Half-year Report

RNS Number : 2850O

JPMorgan Indian Invest Trust PLC

29 May 2020

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN INDIAN INVESTMENT TRUST PLC

Half Year Report & FINANCIAL STATEMENTS

 for the six months ended 31st MARCH 2020

Legal Entity Identifier: 549300OHW8R1C2WBYK02

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

 I present my first half year statement as the Chairman of the Company in what are exceptional times. The

COVID- 1 9   pandemic has had a very significant impact on global economies and equity markets as indeed   it has on all of our personal lives. This half year report covers the six months to 31st March 2020. The   market fall as a result of the COVID-19 crisis was most pronounced towards the end of that period, indeed   the Company's net asset value fell by 28.2% in the month of March alone. Since the period end, markets have rallied and stabilised a little but clearly there is a very long way to go until we will feel that a degree of normality has returned.

Performance

In the first six months of the Company's financial year to 31st March 2020, the Company produced a total return on net assets of -33.6%. This was well behind our benchmark index, the MSCI India Index (in sterling terms), which returned -27.9% 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 the Company's performance.

The return to shareholders was worse at -40.5%, reflecting a significant widening of the discount over the six months, from 9.3% at the previous financial year end to 18.7% at the period end.

The Board judges performance over the long term. The Company's underperformance in recent periods is disappointing and has impacted its longer term performance record: the Company has now under-performed the benchmark over three and five years but remains ahead over the ten years to 31st March 2020. The Board continues to monitor investment strategy and performance very closely.  

Gearing

The Company has a floating rate 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 2020, the Company's portfolio was not geared, it was 1.3% net cash (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). Towards the end of the period, as markets fell and given the low utilisation of the loan, we reduced the capacity of the facility from £100 million to £50 million. 

Discount

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. Given the extreme market volatility as a result of the COVID-19 pandemic, the Board has considered that during this period share buybacks would be likely to have minimal impact, but it continues to monitor the situation closely.

The Company 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. The Company has not repurchased any shares into Treasury subsequent to the half year end.

Tender Offer

At a General Meeting of the Company held on 5th February 2020, shareholders gave authority for the Company to make market purchases of its shares in connection with a tender offer of up to 25% of the issued share capital. Shareholders validly tendered 38.8% of the Company's shares in issue and, after scaling back, a total of 26,143,735 shares were repurchased and cancelled.

Taxation

As has been 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 are in the process of moving to the UK parent company through natural trading. This is likely to take a number of years and at the time of writing approximately £175 million of the Group's investments are held directly by the parent company.

The Board

Richard Burns stepped down from the Board at the conclusion of the General Meetings held on 5th February 2020, having served as a Director since 2006. On behalf of the Board and shareholders I would like to thank him for his service to the Company. We will miss his experience and wisdom. On 1st February this year, Vanessa Donegan and Jeremy Whitley were appointed Directors. We welcome them to the Board and look forward to working with them.

Outlook

The COVID-19 pandemic continues to impact communities, economies and equity markets globally and at the time of writing, it is thought that the rate of infection has not yet peaked in India. Whilst there was something of a market rally in April, we are still a long way off pre-COVID market levels. When we do finally emerge from this crisis, the world will look very different and therefore the opportunities for companies will have changed: some will thrive and some will not. For our Investment Managers this means reassessing companies' balance sheet strength and the business case for investing. Whilst their fundamental bottom-up process to identify the highest quality companies with prospects for long term growth will not change, as they mention in their report that follows, some opportunities have already been identified and changes made to the positioning of the Company's portfolio.

Rosemary Morgan, Chairman

29th May 2020

 INVESTMENT MANAGERS' REPORT

 Market Review

The global response to the COVID-19 pandemic has resulted in one of the most extraordinary periods in stock markets in a generation. Emerging markets equities and debt were hit hard due to record outflows from foreign investors in the first quarter of this year, which also led to steep falls in emerging markets currencies. The Company's benchmark index, the MSCI India Index (expressed in sterling terms) fell 27.9% in the first half of our financial year to 31st March 2020, underperforming Asian and emerging markets indices.

In an attempt to contain the spread of COVID-19, the Indian government announced an unprecedented national lockdown in March. While the number of confirmed cases remains modest relative to the size and density of India's population, the numbers will inevitably continue to rise as testing is expanded across the country. To ease the pain of the economic shock, the government announced a series of measures, including direct income transfers and provision of food to the vulnerable sections of society. While the aggregate amount of the stimulus seems large at almost US$265bn (approximately 10% of GDP), this also includes monetary stimulus measures announced by the Reserve Bank of India to the extent of almost 40% of the total. Furthermore, credit guarantees and financing facilities for small and medium enterprises and the agriculture sectors account for another 40%. While these measures are undoubtedly important and in the right direction, the quantum of actual fiscal stimulus is significantly smaller. In fact, most economists estimate that the impact of these measures on the current year's fiscal deficit is likely to be less than 1%. This somewhat cautious and calibrated approach might also be due to the fact that the government seems to be mindful of the fiscal constraints and the risk of a downgrade of the sovereign credit rating, which remains just one notch above "junk". It is worth noting that even before the shock of the pandemic, economic momentum in India was weak, with GDP growth decelerating steadily to a six year low.

The pandemic overshadowed another key development in the six month period: the long overdue implosion of the troubled private bank Yes Bank. To protect depositors, the Reserve Bank of India, not surprisingly, announced a bail out led by State Bank of India and a group of other private sector banks.

The other highlight of the period was that the telecom sector was rocked by a shock verdict from the Supreme Court in October 2019, which levied punitive fines on the incumbents in an old dispute with the government. Counter-intuitively, this boosted the share price of telecom stocks such as Bharti Airtel due to price hikes and expectations of further consolidation in the sector, since the verdict raised existential concerns for the third largest operator, Vodafone Idea Cellular.

Performance

The six month period was challenging for the Company, which underperformed the benchmark index by 5.7%. The key overweight position in financials was among the largest detractors as the sector struggled in a period of extreme macro turbulence. IndusInd Bank was the biggest detractor as, following the collapse of Yes Bank, there were fears that IndusInd was also vulnerable, due to its exposure to certain stressed borrowers. The underweight position in index heavyweight Hindustan Unilever was the other key detractor as the stock was remarkably resilient during the macro turmoil, despite its exceptionally rich valuation. The overweight positions in other cyclical stocks such as Tata Motors, Larsen & Toubro and Maruti Suzuki, amongst others, also contributed negatively. This was only partially offset by the underweight positions in index heavyweights such as Infosys Technologies and Bajaj Finance, while select overweight holdings in Tata Consultancy Services and a few small caps, such as Jubilant Foodworks and Multi Commodity Exchange, outperformed and contributed positively to relative performance.

In order to facilitate the Company's 25% tender offer to shareholders that was undertaken earlier this year, we reduced our investments proportionately across the portfolio and as a result the tender itself had no impact on the shape of the portfolio.

Outlook and Strategy

The sharp rebound in risk assets in April seems to be pricing in a quick rebound in economic activity, which is by no means assured. In the short term, the economic impact of the pandemic is likely to be severe as the lockdown has led to a complete freeze in economic activity in India. Beyond the immediate term, the outlook is dependent on the intensity and duration of the pandemic, which remains uncertain at this stage. It is worth noting that India remains particularly vulnerable due to the high population density and fragile healthcare infrastructure. In this context, while the fiscal and monetary stimulus is undoubtedly positive, it will provide a backstop at best rather than any substantial support to the economy. That said, equities are undoubtedly factoring in a fair amount of this pain, with the price-to-book multiples near the trough seen during previous crises.

Shareholders no doubt are aware that we "seek quality growth, to compound over long periods of time, within an appropriate valuation framework". Unfortunately, our focus on Quality per se did not shield us in March. Unlike any other period in the past, this is a full shut down, by government mandate. The quality of the product, service or overall management does not help in the short term. Our core holdings in high quality financials have hurt performance recently due to the macro turmoil.

However, we remain convinced that, when the economy eventually recovers from the pandemic, our long-held positions in well managed banks and financials such as HDFC Bank, Kotak Bank and HDFC have the potential to gain significant market share from the severely handicapped public sector banks and impaired private banks (for example YES Bank) and the weaker non-bank financial companies. Such similar attributes of return on quality and execution could be found in a host of sectors and stocks (Maruti, Larsen & Toubro, TCS & Infosys, Jubilant Foodworks, Titan, Crisil).

The correction in the market has preceded the inevitable cut to earnings in 2021, which in many cases will be very severe. When evaluating opportunities, we are balancing the likely cut in near term earnings versus the longer-term earnings power of companies. In this context, we have classified stocks into three very broad, subjective buckets:

· Cases where the market may be incorrectly extrapolating current uncertainties and pain into the future and where share prices have fallen to attractive levels. We have selectively added a few names in this category.

· Fundamentally attractive businesses with long duration, where valuations remain pricey, despite the recent correction. We continue to monitor this group closely, and are adding selectively where valuations are beginning to look interesting.

· Stocks that appear very cheap, but that may not yet reflect the extent of the likely impact on their business; this group includes companies that are highly dependent on either a cyclical recovery or government policy. We are less likely to purchase companies in this group, though may occasionally take advantage of trading opportunities.

While the current challenges, in India and globally, are unprecedented, we remain confident that a disciplined, bottom-up, quality-oriented, research-driven investment process, with a long-term focus will serve our investors best.

Rukhshad Shroff

Raj Nair

Investment Managers    

29th May 2020

 INTERIM MANAGEMENT REPORT

 The Company is required to make the following disclosures in its Half Year Report.

Principal and Emerging Risks and Uncertainties

The principal and emerging risks and uncertainties faced by the Company fall into the following broad categories: investment and strategy; environmental; 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 2019. However, these risks have been updated to reflect the potential impact of COVID-19 on the operations and controls of the Manager and the Company's other third party suppliers.

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 operational existence for at least twelve months from the date of the approval of this half yearly financial report. In reaching that view, the Directors have considered the impact of the current COVID-19 pandemic on the Company's financial and operational position. 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 2020, 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

Rosemary Morgan

Chairman      

29th May 2020

STATEMENT OF COMPREHENSIVE INCOME

 FOR THE SIX MONTHS ENDED 31ST MARCH 2020

(Unaudited) Six months ended 31st March 2020				(Unaudited)  Six months ended 31st March 2019			(Audited) Year ended 30th September 2019
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments held at fair value through profit or loss	-	(219,636)	(219,636)	-	79,901	79,901	-	88,483	88,483
Net foreign currency losses	-	(286)	(286)	-	(204)	(204)	-	(378)	(378)
Income from investments	1,091	-	1,091	355	-	355	1,437	-	1,437
Interest receivable and similar income	31	-	31	26	-	26	75	-	75
Total income/(loss)	1,122	(219,922)	(218,800)	381	79,697	80,078	1,512	88,105	89,617
Management fee	(869)	-	(869)	(144)	-	(144)	(640)	-	(640)
Other administrative expenses	(547)	-	(547)	(377)	-	(377)	(842)	-	(842)
(Loss)/profit before finance costs and taxation	(294)	(219,922)	(220,216)	(140)	79,697	79,557	30	88,105	88,135
Finance costs	(321)	-	(321)	(132)	-	(132)	(533)	-	(533)
(Loss)/profit before taxation	(615)	(219,922)	(220,537)	(272)	79,697	79,425	(503)	88,105	87,602
Taxation	-	118	118	-	(416)	(416)	-	(118)	(118)
Net (loss)/profit	(615)	(219,804)	(220,419)	(272)	79,281	79,009	(503)	87,987	87,484
(Loss)/earnings pershare (note4)	(0.64)p	(227.26)p	(227.90)p	(0.26)p	75.81p	75.55p	(0.48)p	84.14p	83.66p

 STATEMENT OF CHANGES IN EQUITY

 FOR THE SIX MONTHS ENDED 31ST MARCH 2020

Calledup share capital £'000		Share premium £'000	Other reserve £'000	Exercised warrant reserve £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total £'000
Six months ended 31st March 2020 (Unaudited)
At 30th September 2019	31,404	97,316	41,929	5,886	6,362	698,869	(24,137)	857,629
Shares bought back and cancelled	(6,536)	-	(41,929)	-	6,536	(168,073)	-	(210,002)
Loss for the period	-	-	-	-	-	(219,804)	(615)	(220,419)
At 31st March 2020	24,868	97,316	-	5,886	12,898	310,992	(24,752)	427,208
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
Year ended 30th September 2019 (Audited)
At 30th September 2018	31,404	97,316	41,929	5,886	6,362	610,882	(23,634)	770,145
Profit/(loss) for the year	-	-	-	-	-	87,987	(503)	87,484
At 30th September 2019	31,404	97,316	41,929	5,886	6,362	698,869	(24,137)	857,629



STATEMENT OF FINANCIAL POSITION

 AT 31ST MARCH 2020

	(Unaudited) 31st March2020 £'000		(Unaudited) 31stMarch2019 £'000	(Audited)  30th September2019 £'000
Non current assets
Investments held at fair value through profit or loss		138,056	86,755	151,029
Investments in subsidiaries held at fair value through profit or loss		308,607	775,302	681,559
Total non current assets		446,663	862,057	832,588
Current assets
Financial assets: Derivative financial instruments		1	-	-
Other receivables		75	243	6,257
Cash and cash equivalents		10,687	3,873	19,127
		10,763	4,116	25,384
Current liabilities
Other payables 1		(30,218)	(519)	(225)
Net current (liabilities)/ assets		(19,455)	3,597	25,159
Net assets		427,208	865,654	857,747
Creditors: amounts falling due after more than one year		-	(16,500)	(118)
Net assets		427,208	849,154	857,629
Amounts attributable to shareholders
Called up share capital		24,868	31,404	31,404
Share premium		97,316	97,316	97,316
Other reserve		-	41,929	41,929
Exercised warrant reserve		5,886	5,886	5,886
Capital redemption reserve		12,898	6,362	6,362
Capital reserves		310,992	690,163	698,869
Revenue reserve		(24,752)	(23,906)	(24,137)
Total shareholders' funds		427,208	849,154	857,629

1 As at 31st March 2020, £Nil relates to the provision for Indian Capital Gains Tax (31st March 2019: £416,000; 30th September 2019: 118,000).



STATEMENT OF CASH FLOWS

 FOR THE SIX MONTHS ENDED 31ST MARCH 2020

(Unaudited)  Six months ended 31st March 2020 £'000		(Unaudited)   Six months ended 31st March2019 £'000	(Audited) Year ended 30th September2019 £'000
Operating activities
(Loss)/profit before taxation	(220,537)	79,425	87,602
Deduct dividends received	(1,091)	(355)	(1,437)
Deduct bank interest received	(31)	(26)	(75)
Add interest paid	321	132	533
Addlosses/(deductgains)oninvestmentsheldatfairvalue through profit orloss	219,636	(79,901)	(88,483)
Unrealised foreign exchange losses	(1)	-	-
(Increase)/decrease in prepayments, VAT and other receivables	(25)	33	39
Decrease in other payables	(2)	(37)	45
Net cash outflow from operating activities before Interest and taxation	(1,730)	(729)	(1,776)
Interest paid	(325)	(150)	(511)
Dividends received	1,133	151	1,377
Interest received	31	16	76
Net cash outflow from operating activities	(891)	(712)	(834)
Investing activities
Purchases of investments held at fair value through profit or loss	(162,838)	(72,320)	(148,882)
Sales of investments held at fair vale through profit or loss	335,291	58,000	166,438
Net cash inflow/(outflow) from investing activities	172,453	(14,320)	17,556
Financing activities
Repurchase of shares for cancellation	(210,002)	-	-
Drawdown of loan	30,000	51,500	-
Repayment of loan	-	(35,000)	-
Net cash (outflow)/inflow from financing activities	(180,002)	16,500	-
(Decrease)/increase in cash and cash equivalents	(8,440)	1,468	16,722
Cash and cash equivalents at the start of the period	19,127	2,405	2,405
Cash and cash equivalents at the end of the period	10,687	3,873	19,127



NOTES TO THE FINANCIAL STATEMENTS

 FOR THE SIX MONTHS ENDED 31ST MARCH 2020

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 2020 and 2019 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 2019 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 October 2019 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 2019.

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 2020 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 2020	31st March 2019	30th September 2019
	£'000	£'000	£'000
Loss per share is based on the following:
Revenue loss	(615)	(272)	(503)
Capital (loss)/return	(219,804)	79,281	87,987
Total (loss)/return	(220,419)	79,009	87,484
Weighted average number of shares in issue	96,717,533	104,574,940	104,574,940
Revenue loss per share	(0.64)p	(0.26)p	(0.48)p
Capital (loss)/return per share	(227.26)p	75.81p	84.14p
Total (loss)/return per share	(227.90)p	75.55p	83.66p

5.  Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2020	31st March 2019	30th September 2019
Net assets (£'000)	427,208	849,154	857,629
Number of shares in issue excluding shares held in Treasury	78,431,205	104,574,940	104,574,940
Net asset value per share	544.7p	812.0p	820.1p

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 https://data.fca.org.uk/#/nsm/nationalstoragemechanism

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

 

 

IR QVLFLBELZBBD