TIDMJEMA
RNS Number : 9757N
JPMorgan Emerging EMEA Securities
26 January 2023
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN EMERGING EUROPE, MIDDLE EAST & AFRICA SECURITIES
PLC
ANNOUNCEMENT OF FINAL RESULTS
The Directors of JPMorgan Emerging Europe, Middle East &
Africa Securities plc
Announce the Company's Results for the Year Ended 31(st) October
2022
Legal Entity Identifier:
549300II3MHI98ZLVH37
Information disclosed in accordance with DTR 4.1.
CHAIRMAN'S STATEMENT
Overview and performance
As I indicated in the Company's Interim Statement, performance
in the period can be divided into two parts. Performance from 1st
November 2021 to 23rd February 2022 was satisfactory, but that all
changed thereafter and it saddens me to report that the tragic
events in Ukraine since Russia's military invasion commenced on
24th February 2022, and the imposition of strict economic sanctions
by western governments on Russia and the Russian government's
restrictions on the foreign ownership of Russian securities that
followed, have drastically reduced the valuation of the Company's
assets in this annual 12-month reporting period to 31st October
2022.
The sanctions and restrictions that followed Russia's invasion
of Ukraine in February 2022 were wide ranging and had a very sharp
negative effect on the Company and international markets. In
summary, the changes that occurred have included; the closure of
the Moscow Exchange (MOEX) to trading by overseas investors; the
unavailability of prices on RDXUSD (Russian Depositary Index USD)
and prices of American Depositary Receipts (ADR) and Global
Depositary Receipts (GDR); the prohibition of dividend payments by
Russian companies to western shareholders; and the cessation of
reporting of the Company's benchmark data by western registered
news services.
These restrictions have had a severe negative impact on the
value of the Company's portfolio because, as required under the
terms of the Company's Investment Objective that applied to this
reporting period, almost all of the Company's portfolio consisted
of Russian equities. Notwithstanding the values at which stocks are
traded on the local market, without access to the Russian equity
market following the invasion of Ukraine, it has been necessary to
apply a fair value valuation method to Russian company stocks in
the Company's portfolio, resulting in a massive reduction in the
Company's net asset value. See Note 1 (b) on page 59 of the
Company's annual report and financial statements for details of the
fair value valuation method applied. The Company's net asset value
has continued to be published daily and, as at 31st October 2022,
it was 46.7 pence per share, a decline of 94.9% on a total return
basis in this 12-month reporting period. Since the period end the
net asset value remained approximately unchanged and as at 23rd
January 2023, was 46.6 pence per share.
A consequence of Russia's invasion of Ukraine is that some
events included in the Company's list of Principal Risks have
become realities. In light of this the Board has reviewed its
Principal Risks and further details can be seen on pages 24 to 28
of the Company's annual report and financial statements.
The Company's shares have continued to trade uninterrupted on
the London Stock Exchange throughout the reporting period, although
the precipitous fall in its share value led it to leaving the FTSE
All-Share Index on 17th June 2022. The Company's share price as at
31st October 2022 was 79.0 pence, a decline of 90.5% on a total
return basis in the 12-month period to 31st October 2022. As at
23rd January 2023 the share price was 96.5 pence.
We have also seen significant changes in the Company's share
register. Whilst some institutions reduced their share holdings in
the Company following the invasion, there was significant demand
from individuals to buy shares. Consequently, institutional
holdings have fallen from approximately 70% to 18% as at 31st
October 2022.
Amendment of the Company's investment objective and policies and
change of name
In response to the current closure of the Russian market, the
Directors considered options to best preserve value for
shareholders. Therefore, over the summer/autumn of 2022 the Board
sought and received authorisation from the Financial Conduct
Authority (FCA) to amend the Company's investment objective and
policies to permit investments in Emerging Europe (including
Russia), the Middle East and Africa. Following the FCA approval, a
Circular was sent to shareholders in late October 2022 detailing
the proposal and providing notice that an ordinary resolution
proposing the change would be put to a General Meeting of
shareholders on 23rd November 2022. The resolution was approved by
shareholders with 61.32% voting in favour and 38.68% against. The
voter turn-out was 25.48%. Following the approval of the
resolution, in order that the Company's name better reflected its
investment objective, the Board approved the change of the
Company's name from JPMorgan Russian Securities plc to JPMorgan
Emerging Europe, Middle East & Africa Securities plc.
As referred to in the RNS announcement of 23rd November 2022,
the Board stated that the approval of the resolution to amend the
Company's investment objective and policy was seen as a step
towards the avoidance of the crystallisation of current
shareholders' losses in the Company of circa 95%. The widening of
the Company's investment objective was not a proposal that the
Board would have made in normal trading conditions. However, with
the situation for the Company since Russia's invasion of Ukraine on
24th February 2022 remaining unchanged and no one knowing where
these tragic events will lead or what the future holds, the changes
to the Company's investment objectives would at least provide an
opportunity for the Company to resume investment and improve income
generation. As previously stated, the Board is conscious of
existing shareholders' pre-emption rights and concerns about
possible dilution of their holdings following the widening of the
investment objective.
Where 20% or more of votes have been cast against any Board
recommendation for a resolution, the Company is required by
provision 5.2, 4 of the AIC Code of Corporate Governance to explain
what action it will take to consult shareholders to understand the
reasons behind the result. Following the publication of the
Circular convening the general meeting, the Board has spoken to
institutional and retail shareholders and received a number of
questions from shareholders regarding the proposals. In addition,
at the shareholder meeting on 23rd November 2022, a number of
shareholders also raised questions and voiced their objection to
the resolution. The Board acknowledges that some shareholders are
concerned whether the implementation of the new investment
objective and policy will be followed by an issue of shares or
capital raising that would dilute their shareholding in the
Company. Some shareholders were also keen to see the Company's
Russian assets 'ring fenced' and others were concerned that the
Company may undertake a 'fire sale' of its Russian holdings if the
Russian market reopened to the Company.
The Board issued an RNS announcement on 7th November 2022,
confirming that there were currently no plans to issue shares or
raise capital, even in the event that the current prohibitions on
the trading of and receipt of dividends from Russian securities are
lifted. In addition, in the RNS announcement of 23rd November 2022,
the Board summarised the concerns of the shareholders who had voted
against the resolution and reiterated that it was mindful of
shareholders' pre-emption rights and its duty to promote the
success of the Company for the benefit of the members as a whole.
To further demonstrate that shareholders concerns had been
addressed, on 28th November 2022, the Board published a list of
shareholders' questions and answers (Q&A) which includes
response to the above questions from shareholders.
I would like to stress that the Board is very aware that
shareholders invested in a company whose principle orbit of
investment is Russia and that shareholders would expect the Company
to maximise value from its investments in the event that markets
reopen to overseas investors. Unlike an open-ended fund which would
have to sell assets to meet redemption demands our Company being a
closed ended fund would not be under the same pressure to sell
assets, but your Board and the managers would take a view as to
what is in the best interests of shareholders at that time.
However, it should be noted that there are significant
uncertainties about whether Russian markets will reopen and the
circumstances that would prevail if they did reopen.
Please see the Annual General Meeting section below for details
of how shareholders can ask the Board questions on the above or any
other subject related to the Company.
Revenue, earnings and dividend
The prohibition on receipt by foreign investors of dividends
from Russian companies, introduced soon after Russia's invasion of
Ukraine in February 2022 has understandably reduced the Company's
revenue for the year significantly. Revenue for the 12-month period
to 31st October 2022 after taxation was GBP4,314,000 (31st October
2021: GBP15,030,000) 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 GBP6.3 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 Investors should note that Following Russia's invasion of
Emerging Markets there are significant risks Ukraine on 24th February 2022,
inherent in investing in emerging the prohibition of trading of
market securities not typically Russian securities, prohibition
associated with investing on the receipt of dividends and
in securities of companies reduction in the value of the
in more developed countries. Company by circa 95% led the
In terms of gauging the economic Board to propose a shareholder
and political risk of investing resolution to widen the Company's
in emerging markets, it frequently investment objective and permit
appears in the higher risk investments in Emerging Europe,
categories when compared with Africa & Middle East. Shareholders
most Western countries. The approved the widening of the
value of emerging market securities, Company's investment objective
and therefore the net asset on 23rd November 2022. The Board
value of the Company, may also suspended its dividend payment
be affected by uncertainties policy and the Company's financial
such as economic, political statements no longer reflect
or diplomatic developments, dividends receivable. The Board's
social and religious instability, activities included reviewing
taxation and interest rates, the reductions in the value of
currency repatriation restrictions, the Company's portfolio, discount/premium
crime and corruption and developments to share price, sanctions, counter-parties
in the law or regulations status, inability to trade stocks
in emerging markets and, in and review of investment strategy.
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.
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Share Price If the share price of an investment The prohibition of trading of
Discount to trust is lower than the NAV securities in Russian companies
Net Asset Value per share, the shares are held in the Company's portfolio
('NAV') per said to be trading at a discount. which was introduced following
Share The widening of the discount Russia's invasion of Ukraine
can be seen as a disadvantage on 24th February 2022 led the
of investment trusts which Board to suspend its share buy
could discourage investors. back policy. In addition the
Although it is common for Board has withdrawn its commitment
an investment trust's shares to provide a tender offer based
to trade at a discount, particular on performance of the Company
events can negatively impact against the RTS benchmark in
market sentiment. Due to the the five year period to 31st
market volatility following October 2026.
Russia's invasion of Ukraine In normal market conditions the
the Company's shares have Board monitors the Company's
traded at a premium. 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 An inappropriate investment Following Russia's invasion of
and Strategy strategy, for example asset Ukraine on 24th February 2022,
allocation may lead to underperformance the prohibition of the trading
against the Company's reference of Russian securities led to
index and peer companies. 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 A failure of process could The Manager mitigates this risk
Process lead to losses. through internal controls and
monitoring. Fraud requires immediate
notification to the Board and
regular reports are provided
on control processes.
----------------------------------------- --------------------------------------------
Loss of Investment The sudden departure of the The Manager takes steps to reduce
Team or Investment investment manager or several the likelihood of such an event
Manager members of the wider investment by ensuring appropriate succession
management team could result planning and the adoption of
in a short term deterioration a team based approach, as well
in investment performance. as special efforts to retain
key personnel.
----------------------------------------- --------------------------------------------
Market and Financial The Company's assets consist During the current period of
of listed securities and it prohibition on the trading of
is therefore exposed to movements Russian securities, a fair value
in the prices of individual valuation method involving a
securities and the market 99% provision against the Company's
generally. 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 Details of how the Board monitors
of, the Manager's accounting, the services provided by JPMF
dealing or payments systems and its associates and the key
or the Depositary or custodian's elements designed to provide
records could prevent accurate effective internal control are
reporting and monitoring of included within the Internal
the Company's financial position. Control section of the Corporate
Under the terms of its agreement, Governance report on page 39
the Depositary has strict of the Company's annual report
liability for the loss or and financial statements. The
misappropriation of assets threat of Cyber attack is increasing
held in custody. See note and regarded as having the ability
21(c)) for further details to cause equivalent disruption
on the responsibilities of to the Company's business as
the Depositary. 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 The risk that the Company's The Manager addresses this by
with Shareholders strategy and performance does the organisation of an email
not align with shareholders address on the Company's website
expectations. 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 Changes in financial or tax The Manager makes recommendations
Economic legislation may adversely to the Board on accounting, dividend
affect the Company. In addition, and tax policies and the Board
the Company is subject to seeks external advice where appropriate.
administrative risks, such The Manager closely monitors
as the imposition of restrictions political and economic developments
on the free movement of capital. and reports significant events
A widening of the capital to the Board either at scheduled
controls by the Russian Government meetings or when an event arises.
could negatively impact the The Board factor in the status
Company. The introduction of current political and economic
of limitations on the ability developments in their decision
of Russian companies to distribute making. See above for details
dividends to foreign companies of the Board's responses to Russia's
could materially reduce the invasion of Ukraine including
Company's revenue and amount the prohibition on receipt of
available for distribution dividends from Russian held companies
to shareholders. The Company and the Board's withdrawal of
may not be able to trade Russian the Company's dividend payments
holdings or find a counter until further notice.
party to trade with.
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Regulatory and Breach of regulatory rules, The Board has remained informed
Legal including sanctions could of the impact of the sanctions
lead to suspension of the and restrictions that followed
Company's Stock Exchange listing, Russia's invasion of Ukraine
financial penalties, or a on 24th February 2022. Moreover,
qualified audit report. Loss the Board sought and received
of investment trust status FCA approval for the change to
could lead to the Company its investment objective, which
being subject to tax on capital includes investment in Russia.
gains. 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 The Board is also considering
registered with investors the threat posed by the direct
a decade ago, has today become impact on climate change on the
one of the most critical issues operations of the Manager and
confronting asset managers other major service providers.
and their investors. Investors As extreme weather events become
can no longer ignore the impact more common, the resiliency,
that the world's changing business continuity planning
climate will have on their and the location strategies of
portfolios, with the impact our services providers will come
of climate change on returns under greater scrutiny. In normal
now inevitable 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 The Board keeps informed of economic
which could be caused by a developments and latest ESG requirements
number of catastrophic events through regular updates through
such a climate change, may the Manager.
cause significant reductions
in the valuations of companies
in the portfolio.
----------------------------------------- --------------------------------------------
Global Trade A reduction in the global The Board can, with shareholder
Protectionism trading arising from increased approval, look to amend the investment
barriers to trade is a risk policy and objectives of the
to economic growth, to investors' Company to gain exposure to or
risk appetites and, consequently, mitigate the risks.
to the valuations of companies
in the portfolio.
----------------------------------------- --------------------------------------------
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors'
Report on page 34 of the Company's annual report and financial
statements. The management fee payable to the Manager for the year
was GBP1,050,000 (2021: GBP3,254,000) of which GBPnil (2021:
GBPnil) 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 GBP82,000
(2021: GBP182,000) payable to JPMorgan Chase Bank N.A. during the
year of which GBPnil (2021: GBP81,000) 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 GBP2,000 (2021: GBP73,000) of which GBPnil (2021:
GBPnil) 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 GBP16,981,000 (2021: GBP10,638,000). Interest amounting
to GBP101,000 (2021: GBP6,000) was receivable during the year of
which GBPnil (2021: GBP1,000) was outstanding at the year end.
Handling charges on dealing transactions amounting to GBP20,000
(2021: GBP199,000) were payable to JPMorgan Chase Bank N.A. during
the year of which GBP20,000 (2021: GBP72,000) 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 GBP27,000
(2021: GBP197,000) 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 GBP83,000 (2021: GBP313,000) was
held with JPMorgan Chase Bank, N.A. A net amount of interest of
GBP1,000 (2021: GBP4,000) 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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Capital
up
share redemption Capital Revenue
capital reserve reserves(1) reserve(1) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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 As at
31st October Other non-cash 31st October
2021 Cash flows charges 2022
GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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 GBP4,078,000. However the amount paid amounted to
GBP4,044,000 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 GBP4,314,000 (2021:
GBP15,030,000).
2022 2021
GBP'000 GBP'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
GBP'000 GBP'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 (GBP'000) 18,888 397,015
Number of shares in issue 40,436,176 40,776,176
--------------------------- ------------ -----------
Net asset value per share 46.7p 973.6p
--------------------------- ------------ -----------
Status of announcement
2021 Financial Information
The figures and financial information for 2021 are extracted
from the Annual Report and Accounts for the year ended 31st October
2021 and do not constitute the statutory accounts for the year. The
Annual Report and Accounts includes the Report of the Independent
Auditors which is unqualified and does not contain a statement
under either section 498(2) or section 498(3) of the Companies Act
2006. The Annual Report and Accounts will be delivered to the
Registrar of Companies in due course.
2022 Financial Information
The figures and financial information for 2022 are extracted
from the Annual Report and Accounts for the year ended 31st October
2022 and do not constitute the statutory accounts for the year. The
Annual Report and Accounts includes the Report of the Independent
Auditors which is unqualified and does not contain a statement
under either section 498(2) or section 498(3) of the Companies Act
2006. The Annual Report and Accounts will be delivered to the
Registrar of Companies in due course.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
For further information please contact:
Paul Winship
For and on behalf of
JPMorgan Funds Limited, Secretary - 020 7742 4000
26(th) January 2023
ENDS
Annual Report and Financial Statements
The Annual Report and Financial Statements will be posted to
shareholders on or around 31 January 2023 and will shortly be
available on the Company's website (www. jpmeemeasecurities.com) or
in hard copy format from the Company's Registered Office, 60
Victoria Embankment London EC4Y 0JP.
A copy of the annual report will be submitted to the FCA's
National Storage Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The annual report is also available on the Company's website at
jpmeemeasecurities.com where up to date information on the Company,
including daily NAV and share prices, factsheets and portfolio
information can also be found.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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END
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