Half Yearly Report

RNS Number : 2063O

JPMorgan Indian Invest Trust PLC

26 May 2015

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN INDIAN INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE

SIX MONTHS ENDED 31ST MARCH 2015

Chairman's Statement

Performance

In my first report as your Chairman, I am pleased to report that the first six months of the Company's financial year have been very positive for investors in India. The Company produced a total return on net assets of +26.8%, well ahead of the Company's benchmark index, the MSCI India Index (in sterling terms), which returned +14.3% over the period. The return to shareholders was +26.7%, reflecting a stable discount which moved only marginally over the six months. The background against which the Company performed is discussed in more detail in the Investment Managers' Report on page 3 of the Annual Report.

Gearing

The Company has a one year floating rate US$85 million loan facility with ING Bank to provide the Investment Managers with the flexibility to gear the portfolio should circumstances appear favourable. The Company's portfolio was geared throughout the six months and as at 31st March 2015, the level of gearing was 3.9%.

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 in the market or issue any new shares. The Company currently holds 19,909,788 Ordinary 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.

Minimum Alternate Taxation ('MAT')

Shareholders may be aware that a number of foreign investment funds have received assessments from the Indian Revenue Service under a retrospective application of MAT. The Company has received no such assessment. As the vast majority of its investments are held through its Mauritian subsidiary company, the Board believes that the Company continues to be protected by the existing double taxation treaty arrangements that are in place between India and Mauritius.

The Board

I became Chairman of your Company following Hugh Bolland's retirement at the conclusion of the 2015 Annual General Meeting. On behalf of the Board I would like to thank Hugh for his considerable contribution to the Company and to wish him well in his retirement. Jasper Judd was appointed a Director of the Company on 1st January 2015. He is a Chartered Accountant with extensive experience of Asia Pacific business and has succeeded me as Chairman of the Audit Committee.

Outlook

After excellent returns over the six months to 31st March, the Indian equity market has suffered a correction in April and May. The market may fall further in the short term, but our Investment Managers remain positive on the medium to long term outlook for Indian equities. Market volatility and lower valuations also present opportunities and the Board has confidence in the Investment Managers' ability, through their bottom-up stock selection, to continue to add value for our shareholders.

Richard Burns

Chairman                                                                                                                                                 

26th May 2015

Investment Managers' Report

Market Review

The first half of the Company's financial year was an extremely interesting and volatile period for India. The euphoria following the election of Mr. Narendra Modi as Prime Minister ebbed a little, though equities did rise modestly during the period. However, the rise of the rupee against the pound boosted sterling returns significantly. Foreign portfolio investors continued to show faith in the Indian story, with strong inflows in equities and debt. Interestingly, domestic investors also turned positive on equities for the first time in several years, with inflows into equity funds running at a monthly rate of over $1 billion for the past 10 months.

In a further affirmation of the mandate for Mr. Modi, the B.J.P managed to win an absolute majority in provincial elections in the states of Haryana and Jharkhand and emerged as the largest party in Maharashtra (unseating the Congress led coalition after 15 years). The party also substantially improved its tally in the state of Jammu & Kashmir, although it suffered a setback in Delhi.

While a lot has been written about the slow start by the new government, we are much more enthused, since we believe that the building blocks for a sustainable recovery are steadily being put in place. For example, both the Finance and Railway ministers have budgeted a significant increase in government capital expenditure in 2016. This will provide a big boost to investment, which has been a key bottleneck for the economy. Interestingly, the budget session of parliament proved to be remarkably productive with several bills being passed (including the one pertaining to the increase in the foreign ownership limit in the insurance sector). This was despite the fact that the government lacks a majority in the upper house of parliament, which is likely to remain an ongoing challenge to passing legislation.

Among the other key actions of the new government, the auction of spectrum for the telecom sector raised approximately $18 billion, significantly more than expected, while the auction of coal mine licences, which were cancelled by the Supreme Court last year, also drew a strong response. This should boost domestic coal output meaningfully and improve fuel availability to the power sector in the long term.

On the flip side, while the new GDP statistics suggested that recent growth rates have been better than expected, high frequency indicators such as industrial production did not corroborate this view. Nonetheless, the green shoots of a recovery have started to appear in some sectors such as commercial vehicles. Perhaps the biggest positive on the macro economic front for India over the past few months has been the collapse in commodity prices. As a large consumer and importer, the Indian economy benefits at multiple levels; in particular inflation, which has been a significant problem over the past few years, has declined sharply. As a result, the Reserve Bank of India ('RBI') was able to ease monetary policy, cutting interest rates twice, by a cumulative 0.5%. While this process is likely to be gradual, we believe that lower interest rates are likely to be an important catalyst for the cyclical revival in the economy. Additionally, the current account deficit has also narrowed sharply, reducing the external risks to some extent.

Performance

The Company's net asset value total return substantially outperformed the benchmark during the review period, primarily due to the portfolio's positioning for a domestic cyclical recovery. Specifically, the overweight positions in financials and in the cement sector, and the underweight position in global cyclical stocks were the key contributors to the performance. Gearing also contributed positively, albeit modestly.

Outlook

In the near term, the recent correction could continue as activity levels in the economy continue to remain sluggish. This is likely to lead to earnings forecasts trending lower, while valuations have re-rated following the strong performance over the past year. However, from a longer term perspective, the cyclical outlook for the economy, and therefore the outlook for equities, remains favourable. The next leg of the rally is likely be driven by a recovery in earnings. Our research suggests a wide dispersion in corporate fundamentals, valuations and risks. Therefore, we continue to believe that a bottom-up approach is required and likely to reap rewards.

While on a three to four year view, the outlook remains compelling, the path will be paved with a number of challenges and sources of volatility. The continued strength of the US dollar and the likely normalisation of US interest rates are both headwinds for emerging markets equities. Fund flows, into equities and more recently into bonds, have materially increased India's global linkages. The RBI's monetary policy decisions will not solely be based on domestic factors. If the gap between Mr. Modi's willingness and ability to engineer key reforms widens, this could impact market sentiment negatively.

On balance, over the long run, we believe that the current growth cycle and a more stable and energised government should win out over the global macro economic challenges.

Rukhshad Shroff

Raj Nair

Investment Managers                                                                                                                                    

26th May 2015

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; accounting, legal and regulatory; corporate governance and shareholder relations; operational; going concern; 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 2014.

Any change in taxation legislation or the taxation regime applicable to the Mauritian subsidiary company could affect the value of the investments held by the Group, the Company's ability to provide returns to Shareholders or alter the post-tax returns to Shareholders. In particular, it is intended that the Mauritian subsidiary will continue to benefit from the India/Mauritius Double Tax Treaty. Future changes to Mauritian or Indian law or to the India/Mauritius Double Tax Treaty, or the interpretations given to them by the regulatory authorities, could impose additional costs or obligations on the activities of the Mauritian subsidiary, which in turn may have adverse effects on the performance of the Company. The terms of the India/Mauritius Double Tax Treaty were challenged in India but were upheld by the Supreme Court of India in October 2003. However, more recently, there have been discussions between the Indian and Mauritian authorities with regard to re-negotiation of the Treaty. Adverse tax consequences would result if the Mauritian subsidiary ceased to qualify for the benefits under the India/Mauritius Double Tax Treaty (for example, if it were held that the Mauritian subsidiary was not a resident of Mauritius). There can be no assurance that the Mauritian subsidiary will continue to qualify for or receive the benefits of the India/Mauritius Double Tax Treaty or that the terms of the India/Mauritius Double tax Treaty will not be changed. Such an event may require the Mauritian subsidiary to pay or provide for tax liabilities that would reduce the net asset value of the Ordinary shares.

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 2015, 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 2015

Group Statement of Comprehensive Income

for the six months ended 31st March 2015

	(Unaudited)			(Unaudited)				(Audited)
	Six months ended			Six months ended				Year ended
	31st March 2015			31st March 2014				30th September 2014
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue		Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000		£'000	£'000
Investment income	1,400	-	1,400	1,153	-	1,153	6,676		-	6,676
Gains on investments held at fair
value through profit or loss	-	145,085	145,085	-	72,118	72,118	-		147,005	147,005
Foreign exchange (losses)/gains	-	(57)	(57)	-	31	31	-		(206)	(206)
Total income	1,400	145,028	146,428	1,153	72,149	73,302	6,676		146,799	153,475
Management fee	(3,039)	-	(3,039)	(2,023)	-	(2,023)	(4,454)		-	(4,454)
Other administrative expenses	(727)	-	(727)	(658)	-	(658)	(1,333)		-	(1,333)
(Loss)/profit before finance
costs and taxation	(2,366)	145,028	142,662	(1,528)	72,149	70,621	889		146,799	147,688
Finance costs	(342)	-	(342)	(61)	-	(61)	(327)		-	(327)
(Loss)/profit before taxation	(2,708)	145,028	142,320	(1,589)	72,149	70,560	562		146,799	147,361
Taxation	(88)	-	(88)	-	-	-	-		-	-
Net (loss)/profit	(2,796)	145,028	142,232	(1,589)	72,149	70,560	562		146,799	147,361
(Loss)/earnings per share (note 4)	(2.65)p	137.20p	134.55p	(1.51)p	68.54p	67.03p	0.53p		139.12p	139.65p

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

	Called up			Exercised		Capital
Six months ended	share	Share	Other	warrant	Capital	redemption	Revenue
31st March 2015	capital	premium	reserve	reserve	reserves	reserve	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2014	31,404	97,316	41,929	5,886	363,920	6,362	(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	508,948	6,362	(18,767)	673,078
	Called up			Exercised		Capital
Six months ended	share	Share	Other	warrant	Capital	redemption	Revenue
31st March 2014	capital	premium	reserve	reserve	reserves	reserve	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2013	30,124	83,019	41,929	5,886	231,854	6,362	(16,533)	382,641
Cancellation of Subscription shares	(4)	4	-	-	-	-	-	-
Conversion of Subscription shares
into Ordinary shares	(54)	54	-	-	-	-	-	-
Issue of Ordinary shares on
conversion of Subscription shares	1,338	14,241	-	-	-	-	-	15,579
Repurchase of shares into Treasury	-	-	-	-	(13,110)	-	-	(13,110)
Profit/(loss) for the period	-	-	-	-	72,149	-	(1,589)	70,560
At 31st March 2014	31,404	97,318	41,929	5,886	290,893	6,362	(18,122)	455,670
	Called up			Exercised		Capital
Year ended	share	Share	Other	warrant	Capital	redemption	Revenue
30th September 2014	capital	premium	reserve	reserve	reserves	reserve	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2013	30,124	83,019	41,929	5,886	231,854	6,362	(16,533)	382,641
Cancellation of Subscription shares	(4)	4	-	-	-	-	-	-
Conversion of Subscription shares into
Ordinary shares	(54)	54	-	-	-	-	-	-
Issue of Ordinary shares on
conversion of Subscription shares	1,338	14,241	-	-	-	-	-	15,579
Repurchase of shares into Treasury	-	-	-	-	(14,733)	-	-	(14,733)
Expenses in relation to share
conversions	-	(2)	-	-	-	-	-	(2)
Profit for the year	-	-	-	-	146,799	-	562	147,361
At 30th September 2014	31,404	97,316	41,929	5,886	363,920	6,362	(15,971)	530,846

Group Statement of Financial Position

at 31st March 2015

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	700,645	471,973	557,474
Investments in liquidity fund held at fair value through
profit or loss	6,510	-	-
Total investments	707,155	471,973	557,474
Current assets
Other receivables	2,460	1,711	4,310
Cash and cash equivalents	6,489	175	779
	8,949	1,886	5,089
Current liabilities
Other payables	(5,826)	(17,637)	(1,817)
Bank loan	(37,200)	(549)	(29,900)
Derivative financial instruments	-	(3)	-
Net current liabilities	(34,077)	(16,303)	(26,628)
Net assets	673,078	455,670	530,846
Equity attributable to equity holders
Called up share capital	31,404	31,404	31,404
Share premium	97,316	97,318	97,316
Other reserve	41,929	41,929	41,929
Exercised warrant reserve	5,886	5,886	5,886
Capital reserves	508,948	290,893	363,920
Capital redemption reserve	6,362	6,362	6,362
Revenue reserve	(18,767)	(18,122)	(15,971)
Total equity shareholders' funds	673,078	455,670	530,846
Net asset value per share (note 5)	636.7p	429.3p	502.2p

Company registration number 2915926

Group Cash Flow Statement

for the six months ended 31st March 2015

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
Operating activities
Profit before taxation	142,320	70,560	147,361
Add back interest	342	61	327
Add back gains on investments held at fair value
through profit or loss	(145,085)	(72,118)	(147,005)
Unrealised foreign exchange gains	-	3	-
Net purchases of investments held at fair value through
profit or loss	(4,596)	(20,335)	(30,948)
Increase in other receivables	(190)	(277)	(59)
Decrease/(increase) in amounts due from brokers	2,040	(1,336)	(4,152)
(Decrease)/increase in other payables	(93)	(106)	47
Increase in amounts due to brokers	4,102	2,186	1,452
Net cash outflow from operating activities before
interest payable and taxation	(1,160)	(21,362)	(32,977)
Interest paid	(342)	(61)	(327)
Tax paid	(88)	-	-
Net cash outflow from operating activities	(1,590)	(21,423)	(33,304)
Financing activities
Net proceeds from the issue of ordinary shares	-	15,579	15,579
Repurchase of shares	-	(13,182)	(15,146)
Increase in bank overdraft	-	549	-
Drawdown of short term loans	37,200	14,900	34,800
Net repayment of short term loans	(29,900)	-	(4,900)
Expenses in relation to share conversions	-	-	(2)
Net cash inflow from financing activities	7,300	17,846	30,331
Increase/(decrease) in cash and cash equivalents	5,710	(3,577)	(2,973)
Cash and cash equivalents at the start of the period	779	3,752	3,752
Cash and cash equivalents at the end of the period	6,489	175	779

Notes to the Group Financial Statements

for the six months ended 31st March 2015

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 2015 and 2014 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 2014 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 January 2009 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 2014.

4.   (Loss)/earnings per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
(Loss)/earnings per share is based on the following:
Revenue loss	(2,796)	(1,589)	562
Capital return	145,028	72,149	146,799
Total return	142,232	70,560	147,361
Weighted average number of shares in issue	105,707,798	105,268,164	105,522,093
Revenue loss per share	(2.65)p	(1.51)p	0.53p
Capital return per share	137.20p	68.54p	139.12p
Total return per share	134.55p	67.03p	139.65p

5.   Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2015	31st March 2014	30th September 2014
Shareholders' funds (£'000)	673,078	455,670	530,846
Number of shares in issue excluding shares held in Treasury	105,707,798	106,142,798	105,707,798
Net asset value per share (pence)	636.7	429.3	502.2

      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.

 

END

 

 

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