Half-year Report

RNS Number : 9152P

JPMorgan Indian Invest Trust PLC

01 June 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN INDIAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31ST MARCH 2018

Legal Entity Identifier: 549300OHW8R1C2WBYK02

Information disclosed in accordance with DTR 4.2.2

chairman's statement

Performance

In the first six months of the Company's financial year, the period to 31st March 2018, the Company produced a total return on net assets of -3.6%. Over the same period, the Company's benchmark index, the MSCI India Index (in sterling terms), returned -0.5%. This is a disappointing performance, both in absolute terms and relative to the benchmark index. In their report which follows, the Investment Managers provide some commentary on the Indian market and details of the factors which affected Company's performance.

I would reiterate that the Board judges performance over the long term and I am pleased to report that longer term performance remains good, the Company having outperformed the benchmark over the three, five and ten years to 31st March 2018.

The return to shareholders was -4.5%, reflecting a widening of the discount over the six months from 11.4% to 12.2% at the period end.

Accounting Changes

As I explained in last year's half year report, following an amendment to International Financial Reporting Standard 10 ('IFRS 10'), the Company is no longer permitted to consolidate its subsidiary company and present consolidated group financial statements. Therefore, investments held by the subsidiary are reflected in aggregate within the investment at fair value of the subsidiary. This has no effect on net assets. Further details are set out in Note 3 to the financial statements in the half year report to be published shortly. To assist shareholders, a reconciliation of some of the key figures is included on pages 18 to 23 of the half year report.

Gearing

The subsidiary company has a three year floating rate £100 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. As at 31st March 2018, the Company's portfolio was 7.8% geared. Please note that gearing continues to be calculated on a pro forma group basis in order to give shareholders clarity on the overall levels of borrowing.

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 65,000 shares into Treasury and a further 430,000 as at the date of this report. The Company currently holds 20,824,971 shares in Treasury which may only be reissued at a premium to the prevailing net asset value at the time of reissue.

Taxation

The India-Mauritius tax treaty was amended in 2016 and the advantages of investing in India via Mauritius, whereby gains made on investments held for less than 12 months were not subject to capital gains tax, have been removed with effect from 2019. As I explained in the last annual report, the Board has taken professional advice on this matter and it was intending that the Company would cease investing via its Mauritius subsidiary and transfer its assets to the UK parent company during the course of this financial year. However, earlier this year the Indian government announced in its budget the introduction of a 10% capital gains tax on realised gains from investments held for more than 12 months. Investments made before January 2018 are however protected from this charge and as a result it will be advantageous for the Company to continue to hold its historic investments through the Mauritius company. The Board envisages that the assets will move to the UK parent company through natural trading over a longer period.

Outlook

As foreshadowed in my statement in the 2017 Annual Report, India's economy has been growing more rapidly this year than it did in 2017, but the headwind of high valuations has meant that the stock market has made no progress. This state of affairs may well persist in the months ahead. Nevertheless, I continue to believe that India is a market with considerable appeal for a long term investor, given its great human potential and huge scope for improving its economic performance.

Richard Burns

Chairman

31st May 2018

Investment managers' report

Market Review

Indian equity markets fell marginally during the first half of the Company's financial year. However, this does not capture the volatility during this period, with markets rallying to lifetime highs in January before losing most of the gains following the correction in equities globally. This was compounded by the approximate 5% fall in the Indian Rupee against sterling, as emerging market currencies fell following the spike in USD yields.

The rally in the fourth quarter of 2017 was triggered by the long overdue announcement in October of the recapitalisation of state owned banks. The plan envisages an infusion of INR 2.1 trillion (approximately US$32 billion) in two stages, financed by the issuance of 'recapitalisation bonds'. This is a significant move if one assumes that the quantum of infusion is large enough to enable state owned banks to provide a realistic level of credit losses on the stressed loans and yet have sufficient capital to fund a reasonable level of credit for the next two to three years. This sparked a sharp rally in those stocks immediately following the announcement. But this reversed entirely in the first quarter following the shock revelation of a fraud involving Punjab National Bank, which is amongst the largest state-owned banks in India. A number of rogue employees are alleged to have issued US$1.8 billion of unauthorised letters of credit over the past six years to a well known diamond jeweller. This scandal, along with new stringent guidelines on non-performing asset recognition, hurt sentiment in the sector and led to a sharp correction across the board. Despite the grim news flow, the bankruptcy proceedings in the first tranche of stressed loans progressed steadily, with the final credit losses likely to be lower than originally expected. However, the second tranche is likely to be more difficult since the poor quality of the underlying assets is likely to deter potential buyers and lead to large credit losses for the lenders.

Politics was another catalyst for the correction as the BJP party fared worse than expected in state elections in Prime Minister Modi's home state of Gujarat (though they did manage to win) and a couple of by-elections in other key states. This raised doubts about the prospect of Mr. Modi winning a second term in national elections, which are due by mid-2019.

The budget, which was announced in February, was broadly along expected lines. The focus was on the rural economy, with measures aimed at improving realisations for farmers and boosting spending on welfare initiatives such as healthcare and affordable housing. The move to reintroduce taxation on long term capital gains from equities hurt sentiment, though the details were not as bad as feared.

Economic data perked up, with GDP growth for the December quarter accelerating to 7.2% year on year, suggesting that the disruption from the launch of the Goods and Services Tax in July 2017 has been limited. However, most economic indicators are flattered by the base, which was depressed in the immediate aftermath of 'Demonetisation' in November 2016. On the other hand, bond yields rose sharply (c.130 basis points from the low in July) due to the rebound in inflation following the rise in commodity prices and the slippage in the fiscal deficit targets. Consumer Price Index inflation rebounded to 4.3%, which is in line with the RBI's long term target. As a result, the Monetary Policy Committee left policy rates unchanged in the latest policy review meeting and indicated a possible tightening of monetary policy if inflation continues to rise.

Performance Review

The Company underperformed the benchmark during the six month period as the key underweight position in index heavyweights Reliance Industries and Infosys Technologies detracted from performance. Reliance Industries was resilient in a volatile market as their telecom business continued to gain traction, while Infosys rebounded following the appointment of a new CEO. The IT sector also outperformed as it is arguably among the few beneficiaries of a weak Rupee. The overweight position in the cement sector (ACC and Ambuja Cement), Bajaj Auto and select mid and small caps (Motilal Oswal Financial Services, Multi Commodity Exchange and Cummins India) were among the other detractors. This was partially offset by the overweight in the likes of Jubilant Foodworks, Shriram Transport Finance and the auto sector (Maruti Suzuki and Ashok Leyland). The underweight positions in the healthcare and refiners were the other positive contributors. Gearing also detracted performance in a weak market.

Outlook

We expect the next year to be a period of increased uncertainty and volatility in India and the market is not cheap. Since Mr Modi came to power the market has risen significantly more than underlying corporate earnings. Equities have been rerated, not only because of the important macro reforms that are underway but also because investors have expected a recovery in the pace of economic growth and corporate profits. However, as the challenges in the banking sector illustrate, this recovery may be long, complicated and painful. The prospect of a rising oil price does not bode well for macro fundamentals such as the current account and fiscal deficit, the Rupee and possibly interest rates. Finally, we are in an important election cycle - several state polls, leading to national elections in less than twelve months. The chances of an outright BJP majority are reducing. And while forecasting election outcomes is fraught with risks, we can safely predict increased volatility.

In light of these developments we have recently begun to make sales so as to reduce the Company's level of gearing from the 7.8% level it was at the end of March to 0.6% today. This reflects our increased level of caution about the immediate prospects and will give us the flexibility to take advantage of buying opportunities should the market weaken in the face of increased uncertainty.

Rukhshad Shroff

Raj Nair

Investment Managers

31st May 2018

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, including cyber crime; 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 2017.

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 and more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operation 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 2018, 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

31st May 2018

statement of comprehensive income

for the six months ended 31st March 2018

	(Unaudited) Six months ended 31st March 2018			(Unaudited) Six months ended 31st March 2017			(Audited) Year ended 30th September 2017
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at fair value through profit or loss	-	(29,733)	(29,733)	-	58,286	58,286	-	70,114	70,114
Net foreign currency (losses)/gains	-	(529)	(529)	-	170	170	-	(239)	(239)
Income from investments	203	-	203	217	-	217	475	-	475
Interest receivable and similar income	86	-	86	18	-	18	44	-	44
Total income/(loss)	289	(30,262)	(29,973)	235	58,456	58,691	519	69,875	70,394
Management fee	(81)	-	(81)	(89)	-	(89)	(177)	-	(177)
Other administrative expenses	(310)	-	(310)	(384)	(22)	(406)	(734)	(22)	(756)
(Loss)/profit before taxation	(102)	(30,262)	(30,364)	(238)	58,434	58,196	(392)	69,853	69,461
Taxation	-	-	-	-	-	-	-	-	-
Net (loss)/profit	(102)	(30,262)	(30,364)	(238)	58,434	58,196	(392)	69,853	69,461
(Loss)/earnings per share (note 3)	(0.10)p	(28.74)p	(28.84)p	(0.23)p	55.50p	55.27p	(0.37)p	66.34p	65.97p

statement of changes in equity

for the six months ended 31st March 2018

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 2018 (Unaudited)
At 30th September 2017	31,404	97,316	41,929	5,886	6,362	680,261	(23,156)	840,002
Repurchase of shares into Treasury	-	-	-	-	-	(426)	-	(426)
Loss for the period	-	-	-	-	-	(30,262)	(102)	(30,364)
At 31st March 2018	31,404	97,316	41,929	5,886	6,362	649,573	(23,258)	809,212
Six months ended 31st March 2017 (Unaudited)
At 30th September 2016	31,404	97,316	41,929	5,886	6,362	610,605	(22,764)	770,738
Repurchase of shares into Treasury	-	-	-	-	-	(197)	-	(197)
Profit/(loss) for the period	-	-	-	-	-	58,434	(238)	58,196
At 31st March 2017	31,404	97,316	41,929	5,886	6,362	668,842	(23,002)	828,737
Year ended 30th September 2017 (Audited)
At 30th September 2016	31,404	97,316	41,929	5,886	6,362	610,605	(22,764)	770,738
Repurchase of shares into Treasury	-	-	-	-	-	(197)	-	(197)
Profit/(loss) for the year	-	-	-	-	-	69,853	(392)	69,461
At 30th September 2017	31,404	97,316	41,929	5,886	6,362	680,261	(23,156)	840,002

statement of financial position

at 31st March 2018

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2018	31st March 2017	30th September 2017
	£'000	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	3,796	14,565	4,043
Investments in subsidiaries held at fair value through profit and loss	794,337	810,365	823,823
Total non current assets	798,133	824,930	827,866
Current assets
Other receivables	43	45	51
Cash and cash equivalents	11,116	3,851	12,235
	11,159	3,896	12,286
Current liabilities
Other payables	(80)	(89)	(150)
Net current assets	11,079	3,807	12,136
Total assets less current liabilities	809,212	828,737	840,002
Net assets	809,212	828,737	840,002
Amounts attributable to shareholders
Called up share capital	31,404	31,404	31,404
Share premium	97,316	97,316	97,316
Other reserve	41,929	41,929	41,929
Exercised warrant reserve	5,886	5,886	5,886
Capital redemption reserve	6,362	6,362	6,362
Capital reserves	649,573	668,842	680,261
Revenue reserve	(23,258)	(23,002)	(23,156)
Total shareholders' funds	809,212	828,737	840,002
Net asset value per share (note 4)	769.0p	787.1p	797.8p

statement of cash flows

for the six months ended 31st March 2018

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2018	31st March 2017	30th September 2017
	£'000	£'000	£'000
Operating activities
(Loss)/profit before taxation	(30,364)	58,196	69,461
Deduct dividends received	(203)	(217)	(475)
Deduct bank interest received	(86)	(18)	(44)
Add losses/(deduct gains) on investments held at fair value through profit or loss	29,733	(58,286)	(70,114)
Decrease/(increase) in prepayments, VAT and other receivables	9	2	(5)
(Decrease)/increase in other payables	(71)	(10)	51
Net cash outflow from operating activities before interest and taxation	(982)	(333)	(1,126)
Dividends received	203	217	475
Interest received	86	18	44
Net cash outflow from operating activities	(693)	(98)	(607)
Investing activities
Purchases of investments held at fair value through profit or loss	-	(1)	-
Sales of investments held at fair value through profit or loss	-	-	8,892
Net cash (outflow)/inflow from investing activities	-	(1)	8,892
Financing activities
Repurchase of shares into Treasury	(426)	(197)	(197)
Net cash outflow from financing activities	(426)	(197)	(197)
(Decrease)/increase in cash and cash equivalents	(1,119)	(296)	8,088
Cash and cash equivalents at the start of the period	12,235	4,147	4,147
Cash and cash equivalents at the end of the period	11,116	3,851	12,235

 

Notes to the financial statements

for the six months ended 31st March 2018

1.     Financial Statements

The financial information for the six months ended 31st March 2018 and 2017 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 Company for the year ended 30th September 2017 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.

2.     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 this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 30th September 2017.

JPMorgan Indian Investment Trust plc has a 100% holding in JPMorgan Indian Investment Company (Mauritius) Limited, which qualifies as an investment entity under IFRS 10. The subsidiary is valued at a fair value, and the total value at 31st March 2018 is disclosed on a separate line of the Statement of Financial Position. In addition the List of Investments has been prepared on a look through basis, meaning the stocks held by the subsidiary are disclosed.

3.     (Loss)/earnings per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2018	31st March 2017	30th September 2017
		£'000	£'000	£'000
	(Loss)/earnings per share is based on the following:
	Revenue loss	(102)	(238)	(392)
	Capital (loss)/return	(30,262)	58,434	69,853
	Total (loss)/return	(30,364)	58,196	69,461
	Weighted average number of shares in issue	105,285,472	105,289,681	105,288,645
	Revenue loss per share	(0.10)p	(0.23)p	(0.37)p
	Capital (loss)/return per share	(28.74)p	55.50p	66.34p
	Total (loss)/return per share	(28.84)p	55.27p	65.97p

 

4.     Net asset value per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2018	31st March 2017	30th September 2017
	Net assets (£'000)	809,212	828,737	840,002
	Number of shares in issue excluding shares held in Treasury	105,222,615	105,287,615	105,287,615
	Net asset value per share	769.0p	787.1p	797.8p

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

For further information, please contact:

Jonathan Latter

For and on behalf of JPMorgan Funds Limited, Company Secretary 020 7742 4000

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 ASSET MANAGEMENT (UK) LIMITED

ENDS

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

The half year will also 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.

 

END

 

 

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