Half-year Report

RNS Number : 4669Z

JPMorgan Indian Invest Trust PLC

27 May 2016

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN INDIAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE

SIX MONTHS ENDED 31ST MARCH 2016

Chairman's Statement

Performance

The first six months of the Company's financial year have been positive for investors in India, with the Company's benchmark index, the MSCI India Index (in sterling terms), returning +1.8% over the period. I am pleased to report that the Company produced a total return on net assets of +2.2%, marginally ahead of the benchmark. This follows on from the strong outperformance in the last financial year and continues the good long term performance record, with the Company now comfortably ahead of the benchmark over three, five and 10 years to 31st March 2016.

The return to shareholders was +0.6%, reflecting a widening of the discount over the six months from 12.3% to 13.7% at the period end and against the background of widening discounts across the investment trust sector generally. The background against which the Company performed is discussed in more detail in the Investment Managers' Report below.

Gearing

The Company has a three year floating rate £70 million loan facility with Scotiabank to provide the Investment Managers with the flexibility to gear the portfolio when they think it is appropriate to do so. The Company's portfolio was geared throughout the six months and as at 31st March 2016, the level of gearing was 2.9% with £26 million being drawn down at that date.

Discount Management

The Board has guidelines in place with regard to the management of the discount of the share price to net asset value at which the Company's shares trade. During the six months under review, the Company bought back a total of 350,683 shares into Treasury. The Company currently holds 20,260,471 shares in Treasury and, under current guidelines, these may only be reissued at a premium to the prevailing net asset value at the time of reissue.

Taxation

On 10th May 2016, it was announced that the India-Mauritius tax treaty is to be amended. It appears that the advantages of investing in India via Mauritius, whereby gains made on investments held for less than 12 months are not currently subject to capital gains tax, will be removed as a result. Our Investment Managers tend to hold investments for longer than 12 months and hence, in the normal course of business, it is not expected that the amendments to the tax treaty will have a material effect on the Company. The Board will take professional advice on this matter and expects to be able to provide more information in the Annual Report to be published in December this year.

Outlook

Market conditions have been volatile during our current financial year so far and overall progress has been limited. Economic growth has been subdued by Indian standards. Corporate profits are tending to fall short of expectations. Nevertheless there are signs of firming demand for such basic products as electricity, cement and diesel fuel, which give hope that the long awaited cyclical upturn in activity may have begun. We remain optimistic about the long term prospects for the Indian stock market and particularly for the companies whose shares we hold in the portfolio.

Richard Burns

Chairman

26th May 2016

Investment Managers' Report

Market Review

Indian equities rose modestly during the first half of the financial year, though it was an extremely volatile period for financial markets, in general, and emerging markets in particular. A key catalyst for this volatility was portfolio flows, as foreign investors sold emerging market equities ahead of the policy reset by the US Federal Reserve (the 'Fed') in December. After rebounding briefly following the rate increase by the Fed, markets sold off again in the first couple of months of the year before bouncing back sharply in March. Outflows from foreign investors were partially offset by inflows from domestic institutions. However, domestic retail flows into equities turned negative in March for the first time in nearly two years.

Against this backdrop, the domestic Indian macro‑economic picture remained subdued. Even though headline GDP growth appeared reasonably strong at approximately 7.5% (on the recently revised basis), other indicators were mixed. The investment cycle remains sluggish and consumption has been weighed down by the rural economy, which has been weak over the past couple of years. This was reflected in the revenues of Indian corporates which were impacted by a combination of weak demand and deflationary pricing trends. Profit growth also disappointed as a modest improvement in gross margins was consumed by higher fixed costs, interest and depreciation. Not surprisingly, downgrades have continued. The banking sector was also impacted by the Reserve Bank of India's requirement to recognise and provide for stressed assets.

Nonetheless, inflation continued to be moderate with the wholesale price index declining for the 17th consecutive month in March primarily due to falling commodity prices. Consumer price index inflation decelerated to a six month low. As a result, the Reserve Bank of India continued to ease monetary policy. Since the beginning of 2015 the central bank has cut policy rates six times by a total of 150 bps, although interest rates on commercial loans have fallen by only 60‑70 bps. Further easing is contingent on the upcoming monsoon season, and its impact on agricultural output and food inflation, which have been volatile over the past few years.

Politics continued to be a source of disappointment as the Modi government struggled to evolve political consensus on key legislation such as the Goods and Services Tax bill. The results from the elections in the state of Bihar were also a setback for Mr. Modi as the Bharatiya Janata Party fared miserably and the incumbent Chief Minister, Mr. Nitish Kumar, was re-elected for an unprecedented third term. The government's focus remains on stimulating the economy by kick‑starting investment in critical areas such as roads and railways. In this context, the budget was also a relief with no major surprises and a continuation of fiscal consolidation combined with an attempt to revive investment growth.

Performance Review

The portfolio marginally outperformed the benchmark during the review period. The overweight position in domestic cyclicals such as financials and building materials contributed positively while the underweight position in selected telecom stocks, lower quality banks and healthcare stocks also helped relative performance. However, the underweight position in global cyclicals detracted from relative performance in an exceptionally volatile period for commodities. The overweight position in industrials also detracted from performance as the prolonged delay in the recovery of the investment cycle hurt this sector.

Outlook

In the near term, volatility may well continue as the global macro backdrop remains uncertain with deflation being a clear and present danger in many parts of the world. The slowdown in China continues to be a concern. These factors could lead to further outflows from risky assets, which could be a headwind for emerging markets as an asset class. While the Indian economy is more domestically driven and less dependent on external demand than in most emerging markets, the inter-linkages with the financial markets are much more pronounced. From a domestic perspective, the upcoming monsoon season will be crucial for sentiment due to the impact on the rural economy and monetary policy. While weather patterns are inherently unpredictable, a couple of forecasts have predicted a normal season.

Nonetheless, our longer term outlook on India remains positive, driven by our belief that growth, in both GDP and earnings, is set for a cyclical recovery with falling interest rates likely to be a catalyst, though it is admittedly taking much longer than expected. It is worth noting that some indicators of demand such as cement production, electricity generation and diesel consumption are signalling a modest pick up in activity. While headline valuations are around long term averages, and do not appear cheap, we believe that value is beginning to emerge from a bottom-up perspective. As a result, we are adding to existing names and identifying new opportunities.

Rukhshad Shroff

Raj Nair

Investment Managers

26th May 2016

Interim Management Report

The Company is required to make the following disclosures in its Half Year Report.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into the following broad categories: investment and strategy; market; legal and regulatory; taxation; corporate governance and shareholder relations; operational; financial; and political and economic. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th September 2015.

Related Parties Transactions

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

Going Concern

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

Directors' Responsibilities

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

(i)      the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half Yearly Financial Reports' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st March 2016, as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; and

(ii)     the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•         select suitable accounting policies and then apply them consistently;

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

•         state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•         prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board

Richard Burns

Chairman

26th May 2016

Financial Statements

Group Statement of Comprehensive Income
for the six months ended 31st March 2016

	(Unaudited) Six months ended 31st March 2016			(Unaudited) Six months ended 31st March 2015			(Audited) Year ended 30th September 2015
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investment income	2,203	-	2,203	1,400	-	1,400	6,136	-	6,136
Other income	-	-	-	-	-	-	1	-	1
Gains on investments held at fair value through profit or loss	-	14,723	14,723	-	145,045	145,045	-	76,507	76,507
Foreign currency gains/ (losses)	-	312	312	-	(17)	(17)	-	(61)	(61)
Total income	2,203	15,035	17,238	1,400	145,028	146,428	6,137	76,446	82,583
Management fee	(2,964)	-	(2,964)	(3,039)	-	(3,039)	(6,151)	-	(6,151)
Other administrative expenses	(749)	-	(749)	(727)	-	(727)	(1,462)	-	(1,462)
(Loss)/profit before finance costs and taxation	(1,510)	15,035	13,525	(2,366)	145,028	142,662	(1,476)	76,446	74,970
Finance costs	(298)	-	(298)	(342)	-	(342)	(759)	-	(759)
(Loss)/profit before taxation	(1,808)	15,035	13,227	(2,708)	145,028	142,320	(2,235)	76,446	74,211
Taxation	(67)	-	(67)	(88)	-	(88)	(105)	-	(105)
Net (loss)/profit	(1,875)	15,035	13,160	(2,796)	145,028	142,232	(2,340)	76,446	74,106
(Loss)/earnings per share (note 4)	(1.77)p	14.23p	12.46p	(2.65)p	137.20p	134.55p	(2.21)p	72.32p	70.11p

The Group does not have any income or expense that is not included in net (loss)/profit for the period. Accordingly the 'Net (loss)/profit for the period' is also the 'Total comprehensive income for the period', as defined in IAS 1 (revised).

The 'Total' column of this statement represents the Group's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary 'Revenue' and 'Capital' columns are prepared under guidance published by the Association of Investment Companies.

All items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

All of the (loss)/profit and total comprehensive income is attributable to the equity shareholders of JPMorgan Indian Investment Trust plc, the Company. There are no minority interests.

Group Statement of Changes in Equity
for the six months ended 31st March 2016

	Called up			Exercised	Capital
	share	Share	Other	warrant	redemption	Capital	Revenue
	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 31st March 2016 (Unaudited)
At 30th September 2015	31,404	97,316	41,929	5,886	6,362	440,366	(18,311)	604,952
Repurchase of shares into Treasury	-	-	(1,641)	-	-	-	-	(1,641)
Profit/(loss) for the period	-	-	-	-	-	15,035	(1,875)	13,160
At 31st March 2016	31,404	97,316	40,288	5,886	6,362	455,401	(20,186)	616,471
Six months ended 31st March 2015 (Unaudited)
At 30th September 2014	31,404	97,316	41,929	5,886	6,362	363,920	(15,971)	530,846
Profit/(loss) for the period	-	-	-	-	-	145,028	(2,796)	142,232
At 31st March 2015	31,404	97,316	41,929	5,886	6,362	508,948	(18,767)	673,078
Year ended 30th September 2015 (Audited)
At 30th September 2014	31,404	97,316	41,929	5,886	6,362	363,920	(15,971)	530,846
Profit/(loss) for the year	-	-	-	-	-	76,446	(2,340)	74,106
At 30th September 2015	31,404	97,316	41,929	5,886	6,362	440,366	(18,311)	604,952

Group Statement of Financial Position

at 31st March 2016

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2016	31st March 2015	30th September 2015
	£'000	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	633,158	700,645	614,242
Current assets
Trade and other receivables	1,724	2,460	2,718
Cash and cash equivalents1	8,298	12,999	11,344
	10,022	15,459	14,062
Current liabilities
Trade and other payables	(709)	(5,826)	(352)
Bank loan	-	(37,200)	-
Net current assets/(liabilities)	9,313	(27,567)	13,710
Total assets less current liabilities	642,471	673,078	627,952
Creditors: amounts falling due after more than one year	(26,000)	-	(23,000)
Net assets	616,471	673,078	604,952
Equity attributable to equity holders
Called up share capital	31,404	31,404	31,404
Share premium	97,316	97,316	97,316
Other reserve	40,288	41,929	41,929
Exercised warrant reserve	5,886	5,886	5,886
Capital redemption reserve	6,362	6,362	6,362
Capital reserves	455,401	508,948	440,366
Revenue reserve	(20,186)	(18,767)	(18,311)
Total equity shareholders' funds	616,471	673,078	604,952
Net asset value per share (note 5)	585.1p	636.7p	572.3p

1  This line item combines the two lines of 'Investments in liquidity funds held at fair value through profit or loss' and 'Cash and short term deposits' in the financial statements for the year ended 30th September 2015 into one.

Company registration number 2915926

Group Statement of Cash Flows

for the six months ended 31st March 2016

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2016	31st March 2015	30th September 2015
	£'000	£'000	£'000
Operating activities
Profit before taxation	13,227	142,320	74,211
Deduct dividends received	(2,186)	(1,399)	(6,136)
Deduct interest received	(17)	(1)	(1)
Add back interest paid	298	342	759
Deduct gains on investments held at fair value through profit or loss	(14,723)	(145,045)	(76,507)
(Increase)/decrease in trade and other receivables	(269)	(190)	61
Decrease in trade and other payables	(116)	(93)	(13)
Net cash outflow from operating activities before interest payable and taxation	(3,786)	(4,066)	(7,626)
Interest paid	(298)	(342)	(759)
Tax paid	(67)	(88)	(105)
Dividends received	2,186	1,399	6,136
Interest received	17	1	1
Net cash outflow from operating activities	(1,948)	(3,096)	(2,353)
Investing activities
Purchases of investments held at fair value through profit or loss	(44,519)	(61,447)	(127,987)
Sales of investments held at fair vale through profit or loss	42,062	69,463	147,805
Net cash (outflow)/inflow from investing activities	(2,457)	8,016	19,818
Financing activities
Repurchase of shares	(1,641)	-	-
Drawdown of ING short term loans	-	37,200	37,200
Drawdown of Scotiabank long term loans	3,000	-	23,000
Repayment of RBS short term loans	-	(29,900)	(29,900)
Repayment of ING short term loans	-	-	(37,200)
Net cash inflow/(outflow) from financing activities	1,359	7,300	(6,900)
(Decrease)/increase in cash and cash equivalents	(3,046)	12,220	10,565
Cash and cash equivalents at the start of the period	11,344	779	779
Cash and cash equivalents at the end of the period	8,298	12,999	11,344

Notes to the Group Financial Statements
for the six months ended 31st March 2016

1.     Principal activity

The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010.

2.     Financial statements

The financial information for the six months ended 31st March 2016 and 2015 has not been audited or reviewed by the Company's auditors.

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

The information for the year ended 30th September 2015 has been extracted from the latest published audited financial statements. Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.

3.     Accounting policies

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

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

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

4.     (Loss)/earnings per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2016	31st March 2015	30th September 2015
		£'000	£'000	£'000
	(Loss)/earnings per share is based on the following:
	Revenue loss	(1,875)	(2,796)	(2,340)
	Capital return	15,035	145,028	76,446
	Total return	13,160	142,232	74,106
	Weighted average number of shares in issue	105,656,280	105,707,798	105,707,798
	Revenue loss per share	(1.77)p	(2.65)p	(2.21)p
	Capital return per share	14.23p	137.20p	72.32p
	Total return per share	12.46p	134.55p	70.11p

5.     Net asset value per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2016	31st March 2015	30th September 2015
	Net assets (£'000)	616,471	673,078	604,952
	Number of shares in issue excluding shares held in Treasury	105,357,115	105,707,798	105,707,798
	Net asset value per share	585.1p	636.7p	572.3p

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

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

JPMORGAN FUNDS LIMITED

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

The half year report will also be available shortly on the Company's website at www.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.

 

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