Final Results to 31 July 2021 and Annual Report

RNS Number : 2035Q

JPMorgan Global Emerging Mkts I.T.

26 October 2021

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN GLOBAL EMERGING MARKETS INCOME TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 31ST JULY 2021

Legal Entity Identifier: 549300OPJXU72JMCYU09

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Performance

In the financial year to 31st July 2021, Emerging Markets delivered strongly positive returns for investors. The Company's benchmark Index, the MSCI Emerging Markets Index with net dividends reinvested (GBP) rose 13.9%. Over the same period, I am very pleased to be able to report that the Company's total return on net assets was 24.6%, outperforming the benchmark by a considerable margin. The total return to shareholders was 27.8%, reflecting a narrowing of the discount to net asset value at which the Company's shares trade, to 6.7% by the end of the period, from 8.8% a year earlier.

The principal reasons for the Company's outperformance against the benchmark index were stock selection in China, Russia and Taiwan which outweighed the negative relative contribution from the Company's exposure to South Korea and Brazil. As mentioned in my previous Statement in April 2021, the Company's Income objective means that the composition of the portfolio varies significantly from the benchmark index, which further explains why returns may vary meaningfully from those of the index. This has been the case over the long term - in the ten years to 31st July 2021, the Company's compound total return on net assets was 104.7%, compared to the benchmark return of 68.3%. The Investment Managers' Report that follows provides more detail on the Company's investment strategy and performance.

Dividends

Gross revenue for the year amounted to £18.9 million (2020: £16.4 million) with net revenue of £14.7 million (2020: £12.7 million). Net revenue return per ordinary share for the year, calculated on the average number of shares in issue, was 4.94p (2020: 4.28p).

In the current financial year, the Board paid three interim dividends of 1.0p per share and has announced the payment of a fourth interim dividend of 2.1p per share. This brings the total dividend for the year to 5.1p per share, maintained at the same level as the previous two years.

The Board highlights that whilst the revenues generated in this financial year did not cover the dividends paid, it felt that it was appropriate to use revenue reserves to support the current year's fourth interim dividend, as we did last year. We recognise that the Company's dividend generation is important to our shareholders, and it is a distinguishing feature of investment trusts that we have the capacity to smooth the dividend stream in this way. We cannot guarantee that we will always be able to do this, but we currently have revenue reserves of £8.4 million, after the payment of the fourth quarterly interim dividend (July 2020: £8.9 million), which equate to a little over half of future annual dividends at the current level.

The Board pays four interim dividends, reflecting the support we have received from shareholders for a regular and timely income stream. It is seeking shareholder authority to maintain this dividend payment policy at the forthcoming Annual General Meeting ('AGM').

It is possible that some companies within the portfolio may have difficulties maintaining historic dividend pay-out ratios in the short term and the Board continues to monitor dividend receipts with this possibility in mind. However, over the longer term, both the Investment Manager and your Board remain of the view that Emerging Markets offer long term growth potential with attractive income prospects. The Board carefully considers the revenue outlook and potential sensitivities with the investment team on a regular basis, including the impact of currency movements on revenue receipts. As shareholders are aware, the Company receives dividends in the currencies of developing countries and US dollars but pays dividends in sterling. It has not been the Company's policy to hedge currency risk as that is expensive and, for many currencies, impracticable. That policy inevitably means that the Company's asset values and cash flows will be favourably or adversely affected by currency movements from time to time.

Share purchases and Issuance

During the financial year to 31st July 2021, the Company's share price traded at an average discount to net asset value of 6.6%. The Company did not carry out any share issuance or share repurchases during the year, nor has it done so since the year end.

The Board is seeking shareholder authority at the forthcoming AGM to have the flexibility to issue up to a further 10% of the Company's issued share capital. The intention is to use this authority to meet demand for the Company's shares as and when they trade at an appropriate premium to net asset value.

Key Performance Indicators ('KPIs')

The Board tracks a series of KPIs. Further details may be found on page 25 of the 2021 Annual Report. The Board pays particular attention to performance, ongoing charges, gearing, income available to pay dividends and the investment risk of the portfolio.

Gearing and loan Facilities

The Board regularly discusses gearing with the Investment Managers, who use it to enhance long-term shareholder returns. As at the beginning of the financial year, the Company had two US Dollar 20 million fixed rate loan facilities with National Australia Bank, repayable in October 2020 (2.31% per annum) and November 2022 (3.28% per annum). Upon maturity of the first loan facility on 8th October 2020, the Company entered into a three year US Dollar 20 million rolling interest loan facility with ING Bank, repayable in October 2023. This resulted in a lower blended interest rate for the Company. As at 31st July 2021, gearing stood at 5.4% (2020: 6.9%).

Management Fee

The Board is pleased to report that with effect from 1st August 2021, JPMorgan has agreed to reduce its investment management fee, which is now being charged at the rate of 0.75% per annum (previously 0.9% per annum) on the net asset value of the Company's portfolio.

The fee will continue to be calculated and paid monthly.

Board and Corporate Governance

Following the Board's annual evaluation by the Nomination Committee, it is felt that the Board's composition and size are appropriate. However, as part of its long-term succession planning, the Board has a plan to refresh the Board in an orderly manner over time. Consistent with this plan, in anticipation of the retirement of Richard Robinson at the conclusion of the 2021 AGM, and to ensure continuity, the Board is delighted to welcome Lucy Macdonald as a non-executive Director of the Company. Lucy joined the Board on 1st April 2021. She has over 30 years' experience in the asset management industry, most recently as CIO Global Equities at Allianz Global Investors. She was also Lead Portfolio Manager of Brunner Investment Trust, a global income and growth trust, from 2016 until May 2020. Lucy is on the CFA Investor Panel. Her appointment will further increase the Board's diversity of skills, experience and background, and I am confident that Lucy will make an invaluable contribution to your Company.

Lucy Macdonald will succeed Richard as the Senior Independent Director upon his retirement.

On behalf of the Board, I would like to express our gratitude and appreciation to Richard for the significant contribution he has made to the Board's work since he joined the Board in 2011.

As part of the Board's ongoing succession planning, I will be retiring from the Board at the conclusion of the 2022 AGM, after having served on the Board from 2011 and as its Chairman since 2018. The Board plans to start a further recruitment process to appoint another new Director in early 2022 and then to agree the next Board Chairman.

The Board supports annual re-election for all Directors, as recommended by the UK Corporate Governance Code, and therefore all of the Directors (except for Richard) will stand for re-election at the forthcoming Annual General Meeting. Shareholders who wish to contact the Chairman or other members of the Board may do so through the Company Secretary or the Company's website, details of which appear below.

Environmental, Social and Governance ('ESG')

The Investment Managers believe that sustainable investment delivers superior returns over the long-term. Accordingly, ESG considerations were integral to their stock selection process long before ESG issues gained prominence. This integration of ESG considerations into the investment process has been formalised recently.

The Board is mindful of the ever-increasing focus on ESG and sustainable investing and holds regular discussions about these factors. We share the Investment Managers' view on the importance of ESG factors for sustainable, long-term investments and support their efforts to maintain continual engagement with investee companies throughout the duration of the investment. The Board receives reports from the Investment Managers on ESG issues that arise in the course of their work.

We published the Investment Managers' first ESG Report in our 2020 Annual Report. Since then, we have released our first externally measured ESG Rating by MSCI on our website. This gives the Company an 'A' rating in the Equity Emerging Markets Global peer group. Further information on how ESG considerations are integrated into the investment process can be found in the Investment Managers' Report which follows, and in the separate Environmental, Social and Governance Statement on page 17 of the 2021 Annual Report.

Annual General Meeting

Regrettably, COVID-19 restrictions prevented the holding of the Company's AGM in 2020 in the usual format. The Directors were disappointed not to be able to have the usual interaction with shareholders at this forum. Current indications are that a more familiar format for the AGM may be permissible in November this year and, to that end, the AGM is scheduled to be held at 2.00 p.m. on Thursday, 25th November 2021 at 60 Victoria Embankment, London EC4Y 0JP.

We do of course strongly advise all shareholders to consider their own personal circumstances before attending the AGM in person. For shareholders wishing to follow the AGM proceedings but choosing not to attend, we will be able to welcome you through conferencing software. Details on how to register, together with access details, will be available shortly on the Company's website: www.jpmglobalemergingmarketsincome.co.uk or by contacting the Company Secretary at [e-mail].

As is normal practice, all voting on the resolutions will be conducted on a poll. Due to technological reasons, shareholders viewing the meeting via conferencing software will not be able to vote on the poll and we therefore encourage all shareholders, and particularly those who cannot attend physically, to exercise their votes in advance of the meeting by completing and submitting their form of proxy. Shareholders are encouraged to send any questions ahead of the AGM to the Board via the Company Secretary at the email address above. We will endeavour to answer relevant questions at the meeting or via the website depending on arrangements in place at the time.

If there are any changes to the above AGM arrangements, the Company will update shareholders through the Company's website and, as appropriate, through an announcement on the London Stock Exchange.

Adoption of New Articles of Association

The Company's Articles of Association, the document that specifies the regulations for a company's operations and defines a company's purpose, was last amended following shareholder approval in 2017. Resolution 13 within the Notice of Meeting, which will be proposed as a special resolution, seeks shareholder approval to adopt new Articles of Association (the 'New Articles') in order to update the Company's current Articles of Association (the 'Existing Articles').

A summary of the principal amendments being introduced in the New Articles is set out in the Appendix to the AGM Notice within this 2021 Annual Report. The proposed amendments, if approved, include the possibility of the Company holding the Company's general meetings by virtual means only. This will facilitate shareholder attendance in situations where they are prevented, through laws or regulations, from attending at a physical location. This format will only be utilised as a contingency to ensure the continued smooth operation of the Company where physical meetings are prohibited; 'virtual-only' meetings will only be held in extremis. Other amendments, which are of a minor, technical or clarifying nature, have been summarised in the Appendix.

Your Board would encourage shareholders to support these and the other more procedural changes that are proposed.

Continuation vote

In accordance with the Company's Articles of Association, an ordinary resolution will be put to shareholders at the forthcoming Annual General Meeting that the Company continue in existence as an investment trust for a further three-year period.

The Board believes that the long-term outlook for global emerging markets remains favourable. Equally, it believes that JPMorgan has the resources and process to deliver good results for shareholders. Accordingly, the Board believes that the continuation of the Company is in the best interests of all shareholders and strongly recommends that shareholders vote in favour of the resolution.

Outlook

It is a great relief that the global outlook has improved significantly over the past year, thanks to the development and roll-out of several vaccines. While many Emerging Market countries are still struggling to source and administer the vaccinations, their economic recovery is already underway as lockdown restrictions ease and Emerging Markets growth is forecast to rebound sharply this year and next. This should support corporate earnings and dividend pay-out ratios, although there are, as ever, risks that require constant monitoring. Foremost amongst these at present is the Chinese government's escalating efforts to control companies and societal behaviour more broadly.

Despite the uncertainties generated by these developments, your Board believes that Emerging Markets provide many interesting opportunities to invest in quality companies with good capital and dividend returns prospects. We are confident that the Investment Managers' disciplined investment process, integration of ESG considerations, and careful approach to risk management, supported by JPMorgan's extensive worldwide research resources, will continue to deliver attractive long-term returns for shareholders. On behalf of the Board, I would like to thank you for your ongoing support.

Sarah Fromson

Chairman

25th October 2021

INVESTMENT MANAGERS' REPORT

Performance review

The Company's return on net assets for the year to 31st July 2021 was 24.6%, outperforming our benchmark, the MSCI Emerging Markets Index (GBP) with net dividends reinvested, which returned 13.9% (on a net total return basis). The value of the Company's shares (including dividends) rose 27.8% over the period, and the discount at which the Company's shares traded to Net Asset Value (NAV) narrowed to 6.7% by the end of the period, from 8.8% a year earlier.

In the Company's last annual report, we reiterated our view that our Income approach is a positive way to invest in Emerging Markets over the long term. We also said that we remained comfortable with the underlying fundamentals of the portfolio and that we believed these fundamentals would be the key driver of long-term performance. Consequently, over the past year, we maintained our established stock selection process, focusing on current dividend yield and the sustainability and growth prospects of dividends over the long-term. We are pleased that our steady and disciplined approach has seen performance improve in the last year and bolstered our longer-term performance. The Company returned 8.2% annualised on an NAV basis over three years, compared to a benchmark return of 5.9% annualised, and returned 9.5% pa over five years on the same basis, compared to a benchmark return of 9.4% pa. In addition, over the past year, the portfolio also significantly outperformed high yielding emerging markets stocks - the portfolio's NAV return of 24.6% outpaced the MSCI Emerging Market High Dividend Yield Index, which returned 15.7% (this is for comparison purposes only; our official benchmark remains MSCI Emerging Markets).

The coronavirus pandemic remained the main driver of markets in both developed and emerging markets over the past year. The year began with economies everywhere under significant pressure due to lockdowns and COVID-related issues, but the emergence of several viable vaccines in November 2020 heralded a dramatic improvement in investor sentiment and markets rose significantly during late 2020 and early 2021 as investors discounted a return to more normal economic conditions. More recently, market attention has shifted to events in China. The Chinese government is taking an increasingly pro-active role in regulating many areas of the economy, including technology companies, financial institutions, online lenders and education providers, and investors' concerns about this crackdown have seen Chinese share prices in some sectors fall sharply this year. We discuss this further below.

Performance drivers over the past year

The Company's outperformance relative to its benchmark over the past year was due to a mixture of stocks that we own, and others that we do not. The table below, showing the top five and bottom five contributors to performance over this period, illustrates this.

Top 5 (contributors)	Bottom 5 (detractors)
Alibaba (not held), China	China Overseas Land, China
Tencent (not held), China	Joyoung, China
Taiwan Semiconductor, Taiwan	Ping An Insurance, China
JS Global, China	NIO (not held), China
Severstal, Russia	Vale (not held), Brazil

The portfolio's geographical split provides another useful way to view relative performance. The table below shows the relative contribution to performance made by the top three contributors and bottom three detractors, by country.

Country exposure	Contribution to relative performance
China	6.9%
Russia	2.9%
Taiwan	2.0%
Turkey	-0.3%
Brazil	-0.6%
South Korea	-1.8%

Combining these two ways of assessing relative performance, the Company's exposure to China was the most important driver of relative performance. This was due mainly to stock selection - our underweights to some of the pure growth areas (for example technology companies and e-commerce platforms such as Alibaba and Tencent) made a positive contribution to relative returns, as these sectors underperformed over the period. In addition, our positions in financials and consumer stocks (for example China Merchants Bank and Jiangsu Yanghe Brewery ) performed relatively well during the year, partly as economically sensitive cyclical stocks outperformed in the rally triggered by the arrival of effective vaccines.

Our exposure to Russia was the second most important contributor to relative performance by country, thanks mainly to the positive dividend policies of our Russian holdings, many of which aim to pay all of their free cash flow as dividends. Favourable demand/supply factors have provided strong support for commodity and materials prices, and as a result, cash flow generation has been high for some of the portfolio's Russian commodity producers, such as Severstal , a steel manufacturer and Alrosa , a diamond miner. This has fed through to dividends. Even after some good performance underpinned by favourable demand/supply dynamics, we can still find stocks with high (i.e. double digit) dividend yields, although we do, of course, take account of the longer term implications of product prices generally normalizing at lower levels, when considering valuations.

Taiwan was the third most favourable influence on relative performance at the country level. Here, our semiconductor holdings, especially Taiwan Semiconductor Manufacturing Company (TSMC) , performed well. Semiconductor producers around the world have been experiencing unprecedented demand for their products from the manufacturers of vehicles, consumer products and data processing equipment. At the same time, the pandemic has severely interrupted supply chains. This has facilitated healthy growth in profits and cash flow for semiconductor producers, and in Taiwan, companies in this sector, such as TSMC, pay attractive dividends.

In terms of negatives, it is interesting to note that although China was a very strong positive contributor overall, our bottom three stocks were all drawn from this market. During the year, the outgoing US administration issued an Executive Order restricting US citizens from investing in certain Chinese companies deemed to have military links. As a result of this order, we sold our positions in two Hong-Kong based companies. CNOOC , an oil and gas producer, was on the list of banned companies and although China Overseas Land and Investment (COLI) , a real estate development company, was not, we sold this position as a precautionary measure. In the case of Ping An Insurance , the Chinese insurance sector has seen some disappointments in terms of delivered growth rates; this combined with more concern over capital requirements this led us to trim our position here.

Dividends

The environment for dividends has been a challenging one, due to the economic impact of the pandemic. In this context, we feel it is worth repeating a few points we made in the previous annual report:

-  First, in Emerging Markets, dividends are mainly driven by payout ratios, so the earnings base from which companies pay dividends is crucial. During the past year, we saw a sharp downturn in company earnings, but they are beginning to recover as economies re-open. Clearly, the pace and magnitude of this recovery within individual companies must be a key consideration in our stock selection process.

-  Secondly, bank dividends have been hit particularly hard by the adverse economic effects of the pandemic and by regulatory intervention to limit dividend payouts. Across Emerging Markets, such regulatory intervention was harsher in non-Asian markets (e.g. Mexico, South Africa, Hungary and Poland) than in Asian ones (e.g. China, Taiwan, Indonesia). However, regulatory restrictions have subsequently eased, and dividend payments have resumed in some previously constrained markets.

-  Finally, companies in many other sectors saw dramatic declines in revenues during lockdowns, forcing management teams to make difficult choices to balance cash flows. However, from a portfolio viewpoint, it is positive that where regulators permitted, most companies continued to pay dividends, even in very difficult circumstances.

Overall, these factors delivered an increase in portfolio dividend receipts of 16% in the financial year, although it is important to note that dividend receipts were affected by the pandemic in both FY20 and FY21, so the FY21 increase comes off a lower base. We continue to think the portfolio's long term dividend producing power is high, although we recognise the possibility that COVID-related uncertainties could linger for some time. For this reason, we will maintain our strong focus on the sustainability and growth potential of company dividends, in addition to the yield itself.

Positioning

We build the portfolio on a bottom-up basis, selecting stocks based on their sound fundamental qualities, strong balance sheets and capacity to pay dividends over the long term. Naturally, some areas within Emerging Markets offer more investment opportunities than others, and this results in structural tilts within the portfolio towards some sectors and countries. From a sectoral viewpoint, we tend to find the most attractive income opportunities within Technology, Consumer Staples and Financials, so these are the portfolio's three key sector overweights. On a geographical basis, the three key overweights are Taiwan, Russia and Mexico.

During the year, we made moderate changes to the portfolio based on individual stock views. Some examples include:

Buys/Additions

Realtek - a chip designer based in Taiwan. Realtek's attractive yield makes it an appealing addition to the portfolio. Given the current demand/supply imbalances plaguing semiconductor manufacturers and users (discussed above), combined with the very favourable long-term outlook for this industry, we believe successful companies in this space have significant attractions as income payers. Realtek has been designing and producing integrated circuits (ICs) for more than 20 years and it is seeing growing demand for ICs for use in communications networks, automotive electronics, digital home centres and other wireless technologies. The industry is capital light and generates high free cash flow. In addition, Taiwan's dividend culture supports decent payout ratios. We have often discussed the direct link we make between dividend policies and corporate governance and Realtek is a positive example - returning meaningful amounts of earnings as dividends each year, a tangible sign of positive treatment of minority shareholders. This does not mean we ignore other aspects of governance; for example we communicated with the company ahead of its AGM as a number of management proposals fell short of our views on best practice, particularly around board composition. We decided to support management's proposals this year, but only after setting out some key requests that we would like to see adopted which will define how we vote in future years.

Xinyi Solar - the largest solar glass producer in the world, with a 30% global market share. This Chinese company is the lowest cost supplier of solar glass, and we expect demand for its products to grow strongly in future. These two factors should support dividend growth. However, when making this acquisition, we were very mindful of environmental considerations. Glass manufacturing is inherently a highly energy intensive process, so holding this stock increases the portfolio's carbon footprint. On the other hand, Xinyi Solar's products are essential if the world is to become less dependent on fossil fuels, and, on balance, these considerations, combined with its positive dividend outlook, prevailed. The company will play a meaningful role in reducing global carbon emissions over the long term, while also benefiting from robust demand for its products.

NetEase - a Chinese online games company with a diversified portfolio of popular games. The stock fits into the lower yield/higher growth part of the portfolio. We think NetEase has the capabilities to be a durable competitor in this market and this should ensure that its already high levels of cash flow will continue to grow. Importantly, the company has a clear dividend policy, which commits it to a 30% payout ratio, and it supplements shareholder returns with buybacks. This distinguishes NetEase from many other internet stocks, where dividends tend to be low on the priority list. Within our materiality framework we identified social issues as an important area, with the view that the company was doing a good job of addressing issues around content appropriateness and addictive elements in games (though subsequently government regulation around this has increased). We did identify data privacy as a more negative issue - something we generally apply to Chinese companies in this space due to government influence. While many Chinese stocks have recently been hit by increased regulation and government oversight, we are comfortable that NetEase's fundamentals remain strong.

Banorte - a Mexican bank. This is a top-up to an existing position and gives exposure to post-pandemic dividend recovery in the Mexican banking sector. Following the easing of stringent regulatory restrictions, Mexican banks now look relatively attractive in terms of their capability and willingness to pay dividends. However, we continue to avoid bank names in other markets such as South Africa and Central and Eastern Europe, where the overall dividend outlook looks more uncertain.

Sales/Reductions

Ambev - a Brazilian drinks supplier. This was a longstanding position, and with hindsight, we feel we should have been less patient. Our confidence in the company has declined over time as it struggled to compete with other brewers such as Heineken. Ambev's management still emphasises cash returns via dividends, but overall, future returns look more challenged, so we exited the position.

China Life Insurance Co - The Chinese insurance sector has become riskier for income investors due to capital rules changes that may have adverse consequences for dividends. This increased uncertainty regarding future dividends has prompted us to reduce our position in this and other Chinese insurers.

Jiangsu Yanghe Brewery - We made a valuation-driven reduction in the size of our position in this Chinese drinks company. The move was prompted by a strong share price rally, which left the valuation - including the dividend yield - looking less attractive. We believe this partial sale is a good illustration of the discipline inherent in our investment process, which uses yields as a guide that encourages us to re-consider position sizing during good times and to hold stocks during tougher times.

ESG

We believe that sound environmental, social and governance (ESG) practices are extremely important to the sustainability of business models, and we welcome the fact that more Emerging Market companies are explicitly recognising this fact and improving their practices accordingly. ESG considerations are therefore integral to our investment process (see pages 16 to 18 of the 2021 Annual Report for further detail). When considering potential investments, our analysts assess each company on a list of relevant issues, including its carbon emissions, renewable energy and recycling policies, employment and diversity practices and its approach to corporate governance.

We place particular emphasis on governance and we draw a direct link between a company's dividend policy and the quality of its governance. In our view, a company's willingness to return cash to shareholders is a tangible and positive governance indicator. We have engaged with many companies on this issue over time, to understand their motivations and capital allocation objectives. We also discuss the magnitude of returns to shareholders and the motivations behind any split between dividends and buybacks.

In our ongoing engagements with the companies we hold, we are often forced to grapple with difficult, complex and subtle issues. Often, there are no easy resolutions to the problems we seek to redress, but we take comfort from the time our experienced research analysts dedicate to these negotiations, with the support of our Investment Stewardship team.

Outlook

COVID is likely to remain an important economic driver for Emerging Markets (EM) over the coming year and beyond. Brazil and India have been struggling with COVID variants which are likely to prove a drag on growth. China's economic data was strong in H121, but expectations for growth in H2 and beyond are more conservative, although still robust by global standards. Unlike China, economic activity in almost all other EM economies is still far below pre-pandemic levels. However, accommodative central banks and large fiscal stimulus packages have created a solid base for economic growth as lockdown restrictions ease, and the International Monetary Fund (IMF) expects EM economies to rebound strongly this year and continue to grow robustly in 2022.

Another important development within Emerging Markets over the past year has been the rise in the Chinese government's efforts to regulate economic activity and social behaviour. The government has made it increasingly clear that it wishes to exert more control over companies' activities, part of its drive for 'common prosperity'. Anti-monopoly measures, treatment of employees and cultural protection requirements are all examples in this area and we have seen crackdowns of technology companies and private education providers. Consequently, we need to think carefully about policy risks when we consider investments in some sectors of this market. However, overall, we are comfortable with our China stocks from this policy risk perspective. Our key positioning in China is within financials and consumer stocks.

Financials certainly have their own risks, but government efforts to control this sector is not new news, while the portfolio's Chinese consumer names (e.g. Midea or Inner Mongolia Yili) operate in relatively uncontroversial areas such as home appliances and food and beverages.

One other area which has concerned markets recently has been the issues being faced by a large Chinese property developer, Evergrande, with the company facing serious difficulties in servicing its large debt obligations. Markets are currently worrying that this could then cause meaningful knock-on impacts to the Chinese economy (as property is so important to China). At the point of writing the exact fate of Evergrande is still undetermined. Overall, we view the issue as certainly a negative event but one that looks manageable from a financial system perspective. Whilst clearly not a positive development, we are comfortable with our portfolio positions (particularly financials) from the viewpoint of property exposure.

From a dividend perspective, we are still cautious about near term dividend announcements across Emerging Markets, mainly due to the halting nature of the post-pandemic recovery. However, looking further ahead, we are confident about the earnings and dividend payment power of our portfolio companies. In our view, Emerging Markets continue to offer the potential for long term growth, and pay-out ratios for the asset class should generally remain relatively steady, at around 35%. As a reminder, we receive dividends from portfolio companies in local currencies and pay out dividends in sterling. Currency movements therefore have an impact on revenue receipts from year-to-year - all else being equal, a rising pound puts pressure on revenue receipts from Emerging Markets, while a decline in sterling supports revenue income. During the financial year, sterling moves were not the key factor in dividends or overall returns (e.g. the pound weakened by 2% against the Chinese renminbi but strengthened by 2% versus the Taiwan dollar and 4% versus the Russian ruble).

Against this positive long term backdrop of ongoing growth in EM economies and markets, combined with steady payout ratios, we remain focused on our aim of investing in quality businesses with sound fundamentals, strong balance sheets and sustainable dividend policies. We believe this focus on quality businesses puts the Company's portfolio in a strong position to successfully navigate current market uncertainties and we remain confident in the Company's potential to deliver dividends and capital returns to shareholders with a long-term perspective. We are most appreciative of your continued support.

Omar Negyal

Jeffrey Roskell

Isaac Thong

Investment Managers

25th October 2021

Principal and Emerging Risks

The Directors confirm that they have carried out a robust assessment of the principal and emerging 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

An inappropriate investment strategy, for example poor stock selection or asset allocation or foreign exchange weakness, may lead to underperformance against the Company's benchmark index and peer companies or it may lead to insufficient local currency income generation which may lead to a cut in the dividend. The Board manages these risks by diversification of investments through its 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, currency performance, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, who attend Board meetings, and reviews data which show statistical measures of the Company's risk profile.

• Strategy

If the Company's business strategy is no longer appropriate, it may lead to a lack of investor demand. This may result in the Company's shares trading at a narrower premium or a wider discount. The Board discusses these risks regularly and takes advice from the Manager and its professional advisers. An inappropriate gearing strategy may lead to suboptimal returns; poor performance if over-geared in weak markets or performance foregone if under-geared in strong markets. The Board has set a gearing range within which the Investment Managers employ the Company's gearing on a strategic basis.

• Financial

The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. Further details are disclosed in note 22 on pages 71 to 76 of the 2021 Annual Report.

• 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 report on page 37 to 41 of the 2021 Annual Report.

•   Operational and Cybercrime

Loss of key staff by the Manager, such as the Investment Managers, could affect the performance of the Company. Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the depositary's or custodian's records could prevent accurate reporting and monitoring of the Company's financial position. This includes the risk of cybercrime and consequent potential threat to security and business continuity. Details of how the Board monitors the services provided by the Manager and its associates and the key elements designed to provide effective internal control are included in the Risk Management and Internal Control section of the Corporate Governance report on page 40 of the 2021 Annual Report. 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 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 PricewaterhouseCoopers LLP and reported every six months against the AAF Standard.

• Accounting, Legal and Regulatory

In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Business of the Company' above. Were the Company to breach Section 1158, it would lose its investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 1158 qualification criteria are continuously 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 Prospectus Rules, Listing Rules and Disclosure, Guidance & 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, the Manager and its professional advisers to ensure compliance with the Companies Act 2006, the UKLA Prospectus Rules, Listing Rules, DTRs and the Alternative Investment Fund Managers, Directive.

• 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, ability to pay corporate dividends and change in legislation. Risks of economic, political and ultimately military conflicts between nations, regions and trading blocks are an ever present risk. So too are the risks of social dislocation or civil unrest within countries. These bring with them risks to economic growth, to investors' risk appetites and, consequently, to the valuations of companies in the portfolio. These risks are discussed by the Board on a regular basis.

• Environmental, Social and Governance

Underperformance as a result of environmental, social and governance risks. The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a responsible manner and, therefore, it ensures that the Manager takes account of environmental, social and governance factors as part of the investment process.

The Board considers the following as emerging risks facing the Company:

Emerging Risks

• Climate Change

Climate change is one of the most critical emerging issues confronting asset managers and their investors. Climate change may have a disruptive effect on the business models and profitability of individual investee companies, and indeed, whole sectors. The Board is also considering the threat posed by the direct impact of climate change on the operations of the Manager and other major service providers.

The Manager's investment process integrates consideration of environmental, social and governance factors into decisions on which stocks to buy, hold or sell. This includes the approach investee companies take to recognising and mitigating climate change risks. In the Company's and Manager's view, companies that successfully manage climate change risks will perform better in the long-term. Consideration of climate change risks and opportunities is an integral part of the investment process. The Manager aims to influence the management of climate related risks through engagement and voting and is a participant of Climate Action 100+ and a signatory of the United Nations Principles for Responsible Investment.

• Global Pandemics

COVID-19 has highlighted the speed and extent of economic damage that can arise from a pandemic. While current hopes that vaccination programmes will control the virus appear well-placed, there is the risk that emergent strains may not respond to current vaccines and may be more lethal and that they may spread as global travel opens up again.

The response to the Pandemic by governments may fail to mitigate the economic damage created by the Pandemic and public health responses to it, or may create new risks in their own right. The current deployment of a number of vaccines gives hope that the world will be able eventually to live with COVID-19. Meeting the costs of support measures across the globe may see an increase in taxation which could be detrimental to investee companies, the appeal of savings and investment products (such as the Company) and to shareholders themselves. The support measures could also result in either significant levels of inflation in the medium term with a knock on effect on valuations and/or growth; or if they are not sufficient, they could lead to continued depressed levels of demand and deflation. Deflation would make the real price of the Company's debt rise and increase the effective debt burden.

The Board receives reports on the business continuity plans of the Manager and other key service providers. The effectiveness of these measures have been assessed throughout the course of the COVID-19 pandemic and the Board will continue to monitor developments as they occur and seek to learn lessons which may be of use in the event of future pandemics. The Board seeks to manage these risks through: a broadly diversified equity portfolio, appropriate asset allocation, reviewing key economic and political events and regulatory changes, active management of risk and the application of relevant policies on gearing and liquidity.

Transactions with the Manager and related parties

Details of the management contract are set out in the Directors' Report on page 34 of the 2021 Annual Report. The management fee payable to the Manager for the year was £3,864,000 (2020: £3,848,000) of which £nil (2020: nil) was outstanding at the year end.

During the year £nil (2020: £nil) was paid to the Manager for the marketing and administration of savings scheme products, of which £nil (2020: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 64 of the 2021 Annual Report are safe custody fees amounting to £240,000 (2020: £247,000) payable to JPMorgan Chase Bank N.A. of which £163,000 (2020: £36,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through its group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £11,000 (2020: £11,000) of which £nil (2020: £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 £1,897,000 (2020: £857,000). Income amounting to £6,000 (2020: 53,000) was receivable during the year of which £1,000 (2020: £nil) was outstanding at the year end.

Stock lending income amounting to £50,000 (2020: £12,000) was receivable by the Company during the year. JPMAM commissions in respect of such transactions amounted to £6,000 (2020: £1,000).

Handling charges on dealing transactions amounting to £41,000 (2020: £28,000) were payable to JPMorgan Chase Bank N.A. during the year of which £23,000 (2020: £2,000) was outstanding at the year end.

At the year end, total cash of £570,000 (2020: £5,673,000) was held with JPMorgan Chase Bank N.A. A net amount of interest of £1,000 (2020: £1,000) was receivable by the Company during the year from JPMorgan Chase Bank N.A. of which £nil (2020: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found on page 46 and in note 6 on page 64 of the 2021 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 regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under Company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the annual report and financial statements are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. 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 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.

The Directors are responsible for keeping proper 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 to enable them to ensure that the financial statements 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 financial statements are published on the www.jpmglobalemergingmarketsincome.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 auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. The financial statements are 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 Directors' Report, Strategic Report and Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed on page 33 of the 2021 Annual Report confirm that, to the best of their knowledge:

• the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return of the Company; and

• the Strategic 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 Board confirms that it is satisfied that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

For and on behalf of the Board
Sarah Fromson
Chairman

25th October 2021

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31st July 2021

	2021			2020
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss	-	78,279	78,279	-	(50,303)	(50,303)
Net foreign currency gains	-	1,416	1,416	-	1,516	1,516
Income from investments	18,877	-	18,877	16,308	-	16,308
Interest receivable and similar income	57	-	57	66	-	66
Gross return/(loss)	18,934	79,695	98,629	16,374	(48,787)	(32,413)
Management fee	(1,159)	(2,705)	(3,864)	(1,154)	(2,694)	(3,848)
Other administrative expenses	(724)	-	(724)	(649)	-	(649)
Net return/(loss) before finance costs and taxation	17,051	76,990	94,041	14,571	(51,481)	(36,910)
Finance costs	(254)	(594)	(848)	(270)	(630)	(900)
Net return/(loss) before taxation	16,797	76,396	93,193	14,301	(52,111)	(37,810)
Taxation	(2,098)	153	(1,945)	(1,584)	-	(1,584)
Net return/(loss) after taxation	14,699	76,549	91,248	12,717	(52,111)	(39,394)
Return/(loss) per share	4.94p	25.75p	30.69p	4.28p	(17.53)p	(13.25)p

STATEMENT OF CHANGES IN EQUITY

For the year ended 31st July 2021

	Called up		Capital
	share	Share	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve1,2	reserves	reserve2	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2019	2,973	222,582	13	100,605	87,222	17,573	430,968
Net (loss)/return	-	-	-	-	(52,111)	12,717	(39,394)
Dividends paid in the year (note 3 )	-	-	-	-	-	(15,161)	(15,161)
At 31st July 2020	2,973	222,582	13	100,605	35,111	15,129	376,413
Net return	-	-	-	-	76,549	14,699	91,248
Dividends paid in the year (note 3 )	-	-	-	-	-	(15,161)	(15,161)
At 31st July 2021	2,973	222,582	13	100,605	111,660	14,667	452,500

¹   The balance of the share premium was cancelled on 20th October 2010 and transferred to the 'other reserve'.

²   These reserves form the distributable reserve of the Company and may be used to fund distributions to investors.

statement of financial position

at 31st July 2021

	2021	2020
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	476,731	402,288
Current assets
Debtors	2,513	1,768
Cash and cash equivalents	2,467	6,530
	4,980	8,298
Current liabilities
Creditors: amounts falling due within one year	(441)	(18,935)
Net current assets	4,539	(10,637)
Total assets less current liabilities	481,270	391,651
Creditors: amounts falling due after more than one year	(28,770)	(15,238)
Net assets	452,500	376,413
Capital and reserves
Called up share capital	2,973	2,973
Share premium	222,582	222,582
Capital redemption reserve	13	13
Other reserve	100,605	100,605
Capital reserves	111,660	35,111
Revenue reserve	14,667	15,129
Total shareholders' funds	452,500	376,413
Net asset value per share	152.2p	126.6p

 

statement of cash flows

For the year ended 31st July 2021

	2021	2020
	£'000	£'000
Net cash outflow from operations before dividends and interest	(4,737)	(5,044)
Dividends received	15,276	15,008
Interest received	6	55
Overseas tax recovered	218	2
Interest paid	(862)	(905)
Net cash inflow from operating activities	9,901	9,116
Purchases of investments	(186,767)	(100,666)
Sales of investments	187,826	107,077
Settlement of forward currency contracts	94	(33)
Net cash inflow from investing activities	1,153	6,378
Dividends paid	(15,161)	(15,161)
Repayment of bank loans	(15,505)	-
Drawdown of bank loans	15,469	-
Net cash outflow from financing activities	(15,197)	(15,161)
(Decrease)/increase in cash and cash equivalents	(4,143)	333
Cash and cash equivalents at start of year	6,530	6,314
Unrealised gains/(losses) on foreign currency cash and cash equivalents	80	(117)
Cash and cash equivalents at end of year	2,467	6,530
(Decrease)/increase in cash and cash equivalents	(4,143)	333
Cash and cash equivalents consist of:
Cash and short term deposits	570	5,673
Cash held in JPMorgan US Dollar Liquidity Fund	1,897	857
Total	2,467	6,530

Notes to the financial statements

For the year ended 31st July 2021

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 October 2020.

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

The financial statements have been prepared on a going concern basis. In forming this opinion, the directors have considered any potential impact of the COVID-19 pandemic on the going concern and viability of the Company. They have considered the potential impact of COVID-19 and the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience particularly in light of COVID-19. The Directors have reviewed the compliance with debt covenants in assessing the going concern and viability of the Company. The Directors have considered communications with key shareholders in respect of the continuation vote at the AGM in November 2021, and reviewed income and expense projections and the liquidity of the investment portfolio in making their assessment.

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

 

2.  Return/(loss) per share

		2021	2020
		£'000	£'000
	Revenue return	14,699	12,717
	Capital return/(loss)	76,549	(52,111)
	Total return/(loss)	91,248	(39,394)
	Weighted average number of shares in issue during the year	297,240,161	297,240,161
	Revenue return per share	4.94p	4.28p
	Capital return/(loss) per share	25.75p	(17.53)p
	Total return/(loss) per share	30.69p	(13.25)p

3.  Dividends

  Dividends paid and declared

		2021	2020
		£'000	£'000
	Dividend paid
	2020 Fourth interim dividend paid of 2.1p (2019: 2.1p)	6,242	6,242
	First interim dividend paid of 1.0p (2020: 1.0p)	2,973	2,973
	Second interim dividend paid of 1.0p (2020: 1.0p)	2,973	2,973
	Third interim dividend paid of 1.0p (2020: 1.0p)	2,973	2,973
	Total dividends paid in the year	15,161	15,161
	Dividend declared
	Fourth interim dividend declared of 2.1p (2020: 2.1p)	6,242	6,242

4.  Net asset value per share

		2021	2020
	Net assets (£'000)	452,500	376,413
	Number of shares in issue	297,240,161	297,240,161
	Net asset value per share	152.2p	126.6p

5.   Status of announcement

  2020 Financial Information

  The figures and financial information for 2020 are extracted from the Annual Report and Accounts for the year ended 31st July 2020 and do not constitute the statutory accounts for that year. The Annual Report and Accounts includes the Report of the Independent Auditors which is unqualified and does 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 Registrar of Companies in due course.

  2021 Financial Information

  The figures and financial information for 2021 are extracted from the Annual Report and Accounts for the year ended 31st July 2021 and do not constitute the statutory accounts for that year. The Annual Report and Accounts includes the Report of the Independent Auditors which is unqualified and does 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 Registrar 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 

25th October 2021

For further information please contact:

Divya Amin

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

ENDS

A copy of the Annual Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. The Annual Report will also be available on the Company's website at www.jpmorganglobalemergingmarkets.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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