Half-year Report
Jupiter Emerging & Frontier Income Trust plc (the 'Company')
Legal Entity Identifier: 213800RLXLM87NO26S30
Half Yearly Financial Report for the six months ended to 31 March 2019
Financial Highlights
Capital Performance | 31 March | 30 September | |
2019 | 2018 | Change | |
Total assets less current liabilities (£'000) | 92,741 | 91,473 | 1.4% |
Ordinary Share Performance | 31 March | 30 September | |
2019 | 2018 | Change | |
Net asset value (pence) | 98.61 | 98.26 | 0.4% |
Net asset value total return with dividends added back (pence)* | 2.6% | ||
Middle market price (pence) | 97.40 | 99.00 | (1.6%) |
Price return with dividends added back(pence) | 0.6% | ||
MSCI Emerging Markets Index (Net Total Return) in Sterling | 1.8% | ||
(Discount)/premium to net asset value (%)* | (1.2) | 0.8 | - |
Total dividends declared and paid during the period(pence) | 2.2 | 4.0 | - |
Ongoing charges figure (%) excluding finance cost* | 1.27 | 1.35 | (5.9%) |
* Alternative performance measure.
Chairman's Statement
Introduction
I am pleased to present the interim report of Jupiter Emerging & Frontier Income Trust PLC ('JEFI', or the 'Company') for the six months to 31 March 2019. As at that date the Company had investments of £102.8 million, of which the net assets attributable to shareholders were £92.7 million.
Given its investment mandate, JEFI will always be exposed to many mid and small-cap companies which in general had a torrid time in the last quarter of 2018 as sentiment turned against them, but it was pleasing to see that our fund managers, Ross Teverson and Charles Sunnucks, were able to ride out the storm and make up much of the lost ground in the first three months of 2019.
Investment performance
Overall, this has been a challenging period for emerging and frontier markets, with JEFI modestly underperforming its benchmark, the MSCI Emerging Markets Index, which returned 1.8%. During the half year under review, both JEFI's share price and its NAV per share (measured on a total return basis, with dividends added back) returned 0.6% and 2.6%, respectively, reflecting a modest tightening of our discount.
Notwithstanding the broadly flat picture suggested by these two snapshots taken at the start and the finish of our half year, there was within the period considerable volatility. As at 31 March 2019 the NAV per share was 98.61p and the middle market price per share on the London Stock Exchange was 97.40p.
Dividend
On 6 June 2019, the Board declared an interim dividend of 2.2p per share, which will be paid on 5 July 2019 to shareholders on the register on 14 June 2019. This dividend represents an increase of 10% over that declared in June 2018, and it remains the intention of the Board to grow the level of dividends over time if this can be justified by the performance of the Company.
Gearing
As at 31 March 2019 the Company's net gearing level (being the amount of drawn down bank debt, less cash held on the balance sheet, expressed as a proportion of the Company's total assets) was 11.5%. The Company's fund managers, expect to increase gearing at times of low valuations while decreasing gearing in stronger markets and have the Board's authority to raise the level of gearing to 20% should market conditions be appropriate.
Share issuance and redemption facility
Shareholders will be aware that it is the Board's ambition to continue to grow the Company by the issuance of new shares in response to market demand. In this, we have in the past six months experienced mixed fortunes; I am pleased that we were able to issue a total of 951,240 shares under our placing programme and, in the light of prevailing market conditions, it is your Board's view that it is an achievement to have issued any new shares, JEFI being one of only a small number of investment trusts which has been able to do so.
On the other hand, at the beginning of June, when shareholders had the right to offer shares back to the Company for redemption, we received a significantly larger number of requests than in 2018, nearly 4 million shares having been tendered. There is no disguising the fact that this is a disappointing development, which your Board believes is driven in large part by a broader outbreak of investor nerves, exacerbated by political uncertainties both at home and overseas.
Outlook
As explained in more detail by our fund managers, many of the companies into which JEFI invests are performing strongly and growing their earnings; in isolation, they look attractive from an owner's perspective, but there is no doubt that several of the regions and sectors into which we place our shareholders' money are facing macroeconomic and political headwinds when it comes to investor confidence and trade prospects. The cautious stance adopted by many emerging market investors derives to a considerable extent from the prospect of trade wars, the current dispute between the USA and China being one example, and the recent threats from the White House directed at Mexico being another. The extent to which these disputes have an immediate bearing on some of our holdings in (for example) Brazil and Kenya is by no means clear, but wars of words and the imposition of tariffs between some of the world's largest economies do not boost the morale of the international investor.
While no-one can be immune to these developments - many of which are driven by domestic political agendas in the developed economies - our fund managers will continue to concentrate on identifying companies with strong management and competitive advantage.
John Scott
Chairman
12 June 2019
Investment Adviser's Review
Market review
Over the period, the Company's benchmark, the MSCI Emerging Markets Index, returned 1.8%. MSCI country benchmark returns for key markets were as follows: China 5.5%; Taiwan (5.9%); India 10.3%; Brazil 23.5%; Russia 3.0%; and Mexico (14.0%).
Political risk was a focus of the market throughout the second half of 2018 and into 2019. In addition to the uncertainty created by the ongoing US-China trade conflict, October's Brazilian elections looked to be a very close contest right up until mid-September, when first round voting positioned fiscal reform proponent, Bolsonaro, as the front-runner. From September 2018 onwards, political concerns began to recede: Bolsonaro won the Brazilian presidency, leading to a rally in Brazilian equities; prime minister Modi's prospects for re-election in India appeared to improve; and there were signs of the US and China getting closer to reaching an agreement on trade. During the period, earnings growth across most markets and sectors continued to be positive on a year-on-year basis.
In terms of sector performance, the energy sector performed broadly in line with the headline MSCI Emerging Markets Index, despite oil price prices declining by (17.0%) over the period. The IT sector underperformed, declining by approximately (1.0%) due to concerns over softening sales of electronics products and rising semiconductor inventory. The property sector, on the other hand, performed strongly, delivering a total return of 17.7% on expectations of a more benign interest rate outlook.
Performance
Over the period, the portfolio delivered a NAV return (including the 2.2p dividend paid) of 2.6%, slightly ahead of its MSCI Emerging Markets benchmark 1.8%, while the Company's total price return lagged at 0.6%.
During the period the Company continued to face some style headwinds. Most notably, emerging market small cap stocks continued to underperform their large cap peers, likely due to the high level of passive inflows into the emerging markets asset class relative to active flows. These passive flows tend to benefit large cap stocks in the short term, but we continue to believe that some of the most attractive bottom up opportunities globally are to be found amongst mid and small-sized emerging and frontier market companies.
Positive contributors to performance over the quarter included Brazilian bank Itaú Unibanco, Taiwanese cable and component manufacturer, Bizlink, and Indian refiner and fuel retailer, Hindustan Petroleum (HPCL).
For Itaú, our investment case is largely based on industry change, with consumer loan affordability improving and competition receding, as the state-owned banks focus on improving lending practices. The bank has strong corporate governance, with senior management aligned with minorities through long-term incentive plans, and capital management is good, with the firm paying all excess capital as dividends. With these positives having previously been overlooked by investors due to a challenging period for the Brazilian economy, Itaú's stock benefitted from renewed investor interest in in the market, following Bolsonaro's election victory.
Bizlink, which supplies wire harnesses to Tesla and laptop PC docking stations to Dell, recovered strongly from its October 2018 low, as investors came to appreciate that the revenue growth outlook remains positive and margins have begun to improve from the unusually low levels seen in the second quarter of 2018. We believe that the stock has further to go, given meaningful barriers to entry for the company's key products and structural growth in demand for those end applications served by the company.
A position in HPCL was established in September 2018. Our long-term investment thesis is premised on increasing profitability and good growth prospects across multiple divisions, including refining, pipelines, branded lubricants and fuel retailing. Excessive market fears over government interference in petrol and diesel pricing created a good entry point for the trust and the stock performed strongly over the period, as concerns were alleviated by the company delivering good fuel retail margins through periods of both rising and declining oil prices.
Detractors to performance included Pakistan bank, UBL, and South Africa-listed healthcare company, Ascendis.
The weakness in UBL was due to a difficult 2018, driven by a clean-up of its Middle East loan book and a large one-off pension expense associated with a case dating back to the late-90's. In both instances, these were issues affecting short-term outlook, not the structural profitability of the business, and we therefore took the opportunity to add to the position following an update with management.
The share price of Ascendis was impacted by a general aversion amongst South African domestic investors towards companies that have made European acquisitions, given the poor track record of some other South African companies in doing so. This negative sentiment was compounded by lower-than-expected cash generation for some divisions and the forced selling of shares by a significant shareholder of Ascendis. We believe the management team has a comprehensive plan to improve cash generation and bolster investors' perception of the business, and we continue to hold the stock.
Activity
During the period under review, in addition to establishing a position in HPCL, the Company bought into Korean memory chip manufacturer, SK Hynix. The investment case for Hynix had become more compelling, in our view, after a period of share price weakness caused by concerns over declining memory prices and rising inventory. Despite what may be short-term cyclicality, there is structurally rising demand for memory chips, driven by servers, and the industry is now far more consolidated than in prior cycles - a characteristic which has already led to far more restrained supply-side spending than in previous periods. Moreover, management of the firm have committed to paying 40-50% of free cash flow out as dividends, and any reduction in CAPEX might not only lead to a quicker stabilisation in memory prices, but also higher dividends in the medium-term.
The purchase of Hynix was funded by selling out of the position in Chinese railway signalling and industrial automation firm, Hollysys. While the company continues to have a strong product development pipeline, and the rail replacement cycle in China is picking-up, we have been disappointed in the capital management of the firm, and a recent call with the investor relations suggested that management's position on dividends is unlikely to change.
The position in Bank of Georgia was added to on weakness. Bank of Georgia is positioned to benefit from rising financial inclusion in a country that has been delivering an ambitious reform agenda. The stock was weak over 2019 due largely to contagion concerns from Turkey and discussions for a limit on consumer lending in Georgia. Ongoing conversations with management, along with solid results from the company, give us confidence that the Georgian banking system remains robust and that changes to banking regulation are far less restrictive than previously feared. In addition to what we believe is an attractive valuation, governance at the bank is good, with the majority of management remuneration being in long-vesting equity.
Outlook
Despite most companies posting healthy year-on-year earnings growth, returns in 2018 for emerging and frontier markets were held back by currency concerns, Russia sanctions risk, trade conflict, and uncertainty regarding election outcomes in several markets. This combination of continued earnings growth and lacklustre returns for the asset class has left valuations for many emerging and frontier stocks looking attractive to relative history and also relative to developed markets.
We remain comfortable maintaining around 10% gearing in the Company - a level which we have described as a "typical" level of gearing and one which we feel is appropriate unless valuations become either stretched (at which point we would reduce gearing) or depressed (at which point we would consider up to 20% gearing). We continue to seek investment opportunities in companies where there is evidence of positive change that is not yet reflected in valuations, and we believe that current market environment provides a considerable number of such opportunities. We continue to believe that some of the best long-term opportunities can be found amongst emerging market mid and small-cap companies and within frontier markets.
Ross Teverson and Charlie Sunnucks
Fund Managers
Jupiter Asset Management Limited
12 June 2019
Investment Portfolio as at 31 March 2019
Market | Percentage | ||
Value | of | ||
Company | Country of Listing | £'000 | portfolio |
Corp Inmobiliaria Vesta | Mexico | 4,008 | 3.9 |
Hindustan Petroleum | India | 3,926 | 3.8 |
Samsung Electronics Preference | South Korea | 3,871 | 3.8 |
KCB Group | Kenya | 3,829 | 3.7 |
MMC Norilsk Nickel, ADR | Russia | 3,740 | 3.6 |
Wilson Sons, BDR | Bermuda | 3,383 | 3.3 |
Sberbank of Russia Preference | Russia | 3,238 | 3.2 |
Grit Real Estate Income Group | Mauritius | 3,147 | 3.1 |
NagaCorp | Cayman Islands | 3,087 | 3.0 |
Ginko International | Cayman Islands | 3,046 | 2.9 |
Chroma ATE | Taiwan | 2,951 | 2.9 |
Taiwan Semiconductor Manufacturing | Taiwan | 2,831 | 2.7 |
Bank of Georgia Group | United Kingdom | 2,708 | 2.6 |
MediaTek | Taiwan | 2,694 | 2.6 |
Emaar Malls | United Arab Emirates | 2,687 | 2.6 |
Sands China | Cayman Islands | 2,653 | 2.6 |
Itau Unibanco Holding | Brazil | 2,465 | 2.4 |
Bizlink Holding | Cayman Islands | 2,437 | 2.4 |
NWS Holdings | Bermuda | 2,428 | 2.4 |
LSR Group, GDR | Russia | 2,368 | 2.3 |
SK Hynix | South Korea | 2,261 | 2.2 |
Air Arabia | United Arab Emirates | 2,243 | 2.2 |
Huayu Automotive Systems (HSBC) warrant 23/11/2021 | United Kingdom | 2,132 | 2.1 |
Salmones Camanchaca | Chile | 2,073 | 2.0 |
NetEase, ADR | Cayman Islands | 2,035 | 2.0 |
Jaya Real Property | Indonesia | 2,022 | 2.0 |
Grupo Financiero Banorte | Mexico | 1,964 | 1.9 |
Hyundai Motor Preference | South Korea | 1,945 | 1.9 |
United Bank | Pakistan | 1,929 | 1.9 |
Indus Motors | Pakistan | 1,872 | 1.8 |
SEPLAT Petroleum Development | Nigeria | 1,805 | 1.8 |
Pico Far East Holdings | Cayman Islands | 1,742 | 1.7 |
MTN Group | South Africa | 1,742 | 1.7 |
John Keells Holdings | Sri Lanka | 1,647 | 1.6 |
Guaranty Trust Bank | Nigeria | 1,609 | 1.6 |
Vietnam Dairy Products (HSBC) warrant 20/11/2020 | United Kingdom | 1,605 | 1.6 |
Integrated Diagnostics Holdings | Jersey | 1,586 | 1.5 |
MHP, GDR | Cyprus | 1,465 | 1.4 |
Hon Hai Precision Industry | Taiwan | 1,424 | 1.4 |
Detsky Mir | Russia | 1,348 | 1.3 |
Bestway Global Holding | Cayman Islands | 1,257 | 1.2 |
Anadolu Hayat Emeklilik | Turkey | 1,095 | 1.1 |
Sphera Franchise | Romania | 853 | 0.8 |
Access Bank | Nigeria | 747 | 0.7 |
Ascendis Health | South Africa | 532 | 0.5 |
Almacenes Exito | Colombia | 349 | 0.3 |
Total Investments | 102,779 | 100.0 |
Cross Holdings in other Investment Companies
As at 31 March 2019, none of the Company's total assets were invested in the securities of other listed closed-ended investment companies. It is the Company's stated policy that its exposure to other closed-ended listed investment companies should not be permitted to exceed 10% of total assets.
Interim Management Report
Related Party Transactions
During the first six months of the current financial year no transactions with related parties have taken place which have materially affected the financial position or performance of the Company.
Principal Risks and Uncertainties
The Company is exposed to the effect of variations in the price of its investments. A fall in the value of its portfolio will have an adverse effect on Shareholders' funds. It is not the aim of the Board to eliminate entirely the risk of capital loss, rather it is its aim to seek capital growth. Investments in Emerging Markets and Frontier Markets may include a higher element of risk compared to more developed markets due to greater political and economic instability which could adversely affect the economies of such countries or the value of the Company's investments in those countries. The Company may have significant exposure to portfolio companies from certain sectors, or based or operating in certain geographical areas, from time to time. Greater concentration of investments in any one sector or geographical area may result in greater volatility in the value of the Company's investments and may materially and adversely affect the performance of the Company. Other key risks faced by the Company relate to foreign currency movements, interest rates, liquidity risk, gearing risk, the discount to Net Asset Value, regulatory risk, loss of key personnel, operational and financial risks.
Going Concern
The Half-Yearly Financial Report has been prepared on a going concern basis. The Directors consider that this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In considering this, the Directors took into account the Company's investment objective, risk management policies and capital management policies, the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments and the ability of the Company to meet all of its liabilities and ongoing expenses. Thus the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.
Directors' Responsibility Statement
We, the Directors of Jupiter Emerging & Frontier Income Trust PLC, confirm to the best of our knowledge that:
(a) The set of financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and give a true and fair view of the assets, liabilities, financial position and profit of the Company for the period ended 31 March 2019;
(b) The Chairman's Statement, the Investment Adviser's Review and the Interim Management Report include a fair review of the information required by Disclosure and Transparency Rule 4.2.7R; and
(c) The Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R on related party transactions.
By order of the Board
John Scott
Chairman
12 June 2019
Statement of Comprehensive Income
For the six months to 31 March 2018 (unaudited)
Six months to | For the period from 15 May | |||||
31 March 2019 | 2017 to 31 May 2018 | |||||
Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Gain on investments held | ||||||
at fair value through profit or loss | - | 1,741 | 1,741 | - | 8,079 | 8,079 |
Foreign exchange (loss)/gain on loan | - | (9) | (9) | - | 891 | 891 |
Other exchange (loss)/gain | - | (101) | (101) | - | 382 | 382 |
Income | 1,688 | - | 1,688 | 3,865 | - | 3,865 |
Total Income | 1,688 | 1,631 | 3,319 | 3,865 | 9,352 | 13,217 |
Investment management fee | (82) | (245) | (327) | (165) | (495) | (660) |
Other expenses | (213) | (26) | (239) | (479) | (18) | (497) |
Total expenses | (295) | (271) | (566) | (644) | (513) | (1,157) |
Net return before finance costs and taxation | 1,393 | 1,360 | 2,753 | 3,221 | 8,839 | 12,060 |
Finance costs | (52) | (157) | (209) | (50) | (186) | (236) |
Return on ordinary activities before taxation | 1,341 | 1,203 | 2,544 | 3,171 | 8,653 | 11,824 |
Taxation | (115) | (35) | (150) | (271) | - | (271) |
Net return after taxation | 1,226 | 1,168 | 2,394 | 2,900 | 8,653 | 11,553 |
Return per ordinary share | 1.31p | 1.25p | 2.56p | 3.15p | 9.38p | 12.53p |
The total column of this statement is the income statement of the Company, prepared in accordance with IFRS.
The supplementary revenue return and capital return columns are both prepared under guidance produced by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the period.
All income is attributable to the equity holders of Jupiter Emerging & Frontier Income Trust PLC. There are no minority interests.
There is no other comprehensive income and therefore the 'Net return after taxation' is the total comprehensive income for the period.
Statement of Financial Position | ||
As at 31 March 2019 | ||
31 March | 30 September | |
| 2019 | 2018 |
| (unaudited) | (audited) |
£'000 | £'000 | |
Non current assets | ||
Investments held at fair value through profit or loss | 102,779 | 101,531 |
Current assets | ||
Other receivables | 939 | 391 |
Cash and cash equivalents | 846 | 1,465 |
1,785 | 1,856 | |
Total assets | 104,564 | 103,387 |
Current liabilities | ||
Other payables | (11,823) | (11,914) |
Total assets less current liabilities | 92,741 | 91,473 |
Capital and reserves | ||
Called up share capital | 941 | 931 |
Share premium | 4,019 | 3,107 |
Special reserve | 87,485 | 87,485 |
Retained earnings | 296 | (50) |
Total equity shareholders' funds | 92,741 | 91,473 |
Net asset value per ordinary share | 98.61p | 98.26p |
Approved by the Board of Directors and authorised for issue on 12 June 2019 and signed on its behalf by:
John Scott
Director
Company registration number 10708991
Statement of Changes in Equity | |||||
For the six months to 31 March 2019 | |||||
Share | Share | Special | Retained | ||
For the six months to | Capital | Premium | Reserve* | Earnings | Total |
31 March 2019 (unaudited) | £'000 | £'000 | £'000 | £'000 | £'000 |
Balance at 30 September 2018 | 931 | 3,107 | 87,485 | (50) | 91,473 |
Net profit for the period | - | - | - | 2,394 | 2,394 |
Ordinary share issue | 10 | 912 | - | - | 922 |
Dividends declared and paid** | - | - | - | (2,048) | (2,048) |
Balance at 31 March 2019 | 941 | 4,019 | 87,485 | 296 | 92,741 |
Share | Share | Special | Retained | ||
For the period from 15 May 2017 to | Capital | Premium | Reserve* | Earnings | Total |
31 March 2018 (unaudited) | £'000 | £'000 | £'000 | £'000 | £'000 |
Balance at 15 May 2017 | - | - | - | - | - |
Net profit for the period | - | - | - | 11,553 | 11,553 |
Initial offering | 900 | 89,100 | - | - | 90,000 |
Ordinary share issue | 28 | 2,916 | - | - | 2,944 |
Expenses in relation to share issue | - | (1,671) | - | - | (1,671) |
Transfer of reserves | - | (87,485) | 87,485 | - | - |
Dividends declared and paid** | - | - | - | (1,857) | (1,857) |
Balance at 31 March 2018 | 928 | 2,860 | 87,485 | 9,696 | 100,969 |
* Special Reserve was constituted following a transfer from the Share Premium reserve and can also be used to pay dividends.
** Dividends paid during the period were paid out of revenue reserves which form part of retained earnings
Cash Flow Statement | ||
For the six months to 31 March 2019 (unaudited) | ||
For the period | ||
Six months to | from 15 May 2017 | |
31 March 2019 | to 31 March 2018 | |
£'000 | £'000 | |
Cash flows from operating activities | ||
Dividends received (gross) | 1,383 | 3,087 |
Deposit interest received | 1 | - |
Investment management fee paid | (333) | (471) |
Other cash expenses | (330) | (370) |
Net cash inflow from operating activities before | ||
taxation and interest | 721 | 2,246 |
Interest paid | (211) | (169) |
Oversea tax incurred | (115) | (271) |
Net cash inflow from operating activities | 395 | 1,806 |
Cash flows from investing activities | ||
Purchases of investments | (16,950) | (131,240) |
Sales of investments | 17,163 | 28,247 |
Net cash inflow/(outflow) from investing activities | 213 | (102,993) |
Cash flows from financing activities | ||
Initial offering | - | 90,000 |
Ordinary shares issued | 922 | 2,944 |
Expenses in relation to shares issue | - | (1,671) |
Equity dividends paid | (2,048) | (1,857) |
Net drawdown of loan | - | (11,584) |
Net cash (outflow)/inflow from financing | ||
activities | (1,126) | 101,000 |
Decrease in cash | (518) | (187) |
Cash and cash equivalents at start of period | 1,465 | - |
Realised (loss)/gain on foreign currency | (101) | 382 |
Cash and cash equivalents at end of period | 846 | 195 |
Notes to the Accounts
1. Accounting Policies
The Accounts comprise the unaudited financial results of the Company for the period to 31 March 2019. The Accounts are presented in pounds sterling, as this is the functional currency of the Company. All values are rounded to the nearest thousand pounds (£'000) except where indicated.
The Accounts have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union (EU), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
Where presentational guidance set out in the Statement of Recommended Practice (SORP) for Investment Trusts issued by the Association of Investment Companies (AIC) in November 2014 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
The Company continues to adopt the going concern basis in the preparation of the financial statements.
(a) Income
Dividends from investments are recognised when the investment is quoted ex-dividend on or before the date of the Statement of Financial Position.
Dividends receivable from equity shares are taken to the revenue return column of the Statement of Comprehensive Income.
Special dividends are reviewed on a case by case basis to determine if the dividend is to be treated as revenue or capital.
(b) Presentation of Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the Association of Investment Companies (AIC), supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the statement.
An analysis of retained earnings broken down into revenue items, and capital items is given in Note 7. Investment Management fees and finance costs are charged 75% to capital and 25% to revenue.
All other operational costs including administration expenses (but with the exception of any Transaction handling charges which are charged to capital) are charged to revenue.
(c) Investments
Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at the fair value, being the consideration given.
All investments are classified as held at fair value through profit or loss. All investments are measured at fair value with changes in their fair value recognised in the Statement of Comprehensive Income in the period in which they arise. The fair value of listed investments is based on their quoted bid price at the reporting date without any deduction for estimated future selling costs.
Foreign exchange gains and losses on fair value through profit or loss investments are included within the changes in the fair value of the investment.
For investments that are not actively traded and/or where active stock exchange quoted bid prices are not available, fair value is determined by reference to a variety of valuation techniques. These techniques may draw, without limitation, on one or more of: the latest arm's length traded prices for the instrument concerned; financial modelling based on other observable market data; independent broker research; or the published accounts relating to the issuer of the investment concerned.
2. Significant accounting judgements, estimates and assumptions
The preparation of the Company's financial statements on occasion requires management to make judgements, estimates and assumptions that affect the reported amounts in the primary financial statements and the accompanying disclosures. These assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in the current and future periods, depending on circumstance.
Management do not believe that any accounting judgements, estimates or assumptions have had a significant impact on this set of financial statements.
3. Gains on investments
For the period | ||
Six months to | from 15 May 2017 | |
31 March 2019 | to 31 March 2018 | |
£'000 | £'000 | |
Net gains realised on sale of investments | 676 | 4,499 |
Movement in unrealised gains | 1,065 | 3,580 |
Gains on investments | 1,741 | 8,079 |
4. Earnings per ordinary share
For the period | ||
Six months to | from 15 May 2017 | |
31 March 2019 | to 31 March 2018 | |
£'000 | £'000 | |
Net revenue return | 1,226 | 2,900 |
Net capital return | 1,168 | 8,653 |
Net total return | 2,394 | 11,553 |
Weighted average number of ordinary shares in issue during the period | 93,385,689 | 92,207,310 |
Revenue return per ordinary share | 1.31p | 3.15p |
Capital return per ordinary share | 1.25p | 9.38p |
Total return per ordinary share | 2.56p | 12.53p |
5. Transaction Costs
The following transaction costs were incurred during the period:
For the period | ||
Six months to | from 15 May 2017 | |
31 March 2019 | to 31 March 2018 | |
£'000 | £'000 | |
Purchases | 53 | 282 |
Sales | 35 | 51 |
Total | 88 | 333 |
6. Comparative information
The financial information contained in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.
The information for the year ended 30 September 2018 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 30 September 2018 have been filed with the Register of Companies. The report of the auditors on those accounts contained no qualification or statement under section 498(2) of the Companies Act 2006.
7. Retained earnings
The table below shows the movement in the retained earnings analysed between revenue and capital items:
Revenue | Capital | Total | |
£'000 | £'000 | £'000 | |
At 30 September 2018 | 2,336 | (2,386) | (50) |
Net return for the period | 1,226 | 1,168 | 2,394 |
Dividends paid | (2,048) | - | (2,048) |
At 31 March 2019 | 1,514 | (1,218) | 296 |
The capital reserve includes £5,682,000 of investment holding losses. The company does not distribute or pay dividends out of capital reserves.
8. Net Asset Value per ordinary share
The net asset value per ordinary share is based on the net assets attributable to the ordinary shareholders of £92,741,000 (31 March 2018: £100,969,000) and on 94,044,240 (31 March 2018: 92,843,000) ordinary shares, being the number of ordinary shares in issue at the period end.
9. Fair valuation of Investments
IFRS 13 'Financial Instruments: Disclosures' require an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:
Level 1 reflects financial instruments quoted in an active market.
Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables includes only data from observable markets.
Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data.
The financial assets measured at fair value in the statement of financial position are grouped into the fair value hierarchy as follows:
31 March 2019 | 30 September 2018 | |||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Investments | 99,042 | 3,737 | - | 102,779 | 95,661 | 5,870 | - | 101,531 |
10. Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
31 March 2019 | 30 September 2018 | |
£'000 | £'000 | |
Net return before finance costs and taxation | 2,753 | 4,738 |
(Gain)/loss on investments | (1,741) | 1,830 |
Realised loss/(gain) on foreign currency | 101 | (340) |
Foreign exchange loss/(gain) on loans | 9 | (81) |
Increase in prepayments and accrued income | (314) | (391) |
(Decrease)/increase in accruals and other creditors | (87) | 362 |
Net cash inflow from operating activities before interest and taxation | 721 | 6,118 |
11. Reconciliation of financing liabilities
31 March 2019 | 30 September 2018 | |
£'000 | £'000 | |
Financing liabilities at beginning of period | (11,503) | - |
Drawdown of bank loan | - | (11,584) |
Foreign exchange movement | (9) | 81 |
Financing liabilities at the end of period | (11,512) | (11,503) |
12. Principal risk profile
The principal risks which the Company faces include exposure to:
(i) market price risk, including currency risk, interest rate risk and other price risk;
(ii) liquidity risk;
(iii) credit and counterparty risk.
Market price risk - is the risk that the fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk.
Liquidity risk - This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
Credit and counterparty risk - This is the exposure to loss from the failure of a counterparty to deliver securities or cash for acquisitions or to repay deposits.
Further details of the Company's management of these risks can be found in Note 14 of the Company's Annual report and accounts for the year ended 30 September 2018.
There have been no changes to the management of or the exposure to these risks since that date.
13. Related parties
Jupiter Unit Trust Managers Limited ('JUTM'), the Alternative Investment Fund Manager, is a company within the same group as Jupiter Asset Management Limited, the Investment Adviser. JUTM receives an investment management fee as set out below.
JUTM is contracted to provide investment management services to the Company (subject to termination by not less than twelve months' notice by either party) for an annual fee of 0.75% of the total assets of the Company after deduction of the value of any Jupiter managed investments, payable quarterly in arrears.
The Management fee payable to JUTM for the period ended 31 March 2019 was £327,000 (30 September 2018: £1,011,000) with £166,000 (30 September 2018: £172,000) outstanding at period end.
No investment management fee is payable by the Company to Jupiter Asset Management Limited in respect of the Company's holdings in investment trusts, open-ended funds and investment companies in respect of which Jupiter Investment Management Group Limited, or any subsidiary undertaking of Jupiter Investment Management Group Limited, receives fees as investment manager or investment adviser.
There are no transactions with the Directors other than aggregated remuneration for services as Directors as disclosed in the Directors' Remuneration Report on page 23 and as set out in Note 5 to the Accounts on page 37 and the beneficial interests of the Directors in the Ordinary Shares of the Company as disclosed on page 24 of the 2018 annual report and accounts.
Availability of the Half Yearly Financial Report
The Half Yearly Financial Report will shortly be available on Company's website www.jupiteram.com/JEFI.
A copy of the Half Yearly Financial Report will also be submitted to the National Storage Mechanism and will soon be available for inspection at www.morningstar.co.uk/uk/NSM.
For further information, please contact:
Richard Pavry
Head of Investment Trusts
Jupiter Asset Management Limited, Company Secretary
020 7314 4822
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