Annual Financial Report

RNS Number : 7180J

JPMorgan Indian Invest Trust PLC

23 December 2020

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN INDIAN INVESTMENT TRUST PLC

(the 'Company')

FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2020

Legal Entity Identifier : 549300OHW8R1C2WBYK02

Information disclosed in accordance with the DTR 4.1.3

CHAIRMAN'S STATEMENT

Results

The year to 30th September 2020 was a volatile one for global equity markets and a negative one for investors in India, as indicated by our benchmark index, the MSCI India Index (in sterling terms), which returned -4.2%. Unfortunately, the Company performed poorly, both in absolute and relative terms, with a total return on net assets of -16.2% over the year. The share price fell sharply, from 744.0p to 571.5p, and the discount widened out from 9.3% at the beginning of the year to 16.8% at the year end, resulting in a total return to shareholders of -23.2%.

This is disappointing and over the past few months the Board has had regular meetings with the Investment Managers to understand the reasons for the Company's underperformance and the steps that are being taken to address it. Whilst the fundamental principles of the investment process have not changed, the portfolio has been repositioned and the number of stocks within the portfolio has increased in order to reduce stock specific risk. We expect that these changes, which are ongoing, will bring about a significant improvement in performance.

The Board judges performance over the longer term and the underperformance in recent years means that the Company has now underperformed the benchmark index over three, five and ten years. We continue to support the Investment Managers in their process and their stock picking rationale but, as you would expect, the Board is monitoring performance closely. In addition, the appointment of Ayaz Ebrahim as joint Investment Manager provides greater oversight, in particular of portfolio construction and risk.

In their report which follows, the Investment Managers set out the key factors affecting the portfolio's performance as well as the Indian economy and equity market over the financial year and give their view of the prospects for the future.

Tender Offer

At a General Meeting of the Company held on 5th February 2020, shareholders gave authority for the Company to make market purchases of its shares in connection with a tender offer of up to 25% of the issued share capital. A total of 26,143,735 shares were repurchased and cancelled.

Gearing

In August, the Company's floating rate £100 million loan facility with Scotiabank matured and was replaced with a smaller, £30m, two year facility with ING Bank. The facility provides the Investment Managers with the flexibility to gear the portfolio when they believe it is appropriate. At the end of the financial year the loan was fully drawn but not fully invested and the portfolio was 1.1% net cash, i.e. 98.9% invested. At the time of writing, the Company's portfolio is approximately 0.1% net cash.

Taxation

As we have explained previously, the India-Mauritius tax treaty was amended with effect from May 2017, since when the advantages of investing in India via Mauritius have, to a large degree, been removed. However, it remains advantageous for the Company to continue to hold its investments made prior to February 2018 through the Mauritius subsidiary company until such time as the Investment Managers decide to reduce or sell those holdings. Therefore the process to move the Company's assets to the UK parent company through natural trading continues and this may take a few more years to complete. At the time of writing approximately £290 million of the Group's investments, equating to almost 50%, are held directly by the parent company.

 

 

IFRS 10

Consistent with the past three financial years, the financial statements of the Company contained in this Annual Report have been prepared in accordance with the amended IFRS 10. As a result, the financial statements do not consolidate our Mauritian subsidiary, which held 48.5% of our investment portfolio at the year end. As a consequence of the non-consolidation of the Mauritian subsidiary's financial statements, it is the Board's view that these financial statements do not disclose the full cost of operating the enterprise or the total level of our liabilities. Therefore, we continue to seek to provide shareholders with a fuller picture of the combined operations of the Company and its subsidiary during the year, and their combined financial position as at 30th September 2020, by including in note 24 within the annual report supplemental information and reconciliations to the statutory financial statements, i.e. figures which are comparable to those which were reported in years prior to 2017. As this information is within the notes to the financial statements it is audited. The Board again encourages shareholders to consider these figures if they want to judge how the Company has performed this year, alongside the statutory financial statements.

Discount and Share Repurchases

The discount at which the Company's shares trade widened out over the course of the year, from 9.3% to 16.8%. This was consistent with a general widening of discounts across the investment trust industry in the face of the COVID-19 pandemic, but single country funds were particularly impacted.

In addition to the shares repurchased pursuant to the tender offer (see above), the Company repurchased 323,740 shares into Treasury during the year. Subsequent to the financial year end, a total of 452,605 shares have been repurchased and, as at the date of this report, a total of 21,818,991 shares are held in Treasury for possible reissue or cancellation. The Board believes that the ability to repurchase shares in the market at a discount to net asset values remains an important tool in the management of discount volatility and is, therefore, seeking approval from shareholders to renew the authority to repurchase the Company's shares at the forthcoming AGM.

Management Fee

The investment management fee has been reduced from 1% per annum on gross assets up to £300 million and 0.75% on gross assets over £300 million, to 0.75% on the first £300 million of gross assets and 0.60% on gross assets in excess of £300 million. This change was agreed in October but has been backdated to take effect from 1st February 2020. The Board was pleased with the result of the constructive discussion with the Manager, JPMAM, as this reduction in management fees aligns the Company with a general trend prevailing across the market. It will reduce the Company's ongoing charges ratio and, we hope, should make the Company more attractive for investors.

Investment Manager

As announced in June, after 26 years with JPMorgan and nearly 30 years working in finance, Rukhshad Shroff, the Company's joint portfolio manager, decided to retire from asset management and he left JPMAM in September. We wish him well for the future.

The Company's portfolio is managed on a joint investment manager basis and Rajendra Nair continues to manage the Company's investments. With effect from 1st August 2020, Raj was joined as co-manager by another highly experienced investment professional, Ayaz Ebrahim. Ayaz is the co-head of the Asia Pacific Regional team within the JPMAM Emerging Markets and Asia Pacific ('EMAP') equities team. He has 30 years of experience in the industry and also chairs the Asia Pacific Asset Allocation Committee. Raj and Ayaz continue to work closely with the team of 42 research analysts based around the world who have, on average, 14 years of experience.

The Board has reviewed the investment management, company secretarial, sales and marketing services provided to the Company by JPMorgan Funds ('JPMF'). This annual review included the investment performance record, management processes, investment style, resources and risk control mechanisms. While the Board is satisfied that JPMorgan has the appropriate capabilities in all areas, it will continue to keep investment performance under close review. Notwithstanding the recent underperformance, the Board believes that the continuing appointment of JPMF for the provision of these services, on the new terms agreed, is in the best interests of shareholders as a whole.

 

 

 

The Board

Richard Burns retired from the Board at the AGM last February, following the appointment of Vanessa Donegan and Jeremy Whitley. Nimi Patel will step down from the Board at the conclusion of the AGM in February 2021. On behalf of the Board, I would like to thank Nimi for her contribution to the Board over the past nine years and we wish her well for the future.

Hugh Sandeman has indicated his intention to step down in 2022. Therefore, we will commence the process to replace Hugh in late 2021.

In accordance with corporate governance best practice, all Directors, other than Nimi, will stand for reappointment at the forthcoming AGM.

Adoption of new Articles of Association

The Board is proposing that the Company adopt new Articles of Association to enable it to hold shareholder meetings whereby shareholders are not required to attend in person at a physical location. This will facilitate shareholder attendance in circumstances where they are prevented, through laws or regulations, from attending a physical location. The Board has no current intention of holding "virtual" meetings and would only use this power when it believes that it is in shareholders' best interests, i.e. so that shareholders can attend the meeting when they would not be able to otherwise. Details of other changes in the proposed new articles of association are summarised in the annual report.

Annual General Meeting

The AGM will be held at JPMorgan's office at 60 Victoria Embankment, London EC4Y 0JP on Tuesday, 2nd February 2020 at 12.00 noon.

As a consequence of the continued prevalence of COVID-19 and Government advice to limit public gatherings, the Board has had to revise the format of this year's AGM. Only the formal business of the AGM will be considered and there will be no presentation from the Investment Manager. Therefore shareholders will not be allowed to attend the AGM in person and anyone seeking to attend the meeting will be refused entry.

In advance of the meeting, we will upload to the Company's website a presentation from Rajendra Nair, reviewing the past year and giving his view on the outlook for India for the current year. Shareholders are encouraged to raise any questions on the presentation, or on the business to be conducted at the AGM, with the Company Secretary in advance of the AGM via the 'Ask a Question' link on the Company's website. Any questions received will be replied to by the Company Secretary, the Chairman or the Chairman of the Audit Committee as appropriate.

In light of the changed format, the Board strongly encourages all shareholders to exercise their votes in respect of the meeting in advance, by completing and returning their proxy forms. This will ensure that the votes are registered.

In the event that the situation changes the Company will update shareholders through an announcement to the London Stock Exchange and on the Company's website.

Outlook

We continue to live in challenging times as the second wave of COVID-19 creates difficulties for all of us and threatens economies, industries and companies across the world. Development of vaccines brings hope of a return to normality and a sustained global economic recovery but that is clearly going to take some time yet and the outlook for the short term remains unpredictable. The Board is encouraged by the stabilisation of performance relative to the benchmark since the year end and evidence that the investment team continue to identify solid long term investment opportunities, despite market volatility. We remain confident that India's demographic profile, infrastructural needs and well educated population support the longer term investment case.

Rosemary Morgan

Chairman

23rd December 2020

 

INVESTMENT MANAGERS' REPORT

The year in review

Against the backdrop of perhaps the most extreme environment the world has encountered in a generation, the Company's return on net assets for the year to 30th September 2020 was -16.2%, underperforming its benchmark, the MSCI India Index, which returned -4.2% (on a total return, net basis, in sterling terms). This is a disappointing performance and in the report which follows we seek to explain the factors behind this and the changes that we are making to reposition the portfolio.

Tender Offer

In order to facilitate the Company's 25% tender offer to shareholders that was undertaken in February, we reduced our investments proportionately across the portfolio and as a result the tender itself had no impact on the shape of the portfolio.

Market review: The Perfect Storm

At the beginning of the financial year, there was an element of euphoria following the Modi government's decisive election victory, even though economic growth had decelerated steadily through his first term and touched an eight year low of 3.1% annual real rate of GDP growth in the first quarter of 2020. This was due to a combination of factors, including liquidity challenges in pockets of the financial sector, which affected credit availability to sectors such as real estate, compounded by an anaemic investment cycle. The problems in the financial sector came to a head with the implosion of Yes Bank in February, which forced the regulator (the Reserve Bank of India, the 'RBI') to intervene and orchestrate a rescue by a consortium of banks led by the State Bank of India.

Financial markets around the world convulsed in February and March in reaction to the rapid spread of Covid 19. On March 25th, Prime Minister Modi announced an unprecedented national lockdown, which was enforced for more than two months. While this undeniably reduced the immediate risk posed by the virus, the unintended consequences, particularly on the vulnerable segments of the population, were devastating. To ease the pain of the lockdown, the government announced a series of measures, including cash handouts and provision of food grains. However, the quantum of fiscal stimulus was modest due to fiscal constraints and the need to maintain the country's sovereign credit rating, which is already the lowest in the investment grade category. The monetary stimulus measures announced by the RBI were much more effective, particularly the moratorium on almost all debt servicing, which was in place for six months until the end of August and provided crucial liquidity support to borrowers during a period of total freeze in economic activity. The RBI also provided liquidity support to wholesale lenders through the banking system, which led to a stabilisation of their financing costs and further reduced systemic risks. Nevertheless, the economic impact of the lockdown was severe, with GDP declining by almost 24% year- on-year in the second quarter of 2020. The government gradually eased the lockdown restrictions from June. While this led to a rapid recovery in economic activity, the virus spread dramatically throughout the country, particularly as migrant labourers finally managed to return to their homes in rural India. Consequently, India rapidly became second only to the United States in terms of the number of infections.

More positively, the Modi government used its strong mandate and the crisis to initiate long overdue structural reforms. This included a comprehensive incentives plan to encourage global manufacturing to shift to India, particularly to reduce the dependence on China. Another key element of this strategy is the radical simplification of labour laws to encourage job creation in the manufacturing sector.

Spotlight on stocks and sectors

The core of our investment philosophy is focused on identifying superior growth opportunities with a long-term horizon and a disciplined valuation framework.

The year under review was extremely challenging with the Company underperforming the benchmark by 12.0% as both stock selection and sector allocation detracted from performance.

The tilt towards cyclically oriented sectors hurt performance. The long-standing overweight position in our favoured sector of private banks was the largest detractor; our emphasis on quality names did not help as the sector was indiscriminately sold down due to the turmoil in the macro environment. Specifically, the overweight exposure to IndusInd Bank was the largest detractor in the sector as the stock fell sharply due to concerns about its loan book, in the backdrop of the implosion of Yes Bank. Other core holdings in private banks, such as HDFC Bank and Kotak Mahindra Bank also underperformed even though their businesses did well through the period and continued to gain market share from state-owned banks. We believe this positive trend is likely to continue and remain confident about their prospects in the long term. Over the period under review, our underweight positions in corporate lenders such as ICICI Bank and State Bank of India, and other financials such as Bajaj Finance and Bandhan Bank, helped to mitigate the negative impact of our overweight exposure to the financial sector.

The exposure to cyclically oriented sectors such as industrials (Larsen & Toubro), building materials (Ultratech Cement and ACC) and consumer discretionary (Tata Motors and EIH) were among the other key detractors as the cyclical outlook deteriorated, particularly after the outbreak of the virus. The underweight in the healthcare sector also negatively impacted performance as the sector rallied across the board following the outbreak of the pandemic.

At a stock level, our large underweight position in Reliance Industries was the biggest detractor from relative performance during the period under review, accounting for over 25% of the total underperformance for the year. Despite the extreme environment, Reliance Industries rose over 50% in response to the positive announcement of a series of divestments in its telecom and retail businesses. This boosted sentiment and, more importantly, helped the company reduce debt. During the pandemic-led sell off in February/March, the stock fell more than 40% from its previous peak in December 2019. At that point valuations became sufficiently attractive, and we initiated a position, almost halving the underweight exposure.

Stock selection in the consumer staples sector was another critical detractor, as the key overweight positions in ITC and United Spirits underperformed the market.

By way of contrast, the large holdings in major IT services companies (Infosys Technologies and Tata Consultancy Services) contributed positively to relative performance. We had added Infosys at the beginning of the review period, when the share price fell sharply in October 2019 following certain whistle blower allegations against the CEO and CFO. At that point, we felt that a strong board led by the highly respected Chairman, Mr. Nandan Nilekani, would handle this issue in a responsible and effective manner. Subsequently, we increased the exposure when an independent investigation found no merit in those allegations. The timing turned out to be fortuitous since the sector performed exceedingly well due to its resilience in coping with the pandemic, as the workforce switched seamlessly to working from home, with negligible disruption.

The overweight position in a number of mid and small cap stocks in the healthcare sector (Apollo Hospitals and Dr. Lal Pathlabs) and certain others, such as Multi Commodity Exchange ('MCX') and Jubilant Foodworks, were among the other key positive contributors. As noted above, the healthcare sector did well across the board, while MCX benefitted from the spike in volatility in commodities such as oil and gold. Jubilant Foodworks, which is the master franchisee of Domino's Pizza in India, benefited as consumers switched to delivery during the pandemic.

Investment approach and portfolio

In a period of extreme uncertainty, our bottom-up approach has been based on focusing on businesses with the ability to successfully navigate the uncertain environment. This inevitably means having a balance sheet with minimal debt and management teams with strong breadth and depth of talent.

Consequently, we made several changes to the portfolio during the year. The additions broadly fall in the following two categories:

1.  Cyclicals: As economic activity recovered following tentative signs of a peak in the infections, we selectively added to a few stocks that will benefit from the eventual recovery in the economy such as Bajaj Auto, Eicher Motors, ACC and corporate banks such as ICICI Bank.

2.  Idiosyncratic opportunities that have attractive growth prospects and are not overly dependent on a cyclical recovery. These are largely, though not limited to, mid and small cap companies such as L&T Technology Services, Biocon, HDFC Life Insurance, Kajaria Ceramics, CRISIL and TeamLease Services. We financed these additions by reducing several holdings such as HDFC Bank, Tata Consultancy Services, ITC and Apollo Hospitals. We also exited a few holdings including IndusInd Bank, EIH, Lemon Tree Hotels and SBI Cards.

Gearing

Given the levels of domestic and global uncertainty, we have adopted a cautious stance on gearing. The Company's current gearing level is 0.1% net cash, i.e. 99.1% invested (-5.4%, or 94.6% invested, as at 30th September 2019).

Environment, Social and Governance ('ESG') Issues

In recent years, the integration of ESG considerations have become formalised in our investment process. There is an increasing focus on ESG and sustainable investing and for the first time this year, the annual report includes a separate report which provides comprehensive information on these issues and how they have been developed and integrated into the Manager's investment process.

PERFORMANCE ATTRIBUTION

YEAR ENDED 30TH SEPTEMBER 2020

%		%
Contributions to total returns
Benchmark return		(4.2)
Sector allocation	(7.0)
Stock selection	(5.1)
Currency effect	1.0
Gearing/(net cash)	-
Investment Manager contribution		(11.1)
Portfolio return		(15.3)
Management fee/other expenses	(1.0)
Share buybacks/issuance	0.1
Return on net assetsA		(16.2)
Return to shareholdersA		(23.2)

Source: Factset, J.P. Morgan and Morningstar. All figures are on a total return basis.

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

^A Alternative performance measure ('APM').

Outlook

Although markets have rebounded significantly since September, the outlook in the near term remains clouded by the pandemic. The silver lining is that there are distinct signs of a peak, with the daily rate of confirmed cases falling sharply from almost 100,000 per day in mid-September to below 30,000 at the time of writing. Furthermore, the fatality rate has also fallen steadily to 1.5%, which is materially lower than global averages. There is a risk of a second wave, as witnessed in other parts of the world, following the onset of winter in North India. Nevertheless, the implicit assumption is that the government will respond to a possible second wave with localised lockdowns, and consequently the economic disruption is unlikely to be as severe as we experienced earlier this year. Consensus forecasts imply a "V-shaped" recovery in economic activity, with the economy expected to contract by 5-10% in FY 2021 and rebound by 8-10% in the following year. This is also reflected in the earnings forecasts across most companies.

Progress on the development of a vaccine will also gradually ease the pandemic related risks. In this regard, India is relatively well placed as one of the largest vaccine manufacturers in the world. Subject to regulatory approvals, vaccines are expected to be available from early next year, although vaccination on a reasonably large scale will be complex and undoubtedly take a long time.

Notwithstanding these challenges, the Indian economy remains at a nascent stage of development with a long runway of growth. In this context, it is worth noting that while the structural reforms recently unveiled by the Modi government are unlikely to make a material difference to the economic outlook in the near term, they have the potential to boost the sustainable growth rate of the economy over the next decade. This presents a fertile environment for well-managed companies across a wide spectrum to grow profitably for a long time. This combination of an attractive top-down outlook and a large and diverse investable universe makes India a compelling opportunity for investors with a long-term horizon.

Rajendra Nair, CFA

Ayaz Ebrahim

Investment Managers

23rd December 2020

 

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. The risks identified, including emerging risks, and the ways in which they are managed or mitigated are summarised as follows. The impact of the COVID-19 pandemic is inherent in all of these risks and is discussed by the Board on a regular basis.

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. In assessing risks and how they can be mitigated, the Board has given particular attention to those risks that might threaten viability.

These key risks fall broadly under the following categories:

· Investment and Strategy

An inappropriate investment strategy, or poor execution of that strategy, for example stock selection, asset allocation or the level of gearing, may lead to under-performance against the Company's benchmark index and competitor funds.

The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported by the Manager. JPMF also 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 Managers, who attend all Board meetings, and review data which show statistical measures of the Company's risk profile.

Recent investment performance has been disappointing and the Board is monitoring performance closely.

The Investment Managers employ gearing within a strategic range set by the Board

· Environmental

The Board has identified climate change as an emerging risk. Climate change could have a varying but significant impact on different regions, sectors and companies within India. The Investment Managers have set out the way in which environmental, social and governance issues are incorporated into their investment process within the annual report and this is discussed with the Board.

· Market

Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. The Board monitors performance regularly as set out in the 'Investment Strategy' section above.

· 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' section of the annual report. Were the Company to breach Section 1158, it would lose its 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 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

· Taxation

Since the Company's launch, it has held the majority of its investments through its Mauritius based subsidiary company, thereby benefitting from the India/Mauritius Double Tax Treaty (the 'Treaty').

In May 2016 the Treaty was amended and the advantage of investing in India via Mauritius, whereby gains made on investments held for less than 12 months were not previously subject to capital gains tax, was removed. As a result, gains on the sale of investments held for less than 12 months are now taxed at the rate of 15%. In 2018, the Indian government announced the introduction of a 10% capital gains tax on realised gains from investments held for more than 12 months. However, investments made before February 2018 are protected from this charge and as a result it is advantageous for the Company to continue to hold its historic investments through the Mauritian subsidiary company. Therefore the assets will continue to move to the UK parent company over the coming years through natural trading.

· Corporate Governance and Shareholder Relations

If the Company's share price lags the NAV by a significant level, this will result in lower returns to shareholders. The Board seeks to manage the volatility and absolute level of the discount by judicious use of its share repurchase authority, taking account of market conditions and the discount of companies in its peer group.

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 within the annual report.

· Operational, including Cyber Crime

Loss of key staff of the Manager, such as the Investment Managers, could affect the performance of the Company. In this respect the Board receives information on contingency and succession planning from JPMF. 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.

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 Statement within the 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 Board has received a summary of the cyber security policies of its key third party service providers and JPMF has confirmed 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 independent review and reported on every six months against the Audit and Assurance Faculty 01/06 ('AAF') standard.

The risk of fraud or other control failures or weaknesses within the Manager or other service providers could result in losses to the Company. The Audit and Risk Committee receives independently audited reports on the Manager's and other service providers' internal controls, as well as a report from the Manager's Compliance function. The Company's management agreement obliges the Manager to report on the detection of fraud relating to the Company's investments and the Company is afforded protection through its various contracts with suppliers, including the Depositary's indemnification for loss or misappropriation of the parent Company's assets held in custody. The Company's Mauritian subsidiary company is not subject to the Alternative Investment Fund Managers Directive and therefore it has not appointed a depositary, but has its own custody agreement with similar indemnity provisions.

· Financial

The financial risks faced by the Company include market price risk, currency risk, interest rate risk, liability risk, credit risk and borrowing default risk. Further details are disclosed in note 21 within the annual report. The Company has exposure to foreign currency as part of the risk reward profile inherent in a company that invests overseas. The income and capital value of the Company's investments are affected by exchange rate movements.

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the Group and the subsidiary's transactions with the Manager and related parties are given in note 24 within the annual report.

Details of the management contract are set out in the Directors' Report within the annual report.

There has been a retrospective reduction in the management fee for Company and subsidiary starting from February 2020. A post-year-end adjustment was required to rectify back-dating adjustment relating to the 2019-2020 financial year-end and accordingly an adjustment is made of prepayment in the accounts to account for the reductions. Post this adjustment, the management fee payable to the Manager for the year was £1,408,000 (2019: £640,000) of which £222,000 reflects the prepayment adjustment accounted for the year end (2019: £nil was outstanding). In addition £nil (2019: £84,000) was payable to the Manager for the administration of savings scheme products of which £nil (2019: £nil) was outstanding in Company's financial statements at the year end.

Included in other administration expenses in note 6 within the annual report are safe custody fees payable to JPMorgan Chase Bank, N.A. as custodian of the Company amounting to £185,000 (2019: £98,000) of which £35,000 (2019: £25,000) was outstanding at the year end.

The Manager carries out some of its dealing transactions through group subsidiaries. These transactions are carried out at arms' length. The commission payable to JPMorgan Securities for the year by the Company was £17,000 (2019: £21,000) of which £nil (2019: £nil) was outstanding in Company's financial statements at the year end.

Handling charges payable on dealing transactions undertaken by overseas sub custodians on behalf of the Company amounted to £13,000 (2019: £11,000) during the year, of which £2,000 (2019: £3,000) was outstanding at the year end.

The Company also holds cash in the JPMorgan Sterling Liquidity Fund. At 30th September 2020, the holding in JPMorgan Sterling Liquidity Fund was valued at £24,000,000 (2019: £18,700,000). During the year, the Company made purchases in this fund amounting to £164,600,000 (2019: £165,000,000) and sales on this fund amounting to £159,300,000 (2019: £148,300,000). Income receivable from this fund amounted to 47,000 (2019: £74,000) of which £nil (2019: £nil) was outstanding at the year end. JPMorgan earns no management fee on this fund.

At the year end, the Company held bank balances of £3,392,000 with JPMorgan Chase Bank, N.A. (2019: £427,000). A net amount of interest of £nil (2019: £1,000) was receivable by the Company during the year, of which £nil (2019: £nil) was outstanding at the year end.

Details of the Directors' shareholdings and the remuneration payable to Directors are given in the Directors' Remuneration Report within 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 regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the financial statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. Under company law the Directors must not approve the accounts unless they are satisfied that, taken as a whole, the annual report and accounts 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 must be satisfied that, taken as a whole, the annual report and accounts are fair, balanced and understandable; and the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable and prudent;

· state whether applicable IFRSs as adopted by the European Union 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 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 accounts are published on the www.jpmindian.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 that law and those regulations.

Each of the Directors, whose names and functions are listed within the annual report, confirms that, to the best of his or her knowledge the financial statements, which have been prepared in accordance with IFRS and applicable law, give a true and fair view of the assets, liabilities, financial position and return or loss of the Company.

The Board confirms that it is satisfied that the annual report and financial statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the position and performance, business model and strategy of the Company.

For and on behalf of the Board

Rosemary Morgan

Chairman

23rd December 2020

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30TH SEPTEMBER 2020

Notes			2020			2019
		Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)gains on investments held at fair value through profit or loss		-	(107,444)	(107,444)	-	88,483	88,483
Net foreign currency losses		-	(363)	(363)	-	(378)	(378)
Income from investments		3,051	-	3,051	1,437	-	1,437
Interest receivable and similar income		47	-	47	75	-	75
Total income/(loss)		3,098	(107,807)	(104,709)	1,512	88,105	89,617
Management fee		(1,408)	-	(1,408)	(640)	-	(640)
Other administrative expenses		(911)	-	(911)	(842)	-	(842)
Profit/(loss) before finance costs and taxation		779	(107,807)	(107,028)	30	88,105	88,135
Finance costs		(608)	-	(608)	(533)	-	(533)
Profit/(loss) before taxation		171	(107,807)	(107,636)	(503)	88,105	87,602
Taxation		(359)	(1,118)	(1,477)	-	(118)	(118)
Net (loss)/profit		(188)	(108,925)	(109,113)	(503)	87,987	87,484
(Loss)/earnings per share (note 2)		(0.21)p	(124.40)p	(124.61)p	(0.48)p	84.14p	83.66p

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30TH SEPTEMBER 2020

Calledup share capital £'000		Share premium £'000	Other reserve £'000	Exercised warrant reserve £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total £'000
At 30th September 2019	31,404	97,316	41,929	5,886	6,362	610,882	(23,634)	770,145
Profit/loss for the year	-	-	-	-	-	87,987	(503)	87,484
At 30th September 2019	31,404	97,316	41,929	5,886	6,362	698,869	(24,137)	857,629
Shares bought back and cancelled	(6,536)	-	(41,929)	-	6,536	(168,073)	-	(210,002)
Repurchase of shares into Treasury	-	-	-	-	-	(1,817)	-	(1,817)
Loss for the year	-	-	-	-	-	(108,925)	(188)	(109,113)
At 30th September 2020	24,868	97,316	-	5,886	12,898	420,054	(24,325)	536,697

STATEMENT OF FINANCIAL POSITION

AT 30TH SEPTEMBER 2020

	Notes		2020 £'000	2019 £'000
Non current assets
Investments held at fair value through profit or loss			267,416	151,029
Investment in subsidiary held at fair value through profit or loss			274,780	681,559
			542,196	832,588
Current assets
Other receivables			483	6,257
Cash and cash equivalents			27,810	19,127
			28,293	25,384
Current liabilities
Other payables			(2,138)	(225)
Net current assets			26,155	25,159
Total assets less current liabilities			568,351	857,747
Non current liabilities
Provision for capital gains tax			(1,654)	(118)
Bank loan			(30,000)	-
			(31,654)	(118)
Net assets			536,697	857,629
Amounts attributable to shareholders
Called up share capital			24,868	31,404
Share premium			97,316	97,316
Other reserve			-	41,929
Exercised warrant reserve			5,886	5,886
Capital redemption reserve			12,898	6,362
Capital reserves			420,054	698,869
Revenue reserve			(24,325)	(24,137)
Total shareholders' funds			536,697	857,629
Net asset value per share (note 3)			687.1p	820.1p

 

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30TH SEPTEMBER 2020

		2019 £'000	2020 £'000
Operating activities
(Loss)/profit before taxation		(107,636)	87,602
Deduct dividends received		(3,051)	(1,437)
Deduct bank interest received		(47)	(75)
Add interest paid		608	533
Addlosses/(deductgains)oninvestmentsheldatfairvalue through profit orloss		107,444	(88,483)
(Increase)/decrease in prepayments, VAT and other receivables		(219)	39
Decrease in other payables		(4)	45
Net cash outflow from operating activities before Interest and taxation		(2,905)	(1,776)
Interest paid		(635)	(511)
Tax paid		58	-
Dividends received		2,871	1,377
Interest received		47	76
Net cash outflow from operating activities		(564)	(834)
Investing activities
Purchases of investments held at fair value through profit or loss		(251,421)	(148,882)
Sales of investments held at fair value through profit or loss		440,931	166,438
Net cash inflow from investing activities		189,510	17,556
Financing activities
Repurchase of shares for cancellation		(210,002)	-
Repurchase of shares into Treasury		(261)	-
Drawdown of loan		30,000	-
Net cash outflow from financing activities		(180,263)	-
Increase in cash and cash equivalents		8,683	16,722
Cash and cash equivalents at the start of the year		19,127	2,405
Cash and cash equivalents at the end of the year		27,810	19,127

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30TH SEPTEMBER 2020

1.  Accounting policies

Basis of accounting

The Company's financial statements have been prepared in accordance with the Companies Act 2006 and International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), the International Accounting Standards and Standing Interpretations Committee and interpretations approved by the International Accounting Standards Committee ('IASC') that remain in effect and to the extent that they have been adopted by the European Union.

The financial statements have been prepared on the going concern basis. The disclosures on going concern in the Directors' Report within the annual report form part of these financial statements. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies ('AIC') in October 2019 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The Company's share capital is denominated in sterling and this is the currency in which its shareholders operate and expenses are generally paid. The Directors have therefore determined the functional currency to be sterling.

2.  (Loss)/earnings per share

		2020	2019
		£'000	£'000
(Loss)/earnings per share is based on the following:
Revenue loss		(188)	(503)
Capital (loss)/profit		(108,925)	87,987
Total (loss)/profit		(109,113)	87,484
Weighted average number of shares in issue		87,558,783	104,574,940
Revenue loss per share		(0.21)p	(0.48)p
Capital (loss)/earnings per share		(124.40)p	84.14p
Total (loss)/earnings per share		(124.61)p	83.66p

3.  Net asset value per share

		2020	2019
		£'000	£'000
Net assets (£'000)		536,697	857,629
Number of shares in issue excluding shares held in Treasury		78,107,465	104,574,940
Net asset value per share		687.1p	820.1p

 

4.  Status of results announcement

2019 Financial Information

The figures and financial information for 2019 are extracted from the Annual Report and Financial Statements for the year ended 30th September 2019 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.

2020 Financial Information

The figures and financial information for 2020 are extracted from the published Annual Report and Financial Statements for the year ended 30th September 2020 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.fca.org.uk

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

JPMORGAN FUNDS LIMITED

 

END

 

 

FR FEIFDDESSESE