Half-year Report

RNS Number : 3192K

JPMorgan Glb Emerging Mkts Inc Tst

09 April 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN GLOBAL EMERGING MARKETS INCOME TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST JANUARY 2018

Legal Entity Identifier: 549300OPJXU72JMCYU09

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Performance

The six months to 31st January 2018 was another positive period for emerging markets. The Company generated a total return on net assets of +9.0%. In comparison, the Company's benchmark, the MSCI Emerging Markets Index (in sterling, with dividends reinvested), recorded a total return of +9.9%. During the period, the Company's share price rose by 9.5% as the discount to net asset value narrowed from 3.4% to 0.9%. The total return to shareholders was therefore +11.9%.

The principal reason for the Company's slight underperformance against the benchmark was the portfolio's lack of exposure to low-yielding internet and technology stocks, notably in China, that performed strongly during the period. The Investment Managers' Report reviews the Company's performance in more detail and comments on the investment strategy.

Dividends

In the Company's current financial year, the Board has declared first and second interim dividends of 1.0p each, in line with the same period last year.

The Board continues to monitor dividend receipts and discusses the potential sensitivities and outlook with the investment team regularly.

Share Issuance and Repurchases

During the six months to 31st January 2018, the share price traded occasionally at a premium to net asset value. Consequently, the Company reissued 150,000 shares from Treasury and issued 2,500,000 new shares for a total consideration of £3,638,000. The Company did not carry out any share repurchases.

The Board

As part of the Board's succession planning and in anticipation of my own retirement at the conclusion of this year's Annual General Meeting, the Board has appointed Mark Edwards as a non-executive Director with effect from 1st February 2018. Mark is a Chartered Accountant and has over 30 years' experience in the asset management industry with over 20 years as a portfolio manager in the emerging markets sector. Sarah Fromson will assume the role of Chair. Richard Robinson will assume the role of Senior Independent Director.

Outlook

The Manager's report is upbeat in relation to the underlying earnings prospects for the Company's investments, but also points out that valuation levels have risen. The Board is mindful of the economic, market and political risks that could yet erode what is otherwise a reasonably constructive outlook. Among the more obvious of these is the possibility that rising US bond yields could put pressure on all equity markets, not just in the emerging world.

Andrew Hutton

Chairman                                                                                                                                         9th April 2018

 

INVESTMENT MANAGERS' REPORT

Introduction

In the six months to 31st January 2018, the Company's return on net assets was 9.0%. This compares to a return of 9.9% for the benchmark, the MSCI Emerging Markets Index (on a total return (net) basis, in sterling terms).

Performance Review

The Company slightly underperformed the rising index during the six months to the end of January 2018. From a sector perspective, the lack of exposure to low-yielding internet stocks - primarily Chinese - continued to impede performance, with the technology sector being the largest detractor. In contrast there was a positive relative contribution from stock selection within the financials and consumer discretionary sectors.

Looking at performance drivers from a country viewpoint, Russia was a key positive contributor, having lagged earlier in 2017, as the oil price was supportive and the central bank cut rates. Sberbank, the dominant banking franchise in Russia, was the top stock level contributor to the portfolio. Sberbank is now a top 10 position for the Company and we are confident in the bank as its profit and loss trends look positive and capital progression has been good - which will ultimately be positive for dividend payout.

The biggest country-level detractor (relative to the market) was our significant underweight to China, driven by the lack of stocks offering both strong income and growth. In particular, we avoided internet companies such as Tencent and Alibaba, which offered little or zero yield, yet drove the market higher. This is a clear structural underweight for an income-seeking mandate and we are not surprised this has detracted from relative performance, given the narrow market leadership. However, the negative impact of the robust performance from internet stocks has been somewhat mitigated by our exposure to Chinese A-share companies such as Midea, which was a top stock-level contributor over the last six months. The China A-share market and, in particular consumer-focused companies, offers some interesting long-term opportunities and this year we have added further exposure to consumer and industrial companies.

An overweight in Mexico detracted from returns. Kimberly Clark de México has been under pressure with the higher pulp price having an impact on margins, although the company has demonstrated an ability to manage this over the long term.

Gearing contributed positively to relative returns over the period.

Portfolio Changes

Portfolio changes over the period have been modest, consistent with our policy to invest for the long term and benefit from the continued dividend streams of the companies held. Although it has been a challenging time for yield investors in emerging markets, we continue to find many stocks that look attractive from a dividend perspective.

We continue to invest in a diversified portfolio of relatively high-yielding stocks that generate dividends across sectors and countries. Stock turnover has been consistent with this theme; buying or adding to positions where yield looks attractive and where opportunities have increased, and generally selling those stocks where valuations have become more stretched.

A good example of this was the introduction of Banco Itaú in Brazil, following a positive management meeting where it emphasised balancing payouts and growth reinvestment. At the same time, we trimmed holdings such as President Chain Store (Taiwan) and Lukoil (Russia) on valuation grounds.

Outlook

Valuations in Emerging Markets are at a more neutral level when compared to history, having been more clearly cheap in 2016 and 2017. This partly reflects the improvement in fundamentals after what had been a difficult few years for Emerging Markets economies and companies. We continue to think there is room for Emerging Markets companies to demonstrate improving results going forward. On a multi-year view we think profitability (return on capital) for the asset class should rise further from current levels, which should ultimately drive dividends and share prices. There are of course risks to this positive trajectory, including the impact from rising bond yields globally and the risk of 'trade wars' affecting corporate sales and profits. On a nearer term view, we are beginning to see slow improvement in the earnings of the companies held in the portfolio although we would note that there is generally a lag in terms of this improvement flowing through to dividends (for example in terms of earnings reporting, dividend announcements and then actual receipt of dividends).

We have a positive view about the long term dividend generation from the stocks held in the portfolio. As a reminder, the company receives dividends in local currencies and US dollars but pays dividends in sterling; therefore movements in sterling have an impact on dividend payments in the near term. (Over the six-month period, the rise in sterling had an adverse impact.)

We adopt a long term view in analysing dividends and profitability drivers and the portfolio is positioned to capture this. The return on equity premium of the portfolio versus the market remains high and consistent, which means that the fund invests in stocks that can generate earnings and cash flow to both pay out dividends and also reinvest in their own businesses for the future.

Omar Negyal

Jeffrey Roskell

Amit Mehta

Investment Managers                                                                                                                           9th April 2018

 

INTERIM MANAGEMENT REPORT

The Company is required to make the following disclosures in its interim report.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company have not changed and fall into the following broad categories: investment and strategy; financial; corporate governance and shareholder relations; operational and accounting, legal and regulatory. Information on each of these areas is given in the Business Review within the Company's Annual Report for the year ended 31st July 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 objectives, 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 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 financial statements.

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 FRS 104 'Interim Financial Reports' and gives a true and fair view of the state of the affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st January 2018, as required by the UK Listing Authority Disclosure Guidance and Transparency Rules ('DTR') 4.2.4R; and

(ii)     the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.

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

Andrew Hutton

Chairman                                                                                                                                         9th April 2018

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST JANUARY 2018

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st January 2018			31st January 2017			31st July 2017
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair
value through profit or loss	-	30,389	30,389	-	23,033	23,033	-	42,158	42,158
Net foreign currency gains/(losses)	-	1,632	1,632	-	(598)	(598)	-	374	374
Income from investments	5,765	-	5,765	6,081	-	6,081	19,763	-	19,763
Interest receivable and similar income	21	-	21	53	-	53	91	-	91
Gross return	5,786	32,021	37,807	6,134	22,435	28,569	19,854	42,532	62,386
Management fee	(633)	(1,478)	(2,111)	(576)	(1,344)	(1,920)	(1,187)	(2,770)	(3,957)
Other administrative expenses	(339)	-	(339)	(408)	-	(408)	(840)	-	(840)
Net return on ordinary activities
before finance costs and taxation	4,814	30,543	35,357	5,150	21,091	26,241	17,827	39,762	57,589
Finance costs	(110)	(256)	(366)	(134)	(314)	(448)	(264)	(617)	(881)
Net return on ordinary activities
before taxation	4,704	30,287	34,991	5,016	20,777	25,793	17,563	39,145	56,708
Taxation	(551)	-	(551)	(146)	-	(146)	(1,272)	-	(1,272)
Net return on ordinary activities
after taxation	4,153	30,287	34,440	4,870	20,777	25,647	16,291	39,145	55,436
Return per share (note 3)	1.41p	10.26p	11.67p	1.66p	7.06p	8.72p	5.54p	13.31p	18.85p

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31ST JANUARY 2018

	Called up		Capital
	share	Share	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve	reserves	Reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 31st January 2018 (Unaudited)
At 31st July 2017	2,943	218,497	13	101,113	51,154	11,727	385,447
Issue of shares from Treasury	-	81	-	123	-	-	204
Issue of ordinary shares	25	3,409	-	-	-	-	3,434
Net return on ordinary activities	-	-	-	-	30,287	4,153	34,440
Dividends paid in the period (note 4)	-	-	-	-	-	(8,549)	(8,549)
At 31st January 2018	2,968	221,987	13	101,236	81,441	7,331	414,976
Six months ended 31st January 2017 (Unaudited)
At 31st July 2016	2,943	218,497	13	101,113	12,009	9,848	344,423
Net return on ordinary activities	-	-	-	-	20,777	4,870	25,647
Dividends paid in the period (note 4)	-	-	-	-	-	(8,530)	(8,530)
At 31st January 2017	2,943	218,497	13	101,113	32,786	6,188	361,540
Year ended 31st July 2017 (Audited)
At 31st July 2016	2,943	218,497	13	101,113	12,009	9,848	344,423
Net return on ordinary activities	-	-	-	-	39,145	16,291	55,436
Dividends paid in the year (note 4)	-	-	-	-	-	(14,412)	(14,412)
At 31st July 2017	2,943	218,497	13	101,113	51,154	11,727	385,447

¹ This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

STATEMENT OF FINANCIAL POSITION AT 31ST JANUARY 2018

	(Unaudited)	(Unaudited)	(Audited)
	31st January 2018	31st January 2017	31st July 2017
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	435,240	384,401	411,548
Current assets
Derivative financial assets	3	2	7
Debtors	3,373	1,508	2,848
Cash and cash equivalents	7,337	7,869	1,605
	10,713	9,379	4,460
Current liabilities
Creditors: amounts falling due within one year	(2,849)	(445)	(220)
Derivative financial liabilities	-	(1)	(1)
Net current assets	7,864	8,933	4,239
Total assets less current liabilities	443,104	393,334	415,787
Creditors: amounts falling due after more than one year	(28,128)	(31,794)	(30,340)
Net assets	414,976	361,540	385,447
Capital and reserves
Called up share capital	2,968	2,943	2,943
Share premium	221,987	218,497	218,497
Capital redemption reserve	13	13	13
Other reserve	101,236	101,113	101,113
Capital reserves	81,441	32,786	51,154
Revenue reserve	7,331	6,188	11,727
Total equity shareholders' funds	414,976	361,540	385,447
Net asset value per share (note 5)	139.8p	122.9p	131.0p

STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 31ST JANUARY 2018

	(Unaudited)	(Unaudited)	(Unaudited)
	Six months ended	Six months ended	Year ended
	31st January 2018	31st January 2017	31st July 2017
	£'000	£'000	£'000
Net cash outflow from operations before dividends
and interest (note 6)	(2,977)	(1,172)	(4,004)
Dividends received	5,982	7,339	19,352
Interest received	22	59	96
Overseas tax recovered	17	371	471
Interest paid	(352)	(448)	(885)
Net cash inflow from operating activities	2,692	6,149	15,030
Purchases of investments	(58,662)	(47,142)	(116,949)
Sales of investments	66,723	45,847	106,440
Settlement of forward currency contracts	(90)	(115)	(159)
Net cash inflow/(outflow) from investing activities	7,971	(1,410)	(10,668)
Dividends paid	(8,549)	(8,530)	(14,412)
Issue of shares	3,638	-	-
Net cash outflow from financing activities	(4,911)	(8,530)	(14,412)
Increase/(decrease) in cash and cash equivalents	5,752	(3,791)	(10,050)
Cash and cash equivalents at start of period	1,605	11,663	11,663
Exchange movements	(20)	(3)	(8)
Cash and cash equivalents at end of period	7,337	7,869	1,605
Increase/(decrease) in cash and cash equivalents	5,752	(3,791)	(10,050)
Cash and cash equivalents consist of:
Cash and short term deposits	3,467	309	1,605
Cash held in JPMorgan US Dollar Liquidity Fund	3,870	7,560	-
Total	7,337	7,869	1,605

 

NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31ST JANUARY 2018

1.  Financial statements

The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended 31st July 2017 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. 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 the Companies Act 2006,  FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the 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 revised 'SORP') issued by the Association of Investment Companies in November 2014 and updated in January 2017.

FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 31st January 2018.

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

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 31st July 2017.

In the previous financial year, the Company elected not to prepare a Statement of Cash Flows, applying the exemption from disclosure available under FRS 102 Section 7.1A(c). The Company has since reviewed the application of the exemption and has resolved not to apply it this year as the inclusion of the Statement of Cash Flows supports fuller financial analysis for the benefit of all stakeholders.

3.  Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2018	31st January 2017	31st July 2017
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	4,153	4,870	16,291
Capital return	30,287	20,777	39,145
Total return	34,440	25,647	55,436
Weighted average number of shares in issue during the period	295,100,487	294,140,161	294,140,161
Revenue return per share	1.41p	1.66p	5.54p
Capital return per share	10.26p	7.06p	13.31p
Total return per share	11.67p	8.72p	18.85p

 

4.  Dividends paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st January 2018	31st January 2017	31st July 2017
	£'000	£'000	£'000
2017 fourth interim dividend of 1.9p (2016: 1.9p)	5,589	5,589	5,589
2018 first interim dividend paid of 1.0p (2017: 1.0p)	2,960	2,941	2,941
2017 second interim dividend paid of 1.0p	n/a	n/a	2,941
2017 third interim dividend paid of 1.0p	n/a	n/a	2,941
Total dividends paid in the period/year	8,549	8,530	14,412

All dividends paid and declared in the period have been funded from the revenue reserve.

A second interim dividend of 1p per share, amounting to £2,968,000 has been declared payable on 20th April 2018 in respect of the year ending 31st July 2018.

5.  Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	31st January 2018	31st January 2017	31st July 2017
Net assets (£'000)	414,976	361,540	385,447
Number of shares in issue	296,790,161	294,140,161	294,140,161
Net asset value per share	139.8p	122.9p	131.0p

6.  Reconciliation of net return on ordinary activities before finance costs and taxation to net cash outflow from operations before dividends and interest

	(Unaudited)	(Unaudited)	(Unaudited)
	Six months ended	Six months ended	Year ended
	31st January 2018	31st January 2017	31st July 2017
	£'000	£'000	£'000
Net return on ordinary activities before finance costs
and taxation	35,357	26,241	57,589
Less capital return on ordinary activities before finance
costs and taxation	(30,543)	(21,091)	(39,762)
Scrip dividends received as income	-	-	(2)
Decrease in accrued income and other debtors	708	1,744	1,372
(Decrease)/increase in accrued expenses	(47)	(24)	36
Management fee charged to capital	(1,478)	(1,344)	(2,770)
Overseas withholding tax	(503)	(486)	(1,769)
Dividends received	(5,982)	(7,339)	(19,352)
Interest received	(22)	(59)	(96)
Realised (loss)/gain on foreign exchange transactions	(91)	182	2
Realised (loss)/gain on liquidity funds	(376)	1,004	748
Net cash outflow from operations before dividends and interest	(2,977)	(1,172)	(4,004)

7.  Fair valuation of investments

The fair value hierarchy analysis for financial instruments held at fair value at the period end is as follows:

	(Unaudited)		(Unaudited)		(Audited)
	Six months ended		Six months ended		Year ended
	31st January 2018		31st January 2017		31st July 2017
	Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
	£'000	£'000	£'000	£'000	£'000	£'000
Level 1	435,240	-	384,401	-	411,548	-
Level 21	3	-	2	(1)	7	(1)
Total value of investments	435,243	-	384,403	(1)	411,555	(1)

¹    Includes foreign currency contracts

JPMORGAN FUNDS LIMITED

9th April 2018

For further information, please contact:

Divya Amin

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

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 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.

 

END

 

 

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