as investors are simple:

•   Find good businesses

•   Don't pay stupid prices for them

•   Keep them for as long as possible

What does a good business look like? It has to have a strong competitive position which can be maintained or grown in the future; it has to be able to convert that, now or in the future, into good economic returns; and it has to be well governed and managed in the best interests of shareholders. You might think that this all seems obvious; but finding a company which has good economics, duration and governance is not as easy as it sounds.

What is a stupid price? It's a price which means you can't make a return on your purchase, even if the business does what you expected, because you paid for everything up front. Ideally I want a margin of safety in my purchase price; but I much prefer to own a great business at a reasonable price, than to buy a bad one on the cheap. When I look at the Company's portfolio, I see a collection of strong companies at a reasonable overall valuation, not a bunch of distressed assets at a deeply discounted price.

What does 'as long as possible' mean? It's ultimately a function of how durable a company's competitive advantages are. We have a good number of investments which have been in the portfolio for over a decade, in companies whose competitive advantages have been continually reinforced. We go into investments with an open-ended mind-set, prepared to own them as long as they keep delivering.

There are three reasons why we try to think long term: the first is that the effects of compounding become more powerful with time, and eventually become overwhelming; the second is that lower rates of turnover in the portfolio just mean lower costs for running the portfolio. The third is that it's not what most people do: the natural instinct to sell winners is strong; we want to let them keep winning, which means being patient and being prepared to give companies time.

Our Approach

•   Keep it simple.

•   Be consistent.

•   Be patient.

Simplicity is not easy. The world is full of distractions, information is over-abundant, and yet cutting through the noise to what makes a difference is essential. When we look at a potential investment, we have two questions in mind: is this a business we would like to own? and do we want to own it at this price? That's it. All other questions are just ways of defining these issues more narrowly.

The way we do things has to be consistent with our objectives. The way we take decisions is dictated by our time horizon. Those interested in long term outcomes, as we are, naturally put more importance on understanding how companies will create intrinsic value (quality and duration) than on trying to make precise valuation judgements. We try to think about company-specific issues, especially competitive positioning, rather than worrying about short-term macro-economic conditions. And we try to keep our decision hierarchy clear in our minds after we've bought a stock, as well as before.

Be patient. Of all the things we try to do, this is perhaps the most difficult. Much of the financial industry has a vested interest in activity, and many investors feel the need to act, and go looking for decisions to take. I want the market to bring me opportunities that are too good to ignore, and if it doesn't, I don't want to take decisions for the sake of it; I'm happy to leave the portfolio alone instead. But resisting the noise, and the constant entreaties of others to change the portfolio, requires effort and clarity of purpose. Being patient always risks a charge of inertia; sometimes investments deteriorate and we don't see it coming.  But the best investments the Company has made have all come from having the patience to stay invested for really long periods; these are the investments that really make a difference.

Investing Responsibly

•   We need to invest shareholders' money responsibly.

•   And show how we go about doing this.

It's no longer enough to think only about investment returns; people want to see that we are acting in a responsible way when we invest their money, which means having regard to the environmental and social conduct of the companies we invest in, as well as their standards of governance.

It almost goes without saying that such considerations are consistent with the way we think about stocks. Again, this is a matter of investment time horizon and the way it informs our decision hierarchy. If you're out to make a fast buck, you won't worry much about risks that may materialise far in the future. If, though, you start out intending to hold stocks for years, you will naturally think about risk factors which might irreparably damage a company's value, even if they may only play out over the very long term. Let me give you an example: the Company does not invest in coal-fired power stations. Coal remains an important fuel in many countries, but can we really say with confidence, given what we know about the environmental impact of burning coal, the direction of government policies in many countries, and the falling cost of alternative and renewable energy sources, that coal will remain a valuable fuel in the really long term? I don't think so. It's precisely because we think about corporate duration that we naturally stay away from industries where the direction of public policy and social norms is most likely to have an adverse impact.

How do we assess these issues? Over the last few years a whole industry has grown up around the monitoring of environmental, social and governance factors in investment, though without any common standards for corporate reporting, this remains an area where judgements are not straightforward. We subscribe to a number of external vendors in this area, who can be useful providers of information. But we don't want to outsource our judgements. For those, we prefer to use our internal resources, and we ask our analysts to address a series of questions covering environmental, social and governance issues about every company we research, and to think about the future, not just what has happened in the past.

Is this all words and good intentions, or does it actually make a difference? To take one issue, for which we do use external data, consider the question of carbon intensity - in other words, what the carbon footprint of the companies held in the portfolio is, and how it looks when set in a wider context. The following analysis is produced by MSCI, and shows that the carbon produced for every pound invested via this Company is roughly one fifteenth of what it would be if that same pound were invested in a passive fund or ETF which replicated the MSCI Emerging Markets index. Active investment can produce sharply differentiated outcomes in this kind of area, as long as you try.

MSCI CARBON ESG FOOTPRINT CALCULATOR

	Carbon Emissions	Carbon Intensity
	tons CO2e/$M invested	tons CO2e/$M sales
JPMorgan Emerging Markets Investment Trust	21.0	47.0
Coverage by Portfolio Weight	90.7	90.7
MSCI EM Index	311.6	407.4
Coverage by Portfolio Weight	99.9	99.8
Aim/Purpose	What is my portfolio's normalised carbon footprint per million dollars invested?	What is my portfolio's exposure to carbon intensive companies?

Source: MSCI, J.P. Morgan Asset Management. Table as of 30th June 2018 based on data from MSCI as at that date.

MSCI EM = MSCI Emerging Markets Index. Coverage refers to percentage of index or portfolio covered by data.

Finally, shareholders should know that we try to engage with the companies we invest in, not only to explore areas of potential concern or disagreement, but also to promote and encourage good practices. I have always argued that owning shares is an activity in its own right, involving ongoing dialogue with a company about how it's doing, not just in a financial sense, but in the overall way it conducts its business. This dialogue doesn't get any weaker just because we have been invested for a long time. In fact the opposite is more likely to be true; the longer our tenure as shareholders on behalf of our clients, the more openly we tend to express our views, and the more likely they are to be listened to.

To take a single example of this, in the case of HDFC, one of the Company's leading investments for many years, we specifically raised questions during the last year about succession planning and the composition of the board. This was not because we have any complaints at all about how the company has been governed or managed; rather, we wanted to understand what steps are being taken to make ensure that the outcomes achieved in the past have the best chance of being repeated in the years ahead; the company's responses were encouraging, and showed that they took such matters as seriously as we would have expected. I've never thought of this kind of engagement as being distinct from the activity of investment management: it's just a natural part of what we do.

Review of the Year

As the Chairman has noted in her comments, this was not a bad year for emerging markets, though it was not an exceptional one either; single digit returns were the order of the day. The Company's share price and net asset value per share both narrowly outpaced the reference benchmark, rising 7% and 8.3% respectively. But the year was a lot more eventful than these numbers suggest. To begin with, markets rose consistently, making 2017 one of the least volatile years on record for emerging market equities, a state of affairs that proved neither typical nor sustainable. After peaking in late January this year, markets surrendered the majority of their gains by the time the Company's financial year ended in June; and they have continued to weaken since then.

The causes of this recent weakness are not hard to identify. Last summer, the dollar was weakening, and American rhetoric on trade and tariffs seemed just talk. But in 2018, with the Federal Reserve shrinking its balance sheet and hence the supply of dollars at the same time as it started raising interest rates, the dollar began to strengthen again. For countries on the other side of this trend, it presents a dilemma: do you accept that inflationary pressures will increase as everything which is priced in dollars (oil, metals, semiconductor chips, iPhones) becomes more expensive in your own currency? Or do you start raising interest rates to stave off that inflation, even if it slows your economy? A number of emerging markets chose the latter course, with the inevitable result that economic momentum is slowing, corporate profit growth is lower, and currencies have weakened anyway.

PERFORMANCE ATTRIBUTION

YEAR ENDED 30TH JUNE 2018

	%	%
Contributions to total returns
Benchmark return		6.5
Asset allocation	2.6
Stock selection	1.4
Currency effect	-1.1
Cash	-0.1
Investment Manager contribution		2.8
Portfolio return		9.3
Management fee and expenses	-1.0
Share buybacks	-
Return on net assets		8.3
Return to shareholders		7.0

Source: JPMAM/Morningstar.

All figures are on a total return basis.

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

A glossary of terms and alternative performance measures is provided in the annual report.

That was the first headwind. The second and third ones both stemmed from a change in US economic policy: 'America First' turned out not to be just an election slogan. The imposition of sanctions in a more direct and aggressive way, first on Russia and more recently on Turkey shows an America more willing to throw its political weight around; the example of a Chinese producer of telecom equipment, also sanctioned by the US, provides a reminder that America retains a special ability to render businesses anywhere unviable, if it wants to. If you tell a company like this that it cannot use American software or clear dollars through the global banking system, it's hard for the company to continue operating; in that case, the US relented slightly, but the lesson is clear, and for those countries on the receiving end, the effect on their stock markets has been equally clear, and negative.

If sanctions have been the second headwind for some markets, American trade policy has been the third, and China has been the principal target. It's not worth going into the justifications or otherwise of tariffs and trade wars here; but it's not good news for stocks, and the declines in some parts of the Chinese equity market in particular have certainly come partly as a response to this shift in American trade policy.

None of the above, then, has been good news for emerging markets; but these are mostly cyclical and temporary concerns. I worry much more about how the companies the Company owns are doing, and there the news looks rather better to me. Many of the Company's leading investments continue to perform well, demonstrating continued profit growth while also investing to widen their competitive moats. In such circumstances I'm happy to do very little to the portfolio; my only change during the year to the ten largest investments shown on page 17 was to add to the holding in Alibaba, China's e-commerce giant, as its valuation declined recently. Overall, turnover in the portfolio was below 10% of total assets, which I think demonstrates the point made above about keeping the running costs of the portfolio low.

But if transaction activity was restrained, this does not mean that nothing at all changed from an investment perspective. Partly as a result of the transactions we did make, and partly because of the way stocks performed, the importance of both China and of technology stocks has increased, and the number of holdings continues to decrease. A lot of the portfolio is now concentrated in three broad areas: financial companies; technology companies, and consumer companies, though within these sectors the Company owns a range of different businesses. I see this focus as entirely consistent with the objectives set out above; the key to success in all three of these areas of commercial endeavour rests on intangible assets - knowledge, information and skill - rather than with fixed assets, plant and machinery and so on.

In the financial sector, balance sheets remain very important, of course. But a look at any long term charts of bank stocks shows that just because an industry offers services which can be copied and commoditised, it does not follow that all outcomes are the same. Risk management and judgement remain critical skills: without them, failure awaits at the next crisis. To these essential qualities, I think we can now add technology and software. The way banking services are delivered has changed enormously everywhere in the world, as customers expect to be served online or through an app, rather than by phone or in the branch. Firms which navigate this changing landscape prosper; those which don't suffer a loss of competitiveness, probably irreparably.

You might think that in the consumer area, products have a reassuringly immutable nature: has beer really changed as a product in the last century? But the way that consumer companies create that most valuable of all things, a brand, certainly has. The ability to understand consumers' preferences and emotional responses to products has been altered by the ability to capture far more data than ever before, and to reach consumers with minutely targeted advertising through social media and other digital channels. Brands which retain and increase their relevance to the consumer remain intrinsically valuable; those which fail to do so will disappear.

As for technology, it's easy to look at the rise of huge internet businesses to understand how software and data can create large and very valuable businesses; but just as interesting, in my opinion, is the way that technology is allowing the things which create intangible value - software, systems, data, insights, design - to be separated from the physical assets employed in the provision of services or products to the customer. The Company has several sorts of investments in technology, from the world's leading producer of semiconductor chips (Taiwan Semiconductor) to firms which provide software services like Tata Consultancy and EPAM, to large internet services companies like Alibaba and Tencent, which can be seen as the Chinese equivalents of Amazon and Facebook. But there are many more investments which can to some extent be thought of as technology companies because their real competitive advantage, and hence their value, derives from the way they use information and technology as a key competence to operate their business. Nowhere is this more true today than in China.

What Next?

If there's one country which I spend more time on than any other, it's China. I was last in mainland China in May this year, when I travelled with colleagues to Shenzhen, Hangzhou and Shanghai, and I can't remember a trip which had a bigger impact on my views. From one who has long been sceptical about Chinese equities, this may seem surprising.

I used to think that a serious financial crisis might trigger reforms and end the dominance of state-owned firms, turning China into a market where corporate skill could drive outcomes, and that what emerged would be a stock-picker's heaven. There hasn't been a crisis, and the state companies are still there, but the private sector is out of the bag and winning anyway, especially in service industries, and especially in the deployment of technology.

Four things in particular struck me during this last visit:

•      The first is the level of entrepreneurial activity, allied to a sense of ambition and confidence

•      The second is the impact of technology

•      The third is the rapid development of service industries

•      The fourth is the evolution of business models and the consequences for equity returns

These are all interlinked. In the first place, the rate of entrepreneurial activity in China outstrips most other emerging markets put together. It seems to me that conditions are now more favourable than before, as several factors combine. A generation of Chinese has now studied, worked and lived abroad, and perhaps therefore has a more globalised perspective. Meanwhile, rapid economic growth has taken the country to a point at which service industries and consumption become increasingly important for the economy. This is happening at the same time that technological innovation, especially due to the adoption of smart phones and the ability to capture and analyse huge amounts of data, is changing the landscape in many industries and allowing new companies to emerge rapidly, sometimes at a large scale. Maybe it's not surprising, given this combination of circumstances, that entrepreneurial activity is so abundant.

It's easy - and hardly original - to expound on the consequences of technological innovation (not all of which are necessarily positive); but it's striking to see the effects it is having in China. Many companies have grown up during the smartphone era, and built their business models as well as their technology platforms on mobile data. They don't have legacy systems still being run on creaky mainframe computers, or have to worry about how their mobile app can be stitched on to their core business applications: it's all the same thing. In some industries, it's not an exaggeration to say that China leads the world: digital payments is a good example. It's hard to grasp how technology is being used until you see it for yourself; try to pay for a meal in a restaurant with a credit card, and you are likely to be embarrassed; digital payments from mobile wallets are now the norm. The scale of this is staggering: recent research suggest that the value of mobile payments handled by the two leading internet firms in China last year was greater than all payments processed by Visa and Mastercard worldwide. As a result of this growth, cities like Hangzhou, where Alibaba and its associated company Ant Financial are based, and Shenzhen, where Tencent and Ping An are headquartered, have become serious hubs for technology, including artificial intelligence. But even in more ordinary aspects of life - running hotels, cleaning blocks of flats, providing education, visiting the doctor - companies are doing things in new and different ways through the application of technology.

These examples are all in service industries, and the growth of consumption and of service industries should be good news for us as investors of the Company's assets. I've never been a fan of very capital-intensive businesses. Return on capital is not a bad way to think about the rate at which companies create intrinsic value, and if you have a huge denominator because your business needs to deploy huge amounts of capital, then the return is unlikely to be high. But when your business depends on knowledge, intellectual property or technology, the actual money spent to create value can be much smaller, and the return on capital higher.

What does all this mean for the portfolio? In a market where I used to struggle to find businesses I really liked, now there are appealing possibilities, and really it's just a question of being patient enough to find a good entry point. On our travels, we saw several Chinese companies whose underlying returns are very high, sometimes masked by the accumulation of significant cash balances. This is often being achieved precisely by isolating the intellectual property value developed by a company from the assets employed in the business - in the same way that companies like Nike or Apple outsource production and manufacturing while retaining the value of their expertise in software, design or marketing. In the long run, the ability to create these kinds of business models should be very interesting for investors. If we can find companies successfully doing this in China, and buy their shares at sensible valuations, we can certainly have more money invested in that country. China remains, then, the most important market that we look at, and the one where we are most likely to make changes to today's portfolio.

Last Words

Sometimes it's easy to get negative about the prospects for equities, including those in emerging markets. The world has spent a decade recovering from the financial crisis and in the developed world we are well advanced in the economic cycle. Politics is less predictable than it has been for a long time, and even what passed for geo-political certainties seem less reliable than before. Some emerging markets are facing challenges. But hasn't it always been like this? There are always risks to worry about, but equity investors need, I think, to retain a degree of optimism. Some of the longest-held positions in the Company's portfolio have continued to compound in value through electoral cycles, economic cycles, the swings of currency markets and stock markets, surviving and prospering regardless. Real life doesn't go in a straight line; but look back on the last couple of decades, and there has still been real progress, and real wealth created: I see no reason to think that the future will be any different.

Austin Forey

Investment Manager

12th October 2018

Principal Risks

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. In assessing the risks and how they can be mitigated, the Board has given particular attention to those issues that threaten the viability of the Company. These key risks fall broadly under the following categories:

•   Investment Underperformance

An inappropriate investment strategy, for example poor stock selection, the level of gearing or the degree of portfolio risk, could lead to underperformance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. The Board manages these risks by diversification of investments and through a set of investment restrictions and guidelines which are monitored and reported on by the Manager. The Manager provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Manager, who attends all Board meetings, and reviews data which show statistical measures of the Company's risk profile.

•   Political and Economic

Sustained underperformance of emerging markets as an asset class as a result of risks such as the imposition of restrictions on the free movement of capital, significant changes to the benchmark index and therefore the investment universe. These risks are discussed by the Board on a regular basis.

•   Loss of Investment Team or Investment Manager

A sudden departure of the investment manager or several members of the investment management team could result in a short-term deterioration in investment performance. The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team based approach, as well as special efforts to retain key personnel.

•   Strategy/Business Management

An inappropriate corporate initiative, for example a takeover of another company or an issue of new capital; misuse of the investment trust structure, for example inappropriate gearing; or if the Company's business strategy is no longer appropriate, may lead to a lack of investor demand. The Board discusses these risks regularly and takes advice from the Manager and its professional advisers.

•   Operational and Cyber Crime

Loss of key staff by the Manager, such as the Investment Manager, could affect the performance of the Company. Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary or Custodian's records may prevent accurate reporting and monitoring of the Company's financial position. Under the terms of its agreement, the Depositary has strict liability for the loss or misappropriation of assets held in custody. See note 20(c) for further details on the responsibilities of the Depositary. Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective risk management and internal controls are included within the Risk Management and Internal Controls section of the Corporate Governance Statement on pages 33 and 34. The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Board has received the cyber security policies for its key third party service providers and JPMF has assured Directors that the Company benefits directly or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by an independent third party and reported every six months against the AAF Standard.

•   Share Price Discount

A disproportionate widening of the share price discount relative to the Company's peers could result in loss of value for shareholders. The Board regularly discusses discount policy and has set parameters for the Manager and the Company's broker to follow.

•   Change of Corporate Control of the Manager

The Board holds regular meetings with senior representatives of JPMF in order to obtain assurance that the Manager continues to demonstrate a high degree of commitment to its investment trusts business through the provision of significant resources.

•   Legal and Regulatory

In order to qualify as an investment trust, the Company must comply with Section 1158. Details of the Company's approval are given under 'Structure and Objective of the Company' on page 22. Should the Company breach Section 1158, it might lose investment trust status and, as a consequence, gains within the Company's portfolio would be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by the Manager and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure Guidance and Transparency Rules ('DTRs'). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary and its professional advisers to ensure compliance with the Companies Act and the UKLA Listing Rules and DTRs.

•   Corporate Governance and Shareholder Relations

Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement on pages 31 to 34.

•   Financial

The financial risks faced by the Company include market price risk, interest rate risk and credit risk. Further details are disclosed in note 20 in the annual report.

Transactions with the Manager and related parties

Details of the management contract are set out in the Directors' Report in the annual report. The management fee payable to the Manager for the year was £10,980,000 (2017: £9,716,000) of which £nil (2017: £nil) was outstanding at the year end.

During the year £35,000 (2017: £134,000), including VAT, was payable to the Manager for the administration of savings scheme products, of which £44,000 (2017: £38,000) was outstanding at the year end.

Safe custody fees amounting to £571,000 (2017: £551,000) were payable during the year to JPMorgan Chase Bank N.A. of which £229,000 (2017: £139,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £nil (2017: £8,000) of which £nil (2017: £nil) was outstanding at the year end.

The Company also holds cash in the JPMorgan US Dollar Liquidity Fund, which is managed by JPMF. At the year end this was valued at £0.2 million (2017: £6.7 million). Interest amounting to £137,000 (2017: £82,000) was received during the year of which £2,000 (2017: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £21,000 (2017: £6,000) were payable to JPMorgan Chase Bank N.A. during the year of which £2,000 (2017: £2,000) was outstanding at the year end.

At the year end, total cash of £873,000 (2017: £3,871,000) was held with JPMorgan Chase. A net amount of interest of £31,000 (2017: £4,000) was receivable by the Company during the year from JPMorgan Chase of which £nil (2017: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found in the Directors' Remuneration Report in the annual report.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:

•   select suitable accounting policies and then apply them consistently;

•   state whether applicable United Kingdom Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;

•   make judgements and accounting estimates that are reasonable and prudent; 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.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the www.jpmemergingmarkets.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the Annual Report since they were initially presented on the website. The Annual Report is prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report and Directors' Remuneration Report that comply with the law and those regulations.

Each of the Directors, whose names and functions are listed in Directors' Report confirm that, to the best of their knowledge:

•   the Company's financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

•   the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

For and on behalf of the Board
Sarah Arkle
Chairman

12th October 2018

Statement of Comprehensive income

For the year ended 30th June 2018

	2018			2017
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	83,886	83,886	-	204,432	204,432
Net foreign currency (losses)/gains	-	(796)	(796)	-	939	939
Income from investments	23,039	-	23,039	21,816	-	21,816
Interest receivable	168	-	168	86	-	86
Gross return	23,207	83,090	106,297	21,902	205,371	227,273
Management fee	(3,293)	(7,687)	(10,980)	(2,915)	(6,801)	(9,716)
Other administrative expenses	(1,294)	-	(1,294)	(1,478)	-	(1,478)
Net return on ordinary activities before taxation	18,620	75,403	94,023	17,509	198,570	216,079
Taxation	(2,044)	-	(2,044)	(1,537)	-	(1,537)
Net return on ordinary activities after taxation	16,576	75,403	91,979	15,972	198,570	214,542
Return per share	13.40p	60.96p	74.36p	12.75p	158.45p	171.20p

statement of changes in equity

For the year ended 30th June 2018

	Called up		Capital
	share	Share	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserves	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th June 2016	33,091	173,657	1,665	69,939	634,869	21,421	934,642
Repurchase of shares into Treasury	-	-	-	-	(16,878)	-	(16,878)
Net return on ordinary activities	-	-	-	-	198,570	15,972	214,542
Dividend paid in the year (note 3)	-	-	-	-	-	(11,324)	(11,324)
At 30th June 2017	33,091	173,657	1,665	69,939	816,561	26,069	1,120,982
Repurchase of shares into Treasury	-	-	-	-	(2,490)	-	(2,490)
Net return on ordinary activities	-	-	-	-	75,403	16,576	91,979
Dividend paid in the year (note 3)	-	-	-	-	-	(13,616)	(13,616)
At 30th June 2018	33,091	173,657	1,665	69,939	889,474	29,029	1,196,855

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 30th June 2018

	2018	2017
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	1,189,079	1,109,292
Current assets
Derivative financial assets	1	-
Debtors	9,467	3,285
Cash and cash equivalents	1,023	10,580
	10,491	13,865
Current liabilities
Creditors: amounts falling due within one year	(2,711)	(2,173)
Derivative financial liabilities	(4)	(2)
Net current assets	7,776	11,690
Total assets less current liabilities	1,196,855	1,120,982
Net assets	1,196,855	1,120,982
Capital and reserves
Called up share capital	33,091	33,091
Share premium	173,657	173,657
Capital redemption reserve	1,665	1,665
Other reserve	69,939	69,939
Capital reserves	889,474	816,561
Revenue reserve	29,029	26,069
Total shareholders' funds	1,196,855	1,120,982
Net asset value per share	968.2p	904.7p

statement of cash flows

For the year ended 30th June 2018

	2018	2017
	£'000	£'000
Net cash outflow from operations before dividends and interest	(12,752)	(10,218)
Dividends received	19,314	19,551
Interest received	166	86
Overseas tax recovered	-	229
Net cash inflow from operating activities	6,728	9,648
Purchases of investments	(82,163)	(80,427)
Sales of investments	84,070	76,582
Settlement of forward currency contracts	(218)	110
Net cash inflow/(outflow) from investing activities	1,689	(3,735)
Repurchase of shares into Treasury	(4,323)	(15,045)
Dividend paid	(13,616)	(11,324)
Net cash outflow from financing activities	(17,939)	(26,369)
Decrease in cash and cash equivalents	(9,522)	(20,456)
Cash and cash equivalents at start of year	10,580	31,052
Exchange movements	(35)	(16)
Cash and cash equivalents at end of year	1,023	10,580
Decrease in cash and cash equivalents	(9,522)	(20,456)
Cash and cash equivalents consist of:
Cash and short term deposits	873	3,871
Cash held in JPMorgan US Dollar Liquidity Fund	150	6,709
Total	1,023	10,580

Notes to the financial statements

1.     Accounting policies

        Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and 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, and updated in February 2018.

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

The financial statements have been prepared on a going concern basis. The disclosure on going concern in the Directors' Report within the annual report form part of these financial statements.

The policies applied in these financial statements are consistent with those applied in the preceding year.

2.     Return per share

		2018	2017
		£'000	£'000
	Revenue return	16,576	15,972
	Capital return	75,403	198,570
	Total return	91,979	214,542
	Weighted average number of shares in issue during the year	123,694,695	125,320,130
	Revenue return per share	13.40p	12.75p
	Capital return per share	60.96p	158.45p
	Total return per share	74.36p	171.20p

3.     Dividends

        Dividends paid and proposed

		2018	2017
		£'000	£'000
	Dividend paid
	2017 Final dividend of 11.0p (2016: 9.0p) per share	13,616	11,324
	Dividend proposed
	2018 Final dividend proposed of 12.5p (2017: 11.0p) per share	15,452	13,630

All dividends paid and proposed in the year have been funded from the revenue reserve.

The final dividend declared in respect of the year ended 30th June 2017 amounted to £13,630,000. However, the amount paid amounted to £13,616,000 due to shares repurchased after the balance sheet date but prior to the share register record date.

The dividend proposed in respect of the year ended 30th June 2018 is subject to shareholder approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 30th June 2019.

4.     Net asset value per share

		2018	2017
	Net assets (£'000)	1,196,855	1,120,982
	Number of shares in issue	123,615,346	123,907,844
	Net asset value per share	968.2p	904.7p

5.     Status of results announcement

2017 Financial Information

The figures and financial information for 2017 are extracted from the Annual Report and Accounts for the year ended 30th June 2017 and do not constitute the statutory accounts for the year. The Annual Report and Accounts include the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2018 Financial Information

The figures and financial information for 2018 are extracted from the published Annual Report and Accounts for the year ended 30th June 2018 and do not constitute the statutory accounts for that year. The Annual Report and Accounts include the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Register of Companies in due course.

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 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 shortly be available on the Company's website at www.jpmemergingmarkets.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN FUNDS LIMITED

 

END

 

 

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