Last checked at 27 Sep 2023 07:00
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN EMERGING MARKETS INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED 30TH JUNE 2023
Legal Entity Identifier: 5493001VPQDYH1SSSR77
Information disclosed in accordance with the DTR 4.1.3
JPMorgan Emerging Markets Investment Trust plc (the 'Company') has today announced its annual financial results for the period ending 30th June 2023.
Highlights
· Net asset value ('NAV') per share on a total return basis was flat, whilst total returns to shareholders grew by 0.8%. The Company outperformed its benchmark, the MSCI Emerging Markets index, which fell 2.8%.
· In the twenty years ended 30th June 2023, the Company has generated annualised excess returns of 4.0% relative to its benchmark.
· A final dividend of 1.07 pence per share has been declared, taking the total dividend for the full year to 1.65 pence per share; a rise of 22.2% compared to the previous year.
· The share price discount to NAV narrowed slightly, ending at 9.7%, from 10.3%.
· With effect from 1st July 2023, the Company's management fee will be calculated on a tiered basis of 0.75% per annum on the first £500 million of net assets, 0.65% on net assets between £500 million and £1 billion, and 0.60% on net assets in excess of £1 billion. This compares with the flat fee arrangement of 0.75% per annum on net assets which has been levied since 1st July 2021.
Aidan Lisser, Chair, commented:
"This has been an uncertain and volatile time for investors. The Company has not been immune to this volatility, although it is encouraging that performance was ahead of the benchmark. It is also pleasing to note that long term performance continues to be extremely robust, in both outright terms and relative to the benchmark.
The new, tiered management fee is expected to further reduce the annual ongoing charges ratio from its level of 0.85% at end June 2023, continuing the steady reduction in the ongoing charge from its levels of 1.02% from five years ago.
While China continues to face challenges, it is evident that many other emerging markets have been doing well, and opportunities in these markets will remain plentiful. The long-term case for emerging markets remains robust thanks to superior economic growth, favourable demographics and the presence of high-quality companies.
The Company's long-term performance record attests to the Portfolio Managers' ability to identify the most compelling opportunities across emerging markets, and to successfully navigate bouts of market turmoil. The Board is confident that their experience and expertise will continue to serve shareholders well going forward."
Austin Forey and John Citron, Portfolio Managers, commented:
"Emerging markets have not had a vintage year. But the overall outcome would have been significantly more positive had it not been for the Chinese market, whose decline both masked and offset the fact that many emerging markets delivered healthy gains over the year.
Our approach to China will remain cautious, but other emerging markets offer plenty of opportunities. We are especially optimistic about India's growth prospects.
We remain committed to a long-term approach because we believe investment to be a marathon rather than a sprint. We do not know what the future holds, but we do believe that a consistent process, implemented with conviction, will always reward investors in the long run."
Chair's Statement
Performance and Market Background
It has been a privilege to lead your Company in my first year as Chair of the Board. I would like to begin this statement by thanking shareholders for their patience, in what has been an uncertain and volatile time for investors. The Company has not been immune to this volatility, although it is encouraging that performance was ahead of the benchmark. For the year ending 30th June 2023, the net asset value ('NAV') total return was flat, while total returns to shareholders grew by 0.8%. The Company outperformed its benchmark index, which fell 2.8%, by 3.6%. Meanwhile it is pleasing to note that long term performance continues to be extremely robust, in both outright terms and relative to the benchmark.
In my half year statement, I noted the improvement in emerging markets sentiment during the final quarter of 2022, which was driven by US dollar weakness and by China's decision to abandon its stringent 'zero Covid' policies. While the dollar has continued to weaken over the first half of 2023, other developments have been much less supportive of emerging markets. Importantly, given China's sizeable position in the emerging market index, the impact of the country's reopening post Covid has proved much less vigorous than originally anticipated. The associated weakness in the Chinese market was a significant drag on the index over the period, as the Portfolio Managers discuss in detail in their report. Elsewhere, the US regional banking crisis sparked jitters about the global financial system, while persistently high inflation forced Central Banks in developed markets to keep tightening monetary policy, to the extent that short term US borrowing costs now exceed long-term bond yields. This so-called 'inverted yield' curve has historically been a reliable indicator of an economic recession, and concerns about slower global growth have mounted accordingly.
The Portfolio Managers' report below provides a clear and insightful review of the market environment, the Company's performance, portfolio adjustments and the outlook and strategy for the year ahead.
Purpose and Principles
Recent Annual Report statements highlight that the Company has maintained and communicated a clear and consistent investment philosophy and process over time. Such clarity of purpose is even more important during uncertain times, so before reviewing some of the Company's key features, I think it is worthwhile reiterating our core principles:
- the Company's purpose is to achieve superior long-term returns for shareholders. The Board considers long term to be a period of at least three to five years and evaluates the Manager on that basis.
- our Portfolio Managers are predominantly focused on stock selection, taking a bottom-up approach to finding good businesses at reasonable prices and owning them for as long as they keep performing in line with expectations. Typically, these businesses are well-governed growth companies, with strong 'quality' credentials, such as robust balance sheets and management teams with deep experience through different economic cycles.
- high quality research and in-depth knowledge of local markets are key components of the investment process, as is the intent to be a responsible and engaged investor in the companies held in the portfolio.
- given this focus on high-quality growth companies with sustainable business models, the portfolio will not outperform in all market conditions and investment styles, and there may be periods when this approach underperforms the benchmark. However, it is the Board's firm belief that this strategy will continue to outperform over the longer term. The Company's average annualised return over the ten and 20 years ended 30th June 2023 was +7.2% and +14.0% per annum respectively on a NAV total return basis, both returns outpacing the benchmark's return of +4.8% and +9.6% respectively. This is a very creditable performance, delivered over a wide range of challenging market conditions.
The Portfolio Managers' investment philosophy might thus be best summarised as basing investment decisions on thorough fundamental research, maintaining a long-term focus and having the conviction and patience to remain invested for long periods of time, despite near-term challenges.
Share Price Rating to NAV per Share
Over the period, the discount at which the Company's shares trade versus its NAV has narrowed slightly and ended the financial year at 9.7% (2022: 10.3%). At the time of writing the Company's shares are trading on a discount of 9%.
This outcome is comparable with the experience of the Company's immediate peers, and somewhat more positive versus investment trusts across differing asset classes. Indeed, the Association of Investment Companies has recently noted that discounts generally are at historically wide levels.
The Directors recognise that it is important to shareholders that the Company's share price does not diverge excessively from the underlying NAV, and the Board monitors the discount and market conditions on at least a weekly basis. The Board will consider buying back shares to manage the level and volatility of the discount, if it is judged to be in the best interests of shareholders to do so. In the 12-month review period, the Board utilised the Company's authority to buy back shares, repurchasing a total of 19,882,865 shares (1.7% of the issued share capital - excluding shares held in Treasury - on 1st July 2022). These shares were purchased at a weighted average discount to NAV of 10.0%, producing a modest uplift to the NAV for continuing shareholders, as buybacks increase the net asset value per share. The cost was £21.2 million and in aggregate the buybacks added 0.2% to performance. A further 3,349,772 shares have been bought back post the year end.
Revenue and Dividends
Whilst the Company's principal focus is capital growth, the Board recognises that dividends form a welcome component of total shareholder returns. Net revenue after taxation for the 12 months to 30th June 2023 was £22.6 million (2022: £16.0 million) and earnings per share were 1.94 pence (2022: 1.36 pence). The significant increase in revenue was principally due to higher dividend receipts from around a third of the portfolio's investments, including some special dividends.
It is important to acknowledge that the level of dividends will vary year by year, and may fluctuate in line with underlying earnings, currency movements and changes in the portfolio. That said, the Board is pleased to be in a position to increase the total dividend for this year. The Board is proposing a final dividend of 1.07 pence per share, which, when added to the interim dividend of 0.58 pence paid in April 2023, amounts to a total dividend of 1.65 pence per share for the full year. This represents a 22.2% increase on the total dividend of 1.35 pence paid in 2022 and will be covered by this year's revenues. Subject to approval by shareholders at the Company's forthcoming Annual General Meeting ('AGM'), the final dividend will be paid on 10th November 2023 to shareholders on the register at the close of business on 6th October 2023.
Continuation Vote
Pursuant to the Company's Articles of Association, the Board is required to put a triennial continuation vote to shareholders. As the last such vote took place in 2020, a continuation vote will be put to shareholders at the Company's forthcoming AGM. Given the long-term performance returns, your Board has no hesitation in recommending to shareholders that they vote in favour of the Company continuing as an investment trust for a further three-year period.
Environmental, Social and Governance Considerations/Task Force on Climate-related Financial Disclosures
As long-term investors, the Investment Manager has always integrated sustainability considerations into its assessment of individual businesses. In the search for sustainable business models and long-lasting competitive advantages, the Manager is concerned with the environmental, social and governance ('ESG') aspects of both current and potential portfolio holdings. Therefore, whilst the Company is not described as a sustainable fund, incorporation of these factors is a natural consequence of its investment process. In this context, it is notable for example that the profile of the portfolio includes a very low carbon footprint compared against the benchmark.
Active engagement with investee companies is also an important part of this process and you will find a series of case studies, concerning companies held in the portfolio, in the ESG statement starting on page 28 of the 2023 Annual Report. This report provides more detail on the Investment Manager's approach as well as relevant metrics to assess progress, including the Company's proxy voting record.
As a regulatory requirement for the Company's Manager, on 30th June 2023, JPMAM published its first UK Task Force on Climate-related Financial Disclosures ('TCFD') Report for the Company in respect of the calendar year ended 31st December 2022. The report discloses estimates of the Company's portfolio climate-related risks and opportunities according to the Financial Conduct Authority ('FCA') Environmental, ESG Sourcebook and the TCFD. The report is available on the Company's website under the ESG documents section and can be found using this link: https://am.jpmorgan.com/content/dam/jpm-am-aem/emea/regional/en/regulatory/esg-information/jpm-emerging-markets-inv-trust-plc-fund-tcfd-report-uk-per.pdf.
Board Governance
Having served as a Director since 2015, Richard Laing will retire from the Board in the first half of 2024. Richard currently chairs the Audit Committee and he will be succeeded in this role by Zoe Clements at the conclusion of the Company's forthcoming AGM. On behalf of the Board and shareholders, I would like to thank Richard for the very substantial contribution that he has made to the Company during his tenure, both as an outstanding Audit Chair and for his wide-ranging expertise as a Director. We wish him all the best for the future and congratulate Zoe on her new appointment.
The Board constructs detailed succession plans to ensure it retains an appropriate balance of skills, experience and knowledge. To this end, the Board, through the remit of the Nomination Committee, has appointed Sapphire Partners to assist with the recruitment of a non-executive director. Following the appointment of a new director, intended to be announced by the end of 2023, it is the clear expectation that the Board will meet the new FCA Listing Rules targets in respect of gender. For more information on these targets and the Board's explanation of the current position and future intentions, please refer to page 36 of the Company's Annual Report & Financial Statements for the year ended 30th June 2023 ('2023 Annual Report'). In addition and consistent with previous disclosures, the Board remains committed to the FTSE Women Leaders Review and its voluntary targets.
The Nomination Committee also conducted a detailed evaluation of Board and Chair performance which is covered on pages 56 and 57 of the 2023 Annual Report.
Evaluation of Manager and other Third Party Providers
During the year, the Board, through the remit of the Management Engagement Committee ('MEC'), undertook a formal review of the Manager, facilitated by Lintstock, an independent board evaluation firm. The review covered services provided to the Company including the Manager's long-term investment performance record, management processes, investment style, resources, risk control mechanisms and administration, company secretarial and marketing services. Following this review, the MEC concluded that overall the Company is well served by JPMorgan and that the continued appointment of the Manager, on the terms agreed, is in the interests of shareholders as a whole. Please refer to page 57 of the 2023 Annual Report for full details of the MEC's remit.
The Directors also reviewed the other key third party providers, particularly in terms of quality of service and fees and provided appropriate feedback on their performance.
Revised Management Fee Arrangements
The Board believes your Company should demonstrably represent value for money and that shareholders should benefit from the rewards of scale. To this end, the Board has agreed with the Manager that, with effect from 1st July 2023, the Company's management fee should be calculated on a tiered basis of 0.75% per annum on the first £500 million of net assets, 0.65% on net assets between £500 million and £1 billion and 0.60% on net assets in excess of £1 billion. This compares with the flat fee arrangement of 0.75% on net assets which has been levied since 1st July 2021.
For illustrative purposes, as at 30th June 2023, the Company's net assets totalled £1.33 billion. The Company's current ongoing charges ratio is 0.85%. However, it is estimated that had this new fee structure been in place for the year ended 30th June 2023, the ongoing charges ratio would have been 0.78%, significantly below the ongoing charges ratio of 1.02% from five years ago. Your Company's fee arrangements therefore remain extremely competitive with other comparable managed investment companies and similar savings products. On behalf of the Board I would like to acknowledge the Manager's constructive approach in engaging with this process.
Promotion and Shareholder Communication
As part of the strategy to reach private individual investors, your Company has invested in a targeted marketing campaign, with the aim of generating sustained new investor interest and demand. Shareholders may have already noticed our online advertising campaigns which should generate demand for the Company's shares, to the benefit of current shareholders. At the same time, the Company continues its established investor relations and marketing programme to wealth managers, institutions and private client stockbrokers. These initiatives are implemented by JPMorgan but are regularly reviewed by the Board, both in terms of effectiveness and cost.
All shareholders, both current and potential, will also find useful information on the Company's website, including video content and sponsored research.
The Board and the Manager are keen to increase dialogue with the Company's existing shareholders wherever possible. Investors holding shares through online platforms will shortly receive a letter inviting them to sign up to receive email updates from the Company. These updates will deliver regular news and views, as well as the latest performance statistics. Shareholders wishing to receive these communications can subscribe now by visiting https://tinyurl.com/JMG-Sign-Up or by scanning the QR code which can be found on page 14 of the 2023 Annual Report. If at any time shareholders wish to correspond with the Board directly, they can do so by contacting the Company Secretary at invtrusts.cosec@jpmorgan.com.
AGM
The Company's thirty-second AGM will be held at 60 Victoria Embankment, London EC4Y 0JP on 8th November 2023. Further to shareholder feedback received at last year's AGM, the meeting will convene at the earlier time of 2.30 p.m.
Portfolio Managers Austin Forey and John Citron will give a presentation to shareholders, reviewing the past year and outlining their view on the outlook for emerging markets for the current year. The meeting will be followed by afternoon tea, which will provide shareholders with the opportunity to meet the Directors and the Portfolio Managers. Shareholders wishing to follow the AGM proceedings, but who choose not to attend in person will be able to view them live and ask questions (but not vote) through conferencing software. Details on how to register, together with access details, will be available shortly on the Company's website at www.jpmemergingmarkets.co.uk, or by contacting the Company Secretary at invtrusts.cosec@jpmorgan.com.
Shareholders who are unable to attend the AGM in person are strongly encouraged to submit their proxy votes in advance of the meeting, so that they are registered and recorded at the AGM. If your shareholding is through the Company's main register, proxy votes can be lodged in advance of the AGM either by post or electronically, and detailed instructions are included in the Notes to the Notice of AGM on pages 99 to 102 of the 2023 Annual Report. If you hold your shares through an investment platform please refer to the 'Voting on Company Business and Attending the AGM' section on page 106 of the 2023 Annual Report.
Outlook
Developments in China were one of the main factors impacting emerging markets over the past year. With demand for exports weakening and the heavily indebted property market under severe pressure, near-term economic growth is likely to remain well below pre-pandemic levels.
However, it is important to stress that our Portfolio Managers are focused on the bottom-up fundamentals of the high-quality businesses that they own or target, and the growth prospects of those companies over the long-term. Whatever the country's near-term economic prospects, the Chinese market will still offer appealing investment opportunities capable of generating excess returns for the Company's shareholders. Furthermore, while the Chinese market continues to face challenges over the coming year, it is evident that many other emerging markets have done well - inflation pressures are less extreme, their currencies have been strengthening and companies have performed strongly. Opportunities in these markets will remain plentiful.
In addition, the long-term case for emerging markets remains robust - based on superior economic growth, favourable demographics, increasing consumption and the presence of high-quality companies and managements.
The Company's long-term record of outright gains and outperformance is evidence that the Investment Manager's consistent, disciplined approach has allowed them to identify the most compelling opportunities across emerging markets, and to successfully navigate previous bouts of market turmoil and uncertainty. The Board is confident that their experience and expertise, alongside the principles set out at the beginning of this report, will continue to serve shareholders well going forward.
Aidan Lisser Chair
26th September 2023
Portfolio Managers' Report
Objectives & Outcomes
Purpose & Approach
The primary purpose of your Company remains unchanged: to achieve good investment returns for you, its shareholders. As the Company's Portfolio Managers, we seek to achieve this by taking a long-term approach to investment, based on fundamental research, and focused on selecting stocks rather than countries or industries. We continue to look for high quality corporate franchises able to compound intrinsic value through economic cycles, and when we find them we expect to own them for a long time.
We also strive to be a responsible and engaged investor in the companies in which your portfolio is invested. As we have explained in previous years, a long-term approach to investment leads naturally to a consideration of sustainability in the broadest sense, and we have always sought to incorporate this in our investment process. More details on how we think about sustainability in investment, and on the characteristics your portfolio exhibits as a result, can be found in our ESG Report on pages 28 to 33 of the 2023 Annual Report, which also contains examples of how we analyse and engage with investee companies with regards to sustainability.
Returns for Shareholders
Emerging market equities have not had a vintage year. Our benchmark index, which serves as an indication of the overall results of the asset class, fell 2.8% in sterling terms during the twelve months to June 2023. Your portfolio fared better than this, but merely managed to maintain its value, delivering a flat return on net asset value per share during the year. Beneath these headline numbers lie a wide range of outcomes in different countries and indeed between individual stocks. As we explain later, the overall outcome would have been significantly more positive had it not been for the results seen in the Chinese market, whose decline both masked and offset the fact that many emerging markets delivered healthy positive gains over the year.
Active Management
As we noted last year, we are active managers and do not expect to replicate index returns. Rather, by applying a consistent process as diligently as we can, we seek to enhance them. In this latest twelve-month period, the Investment Manager Contribution added 3.5% to your portfolio when compared to the benchmark index as is set out in the below table.
Performance Attribution - Contributions to Total Returns
Contributions to total returns as at 30th June 2023
12 months to 30th June 2023 | ||
% | % | |
Benchmark Total return | -2.8 | |
Asset allocation | 2.1 | |
Stock selection | 4.0 | |
Currency effect | -2.8 | |
Gearing/Cash | 0.2 | |
Investment Manager contribution | 3.5 | |
Portfolio total return | 0.7 | |
Management Fees/Other Expenses | -0.9 | |
Share Repurchases | 0.2 | |
Return on net assetsAPM | 0.0 | |
Return to shareholdersAPM | 0.8 | |
Source: JPMAM/Morningstar. All figures are on a total return basis.
Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.
APM Alternative Performance Measure ('APM').
A list of APMs, with explanations and calculations, and a glossary of terms are provided on pages 103 to 105 of the 2023 Annual Report.
While we fully understand that shareholders will focus primarily on the absolute returns they receive, we mention this number for two reasons. The first is that we as Portfolio Managers determine this relative performance (often known as 'alpha') with the decisions that we take. The broader market return (or 'beta') of course matters to shareholders, but as Portfolio Managers we cannot influence it. So alpha is the best way to consider whether our active management of the portfolio is proving worthwhile and achieving its goal of enhancing returns for shareholders.
The second reason we mention this number is to set it in a longer-term context. In the 20 years ended 30th June 2023, the Company generated annualised excess returns of +4.0%. This year, we added a little less alpha than the long-run average. However, this serves as a reminder that we cannot produce results which are totally consistent from year to year. There will be years when we exceed our average, and others when we undershoot it. As always, we hope that investors will assess us on the basis of our performance over the long term, rather than with reference to one specific year.
The Year and the Portfolio
The Past Year
To observers of and participants in capital markets, every year feels full of events and fluctuations. But this year has been especially notable for two reasons. The first is the change, perhaps a sea change, in global financial markets from an era of very low inflation and very low interest rates to one in which both are considerably higher. This shift has, not surprisingly, left some casualties in its wake, especially in the developed world's financial sector. If anything we might be surprised that more businesses have not been upended by such a significant change in market conditions. The second notable factor which is particularly important for emerging markets has been the gyrations of the Chinese equity market and, underneath it, the Chinese economy. China makes up close to a third of the overall emerging market index, and to put our earlier comments about its importance in more context it is worth noting that when one third of the index falls by 20%, the rest of the index rising by 10% will still leave the overall return at zero. In simple terms, this is more or less what happened in the twelve months to June 2023. So further comments below about China seem appropriate as well.
The Return of Interest Rates
Everybody knows that financial conditions have changed around the world, with inflation eroding real incomes and higher interest rates raising the cost of debt. With hindsight it is easy to understand why this has happened: first, the huge financial stimulus launched by governments, especially in the West, to counteract the economic effects of the pandemic had the effect of increasing the amount of money in circulation sharply. That led first to a rise in asset prices, including share prices. But after the Russian invasion of Ukraine the consequent decline in energy supply to Western economies, in spite of attempts to manage demand, saw energy prices rise steeply. Those increased costs then passed through the economic chain and created broader consumer price inflation, which was in turn met by the conventional monetary response of higher interest rates in an attempt to slow economic conditions and thus curb those inflationary pressures. So far, so unremarkable, you might think. To those who remember economic cycles in the 1970s and 1980s, this may seem like a normal pattern, potentially ending in a recession, financial easing and an eventual recovery.
Refreshingly, central banks in emerging markets mostly responded well to this cycle, taking quicker and more decisive steps to contain inflation and moving more quickly through the cycle as a result. In countries like Brazil and Mexico, an awareness of inflationary risks and how to deal with them never really faded during the years since the financial crisis. As one senior Latin American banker acerbically remarked at the collapse of Silicon Valley Bank in the USA, 'any junior analyst' from Latin America would have known how to manage the interest rate risk that ultimately proved fatal for that institution.
Your Company's portfolio holdings are well positioned to face an era of higher interest rates.
In the non-financial companies owned in the portfolio, balance sheets remain strongly financed. While the average company in the emerging market index has net debt equivalent to a quarter of its shareholders' funds, the non-financial companies owned in the portfolio have on average, net cash equal to one tenth of their equity. Not only does this protect them from higher interest costs, but their cash generative characteristics mean that they retain control of their own destiny. The message of Silicon Valley Bank, and indeed most other corporate failures, is that liquidity and the ability to draw on cash when needed is the key determinant of survival or failure through cycles. What of the financial businesses we own? The first point to make is that higher interest rates often translate into higher margins for banks, making them beneficiaries rather than victims of the trend. But much more important in the long run is the ability to manage credit risk, and to build capital strength. The banks and other lending businesses owned in your portfolio exhibit strongly capitalised balance sheets and a history of profitable operation through past economic cycles, and we expect a similar outcome in this cycle.
If the underlying businesses owned in the portfolio appear well able to handle this new era of higher interest rates, we should also acknowledge that higher rates imply lower valuations for all financial assets. We comment below on the impact of valuations on the results of the portfolio over the last year.
China
A lot has happened in the Chinese equity market in the last year. By the summer of 2022 it was becoming clear that the government's 'zero Covid' policy was having significant negative effects on the country's economy. In spite of this, the government showed little sign of moderating its approach. By the autumn, demonstrations and protests indicated the depth of public frustration with the situation, and the stock market decline accelerated as company results revealed the difficulties businesses were experiencing. With valuations reaching new lows, the market began to recover from the beginning of November, and then in December the government dropped most covid restrictions virtually overnight. The stock market soared in response. However, after rising by more than 50% in three months the market in China has faced more economic challenges in 2023, challenges which lead many to argue that China's turbo-charged economic growth is now permanently a thing of the past.
We share that view. China's extraordinary economic growth over the last three decades has been driven above all by two factors: huge growth in exports, and a huge increase in fixed asset investment, especially residential property construction. Neither of these are currently providing the stimulus that they once did. On the export front, the weakness of developed world demand is naturally providing a headwind; at the same time, increasing geo-political sensitivity has led to direct interventions from Western governments, especially the USA, to curb China's success in high tech industries in particular. Meanwhile increased wages have rendered China less competitive than some other emerging markets, particularly as a base for labour-intensive manufacturing. It would be premature to argue that the Chinese export story is over, but it will clearly have to depend more on higher value-added sectors like medical equipment or electric vehicles; and even here, geo-political issues may recur.
Meanwhile the Chinese property sector is in trouble, and has begun to see large and high-profile bankruptcies. A spectacular construction boom saw almost the whole housing stock of the country reconstructed in two decades; but having done this, there is neither the need nor the demand to do it again. For businesses like property developers that depend on the flow of construction rather than the stock of completed buildings, this is bad news. And the amount of debt attached to this sector makes it a broader economic challenge for the country. Our expectation is that as the two principal engines of past economic growth slow, China's GDP will expand at a much lower rate than in the past, and this in turn will make life tougher for companies. The winners will be those that offer a compelling price/value trade-off to customers. Companies that are earning excess returns without justification will find life much more difficult.
What does this mean for your portfolio? In any economy the best companies can still create value for shareholders, and we have seen before that tough economic environments can often increase the value of competitive advantage. Our holding in the restaurant business Yum China increased noticeably in value during the year as its strong balance sheet allowed it to improve its consumer proposition at a time when competitors were unable to invest, something that ultimately translated into higher revenues and profits for shareholders. More broadly it is worth noting that China was in fact the largest single contributor to your portfolio's outperformance of the index during the last year, driven especially by stock selection within the market. Looking forward, although we remain cautious about the broader outlook for the country, we still see opportunities particularly in strongly positioned businesses able to allocate capital well in a slower growth environment.
Portfolio Returns
Last year we wrote about the underlying performance of companies owned in your portfolio, and how this had translated into portfolio outcomes. The same table that we used last year, updated to reflect the twelve months to 30th June 2023, looks like this:
| 12 months to |
| 30th June 2023 |
Earnings growth (local currency) | +7.5% |
Dividend yield | +2.0% |
Valuation change | -2.4% |
Foreign exchange valuations | -7.1% |
Total NAV return (GBP) | 0.0% |
Over the year as a whole, as the table above shows, underlying earnings from portfolio companies grew by 7.5% in local currency. However, over the twelve months sterling was relatively strong, appreciating against the basket of emerging market currencies by 7.1%; a modest decline in valuations offset the dividend component as well, to leave overall portfolio returns flat. Can we argue that we are still finding businesses that can keep compounding? For the most part, yes. If we break down the underlying profit progression of the companies owned by industry, we see that the financial companies we own delivered 10% growth in earnings per share; the consumer companies also saw profits grow 10%, and the technology companies, where cyclical sensitivity to the broader global economy is highest, saw earnings fall by 2%. We should not be surprised by some cyclicality in earnings: a few of the businesses owned in the portfolio are intrinsically cyclical. Samsung Electronics, for example, saw its profits decline by 20%. That is not unusual for a company in a sector like semiconductor manufacturing; yet in past cycles Samsung has maintained its competitive advantages and emerged strongly into the next upturn, and we expect the same to happen in the future. We should bear in mind too that portfolio earnings growth of 7.5% was considerably better than that achieved by the asset class as a whole, which saw corporate profits decline rather than expand over the same period.
In addition, it is worth noting that the dividends paid by the companies owned in your portfolio rose strongly; income received from dividends rose by 22% in sterling compared to the previous financial year. Changes in portfolio weights due to share price movements account for some of this, as do some special dividends which should not be seen as recurring; but the overall message that these dividend increases send is that the companies we own on your behalf are in good shape and optimistic about the future.
Portfolio Changes
We never start a financial year aiming to change the portfolio dramatically; rather, we try to react to market conditions when things become simply too cheap to ignore, or too expensive to maintain the same position. During the year we added marginally to some Chinese holdings as their share prices declined, decisions that looked bad initially, but which certainly helped performance when the Chinese market rebounded strongly late in 2022. This included additional purchases of longstanding high conviction names like Moutai, Netease and Midea.
We also invested for the first time in two new companies in India, Kotak Mahindra Bank and Cyient, an IT services company specialising in engineering design.
What Next?
China remains an important market as far as the wider prospects for emerging markets are concerned. As we write, valuations are cheap in parts of the Chinese market, and pessimism abounds: that in itself should make us interested. But at the same time, our long-held scepticism about the commitment of many Chinese companies to the optimisation of shareholder value continues to give us pause. For many years, your portfolio had a lower exposure to China than the benchmark index, though a combination of additional investment and relative performance within the market has brought it closer to the index weight more recently. Going forward our allocation to the country will continue to be determined firstly by whether we find businesses with sufficiently wide moats and strong management teams, and secondly whether we find attractively valued opportunities within this subset of special businesses.
But elsewhere in emerging markets, plenty of opportunities remain. Our investments in places like Mexico have prospered over the last year and serve as a reminder that for all the attention paid to China in news headlines, in other countries many businesses have been quietly getting on with what they do best, and seen their share prices evolve accordingly.
If there is one market that bears more comment, it is India, which has been one of the most fertile breeding grounds for precisely the kind of company that we like the most - one managed for the long term, with strong economics, long duration and exemplary governance. In India we see two things happening at the moment. The first is a degree of investor optimism which has pushed share prices for some companies well above the levels we would be happy to pay; we have reduced some of our exposure as a result. But in the real world, India is emerging as one of the few credible alternatives to China for large scale export manufacturing, and a round of inward investment adds to reasons to be optimistic about the future of the Indian economy. The country remains one of our largest allocations in your portfolio.
While economic conditions matter to companies, growth in earnings and dividends per share are what matter most to us. The best companies combine successful operations with judicious decisions about capital allocation, paying out dividends when they cannot reinvest at acceptable returns. As an illustration of what can be achieved, allow us to finish by writing about a company that we first invested in almost twenty-five years ago, Housing Development Finance Corporation ('HDFC'). This stock has been a constant in your portfolio since 1998, but merged with its bank subsidiary in July this year, and hence no longer appears in your portfolio in the same form. We first bought the share at around 200 rupees, but subsequent stock splits mean that number should be divided by 10 to give a price in today's terms of 20 rupees. When the merger was finally concluded in July 2023, the last share price for HDFC was 2,724 rupees. How is that possible? The answer is through the continuous compounding of shareholder value. HDFC's profits grew 90-fold over 25 years, and its investments in new areas like banking, asset management and insurance yielded further gains for shareholders. Its economics remained impressively constant, with return on equity never falling below 13% in any year. The point here is a simple one: outstanding management in front of a big opportunity can, over time, create exceptional outcomes. Our task is to unearth more companies in the future that can stand comparison to investments like HDFC.
Closing Thoughts
Knowing what you are trying to do is the most critical thing for any investor, for two reasons. The first, obviously, is that if you do not really understand what you are trying to achieve, it is very unlikely that you will achieve it. But knowing what you are trying to do has a second equally important function, and that is to prevent the pressure of market cycles and performance fluctuations from blowing you off course. It can be very tempting, when share prices fall or performance is challenging, to go for the quick fix, to chase performance and do things that you would not do in other circumstances. As shareholders in this Company, you should neither expect that from your Portfolio Managers, nor excuse it. We remain committed to a long-term approach because we believe investment to be a marathon rather than a sprint. We do not know what the future holds, but we do believe that a consistent process implemented with conviction can always reward investors in the long run.
Austin Forey
John Citron
Portfolio Managers
26th September 2023
Principal & Emerging Risks and Uncertainties
The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The risks identified and the ways in which they are managed or mitigated are summarised below. With the assistance of JPMF, the Audit Committee has drawn up a risk matrix, which identifies the principal risks to the Company. These are reviewed and discussed on a regular basis by the Board. These risks fall broadly into the following categories:
Principal risk | Description | Mitigating activities | Movement from prior year |
Investment Underperformance | Poor implementation of the investment strategy, for example as to thematic exposure, sector allocation, stock selection, undue concentration of holdings, factor risk exposure or the degree of total portfolio risk, may lead to failure to outperform 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 and through its investment restrictions and guidelines, which are monitored and reported on by the Manager. The Manager provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Manager, whose representatives attend all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Board holds a separate meeting devoted to strategy each year. | The risk remains high but unchanged from 2022, due to the continuation of unfavourable economic conditions (caused by factors such as the geopolitical crisis between Russia and Ukraine, high inflation and interest rates) faced by global equity markets, making investment decisions more challenging for the Portfolio Managers. |
Geopolitical and Economic | Historically, emerging market companies (and investments in their shares) have shown greater volatility and may be subject to certain political, geopolitical and corporate governance risks which are not typically associated with more developed markets and economies. Sustained underperformance of emerging markets as an asset class may occur as a result of risks such as the imposition of restrictions on the free movement of capital or other government regulatory changes. | The Manager's investment process incorporates non-financial measures and risks in the assessment of investee companies to allow the portfolio to adapt to changing competitive and political landscapes. The Board regularly reviews and discusses with the Portfolio Managers the portfolio, the Company's investment performance and the execution of the investment policy against the long-term objectives of the Company. The Manager's independent risk team performs systematic risk analysis, including country specific risk monitoring, as well as stress testing of the portfolio's resilience. | The risk remains high but unchanged from 2022. The Board has increasingly turned its attentions to the increased risks from investing in China specifically - see below. |
Investing in China | China offers some unique investment opportunities and risks. On one hand, it has provided faster growth than many other markets in the last few decades, but in recent years it has been impacted by a decline in trade, a slowdown in consumer spending, a crackdown on the private sector by the Chinese government and U.S. led trade restrictions, together with growing concerns in relation to China's domestic property market. The country, which together with Hong Kong, represents just under 30% of the Company's benchmark index and thus represents a significant proportion of the Company's portfolio. The Board and Manager are aware of the risks associated with investing in China but are cognisant that to not be invested in China would represent a significant investment call, which could damage investor returns. | Unlike its passive competitors, as an actively managed fund the Portfolio Managers can adapt the portfolio to a changing regulatory environment and reduce both regulatory risk from, for example export controls and reputational risk from, for example human rights transgressions. The Board has access to a range of expert resources and strategists both within JPMAM and externally, who can provide long term insight and guidance on geopolitical developments. | The risk remains high but unchanged from 2022. The Board specifically discusses the risks associated with investing in China at each Board meeting and received a presentation from an expert in the field at its 2023 Strategy meeting. |
Loss of Investment Team or Portfolio Manager | A sudden departure of a portfolio manager or several members of the investment management team could result in a short-term deterioration in investment performance. | The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team-based approach, as well as special efforts to retain key personnel. | The risk is medium and remains unchanged from 2022. John Citron has been a key member of the investment team since 2021. The investment team is supported by significant resource. |
Cyber Crime | The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Board has received the cyber security policies for its key third party service providers and JPMF has assured Directors that the Company benefits directly or indirectly from all elements of J.P. Morgan Chase & Co's Cyber Security programme. | The information technology controls around the physical security of J.P. Morgan Chase & Co's data centres, security of its networks and security of its trading applications are tested by an independent third party and reported every six months against the AAF Standard. | The risk remains high but unchanged from 2022. To date the Manager's cyber security arrangements have proven robust and the Company has not been impacted by any cyber attacks threatening its operations. |
Discount Control | Investment trust shares often trade at discounts to their underlying NAVs; they can also trade at a premium. Discounts and premiums can fluctuate considerably leading to volatile returns for shareholders. | The Board monitors the Company's premium/discount at which the share price trades to NAV on both an absolute level and relative to its peers and the wider investment trust sector. The Board reviews sector relative performance and sales and marketing activity (considered the primary drivers of the relative discount level). The Company also has authority to buy back its existing shares to enhance the NAV per share for remaining shareholders and to reduce the absolute level of discount and discount volatility. | The risk remains high but unchanged from 2022. The Board regularly reviews and monitors the Company's objective and investment policy and strategy, the investment portfolio and its performance, the level of discount/premium to net asset value at which the shares trade and movements in the share register. During the year the Company continued to conduct share buybacks. |
Legal and Regulatory Change | The Company's business model could become non-viable as a result of new or revised rules or regulations arising from, for example, policy change or financial monitoring pressure. | The Board receives regular reports from its broker, depositary, registrar and Manager as well as its legal advisers and the Association of Investment Companies on changes to regulations which could impact the Company and its industry. The Company monitors events and relies on the Manager and its other key third party providers to manage this risk by preparing for any changes, adverse or otherwise. | The risk remains medium but unchanged from 2022. Changes to the regulatory landscape are inevitable. |
Emerging Risks
The Board has considered and kept under review emerging risks, including but not limited to the impact of climate change, geopolitical conflict, inflationary pressures, social dislocation and conflict and technological advances. The key emerging risks identified are as follows:
Climate change
Investors can no longer ignore the impact that the world's changing climate will have on their portfolios, with the impact of climate change on returns now potentially significant. However, the transition to a low-carbon economy across the globe may also provide attractive investment opportunities. The Board receives ESG reports from the Manager on the portfolio and the way ESG considerations are integrated into the investment decision-making, so as to mitigate risk at the level of stock selection and portfolio construction.
Rising competition between China and western economies
Since the end of the Second World War, the world has enjoyed a technology and economic hegemony with the US at its core. With the development of China as a political, cultural, technological and economic rival, there is the risk that alongside the trade tensions we have seen in recent years, there may develop a rival technology and economic infrastructure between western economies and China. The Board notes that in August 2023, the Biden administration unveiled a new executive order banning certain US investment into China's quantum computing, advanced chip and artificial intelligence sectors.
Economic Contraction
A long-term reduction in returns available from investments as a result of recession, stagnation, inflation or other extended exogenous factors which may render the Company's investment objectives and policies unattractive or unachievable.
Artificial Intelligence ('AI')
While it might be deemed a great opportunity and force for good, there is an increasing risk to business and society more widely from AI. Advances in computing power means that AI has become a powerful tool that will impact a huge range of areas and with a wide range of applications that include the potential to disrupt and even to harm. In addition the use of AI could be a significant disrupter to business processes and whole companies leading to added uncertainty in corporate valuations.
Structural Changes
The attractiveness of investment vehicles, to include investment trusts, could be impacted by structural changes to the way investors access the market, including changes within the platform channels.
Transactions with the Manager and related parties
Details of the management contract are set out in the Directors' Report on page 52 of the 2023 Annual Report. The management fee payable to the Manager for the year was £10,272,000 (2022: £11,789,000) of which £nil (2022: £nil) was outstanding at the year end.
Safe custody fees amounting to £497,000 (2022: £465,000) were payable during the year to JPMorgan Chase N.A. of which £212,000 (2022: £81,000) was outstanding at the year end.
The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £nil (2022: £5,000) of which £nil (2022: £nil) was outstanding at the year end.
The Company also holds cash in the JPMorgan US Dollar Liquidity Fund, which is managed by JPMF. At the year end this was valued at £24.1 million (2022: £57.2 million). Interest amounting to £2,296,000 (2022: £158,000) was received during the year of which £nil (2022: £nil) was outstanding at the year end.
Handling charges on dealing transactions amounting to £25,000 (2022: £49,000) were payable to JPMorgan Chase N.A. during the year of which £6,000 (2022: £2,000) was outstanding at the year end.
At the year end, total cash of £737,000 (2022: £487,000) was held with JPMorgan Chase. A net amount of interest of £3,497 (2022: £220) was receivable by the Company during the year from JPMorgan Chase of which £nil (2022: £nil) was outstanding at the year end.
Full details of Directors' remuneration and shareholdings can be found on pages 63 to 65 of the 2023 Annual Report.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable United Kingdom Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable and prudent; 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.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The accounts are published on the Company's website: www.jpmemergingmarkets.co.uk, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The Directors are responsible for the maintenance and integrity of the corporate and financial information on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report and Directors' Remuneration Report that comply with the law and those regulations.
Each of the Directors, whose names and functions are listed in Directors' Report confirm that, to the best of their knowledge:
• the Company's financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
• the Directors' Report 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 it faces.
The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
For and on behalf of the BoardAidan Lisser Chair
26th September 2023
Statement of Comprehensive Income
For the year ended 30th June
2023 | 2022 | |||||
Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Loss on investments held at fair value through profit or loss | - | (10,303) | (10,303) | - | (300,802) | (300,802) |
Foreign currency (loss)/gains | - | (2,310) | (2,310) | - | 6,561 | 6,561 |
Income from investments | 28,130 | - | 28,130 | 23,043 | - | 23,043 |
Interest receivable | 2,299 | - | 2,299 | 158 | - | 158 |
Gross return/(loss) | 30,429 | (12,613) | 17,816 | 23,201 | (294,241) | (271,040) |
Management fee | (3,082) | (7,190) | (10,272) | (3,537) | (8,252) | (11,789) |
Other administrative expenses | (1,456) | - | (1,456) | (1,346) | - | (1,346) |
Net return/(loss) before taxation | 25,891 | (19,803) | 6,088 | 18,318 | (302,493) | (284,175) |
Taxation | (3,294) | (4,708) | (8,002) | (2,326) | (5,420) | (7,746) |
Net return/(loss) after taxation | 22,597 | (24,511) | (1,914) | 15,992 | (307,913) | (291,921) |
Return/(loss) per share | 1.94p | (2.11)p | (0.17)p | 1.36p | (26.13)p | (24.77)p |
A final dividend of 1.07p (2022: 0.83p) per Ordinary share has been proposed in respect of the year ended 30th June 2023, totalling £12.3 million (2022: £9.7 million).
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.
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. Net return/(loss) after taxation represents the profit/(loss) for the year and also Total Comprehensive Income.
Statement of Changes in Equity
For the year ended 30th June 2023
Called up | Capital | ||||||
share | Share | redemption | Other | Capital | Revenue | ||
capital | premium | reserve | reserves | reserves1 | reserve1 | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At 30th June 2021 | 33,091 | 173,631 | 1,665 | 69,939 | 1,401,743 | 17,974 | 1,698,043 |
Repurchase of shares into Treasury | - | - | - | - | (20,890) | - | (20,890) |
Net (loss)/return | - | - | - | - | (307,913) | 15,992 | (291,921) |
Dividend paid in the year (note 3) | - | - | - | - | - | (15,926) | (15,926) |
At 30th June 2022 | 33,091 | 173,631 | 1,665 | 69,939 | 1,072,940 | 18,040 | 1,369,306 |
Repurchase of shares into Treasury | - | - | - | - | (21,153) | - | (21,153) |
Net (loss)/return | - | - | - | - | (24,511) | 22,597 | (1,914) |
Dividend paid in the year (note 3) | - | - | - | - | - | (16,417) | (16,417) |
At 30th June 2023 | 33,091 | 173,631 | 1,665 | 69,939 | 1,027,276 | 24,220 | 1,329,822 |
1 This reserve forms the distributable reserve of the Company and is used to fund distributions to investors.
Statement of Financial Position
At 30th June
2023 | 2022 | |
£'000 | £'000 | |
Fixed assets | ||
Investments held at fair value through profit or loss | 1,311,009 | 1,313,276 |
Current assets | ||
Debtors | 5,074 | 4,203 |
Cash and cash equivalents | 24,866 | 57,700 |
29,940 | 61,903 | |
Current liabilities | ||
Creditors: amounts falling due within one year | (999) | (453) |
Net current assets | 28,941 | 61,450 |
Total assets less current liabilities | 1,339,950 | 1,374,726 |
Non current liabilities | ||
Provision for capital gains tax | (10,128) | (5,420) |
Net assets | 1,329,822 | 1,369,306 |
Capital and reserves | ||
Called up share capital | 33,091 | 33,091 |
Share premium | 173,631 | 173,631 |
Capital redemption reserve | 1,665 | 1,665 |
Other reserve | 69,939 | 69,939 |
Capital reserves | 1,027,276 | 1,072,940 |
Revenue reserve | 24,220 | 18,040 |
Total shareholders' funds | 1,329,822 | 1,369,306 |
Net asset value per share | 115.6p | 117.0p |
The Company is registered in England and Wales.
Company registration number: 2618994
Statement of Cash Flows
For the year ended 30th June
2023 | 2022 | |
£'000 | £'000 | |
Cash flows from operating activities | ||
Net return/(loss) before taxation | 6,088 | (284,175) |
Adjustment for: | ||
Net losses on investments held at fair value through profit or loss | 10,303 | 300,802 |
Net foreign currency loss/(gains) | 2,310 | (6,561) |
Dividend income | (28,130) | (23,043) |
Interest income | (2,299) | (158) |
Realised gain on foreign exchange transactions | 123 | 163 |
Realised exchange gains on Liquidity | 2,795 | 1,482 |
(Increase)/decrease in accrued income and other debtors | (15) | 11 |
Increase/(decrease) in accrued expenses | 289 | (129) |
(8,536) | (11,608) | |
Dividends received | 23,963 | 18,579 |
Interest received | 2,299 | 158 |
Overseas tax recovered | 16 | 93 |
Net cash inflow from operating activities | 17,742 | 7,222 |
Purchases of investments | (64,572) | (109,362) |
Sales of investments | 56,540 | 192,011 |
Settlement of forward currency contracts | - | 98 |
Net cash (outflow)/inflow from investing activities | (8,032) | 82,747 |
Dividend paid | (16,417) | (15,926) |
Repurchase of shares into Treasury | (20,899) | (21,670) |
Net cash outflow from financing activities | (37,316) | (37,596) |
(Decrease)/increase in cash and cash equivalents | (27,606) | 52,373 |
Cash and cash equivalents at start of year | 57,700 | 510 |
Unrealised (loss)/gain on foreign currency cash and cash equivalents | (5,228) | 4,817 |
Cash and cash equivalents at end of year | 24,866 | 57,700 |
Cash and cash equivalents consist of: | ||
Cash and short term deposits | 737 | 487 |
Cash held in JPMorgan US Dollar Liquidity Fund | 24,129 | 57,213 |
Total | 24,866 | 57,700 |
The presentation of the Cash Flow Statement, as permitted under FRS102, has been changed so as to present the 'reconciliation of net return before finance costs and taxation' to 'cash inflow from operating activities' on the face of the Cash Flow Statement. Previously, this was shown by way of note to the Cash Flow Statement. Other than consequential changes in the presentation of certain cash flow items, there is no change to the cash flows as presented in previous periods.
Reconciliation of net cash
As at | Other non-cash | As at | ||
30th June 2022 | Cash flows | charges | 30th June 2023 | |
£'000 | £'000 | £'000 | £'000 | |
Cash and cash equivalents | ||||
Cash | 487 | 254 | (4) | 737 |
Cash equivalents | 57,213 | (27,860) | (5,224) | 24,129 |
Net cash | 57,700 | (27,606) | (5,228) | 24,866 |
Notes to the Financial Statements
For the year ended 30th June 2023
1. Accounting policies
(a) Basis of accounting
The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in July 2022.
All of the Company's operations are of a continuing nature.
The Directors believe that having considered the Company's investment objective, risk management policies, capital management policies and procedures, the nature of the portfolio and expenditure projections, the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. The Board has also taken into account the fact that the Company has a continuation vote to be considered by shareholders at the Company's 2023 Annual General Meeting and the likelihood of shareholders voting in favour of continuation. Having consulted the Company's major shareholders through the remit of its advisers, the Directors have a reasonable belief that the continuation vote will be supported by the majority of shareholders. For these reasons, they consider that there is reasonable evidence to continue to adopt the going concern basis in preparing the financial statements. They have not identified any material uncertainties to the Company's ability to continue to do so over a period of at least twelve months from the date of these financial statements.
The policies applied in these financial statements are consistent with those applied in the preceding year.
2. Return/(loss) per share
2023 | 2022 | ||
£'000 | £'000 | ||
Revenue return | 22,597 | 15,992 | |
Capital loss | (24,511) | (307,913) | |
Total loss | (1,914) | (291,921) | |
Weighted average number of shares in issue during the year | 1,162,832,611 | 1,178,582,565 | |
Revenue return per share | 1.94p | 1.36p | |
Capital loss per share | (2.11)p | (26.13)p | |
Total loss per share | (0.17)p | (24.77)p |
3. Dividends
(a) Dividends paid and proposed
2023 | 2022 | ||
£'000 | £'000 | ||
Distributions paid | |||
Unclaimed dividends refunded to the Company | - | (1) | |
2022 final dividend of 0.83p (2021: 0.83p) per share | 9,683 | 9,813 | |
2023 interim dividend of 0.58p (2022: 0.52p) per share | 6,734 | 6,114 | |
Total dividends paid in the year | 16,417 | 15,926 | |
Distributions proposed | |||
2023 nal dividend proposed of 1.07p (2022: 0.83p) per share | 12,312 | 9,715 |
All dividends paid and proposed in the year have been funded from the revenue reserve.
The dividend proposed in respect of the year ended 30th June 2023 is subject to shareholder approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 30th June 2024.
(b) Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')
The requirements of Section 1158 are considered on the basis of the dividend proposed in respect of the financial year, shown below.
The revenue available for distribution by way of dividend for the year is £22,597,000 (2022: £15,992,000). The revenue reserve after payment of the final dividend will amount to £11,908,000 (2022: £8,323,000).
2023 | 2022 | ||
£'000 | £'000 | ||
2023 interim dividend of 0.58p (2022: 0.52p) per share | 6,734 | 6,114 | |
2023 final dividend proposed of 1.07p (2022: 0.83p) per share | 12,312 | 9,715 | |
19,046 | 15,829 |
4. Net asset value per share
2023 | 2022 | ||
Net assets (£'000) | 1,329,822 | 1,369,306 | |
Number of shares in issue | 1,150,629,365 | 1,170,512,230 | |
Net asset value per share | 115.6p | 117.0p |
5. Status of results announcement
2022 Financial Information
The figures and financial information for 2022 are extracted from the Annual Report and Accounts for the year ended 30th June 2022 and do not constitute the statutory accounts for the year. The Annual Report and Accounts include the Report of the Independent Auditors 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 Register of Companies in due course.
2023 Financial Information
The Figures and financial information for 2023 are extracted from the published Annual Report and Accounts for the year ended 30th June 2022 and do not constitute the statutory accounts for that year. The Annual Report and Accounts has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.
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.
27th September 2023
For further information:
Alison Vincent,
JPMorgan Funds Limited
0800 20 40 20 or +44 1268 44 44 70
ENDS
A copy of the 2023 Annual Report will shortly be submitted to the FCA's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The 2023 Annual Report will shortly be available on the Company's website at www.jpmemergingmarkets.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.
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JPMORGAN FUNDS LIMITED