Half-year Report

RNS Number : 9621A

JPMorgan Indian Invest Trust PLC

03 June 2019

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN INDIAN INVESTMENT TRUST PLC

Half Year Report & FINANCIAL STATEMENTS

 for the six months ended 31st MARCH 2019

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 to 31st March 2019, the Company produced a total return on net assets of +10.3%. This was slightly higher than our benchmark index, the MSCI India Index (in sterling terms), which returned +10.0% over the same period. 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.

The return to shareholders was +14.1%, reflecting a narrowing of the discount over the six months from 14.5% to 11.5% at the period end.

As I have stated previously, the Board judges performance over the long term. Whilst the Company performed in line with the benchmark index over the most recent six months, its longer term performance is mixed, the Company having outperformed the benchmark over five years but underperforming it over the three and ten years to 31st March 2019.

In November 2013, the Board announced an obligation to make a tender offer to shareholders if, over the three years from 1st October 2013, the Company underperformed its benchmark. Over the three years to 30th September 2016, the Company significantly outperformed and therefore no such tender offer was made. As I explained in the last annual report, in 2016 the Board renewed its commitment to shareholders by undertaking to offer a tender for up to 25% of the issued share capital, at NAV less costs, should the Company underperform the benchmark index over the three years to 30th September 2019. If that is the case, relevant information will be provided to shareholders after the year end.

Gearing

The Company has a three year floating rate £100 million loan facility 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 2019, the Company's portfolio was 0.0% 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 did not buy back any shares into Treasury. It currently holds 21,042,646 shares in Treasury which may only be reissued at a premium to the prevailing net asset value at the time of reissue.

Taxation

As I have explained previously, the India-Mauritius tax treaty has been amended and 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 Company's assets will move to the UK parent company through natural trading over a number of years. This process is underway and at the time of writing approximately £147 million of the Group's investments are held directly by the parent company.

Outlook

The results of the 2019 general election were announced on 23rd May. The outcome was a victory for the incumbent government of Mr. Modi, which, for a time at least, removes the political uncertainty which is an almost permanent feature of the Indian scene. The BJP is generally seen as being 'pro business' and the market's initial reaction has been to rise. However, as the Managers point out in their report, there has been no particular correlation between the party or parties in power and GDP growth in India. As ever, growth in corporate profits will be the key determinant of investor returns. I am optimistic that our portfolio is placed to perform well.

Richard Burns

Chairman                                                                                                                                         

3rd June 2019

INVESTMENT MANAGERS' REPORT

Market Review

The Indian market just managed a double digit return over the six months under review. Along the way it substantially outperformed the broader Asian region in the last calendar quarter of 2018, before underperforming it in the first three months of 2019.

Bolstered by a declining oil price, India was one of a minority of Asian markets which posted a positive US dollar return over the final months of 2018. This was achieved despite a somewhat soft third quarter GDP number of 7.1%, down from 8.2% in the previous quarter, although the prior number had been flattered by a low base due to the earlier impact of the introduction of the Goods and Services Tax.

Following anticipated interest rate increases from the Reserve Bank of India (the 'RBI') in June and in August, contrary to consensus expectations it kept rates unchanged in October. This decision was followed by the surprise of the mid-term resignation of the RBI's governor, Urjit Patel. Although Mr Patel cited 'personal reasons' for his departure, there was speculation that he objected to government intervention in the workings of India's central bank.

The strong relative performance towards the close of 2018 was not sustained into the new year. In January 2019 India was the only Asian market to register losses in absolute terms. Some cyclical indicators suggested slower economic growth, with the corporate reporting season indicating that an overall recovery in earnings and profitability remains elusive. There was also some controversy over the accuracy of India's economic data.

A different facet of political risk manifested itself in February as military tension between India and Pakistan flared up. While the immediate threat of conflict was defused relatively quickly it acted as a reminder both of the risks in and around Kashmir and also of a tendency amongst some politicians to capitalise on the friction with an eye on the Hindu majority within India's electorate. Following the clash, PM Modi enjoyed an increase in popularity.

Against our expectations, in early February the RBI reduced interest rates by 25 basis points to 6.25%. It also changed the policy stance to neutral, citing the necessity of extending activity beyond government spending on infrastructure into higher private investment and consumption.

Given that the reduction took place in the run-up to the election, and as the current RBI governor is a career bureaucrat who was appointed after the surprise resignation of his predecessor, it raised some questions about political interference. That said, inflation is well within the RBI's target of 4% (CPI is 2% currently) and therefore real interest rates are high enough for the Monetary Policy Committee to ease monetary policy further in the near term.

Performance Review

The Company performed in line with the benchmark over the six month period. Sector allocation was positive, while stock selection detracted. Gearing was a very minor detractor.

At the sector level it was beneficial to be overweight financials and to be underweight health care and information technology. The financials sector bounced following a series of scandals and mis-steps over the previous quarters (including fraud at Punjab National Bank, an unexpected change of CEO at Yes Bank and default at Infrastructure Leasing & Financial Services ('IF&LS')). We have been seeing growing signs that the long awaited repair in the banking sector is now well and truly underway. In the first instance this benefited banks with somewhat weaker franchises like ICICI Bank and Yes Bank. Our performance suffered from not holding either. However, we retain our belief that this underpenetrated sector is best held via higher quality companies which will gain market share over time. For example HDFC Bank was the single largest contributor to the Company's performance over the period.

As for health care and IT, over the six months as a whole, the Indian rupee strengthened against both US dollar and pound sterling. This acted as a drag on sectors which are seen to be particular beneficiaries of a weak currency.

Stock selection detracted from the Company's performance. Commercial vehicle company Ashok Leyland declined on growth fears and, in addition to the zero positions in ICICI Bank and Yes Bank mentioned above, it was painful not to own Bajaj Finance. After a correction early in the fourth quarter of 2018, Reliance Industries resumed its upwards march. While telecoms arm JIO continued to gain subscribers, management pledged to deleverage the balance sheet, albeit with few details. We continue to avoid the stock.

Outlook

Prime Minister Modi's retention of power in the recent general election and the majority won by the BJP Party has led to a stronger mandate for the incumbent. However, while continuity of Prime Minister should be helpful, at no point was the prospect of a negative general election outcome priced in by markets. Moreover in the longer run we see no particular correlation between which party is in power and the pace of GDP growth in India. What is more crucial is that over the past five years nominal GDP growth has not fed through to earnings growth: market earnings have been essentially flat for some time now. The key reason is that the banking sector has been through a negative earnings cycle on the back of non-performing loans. Provisioning for bad assets is now at more realistic levels and capital positions are being rebuilt. Normalisation of financial conditions should result in an earnings rebound. The path towards higher returns looks much clearer and more achievable.

We remain of the view that this is an early cycle economy. While valuations may not appear to be cheap relative to historic levels, with forward PE around the five year average but above the ten year average, we think that is partly because the corporate earnings cycle is depressed. An economic recovery and normalised earnings would make valuations appear cheaper and the long run growth prospects remain very compelling.

Rukhshad Shroff

Raj Nair

Investment Managers                                                                                                                     

3rd June 2019

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 Financial Statements for the year ended 30th September 2018.

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 2019, 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                                                                                                                                                   

3rd June 2019



STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST MARCH 2019

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st March 2019			31st March 2018			30th September 2018
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments
held at fair value through
profit or loss	-	79,901	79,901	-	(29,733)	(29,733)	-	(64,537)	(64,537)
Net foreign currency
(losses)/gains	-	(204)	(204)	-	(529)	(529)	-	216	216
Income from investments	355	-	355	203	-	203	256	-	256
Interest receivable and similar
income	26	-	26	86	-	86	158	-	158
Total income/(loss)	381	79,697	80,078	289	(30,262)	(29,973)	414	(64,321)	(63,907)
Management fee	(144)	-	(144)	(81)	-	(81)	(145)	-	(145)
Other administrative expenses	(377)	-	(377)	(310)	-	(310)	(682)	-	(682)
(Loss)/profit before finance
costs and taxation	(140)	79,697	79,557	(102)	(30,262)	(30,364)	(413)	(64,321)	(64,734)
Finance costs	(132)	-	(132)	-	-	-	(65)	-	(65)
(Loss)/profit before taxation	(272)	79,697	79,425	(102)	(30,262)	(30,364)	(478)	(64,321)	(64,799)
Taxation	-	(416)	(416)	-	-	-	-	-	-
Net (loss)/profit	(272)	79,281	79,009	(102)	(30,262)	(30,364)	(478)	(64,321)	(64,799)
(Loss)/earnings
per share (note 4)	(0.26)p	75.81p	75.55p	(0.10)p	(28.74)p	(28.84)p	(0.45)p	(61.24)p	(61.69)p

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31ST MARCH 2019

	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 2019 (Unaudited)
At 30th September 2018	31,404	97,316	41,929	5,886	6,362	610,882	(23,634)	770,145
Profit/(loss) for the period	-	-	-	-	-	79,281	(272)	79,009
At 31st March 2019	31,404	97,316	41,929	5,886	6,362	690,163	(23,906)	849,154
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
Year ended 30th September 2018 (Audited)
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	-	-	-	-	-	(5,058)	-	(5,058)
Loss for the year	-	-	-	-	-	(64,321)	(478)	(64,799)
At 30th September 2018	31,404	97,316	41,929	5,886	6,362	610,882	(23,634)	770,145



STATEMENT OF FINANCIAL POSITION

AT 31ST MARCH 2019

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2019	31st March 2018	30th September 2018
	£'000	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	86,755	3,796	8,362
Investments in subsidiaries held at fair value through
profit and loss	775,302	794,337	759,474
Total non current assets	862,057	798,133	767,836
Current assets
Other receivables	243	43	62
Cash and cash equivalents	3,873	11,116	2,405
	4,116	11,159	2,467
Current liabilities
Other payables1	(519)	(80)	(158)
Net current assets	3,597	11,079	2,309
Total assets less current liabilities	865,654	809,212	770,145
Creditors: amounts falling due after more than one year	(16,500)	-	-
Net assets	849,154	809,212	770,145
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	690,163	649,573	610,882
Revenue reserve	(23,906)	(23,258)	(23,634)
Total shareholders' funds	849,154	809,212	770,145
Net asset value per share (note 5) 1 As at 31st March 2019, £416,000 relates to the provision for Indian Capital Gains Tax (31st March 2018: nil; 30th September 2018: nil).	812.0p	769.0p	736.5p

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31ST MARCH 2019

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2019	31st March 2018	30th September 2018
	£'000	£'000	£'000
Operating activities
Profit/(loss) before taxation	79,425	(30,364)	(64,799)
Deduct dividends received	(355)	(203)	(256)
Deduct bank interest received	(26)	(86)	(158)
Add interest paid	132	-	65
(Deduct gains)/add losses on investments held at fair value
through profit or loss	(79,901)	29,733	64,537
Decrease/(increase) in prepayments, VAT and other
receivables	33	9	(19)
Decrease in other payables	(37)	(71)	(27)
Net cash outflow from operating activities before interest
and taxation	(729)	(982)	(657)
Interest paid	(150)	-	(30)
Dividends received	151	203	256
Interest received	16	86	166
Net cash outflow from operating activities	(712)	(693)	(265)
Investing activities
Purchases of investments held at fair value through
profit or loss	(72,320)	-	(4,507)
Sales of investments held at fair vale through profit or loss	58,000	-	-
Net cash outflow from investing activities	(14,320)	-	(4,507)
Financing activities
Repurchase of shares into Treasury	-	(426)	(5,058)
Drawdown of loan	51,500	-	-
Repayment of loan	(35,000)	-	-
Net cash inflow/(outflow) from financing activities	16,500	(426)	(5,058)
Increase/(decrease) in cash and cash equivalents	1,468	(1,119)	(9,830)
Cash and cash equivalents at the start of the period	2,405	12,235	12,235
Cash and cash equivalents at the end of the period	3,873	11,116	2,405



NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31ST MARCH 2019

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 2019 and 2018 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 2018 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 and updated in February 2018 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 2018.

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 fair value, and the total value at 31st March 2019 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.

4.       (Loss)/earnings per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2019	31st March 2018	30th September 2018
	£'000	£'000	£'000
(Loss)/earnings per share is based on the following:
Revenue loss	(272)	(102)	(478)
Capital return/(loss)	79,281	(30,262)	(64,321)
Total return/(loss)	79,009	(30,364)	(64,799)
Weighted average number of shares in issue	104,574,940	105,285,472	105,034,167
Revenue loss per share	(0.26)p	(0.10)p	(0.45)p
Capital return/(loss) per share	75.81p	(28.74)p	(61.24)p
Total return/(loss) per share	75.55p	(28.84)p	(61.69)p

5.       Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2019	31st March 2018	30th September 2018
Net assets (£'000)	849,154	809,212	770,145
Number of shares in issue excluding shares held in Treasury	104,574,940	105,222,615	104,574,940
Net asset value per share	812.0p	769.0p	736.5p

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 report 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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