Annual Financial Report

RNS Number : 0436Q

JPMorgan Glb Emerging Mkts Inc Tst

12 October 2011

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN GLOBAL EMERGING MARKETS INCOME TRUST PLC

ANNOUNCEMENT OF FINAL RESULTS

The Directors of JPMorgan Global Emerging Markets Income Trust plc announce the Company's results for the year ended 31st July 2011.

Chairman's Statement

The Company began investing on 29th July 2010. Its investment objective is to provide investors with a dividend income combined with the potential for long term capital growth from investing in a diversified portfolio of emerging markets investments. The Company's launch raised £104.0 million. To date a further £47.3 million has been raised through the issue of new shares.

Performance

It is a pleasure to report on a solid performance in the Company's first full reporting period. For the period from 29th July 2010 to 31st July 2011, the Company recorded a total return on net assets of +15.7%, outperforming the total return of the benchmark index, the MSCI Emerging Markets Free Index, with net dividends reinvested, (in sterling terms), which returned +11.4%. The Investment Manager's Report reviews the Company's performance and gives details on the investment strategy and portfolio construction.

The total return to shareholders was +11.6%, as the Company's share price increased from 103.50p to 112.25p over the period. This is calculated using the opening mid market price on the first day of trading (103.5p); shareholders who subscribed for shares in the Company at £1 on launch have enjoyed a total return of +15.5%.

Revenue and Dividends

Gross revenue for the year amounted to £8.5 million and net total revenue after interest, administrative expenses and taxation amounted to £6.9 million. Revenue return per Ordinary share for the year, calculated on the average number of shares in issue, was 5.76p. The Company targeted an initial gross dividend yield of at least 4% based on the initial issue price of 100p per share. During the period, the Company paid two interim dividends totalling 3.25p per share. Notwithstanding recent market declines which have brought the Company's net asset value back to 98.4p at the time of writing, the Board is pleased to recommend a final dividend of 1.45p per Ordinary share. Subject to shareholders' approval at the Annual General Meeting on 10th November 2011, the dividend will be paid on 9th December 2011 to shareholders on the register as at the close of business on 18th November 2011. This will bring the total dividend for the period to 4.7p. The Board has stated that it intends to move to paying dividends on a quarterly basis when revenue reserves are sufficient for this to be appropriate and will do so in the current financial year, with the first such dividend to be declared in December 2011.

Gearing

One of the advantages that an investment trust has over open ended investment vehicles is the ability to use borrowings to gear returns. The Company has a three year US$20 million loan facility, which was drawn down in full on 17th November 2010. An interest rate swap agreement was put in place on 12th November 2010 in order to fix the interest rate payable at 3.34%.

Share Capital

At launch on 29th July 2010, the Company issued 104,000,000 Ordinary shares of 1p each at a price of 100p per share, thus raising gross proceeds of £104.0 million. To date a further 42.9 million Ordinary shares have been issued at a premium to net asset value. During the period, the Company announced a Placing and Offer for Subscription of up to 200 million 'C' Shares. The gross proceeds of the issue were £26.4 million. Applications under both the Placing and Offer were satisfied in full for 26,402,325 'C' Shares and admitted on 19th April 2011 to the London Stock Exchange. The 'C' shares were converted into Ordinary Shares at a conversion ratio of 0.872304 and accordingly, 23,030,853 Ordinary Shares were admitted to trading on the London Stock Exchange on 18th May 2011.

The current authority to issue new shares will expire on 18th November 2011. At the forthcoming Annual General Meeting, the Board will seek renewal of the authority to issue new shares up to the equivalent of 20% of the current issued share capital. However, this will be reset to 10% of the issued share capital on 18th November 2011 in order to comply with the UKLA Listing Rules. More details are given in the Annual Report.

The Board

On 1st August 2011 Pablo Forero resigned as a Director from the Company due to a change in personal circumstances. On 1st June 2011, Sarah Fromson was appointed a Director of the Company. She is currently Head of Investment Risk at Wellcome Trust and has many years of investment experience. In accordance with the Company's Articles of Association and with corporate governance best practice, all Directors will retire at this year's Annual General Meeting and, being eligible, will seek reappointment. Details of their background and experience can be found in the Annual Report.

Annual General Meeting

The Annual General Meeting will be held at The Armourers' Hall, 81 Coleman Street, London EC2R 5BJ on Thursday, 10th November 2011 at 10.00 a.m. The meeting will include a presentation from the Investment Manager on investment policy and performance.

Outlook

While the financial markets of the developed world are labouring under the burdens of accumulated debt, brittle confidence, low growth and risk, the outlook for emerging markets is structurally sunnier. The developing world is certainly not insulated from the storms blowing across Europe and the US, but these also serve to highlight the long term attractiveness of the growth markets. Many developing economies are well managed, having learned much from several decades of their own crises; and they are not heavily indebted. Inflation is of cyclical concern, but long term productivity remains competitive. A number of currencies are likely gradually to appreciate in value relative to the US Dollar, Euro and Sterling. Companies in these economies have scope to grow their profits and dividends through both internal and external sources of demand. Finally, as the Investment Manager's report makes clear, valuations of these emerging markets are undemanding. In the near term, the prospects for the Company cannot be detached from turbulence in developed markets. But I am confident that the Company will generate positive returns for shareholders over the coming years.

Andrew Hutton

Chairman                                                                                            

12th October 2011

Investment Manager's Report

Given the turmoil and turbulence in the world over the last 12 months it is perhaps surprising that since launch the Company has achieved its initial income target, produced a solid rise in NAV of nearly 14% and outperformed its benchmark. Overall during the first year of its life the Company has produced a steady income stream from a diversified portfolio of high quality companies whose earnings and dividends have risen largely as we expected, despite the sometimes alarming global backdrop.

Excess returns have come largely from stock selection, with the Taiwanese smart phone manufacturer HTC being the biggest success over the first year of the Company's life as well as positive contributions from iron ore producer Kumba and the Thai mobile phone company Advanced Info Service more than offsetting disappointments in China such as China Dongxiang and Zhejiang Expressway.

As expected at launch, currency has also boosted performance from a sterling investor's perspective with most emerging markets countries witnessing a rise in currency over the year, the notable exception being Turkey; the Lira fell almost 15% against sterling over the year. By contrast the Brazilian Real rose over 8% against sterling. We expect that although emerging markets currencies will remain volatile, the overall trend against sterling will remain positive and current concern about inflation within emerging markets will prove to be cyclical and transient and not structural as pessimists currently contend.

Portfolio changes over the year have been modest with overall turnover below 30%, which is consistent with our desire to be a long term investor and benefit from the compound growth of dividends, which is expected to average over 10% per annum in coming years.

The emphasis of the portfolio favouring stable growth in sectors such as consumer, telecommunications and utilities over the cyclicality of natural resources has remained constant over the first year of the Company's life and is not expected to change over the near term. Diversification by stock, country and sector is an important part of the portfolio and the Company is expected to continue to hold 60 to 70 individual holdings over the coming year.

There have been few stock specific disappointments over the last 12 months although medium sized companies in China, whilst offering considerable opportunity due to the growth of the domestic economy, have been difficult, with earnings proving to be volatile and value being more apparent than real on more than one occasion. As a general principle, understanding the difference between a value trap, whose profitability is deteriorating for structural reasons, and a value opportunity whose long term prospects are obscured by cyclical issues will continue to be the key to adding value through stock selection.

If the outlook for emerging markets could be detached from the broader global economy, current valuations at 1.6x price to book and 10x forward price earnings multiple would be very attractive. We think that indeed in 12 months' time these will be seen to have been attractive buy levels for the asset class, however, near term global uncertainty sparked by the European debt crisis and general malaise in the G7 economies casts a pall over the prospects for emerging market equities. Global financial markets remain highly correlated and, consequently, demand for emerging markets is directly linked to the risk appetite of G7 investors which is currently low, depressing all equity valuations.

Earnings estimates are being selectively reduced for 2012 but, at the time of writing, we believe that earnings and dividends for the Company's holdings will grow more than 10% in 2012, setting the stage for further positive returns in the year ahead.

Richard Titherington

Investment Manager                                                                                       

12th October 2011

Principal Risks

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. These key risks fall broadly under the following categories:

·    Investment and Strategy: An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to underperformance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines, which are monitored and reported on. JPMAM provides the Directors with timely and accurate management information, including performance data and attribution analysis, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Manager who attends all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Investment Manager is free to employ the Company's gearing tactically, within a strategic range set by the Board.

•     Foreign Currency: Certain of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and the currency in which it reports). As a result, movements in exchange rates may affect the sterling value of these items.

•     Financial: The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. Further details are disclosed in note 23 of the Company's Annual Report.

•     Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158. Were the Company to breach Section 1158, it might lose investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by JPMAM and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure 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, JPMAM to ensure compliance with the Companies Act 2006 and the UKLA Listing Rules and DTRs.

•     Corporate Governance and Shareholder Relations: Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Annual Report.

•     Operations: Disruption to, or failure of, JPMAM's accounting, dealing or payments systems or the 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 JPMAM and its associates and the key elements designed to provide effective internal control are included within the Internal Control section of the Corporate Governance report.

Related Parties Transactions

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

Directors' Responsibilities

The Directors each confirm to the best of their knowledge that:

a)         the financial statements have been prepared in accordance with applicable UK accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

b)        the Annual Report, to be published shortly, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face.

For and on behalf of the Board

Andrew Hutton

Chairman

12th October 2011

Income Statement

for the period from incorporation on 4th June 2010 to 31st July 2011

			2011
			Revenue	Capital	Total
			£'000	£'000	£'000
Gains on investments held at fair value through profit or loss			-	13,520	13,520
Net foreign currency gains			-	500	500
Income from investments			8,459	-	8,459
Other interest receivable and similar income			8	-	8
Gross return			8,467	14,020	22,487
Management fee			(398)	(928)	(1,326)
Performance fee			-	(897)	(897)
Other administrative expenses			(398)	-	(398)
Net return on ordinary activities before finance costs and taxation			7,671	12,195	19,866
Finance costs			(102)	(149)	(251)
Net return on ordinary activities before taxation			7,569	12,046	19,615
Taxation			(706)	-	(706)
Net return on ordinary activities after taxation			6,863	12,046	18,909
Return per share (note 4)			5.76p	10.11p	15.87p

Details of dividends paid and proposed are given in note 3 below.

All revenue and capital items in the above statement derive from continuing operations. No operations were discontinued during the period.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.

Statement of Total Recognised Gains and Losses

for the period from incorporation on 4th June 2010 to 31st July 2011

	2011
	Revenue	Capital	Total
	£'000	£'000	£'000
Movement in fair value of the cash flow hedge	-	(121)	(121)
Net return on ordinary activities	6,863	12,046	18,909
Total recognised gains for the period	6,863	11,925	18,788

Reconciliation of Movements in Shareholders' Funds

for the period from incorporation on 4th June 2010 to 31st July 2011

	Called up	Capital
	share	redemption	Share	Other	Capital	Revenue
	capital	reserve	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 4th June 2010	-	-	-	-	-	-	-
Issue of Management shares	13	-	-	-	-	-	13
Repurchase and cancellation of
Management shares	(13)	13	-	-	(13)	-	(13)
Issue of Ordinary shares following
placing and offer for subscription	1,040	-	102,960	-	-	-	104,000
Expenses of placing and offer for
subscription	-	-	(1,712)	-	-	-	(1,712)
Issue of Ordinary shares	156	-	17,137	-	-	-	17,293
Additional share issue expenses	-	-	(310)	-	-	-	(310)
Redesignation of share premium	-	-	(101,276)	101,276	-	-	-
Issue of Ordinary shares on
conversion of 'C' shares	230	-	23,762	-	1,527	-	25,519
Movement in fair value of the cash flow hedge	-	-	-	-	(121)	-	(121)
Net return on ordinary activities	-	-	-	-	12,046	6,863	18,909
Dividends appropriated in the period	-	-	-	-	-	(3,798)	(3,798)
At 31st July 2011	1,426	13	40,561	101,276	13,439	3,065	159,780

The notes on pages 31 to 49 form an integral part of these accounts.

Balance Sheet

at 31st July 2011

		2011
		£'000
Fixed assets
Investments held at fair value through profit or loss		169,227
Investment in liquidity fund held at fair value through profit or loss		579
Total investments		169,806
Current assets
Debtors		1,235
Cash and short term deposits		2,117
		3,352
Creditors: amounts falling due within one year		(1,087)
Financial liability: derivative financial instrument		(121)
Net current assets		2,144
Total assets less current liabilities		171,950
Creditors: amounts falling due after more than one year		(12,170)
Net assets		159,780
Capital and reserves
Called up share capital		1,426
Capital redemption reserve		13
Share premium		40,561
Other reserve		101,276
Capital reserves		13,439
Revenue reserve		3,065
Total equity shareholders' funds		159,780
Net asset value per share (note 5)		112.0p

Company registration number: 7273382

Cash Flow Statement

for the period from incorporation on 4th June 2010 to 31st July 2011

		2011
		£'000
Net cash inflow from operating activities		4,876
Returns on investments and servicing of finance
Interest paid		(250)
Finance costs paid relating to 'C' shares		(795)
Net cash outflow from returns on investments and servicing of finance		(1,045)
Capital expenditure and financial investment
Purchases of investments		(223,292)
Sales of investments		67,342
Other capital charges		(305)
Net cash outflow from capital expenditure and financial investment		(156,255)
Dividends paid		(3,798)
Net cash outflow before financing		(156,222)
Financing
Proceeds of placing and offer for subscription		104,000
Expenses of placing and offer for subscription		(1,712)
Proceeds of issue of Ordinary shares		17,293
Costs of subsequent issue of Ordinary shares		(310)
Drawdown of loan		12,562
Loan arrangement fees paid		(18)
Gross proceeds of 'C' share issue		26,402
Net cash inflow from financing		158,217
Increase in cash for the period		1,995

Notes to the Accounts

for the period from incorporation on 4th June 2010 to 31st July 2011

1.             Accounting period

The financial information covers the period from the date of the incorporation of the Company on 4th June 2010 to 31st July2011. Dealings in the Company's shares began on the London Stock Exchange on 29th July 2010 and the Company began investing on that date.

2.             Basis of accounting

                The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the AIC in January 2009.

                All of the Company's operations are of a continuing nature.

                The accounts have been prepared on a going concern basis.

3.             Dividends

                Dividends paid and proposed

	2011
	£'000
1st interim dividend paid of 1.00p	1,164
2nd interim dividend paid of 2.25p	2,634
Total dividends paid in the period	3,798
Final dividend proposed of 1.45p	2,069

4.             Return per share

Return per share is based on the following:
	2011
	£'000
Revenue return	6,863
Capital return	12,046
Total return	18,909
Weighted average number of Ordinary shares in issue during the period	119,152,531
Revenue return per share	5.76p
Capital return per share	10.11p
Total return per share	15.87p

5.             Net asset value per share

The net asset value per share is based on the net assets attributable to the Ordinary shareholders of £159,780,000 and on the 142,655,853 Ordinary shares outstanding at 31st July 2011.

6.            Status of announcement

               2011 Financial Information

The figures and financial information for 2011 are extracted from the Annual Report and Accounts for the period ended 31st July 2011 and do not constitute the statutory accounts for that period.  The Annual Report and Accounts includes the Report of the Independent Auditor which is unqualified and does 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 Registrar 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 ASSET MANAGEMENT (UK) 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.hemscott.com/nsm.do

The annual report will also shortly be available on the Company's website at www.jpmglobalemergingmarketsincome.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 ASSET MANAGEMENT (UK) LIMITED

 

END

 

 

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