30 Jul 2020 07:30
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN BRAZIL INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED30TH APRIL 2020
CHAIRMAN'S STATEMENT
Introduction and Performance
Over the financial year to 30th April 2020, equity markets in Brazil experienced another highly volatile year dominated by politics, the global pandemic and further negative sentiment towards the country's economic outlook. For the year to 30th April 2020, the Company's total return on net assets was -31.3%, compared with -33.2% returned by the benchmark, the MSCI Brazil 10/40 Index (in sterling terms with net dividends re-invested).
The investment managers provide a detailed commentary on the markets and portfolio activity in their report.
Since the financial year-end, the Company's net asset value has risen by 40.0%, against an increase of 32.7% in the benchmark index expressed in sterling. Over this period the Brazilian Real has risen by 2.7% against sterling, compared with a fall of 25.9% over the course of the financial year.
Continuation Vote
It was stated in the Chairman's Statement of the 2019 Annual Report that the Board would voluntarily propose a continuation vote no later than the AGM in September 2020. Accordingly, a resolution will be put to shareholders at the forthcoming AGM in connection with the continuation of the Company. This resolution will require over 50% of all votes cast to be in favour of continuation for it to be approved. If the relevant continuation resolution is not passed, the Board of Directors of the Company (the 'Board') will be required to put forward to shareholders plans to wind-up, reorganise or reconstruct the Company.
Despite the long term potential of the Brazilian economy and stock market, the political and economic challenges facing the country remain substantial and it is not possible to be confident about when this potential may be realised. The Board has consulted with shareholders and has taken into account feedback received during those discussions, and has decided to recommend that shareholders vote against continuation of the Company.
Revenue and Dividends
Gross revenue for the year amounted to £644,000 (2019: £889,000) and net total revenue after administrative expenses and taxation amounted to £43,000 (2019: £333,000).
The Company's dividend policy has been to distribute all, or substantially all, of the available income each year. Owing to the uncertainty surrounding the continuation vote, the Board has not recommended a final dividend this year.
Asset Allocation
In accordance with the Company's investment policy, the investment managers have continued to be substantially invested in equities. As at 30th April 2020, the Company had 1.7% net cash.
Share Repurchases
At last year's AGM, shareholders granted Directors authority to repurchase the Company's shares. During the financial year, the Company did not repurchase any shares. The Board's long term objective remains to use the share repurchase authority to manage significant imbalances between the supply and demand of the Company's shares, thereby reducing the volatility of the discount, but in taking any decision to repurchase shares it will take into account the size of the Company, liquidity, expenses per share and general market conditions.
Whilst the Company's share price has been trading at a discount to NAV, this has been volatile and based on very small trading volumes. The Board believes that utilising the repurchase authority during the period was unlikely to have stabilised or reduced the discount in the face of wider sector volatility. However, the Board believes that the ongoing availability of this mechanism would be important if the Company's continuation vote were to be passed and therefore proposes and recommends that powers to repurchase up to 14.99% of the Company's issued share capital be renewed for a further period.
The Board
All three Directors have now been members of the Board for more than nine years. As previously stated, the Chairman will be retiring from the Board at this year's AGM and, in the event that the continuation vote is passed this year, further changes will be made with a view to refreshing the Board completely during 2021. The Board considers the skills and experience of the directors to be more important than their length of tenure and it is confident that the directors remain independent of the fund manager. Mark Bridgeman and Victor Bulmer-Thomas will continue to seek annual re-election at every AGM for the rest of their term of office.
Annual General Meeting
The Board has been considering how best to deal with the potential impact of the Coronavirus pandemic on arrangements for the Company's upcoming AGM. The Company is required by law to hold an AGM and the Board had been working on the basis that the Company's tenth AGM would be held on 17th September 2020 at 2.00 p.m. at 60 Victoria Embankment, London EC4Y 0JP, as previously scheduled.
However, in the light of the Coronavirus pandemic and the Government guidance, including the rules on social distancing, avoiding public gatherings and given the possibility that some of these measures of restriction will remain in place in September (the 'Restrictions'), the Board has resolved to amend the format of the AGM for this year. Therefore, whilst the formal business of the AGM (as set out in the Notice of AGM on page 68 of this document) will be considered, the meeting will be functional only, and will follow the minimum legal requirements for an AGM. There will be no presentation from the investment managers at the AGM and no refreshments will be offered. However, the Board is keen to ensure shareholders are not denied the opportunity to hear from the Manager and therefore, a presentation with the investment managers will be placed on the Company's website shortly after the AGM.
If the Restrictions remain in place in September, shareholders are strongly discouraged from attending the meeting and indeed entry may be refused if the law and/or Government guidance so requires. In such circumstances, arrangements will be made by the Company to ensure that the minimum number of shareholders required to form a quorum will attend the meeting in order that the meeting may proceed and the business concluded. The Board considers these revised arrangements to be in the best interests of shareholders in the current circumstances.
In addition, shareholders are encouraged to raise any questions in advance of the meeting with the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP or via the 'Ask US A Question' link which can be found in the 'Contact Us' section on the Company's website. Any questions received will be replied to by either the Manager or Board via the Company Secretary after the AGM.
In light of the outbreak and evolving Government guidance, the Company will continue to keep arrangements for the AGM under review and it is possible the arrangements will need to change. We will keep shareholders updated of any changes through the Company's and announcements to the London Stock Exchange.
The Board strongly encourages all shareholders to submit their votes in advance of the meeting, so that these are registered and recorded at the AGM. Proxy votes can be lodged in advance of the meeting either by post or electronically by 15th September 2020: detailed instructions are included in the Notes to the Notice on page 69 of the Notice of AGM and on the proxy form that accompanies it.
Outlook
As mentioned previously, despite the long term potential of the Brazilian economy, the political and economic challenges facing the country remain substantial and it is not possible to be confident about when this potential may be realised. The Investment Managers will continue to identify high quality companies at attractive prices with significant earnings growth potential and financial characteristics with a view to achieving good long-term performance for shareholders, subject to the continuation vote.
Howard Myles
Chairman
29th July 2020
investment managers' report
Market background
At the halfway stage of the Company's financial year we reported strong interim performance figures, along with some cautious optimism that Brazil had finally 'turned a corner'; this hope was subject to several caveats such as Brazil's sluggish economy, ongoing trade tensions, global growth in reverse and US dollar strength.
Looking back at 2019, a monetary policy about-turn by central banks around the world had buoyed global stock markets. Instead of raising interest rates, as had been expected, rates were reduced, to increase liquidity and stimulate economic activity. Equity markets reacted positively to this and Brazilian equities did particularly well, even though the Central Bank of Brazil was slower than most of its global peers to loosen its monetary policy, tying this to progress being achieved on the country's social security reform agenda.
Brazil's political backdrop also seemed more stable at the interim reporting stage, fuelling hope that a majority government, led by the conservative President Bolsonaro, would be able to fulfil its commitment towards fiscal and structural reform, so vital to Brazil's future economic growth trajectory. Morale was boosted by the subsequent passing of comprehensive pension reforms in late October, a process that had been subject to interminable delay and deadlock. With a helping hand from lower interest rates, there was a sense that Brazil could be entering a cycle of long-term growth. Such positivity created a window of opportunity for several Initial Public Offerings (IPOs), with a huge influx occurring over the period, in addition to a flurry of secondary offerings.
Now, at the end of the Company's financial year, we can see that the second half of the review period was very different to the first. Naturally, the spread of the coronavirus (COVID-19) from January onwards is the defining headline, since this terrible pandemic has had such a devastating impact on lives, economies and markets around the world. Regionally, however, there were several other factors within Brazil and Latin America that preceded COVID-19 but contributed to this being such a challenging period for the Company's investors.
The optimism that had greeted the reforms bill did not last long, displaced by overriding disappointment that economic indicators remained so lacklustre as the year progressed and that the domestic political situation was more volatile than it had appeared just months earlier. In Chile, social unrest manifested itself in national demonstrations that led to similar outpourings of resentment in other Latin American countries, all of which hurt already fragile economies, including Brazil's.
Political headwinds are a fact of life when investing in Brazil. Tensions were heightened by President Bolsonaro's conflicts with ministers and his decision to split with his existing party to set up a new one. The release from prison of former President Lula, a leftist icon who had been expected to win the 2018 election before he was imprisoned on corruption charges, added political tension. On his release, Lula was highly critical of Bolsonaro and his economic policies and promised to keep fighting for impoverished Brazilians.
Investors were also disturbed by Brazilian currency weakness (with the Central Bank compelled to intervene and use foreign exchange reserves for the first time in 10 years) whilst the so-called 'Transfer of Rights' oil auction fell flat in November. This bidding opportunity was anticipated to lure international oil companies to the Brazilian oil reserves being offered but the actual results were underwhelming. Welcome good news came in January, in the shape of a signed trade deal between the United States and China, following two years of tit-for-tat wrangles. However, this positive news story was quickly overshadowed by the spread of COVID-19.
The coronavirus crisis ripped through the global economy with haste and precipitated a collapse in business and consumer confidence, not to mention the thousands of human lives lost. The outbreak hit Brazil later than many other countries but, at the time of writing, the disease's trajectory makes the country arguably the epicentre of this pandemic. It is far too early to assess its full impact but President Bolsonaro's handling of the pandemic has been widely criticised. And, to add yet more political angst, Bolsonaro now faces a corruption investigation by Brazil's Supreme Court, regarding claims he meddled with the selection of the new head of the federal police.
On the fiscal front, Congress approved an emergency increase in public spending, to support the most vulnerable members of society, and facilitate greater flexibility of labour laws. The measures also provide financial support for companies, states and municipalities. If more stimulus packages are announced, there will be a better recovery outlook.
In terms of monetary stimulus, Brazil's Central Bank announced liquidity measures that far exceed those implemented in the aftermath of 2008's global financial crisis. These aim to ensure that the banking system is liquid and stable, foreign exchange markets functioning smoothly and that monetary conditions provide stimulus. Since the end of the reporting period, the Central Bank has cut its benchmark interest rate by 0.75% to a record low of 3%, with further cuts anticipated.
With so much bad news, it comes as no surprise that Brazil's currency faced significant selling pressure. The real has been one of the worst performing global currencies so far in 2020, whilst Brazil experienced a record outflow of foreign capital from the country in the months leading up to the Company's year-end.
Portfolio review and spotlight on stocks
Against the extreme backdrop outlined above, the Company's net asset value fell by -31.3% over the year to 30th April 2020 and total shareholders' returns were -30.8%. Asset allocation - most notably in the consumer discretionary, financials and information technology sectors - enabled the Company to moderately outperform its benchmark index during this unprecedented period, with the MSCI Brazil 10/40 falling by -33.2%.
Our strategy is very much based on a long-term view, looking beyond short-term macro-economic and geopolitical challenges and their associated impact; never has this been more relevant than during unprecedented reporting periods like this one. The portfolio remains tilted in favour of small to mid-cap domestic themes and those stocks poised to benefit from strong domestic growth as and when this potential is realised.
By sector, Financials remains the Company's largest exposure, just as it was a year ago, and we are overweight relative to the benchmark index. COVID-19 has challenged the sector because of its negative impact on economic activity. At a stock level, however, there were successes as well as disappointments.
B3 - Brasil Bolsa Balcao is Brazil's sole stock exchange operator and our second largest holding. Although Brazilian stocks were amongst the world's laggards over the year, market volatility surrounding the pandemic attracted retail investors in search of yield and sent trading volumes soaring to record highs. Although B3 lost ground over the year it fared better than many other financial names.
Our overweight investment in SulAmérica, Brazil's second largest insurance company contributed positively to returns. The company delivered relatively strong financial performance, operational results and earnings, against a weakening background across the Brazilian insurance industry.
Our investment in reinsurance company IRB Brasil RE was the Company's star performer this time last year, but the company has experienced a dramatic fall from grace since then, to become the portfolio's worst performer this time around. IRB shares lost more than 75% of their value over the review period. The dramatic turnaround follows regulatory probes into IRB's governance and risk management functions, as well as its financial statements and various other matters, culminating in wholesale board and management changes. Recently, the new management team placed the Company's dividend distribution policy under review whilst the global credit ratings agency AM Best downgraded IRB's credit rating and placed it 'under review with negative implications' status. This wall of bad news raises considerable question marks over the company's strategic direction. With all this in mind, we decided to reduce our exposure, with a view to reinvesting the proceeds elsewhere.
We took the opportunity to add Mexican bank Banorte to the portfolio, following price weakness. The bank is anticipating low investment for the remainder of 2020, but we see this as a well-managed business which should provide a tailwind to its prospects.
Elsewhere, our lack of exposure to Energy and our longstanding underweight exposure to Materials benefitted relative performance whilst specific investments, such as MercadoLibre, Hapvida and Raia Drogasil were also helpful.
In terms of Energy stocks, the absence from our portfolio of multinational and majority state-owned oil giant Petrobras was particularly beneficial to relative performance. During the reporting period, energy companies were severely impacted by the deepening global economic slump and oil prices falling below a level anyone imagined possible.
We remain underweight to the Materials sector but nevertheless, iron ore producer Vale became the Company's largest holding over this volatile year. Latterly, Vale was hit by coronavirus concerns, shutting a series of its mines towards the end of the reporting period. The stock remains a core holding for us on a long-term basis.
Our position in Argentina-based MercadoLibre, was one of the leading contributors to the Company's relative performance. It is Latin America's most popular e-commerce site and electronic payments company, similar to Amazon, so has greatly benefitted from the shift in demand to online retailing during the pandemic. The company's Chief Operating Officer believes COVID-19 may accelerate the move to e-commerce adoption across the region.
Vertically integrated health operator Hapvida was another strong performer. It agreed to acquire Grupo Sao Francisco in May 2019, which was well received. It also signalled its intent to make additional acquisitions although these aspirations are on hold at present, pending resolution of more pressing COVID-19 concerns.
PERFORMANCE ATTRIBUTION
Year to 30th April 2020 | Year to 30th April 2019 | |||
Contributions to total returns | % | % | % | % |
Benchmark return | -33.2 | 6.8 | ||
Asset allocation | 3.1 | 0.1 | ||
Stock selection | -1.0 | -1.8 | ||
Gearing/cash | 1.8 | 0.3 | ||
Investment Manager's contribution | 3.9 | -1.4 | ||
Portfolio return | -29.3 | 5.4 | ||
Management fee/other expenses | -2.0 | -2.0 | ||
Share buybacks | 0.0 | 0.0 | ||
Other effects | -2.0 | -2.0 | ||
Return on net assetsA | -31.3 | 3.4 | ||
Impact of change in discount | 0.5 | -4.3 | ||
Return to shareholdersA | -30.8 | -0.9 | ||
Source: FactSet, JPMAM and Morningstar.
All figures are on a total return basis.
Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.
A Alternative Performance Measure ('APM').
A glossary of terms and APMs is provided on page 71.
Raia Drogasil is one of the Company's long-standing investments and its share price performed strongly. It is Brazil's largest pharmacy operator, with more than 2,100 stores, 95% of which have remained open during the worst of the health crisis. It has stated its commitment to resuming its ambitious store openings programme once restrictions ease.
Lojas Renner, Brazil's largest fashion retailer - remains one of our top 10 holdings, despite recent falls in sales due to the pandemic, and with income plummeting 94% in the first quarter of 2020 compared with the same quarter a year earlier. We continue to have faith in the Company's potential, noting its digital transformation goals, its reinvestment strategy and its strong and stable corporate governance structure.
The airline industry was brought to a virtual standstill by recent events, so our continued lack of exposure to Brazilian aerospace conglomerate Embraer, a constituent of our benchmark index, was extremely beneficial overall. The stock lost two thirds of its value and its difficulties were exacerbated when Boeing walked away from its plans to acquire an 80% stake.
PagSeguro Digital (PAGS) is a mobile payment-based e-commerce service for commercial operations. Its shares hit a lifetime low in March, with its business under pressure from the government's 'stay-at-home' orders and currency weakness concerns, but prices rallied subsequently after encouraging first quarter results. Over the year, PAGS' impact on overall performance was broadly neutral but we recently met with the Chief Executive Officer, which reinforced our confidence in the business.
During the period we invested in multichannel sports good retailer Centauro which has partnerships with the likes of Nike, Adidas and Puma. As well as more than 190 physical stores, Centauro is continuing to gain market share via online purchases made through its mobile device app and website. We believe the stock has attractive growth prospects.
Outlook
The Company's financial year was a period in which the global economic and geopolitical landscape shifted in an unprecedented manner, whilst political uncertainty within Brazil returned to center stage. We accept the gravity of the current economic downturn, with COVID-19, a global recession, China's slowdown, and plummeting commodity prices all significant headwinds. For the rest of 2020 we expect a sharp contraction of activity and a further deterioration of an already weak labour market.
Brazil has become one of the world's major coronavirus hotspots and these unprecedented times have derailed the tentative economic recovery we had anticipated at the halfway stage of this reporting period. We are now assessing how the effects of COVID-19 might affect the future growth picture: it is a case of waiting and seeing how central government policy influences the economic recovery post-crisis.
Additionally, we are assessing the global demand for commodities, which will feed into the outlook for Latin America's materials exporters. So far, commodities have taken a hit and are pricing in a broad global slowdown. If the effects of the coronavirus are contained to one or two quarters this year there is potential for bounce-back; however, it is too soon to tell at this stage.
We are mindful that the emergency fiscal measures being rolled out will add further pressure to the country's already precarious debt burden. Brazil is in an unenviable position, treading a fine line between supporting the economy to contain social unrest, whilst remaining cognisant of the long-lasting damage this could impose on the country's debt levels.
Currency volatility, and how this will affect companies' revenues and costs, will be another important factor for us to watch. A weak real has a direct impact on Brazilians' spending power since many goods and services are traded in dollars so become more expensive.
Aside from COVID-19 factors, the need to refocus on Brazil's much-needed reform agenda must be addressed on the other side of the crisis. Plans have been set off course, but a comprehensive resolution of these issues will ultimately determine the direction and speed of travel for the country's economy. When tangible reform is achieved, the Brazilian economy could thrive, and political stability could re-emerge.
Although the short-term investment and economic landscape is bleak, our own tailored investment process remains unchanged: we seek to identify fundamentally sound businesses with good long-term prospects to deliver solid returns. We are confident in the quality of the Company's portfolio but mindful that uncertainty will continue to weigh heavily on Brazil's prospects until there is a return to some sort of normality, not forgetting the need to solve Brazil's numerous, unresolved domestic challenges.
We will adhere to our investment process and look beyond short-term volatility and towards a more positive outlook. Along the way we will endeavor to take advantage of market setbacks as opportunities arise to buy into high quality businesses at bargain prices. We accept that investors will need to display patience during the current difficulties, but we believe the Company's portfolio is well positioned for a recovery in the Brazilian economy as and when that time comes.
Luis Carrillo
Sophie Bosch De Hood
Investment Managers
29th July 2020
Principal and Emerging Risks
The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.
With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. These key risks fall broadly into the following categories:
• Investment and Strategy: An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to underperformance against the Company's benchmark index and peer group, comprising open and closed ended funds investing solely in Brazil or more widely in South America, resulting in the Company's shares trading on a wider discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines, which are monitored and reported on. The Manager provides the Directors with timely and accurate management information, including performance data and attribution analysis, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the investment managers who attend all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The investment managers are free to employ the Company's gearing to the extent that they can or hold cash, within a strategic range set by the Board. The Board holds a separate meeting devoted to strategy each year. In addition to the regular Board meetings, the Board visits Brazil from time to time to discuss strategy and consider all relevant aspects of investment in Brazil.
• Financial: The financial risks faced by the Company include foreign currency risk, interest rate risk, other price risk, liquidity risk and credit risk. Further details are disclosed in note 20 on pages 58 to 63.
• Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158. Details of the Company's approval are given under 'Business of the Company' above. Were the Company to breach Section 1158, it might lose investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by the Manager and the results reviewed by the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules, Disclosure and Transparency Rules ('DTRs') and, as an investment trust, the Alternative Investment Fund Managers Directive ('AIFMD'). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary, the Manager and its professional advisers to ensure compliance with the Companies Act 2006 and the UKLA Listing Rules, DTRs and AIFMD.
• Corporate Governance and Shareholder Relations: Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out on pages 21 to 28.
• Operational: Disruption to, or failure of the Manager's accounting, dealing or payments systems or the depositary's or the custodian's records may prevent accurate reporting and monitoring of the Company's financial position. On 1st July 2014, the Company appointed the Bank of New York Mellon (International) Limited to act as its depositary, responsible for overseeing the operation of the custodian, JPMorgan Chase Bank, N.A., and the Company's cash flow. Details of how the Board monitors the services provided by the Manager and its associates and the key elements designed to provide effective internal control are included within the Risk Management and Internal Control section of the Corporate Governance report on pages 26 and 27.
• Political and Economic: Changes in financial or tax legislation, including in the UK and in Brazil, may adversely affect the Company. The Manager makes recommendations to the Board on accounting, dividend and tax policies and the Board seeks external advice where appropriate. General political uncertainty in Brazil and the state of the Brazilian economy may lead to investors deciding to reduce their exposure to Brazil resulting in the sale of a significant percentage of the Company's shares. In addition, the Company is subject to administrative risks, such as the imposition of restrictions on the free movement of capital. The Board monitors the impact of any changes in such restrictions on the Company.
• Climate Change: Climate change, which barely registered with investors a decade ago, has today become one of the most critical issues confronting asset managers and their investors. 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 inevitable.
The Board is overseeing the Manager to ensure the formal integration of ESG factors into its investment process over the course of the coming year. Financial returns for long-term diversified investors should not be jeopardised given the investment opportunities created by the world's transition to a low-carbon economy. The Board is also considering the threat posed by the direct impact of climate change on the operations of the Manager and other major service providers.
As extreme weather events become more common, the resiliency, business continuity planning and the location strategies of our services providers will come under greater scrutiny.
• Global Pandemics: The recent emergence and spread of coronavirus (COVID-19) has raised the emerging risk of global pandemics, in whatever form a pandemic takes. The global reach and disruption to markets of this pandemic is unprecedented, so we have no direct comparatives from history to learn from. The Company is exposed to the risk of market volatility and falling equity markets brought about by the pandemic. The resilience of the operational services to the Company could be reduced as a result of the effects of the pandemic, representing a risk to the Company. The Board regularly reviews the mitigation measures which JPMorgan Asset Management and other key service providers have in place to maintain operational resilience and is satisfied that these are appropriate even in the current conditions. Relevant business continuity plans have been invoked at those service providers and the Board had been given updates. Working from home arrangements have been implemented where appropriate and government guidance is being followed. The Board does not anticipate a fall in the level of service. The pandemic has also triggered a sharp fall in global stock markets and created uncertainty around future returns. The pandemic has also impacted Brazil particularly significantly, as further set out in the Investment Manager's Report on page 7.
Transactions with the Manager and related parties
Details of the management contract are set out in the Directors' Report on page 21. The management fee payable to the Manager for the year was £254,000 (2019: £155,000) and a reimbursement by manager to the Company of £26,000 (2019: £72,000) was outstanding at the year end.
During the year £6,000 (2019: £27,000) was payable to the Manager for the administration of savings scheme products, of which £nil (2019: £8,000) was outstanding at the year end.
Included in administration expenses in note 6 on page 52 are safe custody fees amounting to £18,000 (2019: £14,000) payable to JPMorgan Chase of which £4,000 (2019: £2,000) was outstanding at the year end.
The Company also holds cash in JPMorgan US Dollar Liquidity Fund, managed by JPMF. At the year end this was valued at £0.09 million (2019: £0.28 million). Income amounting to £11,000 (2019: £5,000) was receivable during the year of which £nil (2019: £nil) was outstanding at the year end.
Handling charges on dealing transactions amounting to £5,000 (2019: £12,000) were payable to JPMorgan Chase during the year of which £2,000 (2019: £4,000) was outstanding at the year end.
At the year end, total bank balance of £77,000 (2019: £64,000) was held with JPMorgan Chase Bank N.A. A net amount of interest of £nil (2019: £1,000) was receivable by the Company during the year from JPMorgan Chase Bank N.A. of which £nil (2019: £nil) was outstanding at the year end.
Full details of Directors' remuneration and shareholdings can be found on page 33 and in note 6 on page 52.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards) including 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, taken as a whole, the annual report and accounts are fair balanced and understandable, provide the information necessary, for shareholders to assess the Company's performance, business model and strategy, and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments 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 a 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 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 www.jpmbrazil.co.uk website, 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 work carried out by the auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which 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 a Directors' Remuneration Report that comply with that law. The Strategic Report and the Directors' report include a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.
Each of the Directors, whose names and functions are listed on page 20 confirms that, to the best of their knowledge the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return or loss of the Company. The Board confirms that it is satisfied that the annual report and accounts taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the strategy and business model of the Company.
For and on behalf of the BoardVictor Bulmer-ThomasDirector
29th July 2020
Statement of Comprehensive income
for the year ended 30th April 2020
2020 | 2019 | |||||
Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
(Losses)/gains on investments held at fair value through profit or loss | - | (8,165) | (8,165) | - | 495 | 495 |
Net foreign currency gains/(losses) | - | 55 | 55 | - | (40) | (40) |
Income from investments | 633 | - | 633 | 883 | - | 883 |
Interest receivable and similar income | 11 | - | 11 | 6 | - | 6 |
Gross return/(loss) | 644 | (8,110) | (7,466) | 889 | 455 | 1,344 |
Management fee | (254) | - | (254) | (155) | - | (155) |
Other administrative expenses | (297) | - | (297) | (331) | - | (331) |
Net return/(loss) before taxation | 93 | (8,110) | (8,017) | 403 | 455 | 858 |
Taxation | (50) | - | (50) | (70) | - | (70) |
Net return/(loss) after taxation | 43 | (8,110) | (8,067) | 333 | 455 | 788 |
Return/(loss) per share | 0.13p | (24.19)p | (24.06)p | 0.99p | 1.36p | 2.35p |
STATEMENT OF CHANGES IN EQUITY
for the year ended 30th April 2020
Called up | Capital | ||||||
share | Share | redemption | Other | Capital | Revenue | ||
capital | premium | reserve | reserve1 | reserves | reserve1 | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At 30th April 2018 | 617 | 16,149 | 13 | 26,482 | (18,586) | 975 | 25,650 |
Net return | - | - | - | - | 455 | 333 | 788 |
Dividend paid in the year (note 3) | - | - | - | - | - | (268) | (268) |
At 30th April 2019 | 617 | 16,149 | 13 | 26,482 | (18,131) | 1,040 | 26,170 |
Net (loss)/return | - | - | - | - | (8,110) | 43 | (8,067) |
Dividend paid in the year (note 3) | - | - | - | - | - | (268) | (268) |
At 30th April 2020 | 617 | 16,149 | 13 | 26,482 | (26,241) | 815 | 17,835 |
1 This reserve forms the distributable reserve of the Company and may be used to fund distributions to investors.
STATEMENT OF FINANCIAL POSITION
at 30th April 2020
2020 | 2019 | |
£'000 | £'000 | |
Fixed assets | ||
Investments held at fair value through profit or loss | 17,530 | 25,686 |
Current assets | ||
Derivative financial assets | 1 | - |
Debtors | 244 | 249 |
Cash and cash equivalents | 164 | 346 |
409 | 595 | |
Current liabilities | ||
Creditors: amounts falling due within one year | ||
Creditors | (103) | (111) |
Derivative financial liabilities | (1) | - |
Net current assets | 305 | 484 |
Total assets less current liabilities | 17,835 | 26,170 |
Net assets | 17,835 | 26,170 |
Capital and reserves | ||
Called up share capital | 617 | 617 |
Share premium | 16,149 | 16,149 |
Capital redemption reserve | 13 | 13 |
Other reserve | 26,482 | 26,482 |
Capital reserves | (26,241) | (18,131) |
Revenue reserve | 815 | 1,040 |
Shareholders' funds | 17,835 | 26,170 |
Net asset value per share | 53.2p | 78.1p |
STATEMENT OF CASH FLOWS
for the year ended 30th April 2020
2020 | 2019 | |
£'000 | £'000 | |
Net cash outflow from operations before dividends and interest1 | (464) | (542) |
Dividends received | 642 | 749 |
Interest received | 11 | 6 |
Net cash inflow from operating activities | 188 | 213 |
Purchases of investments | (9,474) | (10,421) |
Sales of investments | 9,372 | 10,525 |
Settlement of foreign currency contracts | 5 | (15) |
Net cash (outflow)/inflow from investing activities | (97) | 89 |
Dividend paid | (268) | (268) |
Net cash outflow from financing activities | (268) | (268) |
(Decrease)/increase in cash and cash equivalents | (176) | 34 |
Cash and cash equivalents at start of year | 346 | 316 |
Unrealised losses on foreign currency cash and cash equivalents1 | (6) | (4) |
Cash and cash equivalents at end of year | 164 | 346 |
(Decrease)/increase in cash and cash equivalents | (176) | 34 |
Cash and cash equivalents consist of: | ||
Cash and short term deposits | 77 | 64 |
Cash held in JPMorgan US Dollar Liquidity Fund | 87 | 282 |
Total | 164 | 346 |
1 The unrealised exchange losses on the JPMorgan US Dollar Liquidity Fund in the comparative column has been moved from the initial 'Net cash outflow from operations' total to be disclosed separately as the 'unrealised losses on foreign currency cash and cash equivalents.
Notes to the financial statements
for the year ended 30th April 2020
1. Accounting policies
Basis of accounting
The financial statements are prepared under 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 October 2019.
All of the Company's operations are of a continuing nature.
The financial statements have been prepared on a going concern basis. In forming this opinion, the directors have considered any potential impact of COVID-19 pandemic on the going concern and viability of the Company. They have considered the potential impact of COVID-19 and the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience particularly in light of COVID-19. The Directors have reviewed income and expense projections and the liquidity of the investment portfolio in making their assessment.
At the 2020 AGM, a resolution in connection with the continuation of the Company will be put to shareholders. The Board will recommend that shareholders vote against the continuation of the Company. If the continuation resolution is not passed, the Board will be required to put forward to shareholders plans to wind-up, reorganise or reconstruct the Company. As the determination of the vote will not be decided until after the vote has taken place at the AGM, there is therefore a material uncertainty over the outcome of the continuation vote that may cast significant doubt on the Company's ability to continue as a going concern. The financial statements will continue to be prepared on a going concern basis, but with a material uncertainty in relation to going concern.
The policies applied in these financial statements are consistent with those applied in the preceding year.
2. Return/(loss) per share
2020 | 2019 | ||
£'000 | £'000 | ||
Revenue return | 43 | 333 | |
Capital (loss)/return | (8,110) | 455 | |
Total (loss)/return | (8,067) | 788 | |
Weighted average number of shares in issue during the period | 33,524,854 | 33,524,854 | |
Revenue return per share | 0.13p | 0.99p | |
Capital (loss)/return per share | (24.19)p | 1.36p | |
Total (loss)/return per share | (24.06)p | 2.35p |
3. Dividends
Dividends paid and proposed
2020 | 2019 | ||
£'000 | £'000 | ||
2019 dividend paid of 0.8p (2018: 0.8p) per share | 268 | 268 | |
Dividend proposed of nil (2019: 0.8p) per share | - | 268 |
All dividends paid in the period have been funded from the Revenue Reserve.
4. Net asset value per share
2020 | 2019 | ||
Net assets (£'000) | 17,835 | 26,170 | |
Number of shares in issue | 33,524,854 | 33,524,854 | |
Net asset value per share | 53.2p | 78.1p |
JPMORGAN FUNDS LIMITED
30th July 2020
For further information, please contact:
Priyanka Vijay Anand
For and on behalf of
JPMorgan Funds Limited
020 7742 4000
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.
ENDS
A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The annual report will also shortly be available on the Company's website at www.jpmbrazil.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.