JPMorgan Emerg. EMEA - Final Results
26/01/2023 10:47
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RNS Number : 9757N JPMorgan Emerging EMEA Securities 26 January 2023
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN EMERGING EUROPE, MIDDLE EAST & AFRICA SECURITIES PLC
ANNOUNCEMENT OF FINAL RESULTS
The Directors of JPMorgan Emerging Europe, Middle East & Africa Securities
plc
Announce the Company's Results for the Year Ended 31(st) October 2022
Legal Entity Identifier:
549300II3MHI98ZLVH37
Information disclosed in accordance with DTR 4.1.
CHAIRMAN'S STATEMENT
Overview and performance
As I indicated in the Company's Interim Statement, performance in the period
can be divided into two parts. Performance from 1st November 2021 to 23rd
February 2022 was satisfactory, but that all changed thereafter and it saddens
me to report that the tragic events in Ukraine since Russia's military
invasion commenced on 24th February 2022, and the imposition of strict
economic sanctions by western governments on Russia and the Russian
government's restrictions on the foreign ownership of Russian securities that
followed, have drastically reduced the valuation of the Company's assets in
this annual 12-month reporting period to 31st October 2022.
The sanctions and restrictions that followed Russia's invasion of Ukraine in
February 2022 were wide ranging and had a very sharp negative effect on the
Company and international markets. In summary, the changes that occurred have
included; the closure of the Moscow Exchange (MOEX) to trading by overseas
investors; the unavailability of prices on RDXUSD (Russian Depositary Index
USD) and prices of American Depositary Receipts (ADR) and Global Depositary
Receipts (GDR); the prohibition of dividend payments by Russian companies to
western shareholders; and the cessation of reporting of the Company's
benchmark data by western registered news services.
These restrictions have had a severe negative impact on the value of the
Company's portfolio because, as required under the terms of the Company's
Investment Objective that applied to this reporting period, almost all of the
Company's portfolio consisted of Russian equities. Notwithstanding the values
at which stocks are traded on the local market, without access to the Russian
equity market following the invasion of Ukraine, it has been necessary to
apply a fair value valuation method to Russian company stocks in the Company's
portfolio, resulting in a massive reduction in the Company's net asset value.
See Note 1 (b) on page 59 of the Company's annual report and financial
statements for details of the fair value valuation method applied. The
Company's net asset value has continued to be published daily and, as at 31st
October 2022, it was 46.7 pence per share, a decline of 94.9% on a total
return basis in this 12-month reporting period. Since the period end the net
asset value remained approximately unchanged and as at 23rd January 2023, was
46.6 pence per share.
A consequence of Russia's invasion of Ukraine is that some events included in
the Company's list of Principal Risks have become realities. In light of this
the Board has reviewed its Principal Risks and further details can be seen on
pages 24 to 28 of the Company's annual report and financial statements.
The Company's shares have continued to trade uninterrupted on the London Stock
Exchange throughout the reporting period, although the precipitous fall in its
share value led it to leaving the FTSE All-Share Index on 17th June 2022. The
Company's share price as at 31st October 2022 was 79.0 pence, a decline of
90.5% on a total return basis in the 12-month period to 31st October 2022.
As at 23rd January 2023 the share price was 96.5 pence.
We have also seen significant changes in the Company's share register. Whilst
some institutions reduced their share holdings in the Company following the
invasion, there was significant demand from individuals to buy shares.
Consequently, institutional holdings have fallen from approximately 70% to 18%
as at 31st October 2022.
Amendment of the Company's investment objective and policies and change of
name
In response to the current closure of the Russian market, the Directors
considered options to best preserve value for shareholders. Therefore, over
the summer/autumn of 2022 the Board sought and received authorisation from the
Financial Conduct Authority (FCA) to amend the Company's investment objective
and policies to permit investments in Emerging Europe (including Russia), the
Middle East and Africa. Following the FCA approval, a Circular was sent to
shareholders in late October 2022 detailing the proposal and providing notice
that an ordinary resolution proposing the change would be put to a General
Meeting of shareholders on 23rd November 2022. The resolution was approved by
shareholders with 61.32% voting in favour and 38.68% against. The voter
turn-out was 25.48%. Following the approval of the resolution, in order that
the Company's name better reflected its investment objective, the Board
approved the change of the Company's name from JPMorgan Russian Securities
plc to JPMorgan Emerging Europe, Middle East & Africa Securities plc.
As referred to in the RNS announcement of 23rd November 2022, the Board stated
that the approval of the resolution to amend the Company's investment
objective and policy was seen as a step towards the avoidance of the
crystallisation of current shareholders' losses in the Company of circa 95%.
The widening of the Company's investment objective was not a proposal that the
Board would have made in normal trading conditions. However, with the
situation for the Company since Russia's invasion of Ukraine on 24th February
2022 remaining unchanged and no one knowing where these tragic events will
lead or what the future holds, the changes to the Company's investment
objectives would at least provide an opportunity for the Company to resume
investment and improve income generation. As previously stated, the Board is
conscious of existing shareholders' pre-emption rights and concerns about
possible dilution of their holdings following the widening of the investment
objective.
Where 20% or more of votes have been cast against any Board recommendation for
a resolution, the Company is required by provision 5.2, 4 of the AIC Code of
Corporate Governance to explain what action it will take to consult
shareholders to understand the reasons behind the result. Following the
publication of the Circular convening the general meeting, the Board has
spoken to institutional and retail shareholders and received a number of
questions from shareholders regarding the proposals. In addition, at the
shareholder meeting on 23rd November 2022, a number of shareholders also
raised questions and voiced their objection to the resolution. The Board
acknowledges that some shareholders are concerned whether the implementation
of the new investment objective and policy will be followed by an issue of
shares or capital raising that would dilute their shareholding in the Company.
Some shareholders were also keen to see the Company's Russian assets 'ring
fenced' and others were concerned that the Company may undertake a 'fire sale'
of its Russian holdings if the Russian market reopened to the Company.
The Board issued an RNS announcement on 7th November 2022, confirming that
there were currently no plans to issue shares or raise capital, even in the
event that the current prohibitions on the trading of and receipt of dividends
from Russian securities are lifted. In addition, in the RNS announcement of
23rd November 2022, the Board summarised the concerns of the shareholders who
had voted against the resolution and reiterated that it was mindful of
shareholders' pre-emption rights and its duty to promote the success of the
Company for the benefit of the members as a whole. To further demonstrate that
shareholders concerns had been addressed, on 28th November 2022, the Board
published a list of shareholders' questions and answers (Q&A) which
includes response to the above questions from shareholders.
I would like to stress that the Board is very aware that shareholders invested
in a company whose principle orbit of investment is Russia and that
shareholders would expect the Company to maximise value from its investments
in the event that markets reopen to overseas investors. Unlike an open-ended
fund which would have to sell assets to meet redemption demands our Company
being a closed ended fund would not be under the same pressure to sell
assets, but your Board and the managers would take a view as to what is in the
best interests of shareholders at that time. However, it should be noted that
there are significant uncertainties about whether Russian markets will reopen
and the circumstances that would prevail if they did reopen.
Please see the Annual General Meeting section below for details of how
shareholders can ask the Board questions on the above or any other subject
related to the Company.
Revenue, earnings and dividend
The prohibition on receipt by foreign investors of dividends from Russian
companies, introduced soon after Russia's invasion of Ukraine in February 2022
has understandably reduced the Company's revenue for the year significantly.
Revenue for the 12-month period to 31st October 2022 after taxation was
£4,314,000 (31st October 2021: £15,030,000) and the return per share,
calculated on the basis of the average number of shares in issue was 10.66
pence (31st October 2021: 35.53 pence) per share.
The Company paid an interim dividend of 15 pence per share for the current
financial year, which had been declared before Russia's invasion of Ukraine in
February 2022. There will be no further dividends in respect of this financial
year, but it remains the Board's intention to resume the payment of dividends
when circumstances permit.
At present, the dividends due from the Russian companies in the Company's
portfolio are held in a custody account ('S' Account, in Moscow) and the
balance as at 4th January 2023 was equivalent to approximately £6.3 million
at the exchange rate applicable on that date. However, as detailed above,
these dividends cannot be paid to the Company and may never be received. They
are not recognised in the Company's net asset value or in its Income
Statement.
Continuation vote and tender
At the Company's Annual General Meeting (AGM) on 4th March 2022, a resolution
was passed requiring the Company to put a continuation vote to shareholders in
2027 and this will take place. In addition, shortly before Russia's invasion
of Ukraine on 24th February 2022, the Board stated that the Company must
outperform its benchmark on a net asset value cum income basis over the
five-year period to 31st October 2026. In the event that it did not meet this
target, a tender offer for 25% of the outstanding shares would be made by the
Company at NAV less costs and less a discount of 2%. This was based on the
Company's benchmark at that time, the RTS index in sterling terms. The Board
believed that this measure was in shareholders' interests as it further
incentivised the Manager to focus on long term investment performance.
Clearly, the events following Russia's invasion of Ukraine in February 2022
have required the Board to revisit this tender offer commitment. This is
because during this reporting period measurement of the Company's performance
against the RTS index was and continues to be no longer possible due to
western news services no longer distributing data on Russian indices,
including the RTS index. And, in addition, the Company is prohibited from
trading its Russian securities, which prevents any measurable performance
activity.
Therefore, the Board has agreed that the tender offer referred to above no
longer applies. Looking ahead, the Board also agree that no further tender
offer will be made. This is because there is no suitable recognised index that
matches the Company's portfolio, hence the Company's adoption of a reference
index rather than a benchmark. See the Glossary on page 83 of the Company's
annual report and financial statements for more details on the reference
index.
Discount control
The events following Russia's invasion of Ukraine in February 2022 have
resulted in the Board withdrawing its annual commitment to buy back up to 6%
of the shares in issue to the extent that the shares were trading at a
discount wider than 10%.
This is because the current extreme market conditions have created the unusual
situation whereby the Company's shares are currently trading at a very
elevated premium to its net asset value. As at 31st October 2022, the premium
was 69.1%. The Board believes that this premium arises due to a difference in
the view of what the Company's net assets are valued at and should not be
interpreted as an indication that investors are more likely to derive any
value from the Company's Russian shareholdings. At the previous year end date
31st October 2021, the shares were trading at the more usual discount
of 11.3%.
During the financial year in the period before Russia's invasion of Ukraine in
February 2022, 340,000 shares were bought back.
Although there are currently no plans to recommence share buybacks, the Board
will seek authority to renew the Company's share issuance and buyback powers
at the forthcoming AGM, in case market conditions become conducive to the use
of share buybacks and the Company's shares revert to trading at a discount.
Directors
During this 12-month reporting period two of the Company's directors, Tamara
Sakovska and Ashley Dunster resigned, following Russia's occupation of
Ukraine. Tamara Sakovska is a Ukrainian citizen and felt she could no longer
serve on the Board of a company investing in Russia. Ashley Dunster had a
conflict of interest that meant he too felt he must step down. In line with
the Company's succession plan, as announced on 4th October 2021, Gill Nott,
the Company's former Chairman did not stand for reappointment at the Company's
AGM on 4th March 2022. Prior to the date of Gill's departure, the Board had
unanimously agreed that I would be appointed as the Company's Chairman
immediately following the AGM. Dan Burgess became the Audit Committee Chair
immediately following the Company's AGM on 4th March 2022. Dan Burgess was
appointed as a Director of the Company on 4th January 2022 after a thorough
selection process using the services of an independent third-party search
agent.
Russia's invasion of Ukraine on 24th February 2022 has limited the Company's
ability to recruit a diverse board of directors until the Company's revenue
generation and outlook have been stabilised. The Company's Articles permit a
minimum of two directors and it is the Board's intention to continue with a
complement of three directors during this difficult period, with no current
plans for recruitment of additional directors. In compliance with corporate
governance best practice, all Directors will be standing for re-appointment at
the forthcoming AGM. Following the Company's annual evaluation of the existing
Directors, the Chairman, the Board and its Committees, the Board recommends to
shareholders that all Directors standing be reappointed.
The Company's Directors' fees were last increased with effect from 1st
November 2018. The Board has reviewed the current fees and agreed that they
should remain unchanged.
Investment Management
Oleg Biryulyov continues to be the Company's Investment Manager supported by
JPMorgan Asset Management's Emerging Markets and Asia Pacific equities team
(EMAP). As a result of the changes in the Company's investment strategy, Habib
Saikaly has stood down as a named investment manager and has been replaced by
Pandora Omaset who will be assisting Oleg Biryulyov. We would like to thank
Habib for his contribution as co-Manager. Pandora Omaset is also the lead
portfolio manager for the JPMorgan Africa Fund. JPMAM's EMAP team consists of
100+ investment professionals based in both the UK and overseas. The Company
benefits greatly from the extensive experience of the investment management
team that have many years of experience of investing in Russia and emerging
markets through previous severe global market disruptions. The Board receives
regular reports on the service levels of the Manager and its key service
providers and formally evaluated their services in September 2022. Following
that review the Board concluded that it was satisfied with the current levels
of service.
As previously announced JPMorgan Funds Limited waived their fee with effect
from 1st March 2022, as a result of Russia's invasion of Ukraine. In the
current financial year, the waiver of the management fee continued to apply on
the value of the Company's Russian held securities. From 1st January 2023, the
management fee has been reinstated in respect of the Company's net assets
excluding the Russian holdings.
Annual general meeting
The Company's Annual General Meeting (AGM) will be held on Tuesday 7th March
2023 at 2.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP. We are pleased
that this year we will once again be able to invite shareholders to join us in
person for the Company's AGM, hear from the Investment Managers and ask
questions. Shareholders wishing to follow the AGM proceedings but choosing not
to attend in person will be able to view proceedings 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.jpmeemeasecurities.com or by contacting the Company Secretary
at invtrusts.cosec@jpmorgan.com
My fellow Board members, representatives of JPMorgan and I look forward to the
opportunity to meet and speak with shareholders after the formalities of the
meeting have been concluded. Shareholders who are unable to attend the AGM are
strongly encouraged to submit their proxy votes in advance of the meeting, so
that they are registered and recorded at the AGM. Proxy votes can be lodged in
advance of the AGM either by post or electronically: detailed instructions are
included in the Notes to the Notice of Annual General Meeting on pages 78 to
81 of the Company's annual report and financial statements.
If there are any changes to these arrangements for the AGM, the Company will
update shareholders via the Company's website.
Outlook
The outlook for relations between the West and Russia continue to appear to be
grave. Western governments are seeking to reduce their reliance on Russian
energy supplies. This, together with the continuing sanctions and exclusion of
Russia from Western financial systems may destabilise and isolate Russia to
such an extent that holding investments in the country becomes prohibited
and/or unviable. There can be no certainty as to if, or when the Russian
markets will reopen, and the circumstances of the opening.
The Company's new investment objective at least helps steer the Company
through this difficult period with the aim of generating as much value in the
Company for shareholders as possible. The Investment Manager is expected to
commence investment under the terms of the Company's new investment objective
once the accounts and control and operation systems in the various
jurisdictions have been set up. The new investments will have a tilt towards
income and quality. Further details on the portfolio will be provided on the
Company's website once available and an update will be provided at the AGM on
7th March 2023.
The challenge for the Board is to use the new investment objective to grow the
Company's assets in a way that promotes the success of the Company for the
benefit of the members as a whole. The Board is confident that, with the
assistance of the JPMorgan EMAP team over the long term and a supportive
political and regulatory environment, this aim is achievable.
Eric Sanderson
Chairman
24th January 2023
Notes:
A list of 'Frequently Asked Questions' was included in the Company's Half Year
Report and Financial Statements (page 25 of the Company's annual report and
financial statements), which is available to view on the Company's website.
An updated list of 'Frequently Asked Questions', including questions from
shareholders following the proposal to widen the Company's Investment
Objective and Policies, has been available to view on the Company's website
since 28th November 2022.
The Company's current Principal Risks are highlighted on pages 24 to 28 of the
Company's annual report and financial statements.
INVESTMENT MANAGERS' REPORT
Overview and performance
Russia's military campaign against Ukraine commenced on 24th February 2022
with tragic results for the civilian population. New economic sanctions by the
West on Russia and the introduction of restrictions on foreign ownership of
Russian securities swiftly followed. These events resulted in the closure of
Russian markets to western investors and a dramatic reduction in the valuation
of the Company's assets in this annual reporting period to 31st October 2022.
Since the days following 24th February 2022, the Company has been unable to
trade its Russian securities and has been prohibited from exporting or
reinvesting dividends received from our holdings. In addition, western
registered news services have ceased distribution of data on the Company's
benchmark, the RTS index. With the Russian market effectively 'frozen' there
is no performance data for the Company to report for the year ended 31st
October 2022.
Portfolio activity
Since the 24th February 2022 the Company has been prohibited from trading its
Russian securities. The Company currently owns three securities that have been
sanctioned by OFAC; Sberbank, VTB and Severstal. Due to the restrictions put
in place by the Russian authorities that prohibit all trading on the Moscow
Stock Exchange, the Company, in line with all other investors holding Russian
stocks in similar circumstances, is currently unable to sell these securities.
In May 2022, we took the opportunity to de-risk the portfolio by selling the
Company's holdings in Kazakh stock. Where possible, the Company's holdings in
ADR/GDRs have been transferred into local stock. At 31st October 2022, the
Company's portfolio consisted of 27 Russian securities. The Company's net
asset value reduced by approximately 95% in the reporting period.
Shareholders' approved the Company's new investment objective on 23rd November
2022. The set-up of the accounts and control and operation systems in the
various jurisdictions that will allow investment to commence are expected to
be completed shortly. Once available, further details will be provided in the
Portfolio section of the Company's website.
Outlook
We are pleased that shareholders have approved the widening of the Company's
investment objective in order to allow investments in Emerging Europe, Middle
East and Africa. In addition, it is good time to welcome Pandora Omaset as a
named investment manager to replace Habib Saikaly and her experience as a
portfolio manager for the JPMorgan Africa Fund should prove valuable. We look
forward to striving to maximise total returns to shareholders from a
diversified portfolio of investments through this difficult period.
Oleg I. Biryulyov
Pandora Omaset
Investment Managers
24th January 2023
PRINCIPAL AND EMERGING RISKS
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 JPMF, the Audit & Risk Committee has drawn up a risk
matrix, which identifies the key risks to the Company. These are reviewed and
noted by the Board. The risks identified and the broad categories in which
they fall, and the ways in which they are managed or mitigated are summarised
below. The AIC Code of Corporate Governance requires the Audit & Risk
Committee to put in place procedures to identify emerging risks. The key
emerging risks identified are also summarised below.
Principal risk Description Mitigating activities
Investment Management and Performance
Investing in Emerging Markets Investors should note that there are significant risks inherent in investing Following Russia's invasion of Ukraine on 24th February 2022, the prohibition
in emerging market securities not typically associated with investing in of trading of Russian securities, prohibition on the receipt of dividends and
securities of companies in more developed countries. In terms of gauging the reduction in the value of the Company by circa 95% led the Board to propose a
economic and political risk of investing in emerging markets, it frequently shareholder resolution to widen the Company's investment objective and permit
appears in the higher risk categories when compared with most Western investments in Emerging Europe, Africa & Middle East. Shareholders
countries. The value of emerging market securities, and therefore the net approved the widening of the Company's investment objective on 23rd November
asset value of the Company, may be affected by uncertainties such as economic, 2022. The Board also suspended its dividend payment policy and the Company's
political or diplomatic developments, social and religious instability, financial statements no longer reflect dividends receivable. The Board's
taxation and interest rates, currency repatriation restrictions, crime and activities included reviewing the reductions in the value of the Company's
corruption and developments in the law or regulations in emerging markets and, portfolio, discount/premium to share price, sanctions, counter-parties status,
in particular, the risks of expropriation, nationalisation and confiscation of inability to trade stocks and review of investment strategy.
assets and changes in legislation relating to the level of foreign ownership.
Such factors may lead to a reduction in the size of the Company's net assets
and becoming unviable. Russia's invasion of Ukraine on 24th February 2022 led
to the realisation of some of the above risks and Russia becoming a pariah
state for western investors.
Share Price Discount to Net Asset Value ('NAV') per Share If the share price of an investment trust is lower than the NAV per share, the The prohibition of trading of securities in Russian companies held in the
shares are said to be trading at a discount. The widening of the discount can Company's portfolio which was introduced following Russia's invasion of
be seen as a disadvantage of investment trusts which could discourage Ukraine on 24th February 2022 led the Board to suspend its share buy back
investors. Although it is common for an investment trust's shares to trade at policy. In addition the Board has withdrawn its commitment to provide a tender
a discount, particular events can negatively impact market sentiment. Due to offer based on performance of the Company against the RTS benchmark in the
the market volatility following Russia's invasion of Ukraine the Company's five year period to 31st October 2026.
shares have traded at a premium.
In normal market conditions the Board monitors the Company's discount level
and seeks, where deemed prudent, to address imbalances in the supply and
demand of the Company's shares through a programme of share buybacks. For
details of the Company's Continuation Vote, including recent updates, see Key
Features at the front of this document.
Investment Under-performance and Strategy An inappropriate investment strategy, for example asset allocation may lead to Following Russia's invasion of Ukraine on 24th February 2022, the prohibition
underperformance against the Company's reference index and peer companies. of the trading of Russian securities led to the closure of the Russian market
to the Company and its peers together with the cessation of reporting of
benchmark data by western news companies. The Board managed these
unprecedented events by keeping regularly updated regarding compliance with
sanctions and ensuring sufficient liquidity in order to maintain a going
concern basis. The Board also waived the Company's current investment
guidelines to help address the unprecedented market conditions.
In normal market conditions, the Board manages these risks by diversification
of investments 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 managers, who attend all Board meetings, and
reviews data which show statistical measures of the Company's risk profile.
Following adoption of the new mandate the board intends to re-commence this
process for new investments.
The Company has amended its investment objective to widen its investment to
include Emerging Europe, Middle East and Africa. Possible actions that the
Board may consider to address underperformance include changing the portfolio
manager or selecting another manager.
Failure of Investment Process A failure of process could lead to losses. The Manager mitigates this risk through internal controls and monitoring.
Fraud requires immediate notification to the Board and regular reports are
provided on control processes.
Loss of Investment Team or Investment Manager The sudden departure of the investment manager or several members of the wider The Manager takes steps to reduce the likelihood of such an event by ensuring
investment management team could result in a short term deterioration in appropriate succession planning and the adoption of a team based approach, as
investment performance. well as special efforts to retain key personnel.
Market and Financial The Company's assets consist of listed securities and it is therefore exposed During the current period of prohibition on the trading of Russian securities,
to movements in the prices of individual securities and the market generally. a fair value valuation method involving a 99% provision against the Company's
Russian investments was applied. In normal market conditions the Board
considers asset allocation and stock selection on a regular basis and has set
investment restrictions and guidelines, which are monitored and reported on by
the Manager. The financial risks faced by the Company include market price
risk, interest rate risk, foreign currency risk, liquidity risk and credit
risk.
Further details are disclosed in note 21 on pages 69 to 74 of the Company's
annual report and financial statements. The Manager regularly monitors the
liquidity of the portfolio including determining the market valuation of
securities held, the average daily volume and number of days to liquidate a
holding.
Operational Risks
Cyber Crime Disruption to, or failure of, the Manager's accounting, dealing or payments Details of how the Board monitors the services provided by JPMF and its
systems or the Depositary or custodian's records could prevent accurate associates and the key elements designed to provide effective internal control
reporting and monitoring of the Company's financial position. Under the terms are included within the Internal Control section of the Corporate Governance
of its agreement, the Depositary has strict liability for the loss or report on page 39 of the Company's annual report and financial statements.
misappropriation of assets held in custody. See note 21(c)) for further The threat of Cyber attack is increasing and regarded as having the ability to
details on the responsibilities of the Depositary. cause equivalent disruption to the Company's business as more traditional
business continuity and security threats. The Company benefits from JPMorgan's
Cyber Security Programme. The information technology controls around the
physical security of JPMorgan's data centres, security of its networks and
security of its trading applications are tested by independent auditors
PricewaterhouseCoopers and reported every six months against the AAF standard.
Regulatory Risks
Board Relationship with Shareholders The risk that the Company's strategy and performance does not align with The Manager addresses this by the organisation of an email address on the
shareholders expectations. Company's website whereby shareholders can raise questions. Feedback from
shareholders is received directly through the email address provided on the
Company's website and via brokers which is fed back to the Board regularly. At
a shareholding meeting on 23rd November 2022 to vote on the resolution to
widen the Company's investment objective, 38.68% of shareholders voted against
the proposal. As more than 20% of votes had been cast against the Board
recommendation for a resolution, the Company has complied with the AIC Code
of Corporate Governance and explained through this report, and RNS
announcements the action that has been taken to consult shareholders to
understand the reasons behind the result and the actions taken.
Political and Economic Changes in financial or tax legislation may adversely affect the Company. In The Manager makes recommendations to the Board on accounting, dividend and tax
addition, the Company is subject to administrative risks, such as policies and the Board seeks external advice where appropriate. The Manager
the imposition of restrictions on the free movement of capital. A widening closely monitors political and economic developments and reports significant
of the capital controls by the Russian Government could negatively impact the events to the Board either at scheduled meetings or when an event arises. The
Company. The introduction of limitations on the ability of Russian companies Board factor in the status of current political and economic developments in
to distribute dividends to foreign companies could materially reduce the their decision making. See above for details of the Board's responses to
Company's revenue and amount available for distribution to shareholders. The Russia's invasion of Ukraine including the prohibition on receipt of dividends
Company may not be able to trade Russian holdings or find a counter party to from Russian held companies and the Board's withdrawal of the Company's
trade with. dividend payments until further notice.
Regulatory and Legal Breach of regulatory rules, including sanctions could lead to suspension of The Board has remained informed of the impact of the sanctions and
the Company's Stock Exchange listing, financial penalties, or a qualified restrictions that followed Russia's invasion of Ukraine on 24th February 2022.
audit report. Loss of investment trust status could lead to the Company being Moreover, the Board sought and received FCA approval for the change to its
subject to tax on capital gains. investment objective, which includes investment in Russia. HMRC also confirmed
the continuation of the Company's investment trust status. The Board, with the
assistance of the Manager, monitors the Company's activities to ensure that
they remain compliant with the current sanctions regime including the specific
requirements applicable to the Manager as a company subject to the laws of the
United States of America and other jurisdictions that it operates in. The
Directors seek to comply with all relevant regulation and legislation and rely
on the services of its Company Secretary, the Manager, and its professional
advisors to monitor compliance with all relevant requirements. The Board and
its Committees reviews the status of the Company's regulatory and legal
requirements at regular internals.
Climate Risks
Climate Change Climate change, which barely registered with investors a decade ago, has today The Board is also considering the threat posed by the direct impact on climate
become one of the most critical issues confronting asset managers and their change on the operations of the Manager and other major service providers.
investors. Investors can no longer ignore the impact that the world's changing As extreme weather events become more common, the resiliency, business
climate will have on their portfolios, with the impact of climate change on continuity planning and the location strategies of our services providers will
returns now inevitable come under greater scrutiny. In normal market conditions, the Board also
receives ESG reports from the Manager and the way ESG considerations are
integrated into the investment decision-making.
Emerging risk Description Mitigating activities
Global Crisis A wide scale economic crisis which could be caused by a number of catastrophic The Board keeps informed of economic developments and latest ESG requirements
events such a climate change, may cause significant reductions in the through regular updates through the Manager.
valuations of companies in the portfolio.
Global Trade Protectionism A reduction in the global trading arising from increased barriers to trade is The Board can, with shareholder approval, look to amend the investment policy
a risk to economic growth, to investors' risk appetites and, consequently, to and objectives of the Company to gain exposure to or mitigate the risks.
the valuations of companies in the portfolio.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors' Report on
page 34 of the Company's annual report and financial statements. The
management fee payable to the Manager for the year was £1,050,000 (2021:
£3,254,000) of which £nil (2021: £nil) was outstanding at the year end.
Included in note 6 on page 62 of the Company's annual report and financial
statements are safe custody fees amounting to £82,000 (2021: £182,000)
payable to JPMorgan Chase Bank N.A. during the year of which £nil (2021:
£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 £2,000
(2021: £73,000) of which £nil (2021: £nil) was outstanding at the year end.
The Company was also holding cash in the JPMorgan US Dollar Liquidity Fund,
which is managed by JPMF. At the year end this was valued at £16,981,000
(2021: £10,638,000). Interest amounting to £101,000 (2021: £6,000) was
receivable during the year of which £nil (2021: £1,000) was outstanding at
the year end.
Handling charges on dealing transactions amounting to £20,000 (2021:
£199,000) were payable to JPMorgan Chase Bank N.A. during the year of which
£20,000 (2021: £72,000) was outstanding at the year end.
Included in note 6 on page 62, are American Depositary Receipts (ADRs) and
Global Depositary Receipts (GDRs) costs of £27,000 (2021: £197,000) charged
by the JPMorgan Chase Bank N.A. JPMorgan Chase Bank N.A.'s cost is 'passed
through' with no additional margin added.
At the year end, total cash of £83,000 (2021: £313,000) was held with
JPMorgan Chase Bank, N.A. A net amount of interest of £1,000 (2021: £4,000)
was receivable by the Company during the year from JPMorgan Chase.
Full details of Directors' remuneration and shareholdings can be found on page
45 and in note 6 on page 62 of the Company's annual report and financial
statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the annual report and financial
statements, and the Directors' Remuneration Report 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 prepared the financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law) and
Financial Reporting Standard (FRS) 102. Under company law the Directors must
not approve the financial statements unless they are satisfied that, taken as
a whole, the annual report and financial statements 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 addition, to provide these confirmations, and in preparing these financial
statements, the Directors must be satisfied that, taken as a whole, the annual
report and financial statements are fair, balanced and understandable. In
order to provide these confirmations and in preparing these annual statements
the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the
financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business
and the Directors confirm they have done so.
The Directors are responsible for keeping proper 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.
Under applicable law and regulations the Directors are also responsible for
preparing a Strategic Report, a Directors' Report, Directors' Remuneration
Report and Statement of Corporate Governance that comply with that law and
those regulations.
Each of the Directors, whose names and functions are listed in the Directors'
Report, 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 Directors confirm that, taken as a whole, the annual
report and financial statements are fair, balanced and understandable and
provide the information necessary for shareholders to assess the strategy and
business model of the Company; and
• That the Strategic Report and Directors Report include
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 the Company faces.
The report and financial statements are published on the
www.jpmeemeasecurities.com 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 Auditors does not involve consideration
of the maintenance and integrity of this website and, accordingly, the
Auditors accept no responsibility for any changes that have occurred to the
financial statements since they were initially presented on the website. The
financial statements are prepared in accordance with UK legislation, which may
differ from legislation in other jurisdictions.
For and on behalf of the Board
Eric Sanderson
Chairman
24th January 2023
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31st October 2022
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments held at
fair value through profit or loss - (360,154) (360,154) - 141,540 141,540
Net foreign currency gains/(losses) - 1,293 1,293 - (444) (444)
Income from investments 5,927 - 5,927 19,691 - 19,691
Interest receivable 102 - 102 10 - 10
Gross return/(loss) 6,029 (358,861) (352,832) 19,701 141,096 160,797
Management fee (420) (630) (1,050) (1,302) (1,952) (3,254)
Other administrative expenses (431) - (431) (815) - (815)
Net return/(loss) before finance costs and taxation 5,178 (359,491) (354,313) 17,584 139,144 156,728
Finance costs - - - (2) - (2)
Net return/(loss) before taxation 5,178 (359,491) (354,313) 17,582 139,144 156,726
Taxation charge (864) - (864) (2,552) - (2,552)
Net (loss)/return after taxation 4,314 (359,491) (355,177) 15,030 139,144 154,174
Return/(loss) per share 10.66p (888.10)p (877.44)p 35.53p 328.95p 364.48p
All revenue and capital items in the above statement derive from continuing
operations.
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. The net
return after taxation represents the profit for the year and also total
comprehensive income.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31st October 2022
Called up Capital
share redemption Capital Revenue
capital reserve reserves(1) reserve(1) Total
£'000 £'000 £'000 £'000 £'000
At 31st October 2020 434 167 251,927 13,571 266,099
Repurchase and cancellation of the Company's own shares (26) 26 (18,964) - (18,964)
Net return - - 139,144 15,030 154,174
Dividends paid in the year (note 2) - - - (4,294) (4,294)
At 31st October 2021 408 193 372,107 24,307 397,015
Repurchase and cancellation of the Company's own shares (3) 3 (2,530) - (2,530)
Net (loss)/return - - (359,491) 4,314 (355,177)
Dividends paid in the year (note 2) - - - (20,420) (20,420)
At 31st October 2022 405 196 10,086 8,201 18,888
(1) Revenue reserve and the capital reserves form the distributable
reserves of the Company and may be used to fund distributions to shareholders.
See note 15 on page 66 of the Company's annual report and financial statements
for details.
STATEMENT OF FINANCIAL POSITION
At 31st October 2022
2022 2021
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 1,918 385,822
Current assets
Debtors 20 716
Cash and cash equivalents 17,064 10,951
17,084 11,667
Current liabilities
Creditors: amounts falling due within one year (114) (414)
Derivative financial liabilities - (60)
Net current assets 16,970 11,193
Total assets less current liabilities 18,888 397,015
Net assets 18,888 397,015
Capital and reserves
Called up share capital 405 408
Capital redemption reserve 196 193
Capital reserves 10,086 372,107
Revenue reserve 8,201 24,307
Total shareholders' funds 18,888 397,015
Net asset value per share 46.7p 973.6p
STATEMENT OF CASH FLOWS
For the year ended 31st October 2022
2022 2021
£'000 £'000
Net cash outflow from operations before dividends and interest (144) (4,543)
Dividends received 5,740 16,955
Interest received 103 11
Overseas tax recovered 22 66
Interest paid - (2)
Net cash inflow from operating activities 5,721 12,487
Purchases of investments (17,449) (151,554)
Sales of investments 41,154 168,990
Settlement of currency contracts - 29
Net cash inflow from investing activities 23,705 17,465
Repurchase and cancellation of the Company's own shares (2,678) (18,986)
Dividends paid (20,420) (4,294)
Net cash outflow from financing activities (23,098) (23,280)
Increase in cash and cash equivalents 6,328 6,672
Cash and cash equivalents at start of year 10,951 4,129
Exchange movements (215) 150
Cash and cash equivalents at end of year 17,064 10,951
Cash and cash equivalents consist of:
Cash and short term deposits 83 313
Cash held in JPMorgan US Dollar Liquidity Fund 16,981 10,638
Total 17,064 10,951
Reconciliation of net debt
As at Cash flows Other non-cash As at
31st October 2021
charges
31st October 2022
£'000 £'000 £'000 £'000
Cash and cash equivalents
Cash 313 39 (269) 83
Cash equivalents 10,638 6,289 54 16,981
Total 10,951 6,328 (215) 17,064
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st October 2022
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 April 2021.
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 the impact of Russia's
invasion of Ukraine and material declines in the market value of the Company
that followed and the Covid-19 pandemic on the going concern and viability of
the Company. They have considered the mitigation measures which key service
providers, including the Manager, have in place to maintain operational
resilience. As a result the Directors, following shareholder approval, have
revised the Company's objective in broadening the investment horizon to
include emerging European countries and concluded that this is sufficient to
apply the going concern basis. The Directors have reviewed income and expense
projections and the liquidity of the investment portfolio in making their
assessment.
The policies applied in these financial statements are consistent with those
applied in the preceding year.
2. Dividends
(a) Dividends paid and proposed
2022 2021
£'000 £'000
Dividends paid
2021 Interim dividend of 25.0p (2020: 25.0p) 10,311 -
2021 Final dividend of 10.0p (2020: 10.0p) 4,044 4,294
2022 Interim dividend of 15.0p 6,065 -
20,420 4,294
Dividend declared
2021 interim dividend of 25.0p - 10,311
Dividend proposed
2021 final dividend of 10.0p - 4,078
The dividend proposed in respect of the year ended 31st October 2021 amounted
to £4,078,000. However the amount paid amounted to £4,044,000 due to shares
repurchased after the balance sheet date but prior to the share register
record date.
(b) Dividends 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 arising in
the year and available for distribution by way of dividend is £4,314,000
(2021: £15,030,000).
2022 2021
£'000 £'000
2022 interim dividend of 15.0p 6,065 -
2021 interim dividend of 25.0p - 10,311
2021 final dividend of 10.0p - 4,078
Total dividends for Section 1158 purposes 6,065 14,389
3. Return/(loss) per share
2022 2021
£'000 £'000
Revenue return 4,314 15,030
Capital (loss)/return per share (359,491) 139,144
Total (loss)/return (355,177) 154,174
Weighted average number of shares in issue during the year 40,478,765 42,299,516
Revenue return per share 10.66p 35.53p
Capital (loss)/return per share (888.10)p 328.95p
Total return/(loss) per share (877.44)p 364.48p
4. Net asset value per share
2022 2021
Net assets (£'000) 18,888 397,015
Number of shares in issue 40,436,176 40,776,176
Net asset value per share 46.7p 973.6p
Status of announcement
2021 Financial Information
The figures and financial information for 2021 are extracted from the Annual
Report and Accounts for the year ended 31st October 2021 and do not constitute
the statutory accounts for the year. The Annual Report and Accounts includes
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
Registrar of Companies in due course.
2022 Financial Information
The figures and financial information for 2022 are extracted from the Annual
Report and Accounts for the year ended 31st October 2022 and do not constitute
the statutory accounts for the year. The Annual Report and Accounts includes
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
Registrar of Companies in due course.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
For further information please contact:
Paul Winship
For and on behalf of
JPMorgan Funds Limited, Secretary - 020 7742 4000
26(th) January 2023
ENDS
Annual Report and Financial Statements
The Annual Report and Financial Statements will be posted to shareholders on
or around 31 January 2023 and will shortly be available on the Company's
website (www. jpmeemeasecurities.com) or in hard copy format from the
Company's Registered Office, 60 Victoria Embankment London EC4Y 0JP.
A copy of the annual report will be submitted to the FCA's National Storage
Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The annual report is also available on the Company's website at
jpmeemeasecurities.com 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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