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 31st 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 in emerging market securities not typically associated with investing in securities of companies in more developed countries. In terms of gauging the economic and political risk of investing in emerging markets, it frequently appears in the higher risk categories when compared with most Western countries. The value of emerging market securities, and therefore the net asset value of the Company, may be affected by uncertainties such as economic, political or diplomatic developments, social and religious instability, taxation and interest rates, currency repatriation restrictions, crime and corruption and developments in the law or regulations in emerging markets and, in particular, the risks of expropriation, nationalisation and confiscation of 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. | Following Russia's invasion of Ukraine on 24th February 2022, the prohibition of trading of Russian securities, prohibition on the receipt of dividends and reduction in the value of the Company by circa 95% led the Board to propose a shareholder resolution to widen the Company's investment objective and permit investments in Emerging Europe, Africa & Middle East. Shareholders approved the widening of the Company's investment objective on 23rd November 2022. The Board also suspended its dividend payment policy and the Company's financial statements no longer reflect dividends receivable. The Board's activities included reviewing the reductions in the value of the Company's portfolio, discount/premium to share price, sanctions, counter-parties status, inability to trade stocks and review of investment strategy. |
| 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 shares are said to be trading at a discount. The widening of the discount can be seen as a disadvantage of investment trusts which could discourage investors. Although it is common for an investment trust's shares to trade at a discount, particular events can negatively impact market sentiment. Due to the market volatility following Russia's invasion of Ukraine the Company's shares have traded at a premium. | The prohibition of trading of securities in Russian companies held in the Company's portfolio which was introduced following Russia's invasion of Ukraine on 24th February 2022 led the Board to suspend its share buy back policy. In addition the Board has withdrawn its commitment to provide a tender offer based on performance of the Company against the RTS benchmark in the five year period to 31st October 2026. 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 underperformance against the Company's reference index and peer companies. | Following Russia's invasion of Ukraine on 24th February 2022, the prohibition 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 investment management team could result in a short term deterioration in investment performance. | The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team based approach, as well as special efforts to retain key personnel. |
| Market and Financial | The Company's assets consist of listed securities and it is therefore exposed to movements in the prices of individual securities and the market generally. | During the current period of prohibition on the trading of Russian securities, 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 systems or the Depositary or custodian's records could prevent accurate reporting and monitoring of the Company's financial position. Under the terms of its agreement, the Depositary has strict liability for the loss or misappropriation of assets held in custody. See note 21(c)) for further details on the responsibilities of the Depositary. | Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective internal control are included within the Internal Control section of the Corporate Governance report on page 39 of the Company's annual report and financial statements. The threat of Cyber attack is increasing and regarded as having the ability to 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 shareholders expectations. | The Manager addresses this by the organisation of an email address on the 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 addition, the Company is subject to administrative risks, such as the imposition of restrictions on the free movement of capital. A widening of the capital controls by the Russian Government could negatively impact the Company. The introduction of limitations on the ability of Russian companies to distribute dividends to foreign companies could materially reduce the Company's revenue and amount available for distribution to shareholders. The Company may not be able to trade Russian holdings or find a counter party to trade with. | The Manager makes recommendations to the Board on accounting, dividend and tax policies and the Board seeks external advice where appropriate. The Manager closely monitors political and economic developments and reports significant events to the Board either at scheduled meetings or when an event arises. The Board factor in the status of current political and economic developments in their decision making. See above for details of the Board's responses to Russia's invasion of Ukraine including the prohibition on receipt of dividends from Russian held companies and the Board's withdrawal of the Company's dividend payments until further notice. |
| Regulatory and Legal | Breach of regulatory rules, including sanctions could lead to suspension of the Company's Stock Exchange listing, financial penalties, or a qualified audit report. Loss of investment trust status could lead to the Company being subject to tax on capital gains. | The Board has remained informed of the impact of the sanctions and restrictions that followed Russia's invasion of Ukraine on 24th February 2022. Moreover, the Board sought and received FCA approval for the change to its 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 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 also considering the threat posed by the direct impact on 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. 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 events such a climate change, may cause significant reductions in the valuations of companies in the portfolio. | The Board keeps informed of economic developments and latest ESG requirements through regular updates through the Manager. |
| Global Trade Protectionism | A reduction in the global trading arising from increased barriers to trade is a risk to economic growth, to investors' risk appetites and, consequently, to the valuations of companies in the portfolio. | The Board can, with shareholder approval, look to amend the investment policy and objectives of the Company to gain exposure to or mitigate the risks. |
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 | reserves1 | reserve1 | 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 |
| | £'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
26th 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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