TIDMJMC
RNS Number : 1310Z
JPMorgan Chinese Inv Tst PLC
12 December 2017
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN CHINESE INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEARED 30TH SEPTEMBER 2017
Legal Entity Identifier: 549300S8M91P5FYONY25
Information disclosed in accordance with DTR 4.2.2
The Directors announce the Company's results for the year ended
30th September 2017.
chairman's statement
I have great pleasure in presenting the Annual Report of the JP
Morgan Chinese Investment Trust Plc ('the Company') for the year
ended 30th September 2017. During the year the MSCI for the first
time decided to include the shares of Chinese companies quoted on
the Shanghai and Shenzhen exchanges ('A' shares) in their China
index providing the positive long term signal for the development
of the onshore markets and accessibility for foreign investors. In
my statement a year ago, reference was made to the prospects for
greater accessibility which would enable the Company's investment
team to unearth a wider range of interesting growth companies in
which to invest. This is happening. The 19th National Party
Congress which took place in late October displayed a confident,
outward looking China in which the economic priorities were
highlighted and a long term policy road map for balanced growth and
financial stability projected. The emphasis on environmental
issues, healthcare, artificial intelligence, food production and
consumption are positives for investors and the distinctive
investment approach being taken by the investment team favouring
undervalued companies in these areas bodes well for our
shareholders.
Activity within the Company
At the Annual General Meeting ('AGM') in January 2016 the
Company received approval to change its benchmark to the MSCI China
Index with the flexibility to invest up to 30% of the portfolio
outside the new benchmark (predominately in Taiwan and Hong Kong),
be granted flexibility over the use of gearing and increase
exposure to China 'A' shares and China 'A' Share ADRs. Apart from
taking advantage of the opportunities and greater investment access
to Chinese companies as referred above, the objective was to
encourage the investment team to differentiate itself from other
China focused investment vehicles. The investment team has
responded well to the decisions; the Investment Managers' report
below demonstrates this. The new hirings to the team particularly
the range and experience of the analysts that have joined in or
operate out of Hong Kong, Shanghai and Taipei is encouraging as
they seek to produce good ideas and identify the next Alibaba or
Tencent.
Performance
The Board is pleased to report that despite volatile market
conditions, in the year to 30th September 2017, the Company
delivered a return to Ordinary shareholders of +36.4%. This
includes the final dividend of 1.6 pence paid in February 2017. The
Company's total return on net assets was +28.5%, which comprises
the change in net asset value ('NAV') with dividends reinvested.
This return was just marginally behind the MSCI China Index return
of +28.8%.
Investment Approach
Well researched stock selection and a focus on providing
absolute returns for shareholders lie at the heart of the benchmark
agnostic investment approach of the fund management team. The
structure of the portfolio is not expected to change much over the
next 12 months which means that the Company will continue to hold
'Core investments', Ping An being a good example, and growth New
China companies. Examples of New China companies are Hangzhou
Hikvision, which the Board visited a year ago, Hans Laser and AAC
Technologies, which the Board visited this year. The weighting in
'A' shares, comprising around 21% of the portfolio, will continue
to grow being where the more growth-oriented listed companies can
be found. There will be an acceleration of IPOs as early stage
private equity investors exit from their holdings thereby providing
opportunities for value portfolio investors such as the Company.
Alibaba, can be expected to continue to spawn new companies within
its umbrella, the fast growing payments company Alipay being an
example, and dynamic groups such as Tencent can be expected also to
spin off components of their group. The analysts have been finding
interesting health care and life sciences companies amongst the
listed 'A' share companies as well as companies focussed on the
lucrative tutorial sector of education and amongst the many multi
brand consumer companies. All forms of technology development can
be found readily but too often overpriced. The banking sector is
looking healthier and the Company's largest holding in this sector,
China Merchants Bank is performing well under good management.
Where good investment opportunities may be found in Taiwan, Hong
Kong or Macau, they will not be overlooked by the Manager. Overall,
the Board is comfortable with the approach that the Manager is
adopting and that the use of the gearing flexibility given to the
Manager is being used effectively when well-priced ideas are
uncovered to provide performance uplift. The 2.8% contribution from
gearing and cash to total return provides evidence that this
approach is working. With regard to good corporate governance, a
problem in the past, evidence suggests that its importance is
readily understood at regulatory level and encouragingly has been
improving.
Outlook
The 19th National Party Congress confirmed the policy road map
for the next ten years with an emphasis on supporting a balanced
growth of the economy and financial stability with importance given
to environmental issues and consumption. The much publicised Belt
Road initiative which emphasises the 'China Dream' of becoming an
outward looking predominant global trading nation, is taking shape.
A cautionary note for investors is whether there will be sufficient
checks and balances in the system to provide sufficient warnings of
road bumps ahead before they are actually reached. However, other
than that, the outlook is positive with strong external growth
supporting the macro-economy and a greater understanding of the
needs of investors.
Investment Team
During the year the Company's Investment Management team was
enhanced by the hire of additional experienced personnel in both
portfolio management and research. Rebecca Jiang joined the team to
work alongside Howard Wang on the Company's portfolio as
Co-Portfolio Manager. Shumin Huang continues to lead the Greater
China Research Analysts who are now a significant and fully
integrated part of the investment process. The Taiwan investment
team remains unchanged and is the regional home for a number of the
analysts.
Board due diligence trip to Shanghai, Shenzhen and Hong Kong
In October, the Board visited Shanghai, Shenzhen and Hong Kong
over one working week to review the activities of the JPMorgan
Asset Management ('JPMAM') China Team. In Shanghai, the Board
looked at the structure and activities of CIFM, JPMorgan's joint
venture Chinese asset management company and spent time with
JPMorgan's recently established wholly owned Shanghai based
investment management company, where it met the China sectorial
analysts attached to the Company and sought views on the future of
investing in China from the Company's management. The Board also
visited various Shanghai based companies held in the portfolio
including the Shanghai office of Ping An insurance a significant
holding and contributor to the Fund's performance. In Shenzhen,
whose Stock Exchange has become increasingly important as a listing
centre for technologically - driven growth 'A' share companies, the
Board met a number of existing and potential new portfolio
companies including several notable holdings in the portfolio such
as Tencent and China Merchants Bank. In Hong Kong, the Board
reviewed amongst others, JPMorgan's preparedness for MiFID II and
the workings of the back, middle and risk management offices as
well as meeting those remaining members of the greater China
investment team it had not already met in Shanghai earlier in the
week. The timing of the visit was propitious coinciding with that
of the 19th Party Plenum, being a directional indicator of China as
an investment destination. The Board concluded from the visit that
the JPMorgan investment operations for China are well organised to
meet the challenges and opportunities ahead as bottom-up stock
pickers.
Revenue and Dividends
The revenue for the year, after taxation, was GBP850,000 (2016:
GBP1,335,000). The revenue return per share, calculated on the
average number of shares in issue, was 1.16 pence (2016: 1.79
pence).
The Board is recommending a dividend of 1.60 pence (2016: 1.60
pence) per share in respect of the financial year ended 30th
September 2017. Subject to shareholders' approval at the Annual
General Meeting, this dividend will be paid on 7th February 2018 to
shareholders on the register at the close of business on 15th
December 2017.
As previously stated, shareholders should note that the
Company's objective remains that of long term capital growth and
dividends will vary from year to year accordingly. However, the
Board aims to reduce the volatility of the payout and maintain a
stable dividend.
On 22nd November 2017, the Board announced that it had recently
reviewed its policy of allocation of expenses (management fee and
finance costs) to revenue and capital. Since the launch of the
Company in October 1993, the Company has allocated 100% of expenses
to revenue. However, with effect from 1st October 2017, the Board
has decided to split the allocation of expenses between 75% to
capital and 25% to revenue. This change will result in an increase
in future dividends paid out by the Company such that it is able to
maintain its investment trust status.
Gearing
In January 2017 the Company renewed its GBP30 million facility
with Scotiabank for a further 364 day period on the same terms but
at a reduced margin. The facility matures on 19th January 2018 at
which point the Board will consider another gearing facility.
During the year the Company's gearing ranged from 6.0% to 9.3%
geared and, at the time of writing, was 8.8%. At the time of the
arrangement, the facility allowed the Investment Managers the
flexibility to manage the gearing tactically within a range set by
the Board of 10% net cash to 20% geared.
Share Issues and Repurchases
The Directors have authority to issue new Ordinary shares for
cash and to repurchase shares in the market for cancellation or to
hold in Treasury. The Company will reissue shares held in Treasury
only at a premium to NAV.
During the year, the Company did not issue any new Ordinary
shares, although it did repurchase 1,146,773 shares into Treasury.
The Board believes that its policy of share issuance and
repurchases has helped to reduce discount volatility in the past
and therefore recommends that the authorities be kept in place.
Accordingly, it is seeking approval from shareholders to renew the
share issuance and repurchase authorities at the forthcoming
AGM
Review of services provided by the Manager
During the year the Board carried out a thorough review of the
investment management, secretarial and marketing services provided
to the Company by the Manager. Following this review, the Board has
concluded that the continued appointment of the Manager on the
terms agreed is in the interests of the shareholders as a
whole.
The Company's ongoing charges for the financial year, as a
percentage of the average of the daily net assets during the year,
were 1.38% (2016: 1.44%).
Board of Directors
As advised in our Half Year Report & Financial Statements I
shall be retiring from the Board at the Company's AGM in January
2018, which coincides with the Company's next continuation vote,
and David Graham was appointed in May 2017 to fill my vacating
board seat. Since taking up his appointment David's contribution to
the board has been exemplary. The Board has agreed unanimously that
my successor as Chairman of the Company should be John Misselbrook
and that David Graham will assume the role of Chairman of the Audit
Committee.
In accordance with corporate governance best practice John
Misselbrook, Kathryn Matthews and Oscar Wong will retire at the
forthcoming AGM and, being eligible, will offer themselves for
reappointment by shareholders. In addition, David Graham, having
been appointed during the financial year, will stand for
appointment at the AGM.
As part of the important annual evaluation process of the Board,
its effectiveness and its Committees undertaken through its
Nomination and Remuneration Committee, the Board has considered
succession planning and it has agreed to continue with its policy
for a planned phased exit for the longest-serving Director. Kathryn
Matthews will have served nine years on the Board in July 2019 and
therefore the process to find a replacement Director would commence
at the next Nomination and Remuneration Meeting during 2018.
Continuation of the Company
In accordance with the Company's Articles of Association, an
ordinary resolution will be put to shareholders at the forthcoming
AGM that the Company continues in existence as an investment trust
for a further five year period.
Following consultation with the Company's largest shareholders
and its advisers, the Board will introduce, subject to the passing
of the resolution in favour of the Company's continuation, an
obligation on the Board to put forward proposals for a tender offer
for up to 15% of the Company's issued share capital at price equal
to net asset value less costs if, over the next five years (from
the start of the current financial year, being 1st October 2017),
the Company underperforms its benchmark. Should it be required to
implement such a tender, it would be for up to 15% of the Company's
issued share capital.
The Board believes that the long term outlook for the Greater
China Region remains favourable, despite some near term challenges.
Equally it believes that JPMAM has the resources and process to
deliver better results for shareholders. Accordingly, the Board
believes that the continuation of the Company is in the best
interests of all shareholders and strongly recommends that
shareholders vote in favour of the resolution, as they intend to do
in respect of their own holdings. Given the importance of this
resolution, shareholders are encouraged to vote, either in person
at the AGM, or by completing a Form of Proxy/Voting Instruction
Form.
If the resolution is not passed, the Company's Articles of
Association require that the Directors shall within four months of
the AGM convene a General Meeting of the Company at which a special
resolution will be proposed, designed to result in the holders of
shares in the Company receiving, in lieu of their shares, units in
a unit trust scheme (or equivalent) or in the reorganisation of the
Company's share capital in some other manner or which shall be a
resolution requiring the Company to be wound up voluntarily.
Valedictory Thoughts
As advised, I shall be retiring from the Board of the Company
following the 2018 AGM in January after having served on the Board
from 2004 until now and as its Chairman from 2011.
Investing in China over this period has been an extraordinary
journey in terms of China's breathtaking development, a fact not
always comprehended by western investors who had not always
benefited from this phenomenon. I had witnessed the development of
the China of Mao suits and bicycles in 1978 to an emerging giant in
2004 but nothing compares with what we have seen over the past 14
years. At the beginning of the present decade, Facebook had not
been invented, now used by more than a quarter of the world's
population and Apple was struggling to survive. But Alibaba,
Tencent and other Chinese private sector giants, household names in
China today and beyond, are challenging those Western path setters.
It is extraordinary to recall that they were just beginning their
journeys to global renown like their US counterparts such a short
time ago and for the investor today there are countless Chinese
companies taking advantage of the many ways technology is driving
sustainable economic development and investment returns.
When I joined the Board in 2004, it roughly divided it's
investment exposure equally between Hong Kong, Taiwanese and
mainland Chinese companies listed outside China. Shanghai listed
companies were predominately former state owned institutions and
investment policy largely "hugged" its then benchmark index.
Accessing listed private sector mainland Chinese companies was as
hard as it was challenging with good corporate governance more
often than not a problem. All this has changed and is changing. The
approach of the China team at JPMAM has been particularly
impressive with its focus on the long term value of Chinese
equities, and its emphasis on seeking-out and holding the ones that
matter. They have well-demonstrated that they understand better
than most that China is experiencing changes that are being
underwritten by huge pools of wealth generated from sectors that
often did not even exist 15 years ago.
Thanks to the team's analytical and investment skills, our
market cap has increased significantly with a portfolio I would
describe as being ever interesting. While a good moment to retire,
I believe the real opportunities for shareholders are only just
beginning.
Annual General Meeting
This year's AGM will be held at 60 Victoria Embankment, London
EC4Y 0JP on Friday, 26th January 2018 at 11.30 a.m. In addition to
the formal proceedings, there will be a presentation by a
representative of the investment management team, who will also be
available to respond to questions on the Company's portfolio and
investment strategy. I look forward to seeing as many of you as
possible at the meeting. If you have any detailed questions, you
may wish to raise these in advance with the Company Secretary or
via the Company's website. Shareholders who are unable to attend
the AGM in person are encouraged to use their proxy votes.
Shareholders who hold their shares through CREST are able to lodge
their proxy votes electronically.
William Knight
Chairman
12th December 2017
Investment managers' report
Performance commentary
Over the 12 months ended 30th September 2017, the Company
delivered +28.5% return compared to the benchmark return of +28.8%.
Stock selection in China was the most positive contributor to
relative performance while exposure to the non-index markets of
Taiwan and Hong Kong detracted a little. Also, while the two
largest holdings in the portfolio, Tencent and Alibaba, rose by
58.0% and 63.0% respectively, we have limited our exposure to these
holdings to 10% which is underweight their index exposure of 16.5%
and 13.3% respectively; this has had a small negative impact on
performance relative to the index but we think it is important for
the portfolio to remain broadly diversified. During a period of
rising markets gearing, that averaged 8.1%, added value.
A-share holdings were among the top contributors. The overweight
in the surveillance solution provider, Hangzhou Hikvision,
continued to add value on strong earnings backed by promising
product expansion into new industry sectors. Han's Laser rose on
the back of the Apple product cycle and capex demand and the order
and sales momentum is expected to continue. Stocks were also lifted
on MSCI's decision to include A-shares in the indices next year.
Stocks held in the information technology sector, especially the
key Apple smartphone component suppliers, fared well. In addition
to Han's Laser, AAC Technologies and Largan Precision outperformed,
as share prices rose on a continued upbeat outlook for acoustics
and dual-camera lens respectively. Despite some profit-taking in
the Apple supply chain in September, on weaker sentiment around the
new iPhone 8 launch, concerns may be overdone as orders have not
incorporated the potential demand for iPhone X. Stock exposures
within financials also contributed to returns as the underweight in
large cap, index heavy banks, added value. They lagged the
stronger
performance of the overall market, despite delivering positive
performance over the period on improving asset quality and margins.
One of our highest conviction holdings in the Trust, Ping An
Insurance, also contributed on the back of strong earnings and the
government's intensified scrutiny on high guarantee wealth
management products. Remaining with zero exposure to China Mobile
benefited relative performance as the stock fell by 12.0% over the
year.
Meanwhile, not owning leveraged real estate developers, which
continued their rally this year, hurt performance. A lack of
exposure to Sunac China, China Evergrande and Country Garden
detracted from performance. We retain our preference for CR Land
and China Overseas Land & Investment, the latter of which was a
new purchase in the portfolio in the latest quarter, given their
sustainable return profiles, good track records and attractive
valuations.
Several of the top detractors were driven by company specific
reasons. Regina Miracle was the biggest single detractor for the
period as the textile supplier struggled with structural changes
from its key clients and this holding has now been sold. The share
price of IMAX China also halved during this period as its film
titles lagged the overall China box office. However, the position
has been retained as there are signs of a sequential recovery in
growth rate and results in the latest quarter. The share price of
Spring Airlines sold off as its earnings results came under
pressure after its international routes, particularly to Japan and
Thailand, were loss-making given increased competition and weakened
demand. China Resources Phoenix Healthcare, a hospital service
provider, fell 30% and the stock was sold given the limited upside
in its current businesses and difficulties in integration following
the recent merger.
Positioning
The overall shape of the portfolio remained broadly unchanged
with overweight exposures concentrated in the structural growth
companies and underweight exposures in the low growth, low quality
and old industrials stocks. To find the best ideas across the
Greater China markets, regardless of the stock listing, the
portfolio remains predominantly invested in China, with the
weighting in A-shares of 20.6%, as of end of September. This is a
position that has doubled from the September 2016. This allocation
is expected to continue to rise over time, particularly following
the inclusion of A-shares in MSCI indices in 2018 and the
introduction of Hong Kong China Stock Connect in 2015/6, which has
facilitated access to the onshore China market where typically more
growth orientated companies are listed.
At the stock level, quality and structural growth holdings
continue to be concentrated in the consumer, healthcare,
information technology and environmental services sectors. These
sectors are well-positioned to deliver better earnings growth than
the market and peers over the long term. The exposure to the
consumer discretionary and healthcare sectors has been increased at
the margin, particularly in the textile and apparel-wear space.
Anta Sports, the quality sportswear brand, has delivered strong
earnings given its strong multi-brand strategy. Another addition
was the textile manufacturer Shenzhou International given the
company's well-planned expansion strategy and good execution
capabilities, backed by its stand out focus on environmental
protection and labour law compliance. A holding was initiated in
New Oriental Education & Technology, the largest tutoring
service provider in China which stands to gain from strong demand
growth due to China's admission exam reform and social demographic
change. A purchase was made in Focus Media, an A-share advertising
company that is well-positioned in the steadily growing 'new'
out-of-home advertising segments with leading positions in both
in-building advertising and cinema advertising. Elsewhere, the
portfolio capitalised on the improving consumer market through
holdings in A-share companies, the custom furniture maker Suofeiya
Home Collection, the white goods producer Qingdao Haier and the
premium liquor brand Kweichow Moutai.
The portfolio increased exposure to the turnaround in the Macau
gaming industry, both the VIP and mass gaming markets, through
holding a number of the major operators, MGM China, Galaxy
Entertainment and Sands.
Healthcare is another area with exciting opportunities in
A-shares, especially, across a variety of business models, as China
is the second largest healthcare market in the world. Opportunities
span from traditional Chinese medicine, with the likes of A-share
holdings Dong-E-E-Jiao and Yunnan Baiyao and more conventional
medicine through China Medical Systems, which commercializes
multinational pharmaceutical companies (MNC) drugs through its
distribution network, and CSPC Pharmaceutical, which benefits from
potential high growth when its flagship drugs are included in the
National Reimbursement Drug List.
Outlook
Economic rebalancing is progressing well and deflationary
pressures have subsided through supply side reforms and foreign
exchange liberalisation. Although the stimulus is being withdrawn,
economic growth is being driven by the consumer and exports. The
deleveraging has been aimed at non-bank lending, as interbank rates
have been allowed to rise, while the prime lending rates that fund
the real economy have remained stable. This has driven lending back
to the mainstream large cap banks like ICBC. As a result, the rate
of lending growth and rate of debt accumulation have started to
slow. This time, the PBOC has ensured sufficient liquidity in the
system to offset capital outflows. Although policy risk remains in
China it appears that the authorities have executed this last round
of tightening quite successfully. Despite debt levels remaining
high, the slower pace of the build-up and the shift in sources of
the lending are incremental positives.
Further on the policy front, the 19th National Party Congress
took place in late October highlighting China's economic priorities
and laying out the policy roadmap for the next couple of decades.
While there are no major surprises, there was an emphasis of
quality over quantity in terms of growth objectives, which supports
not only financial stability but also a more balanced growth path
focusing on environmental issues and consumption, which are key
positives for investors.
MSCI's decision, in June, to include some A-share representation
in their China index (5% from June 2018) has been well received.
Although the near-term impact on the A--share market is expected to
be limited, the long-term positive implication for the development
of the onshore markets is extremely positive. The decision
acknowledges the significant effort China has made to liberalise
their capital markets and improve accessibility to foreign
investors. It is hoped that this will provide a much needed
catalyst for the lagging China A-share market. The higher foreign
participation should help rebalance the investment styles and
horizon of the market which is currently dominated by retail
investors. In addition, foreign investors are likely to focus on
the quality companies in sectors enjoying structural growth which
have been favoured by this portfolio.
The outlook continues to be positive for Chinese equities given
the supportive outlook for corporate earnings, the accommodative
liquidity conditions and strong external global growth supporting
the macro-economy. The portfolio will see further broadening and
deepening of the exposure to China consumer discretionary stocks,
especially in services, while retaining a positive tilt towards
technology and healthcare, as structural growth sectors drive
further re-rating.
Howard Wang
Rebecca Jiang
Shumin Huang
Investment Managers
12th December 2017
PRINCIPAL RISKS
Investors should note that there can be significant economic and
political risks inherent in investing in emerging economies. As
such, the Greater China markets can exhibit more volatility than
developed markets and this should be taken into consideration when
evaluating the suitability of the Company as a potential
investment.
The Directors confirm that they have carried out a robust
assessment of the principal risks facing the Company, including
those that would threaten its business model, future performance,
solvency or liquidity. The risks identified have not changed over
the year under review, and the ways in which they are managed or
mitigated are summarised as follows:
With the assistance of the Manager, the Board has completed a
robust risk assessment and drawn up a risk matrix, which identifies
the key risks to the Company. In assessing the risks and how they
can be mitigated, the Board has given particular attention to those
issues that threaten the viability of the Company. These key risks
fall broadly under the following categories:
-- Investment Underperformance: An inappropriate investment
decision may lead to sustained underperformance against the
Company's benchmark index and peer companies, resulting in the
Company's shares trading on a wider discount. The Board manages
this risk 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 and transaction reports.
The Board monitors the implementation and results of the investment
process with the investment manager, who attends all Board
meetings, and reviews data which show statistical measures of the
Company's risk profile. The investment managers employ the
Company's gearing within a strategic range set by the Board.
-- Strategy/Business Management: An ill-advised corporate
initiative, for example an inappropriate takeover of another
company or an ill-timed issue of new capital; misuse of the
investment trust structure, for example inappropriate gearing; or
if the Company's business strategy is no longer appropriate, may
lead to a lack of investor demand. The Board discusses these risks
regularly and takes advice from the Manager and its professional
advisers.
-- Loss of Investment Team or Investment Manager: A sudden
departure of several members of the investment management team
could result in a deterioration in investment performance. The
Manager takes steps to reduce the likelihood of such an event by
ensuring appropriate succession planning and the adoption of a
team-based approach, as well as special efforts to retain key
personnel.
-- Share Price Discount: A disproportionate widening of the
discount relative to the Company's peers could result in a loss of
value for shareholders. In order to manage the Company's discount,
which can be volatile, the Company operates a share repurchase
programme and the Board regularly discusses discount policy and has
set parameters for the Manager and the Company's broker to follow.
The Board receives regular reports and is actively involved in the
discount management process.
-- Market: Market risk arises from uncertainty about the future
prices of the Company's investments. It represents the potential
loss that the Company might suffer through holding investments in
the face of negative market movements. The Board considers asset
allocation, stock selection and levels of gearing on a regular
basis and has set investment restrictions and guidelines, which are
monitored and reported on by the Manager. The Board monitors the
implementation and results of the investment process with the
Investment Managers.
-- Political, Economic and Governance: Changes in financial,
regulatory or tax legislation, including in the European Union, may
adversely affect the Company. The Manager makes recommendations to
the Board on accounting, dividend and tax policies and the Board
seeks external advice where appropriate. In addition, the Company
is subject to administrative risks, such as the imposition of
restrictions on the free movement of capital. These risks are
discussed by the Board on a regular basis.
-- Legal and Regulatory: In order to qualify as an investment
trust, the Company must comply with Section 1158 of the Corporation
Tax Act 2010 ('Section 1158'). Details of the Company's approval
are given under 'Structure of the Company' in the Annual Report.
Were the Company to breach Section 1158, it may lose investment
trust status and, as a consequence, gains within the Company's
portfolio would be subject to Capital Gains Tax. The Section 1158
qualification criteria are continually monitored by the Manager and
the results reported to the Board each month. The Company must also
comply with the provisions of the Companies Act 2006 and, since its
shares are listed on the London Stock Exchange, the UKLA Listing
Rules, Disclosure Guidance and Transparency Rules ('DTRs') and, as
an Investment Trust, the Alternative Investment Fund Managers
Directive ('AIFMD'). A breach of the Companies Act 2006 could
result in the Company and/or the Directors being fined or the
subject of criminal proceedings. Breach of the UKLA Listing Rules
or DTRs could result in the Company's shares being suspended from
listing which in turn would breach Section 1158. The Board relies
on the services of its Company Secretary, JPMorgan Funds Limited
and its professional advisers to ensure compliance with the
Companies Act 2006, the UKLA Listing Rules, DTRs and AIFMD.
-- Corporate Governance and Shareholder Relations: Details of
the Company's compliance with Corporate Governance best practice,
including information on relations with shareholders, are set out
in the Corporate Governance statement in the Annual Report.
-- Operational Risk and Cybercrime: Disruption to, or failure
of, the Manager's accounting, dealing or payments systems or the
depositary's or custodian's records may prevent accurate reporting
and monitoring of the Company's financial position. Details of how
the Board monitors the services provided by the Manager, its
associates and depositary and the key elements designed to provide
effective internal control are included within the Risk Management
and Internal Control section of the Directors' Report. The threat
of cyber attack, in all its guises, is regarded as at least as
important as more traditional physical threats to business
continuity and security. The Company benefits directly or
indirectly from all elements of 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 independently.
The risk of fraud or other control failures or weaknesses within
the Manager or other service providers could result in losses to
the Company. The Audit Committee receives independently audited
reports on the Manager's and other service providers' internal
controls, as well as a report from the Manager's Compliance
function. The Company's management agreement obliges the Manager to
report on the detection of fraud relating to the Company's
investments and the Company is afforded protection through its
various contracts with suppliers, of which one of the key
protections is the Depositary's indemnification for loss or
misappropriation of the Company's assets held in custody.
-- Financial: The financial risks faced by the Company include
market risk, liquidity risk and credit risk. Further details are
disclosed in note 21 of the Annual Report.
RELATED PARTY TRANSACTIONS
During the financial year, no transactions with related parties
have taken place which have materially affected the financial
position or the performance of the Company during the year.
statement of directors' responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
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, comprising FRS 102 'The Financial Reporting
Standard applicable in the UK and Republic of Ireland' and
applicable law). Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of
the profit or loss of the Company for that period. In preparing the
financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable United Kingdom Accounting Standards,
comprising FRS 102, have been followed, subject to any material
departures disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable and prudent; 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 that they have done so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements and the Directors' Remuneration Report
comply with the Companies Act 2006.
The Directors are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Under applicable law and regulations the Directors are also
responsible for preparing a Strategic Report, a Directors' Report
and Directors' Remuneration Report that comply with the law and
those regulations.
Each of the Directors, whose names and functions are listed in
Directors' Report confirm that, to the best of their knowledge:
-- the Company's financial statements, which have been prepared
in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 102
'The Financial Reporting Standard applicable in the UK and Republic
of Ireland', and applicable law), give a true and fair view of the
assets, liabilities, financial position and profit of the Company;
and
-- the Directors' Report includes 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 it faces.
The Directors consider that the Annual Report and Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company's performance, business model and strategy.
For and on behalf of the Board
William Knight,
Chairman
12th December 2017
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
the year ended 30th September 2017
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------- --------- -------- --------- -------- -------- ---------
Gains on investments held at fair value through profit
or loss - 48,152 48,152 - 47,348 47,348
Net foreign currency gains/(losses) - 763 763 - (1,776) (1,776)
Income from investments 3,480 - 3,480 3,548 - 3,548
Interest receivable and similar income 207 - 207 83 - 83
------------------------------------------------------- --------- -------- --------- -------- -------- ---------
Gross return 3,687 48,915 52,602 3,631 45,572 49,203
Management fee (2,092) - (2,092) (1,660) - (1,660)
Other administrative expenses (595) - (595) (476) - (476)
------------------------------------------------------- --------- -------- --------- -------- -------- ---------
Net return on ordinary activities before finance costs
and taxation 1,000 48,915 49,915 1,495 45,572 47,067
Finance costs (352) - (352) (252) - (252)
------------------------------------------------------- --------- -------- --------- -------- -------- ---------
Net return on ordinary activities before taxation 648 48,915 49,563 1,243 45,572 46,815
Taxation 202 - 202 92 (21) 71
------------------------------------------------------- --------- -------- --------- -------- -------- ---------
Net return on ordinary activities after taxation 850 48,915 49,765 1,335 45,551 46,886
------------------------------------------------------- --------- -------- --------- -------- -------- ---------
Return per share 1.16p 66.78p 67.94p 1.79p 60.87p 62.66p
A final dividend of 1.6p (2016: 1.6p) has been proposed in
respect of the year ended 30th September 2017, totalling
GBP1,167,000 (2016: GBP1,185,000). Further details are given in
note 10 in the Annual Report.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
in the year.
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. Net return on ordinary
activities after taxation represents the profit for the year and
also total comprehensive income.
STATEMENT OF CHANGES IN EQUITY
for the year ended 30th September 2017
Called
up Exercised Capital
share Share warrant redemption Other Capital Revenue
capital premium reserve reserve reserve reserves reserve(1) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------- -------- ---------- ----------- -------- --------- ----------- ---------
At 30th September
2015 19,481 13,321 3 581 37,392 62,763 2,391 135,932
Repurchase of
shares into
Treasury - - - - - (1,673) - (1,673)
Net return from
ordinary activities - - - - - 45,551 1,335 46,886
Dividends paid
in the year
(note 10) - - - - - - (1,350) (1,350)
---------------------- -------- -------- ---------- ----------- -------- --------- ----------- ---------
At 30th September
2016 19,481 13,321 3 581 37,392 106,641 2,376 179,795
Repurchase of
shares into
Treasury - - - - - (2,420) - (2,420)
Net return from
ordinary activities - - - - - 48,915 850 49,765
Dividends paid
in the year
(note 10) - - - - - - (1,178) (1,178)
---------------------- -------- -------- ---------- ----------- -------- --------- ----------- ---------
At 30th September
2017 19,481 13,321 3 581 37,392 153,136 2,048 225,962
---------------------- -------- -------- ---------- ----------- -------- --------- ----------- ---------
(1) This reserve forms the distributable reserve of the Company
and may be used to fund distribution of profits to investors via
dividend payments.
STATEMENT OF FINANCIAL POSITION
at 30th September 2017
2017 2016
GBP'000 GBP'000
------------------------------------------------------- --------- ---------
Fixed assets
Investments held at fair value through profit or loss 246,881 195,157
Current assets
Debtors 1,781 1,599
Cash and cash equivalents 1,890 515
------------------------------------------------------- --------- ---------
3,671 2,114
Current liabilities
Creditors: amounts falling due within one year (24,590) (17,476)
------------------------------------------------------- --------- ---------
Net current liabilities (20,919) (15,362)
------------------------------------------------------- --------- ---------
Total assets less current liabilities 225,962 179,795
------------------------------------------------------- --------- ---------
Net assets 225,962 179,795
------------------------------------------------------- --------- ---------
Capital and reserves
Called up share capital 19,481 19,481
Share premium 13,321 13,321
Exercised warrant reserve 3 3
Capital redemption reserve 581 581
Other reserve 37,392 37,392
Capital reserves 153,136 106,641
Revenue reserve 2,048 2,376
------------------------------------------------------- --------- ---------
Total shareholders' funds 225,962 179,795
------------------------------------------------------- --------- ---------
Net asset value per share 309.8p 242.7p
STATEMENT OF CASH FLOWS
For the year ended 30 September 2017
2017 2016
GBP'000 GBP'000
---------------------------------------------------------------- ---------- ----------
Net cash outflow from operations before dividends and interest (2,394) (1,122)
Dividends received 3,018 3,121
Interest received 6 11
Overseas tax recovered 431 344
Interest paid (310) (249)
---------------------------------------------------------------- ---------- ----------
Net cash inflow from operating activities 751 2,105
---------------------------------------------------------------- ---------- ----------
Purchases of investments (156,348) (136,224)
Sales of investments 152,898 143,560
Settlement of foreign currency contracts (30) (43)
---------------------------------------------------------------- ---------- ----------
Net cash (outflow)/inflow from investing activities (3,480) 7,293
---------------------------------------------------------------- ---------- ----------
Dividends paid (1,178) (1,350)
Repurchase of shares into Treasury (2,525) (1,568)
Drawdown of bank loan 9,667 3,427
Repayment of bank loan (1,860) (14,033)
---------------------------------------------------------------- ---------- ----------
Net cash inflow/(outflow) from financing activities 4,104 (13,524)
---------------------------------------------------------------- ---------- ----------
Increase/(decrease) in cash and cash equivalents 1,375 (4,126)
---------------------------------------------------------------- ---------- ----------
Cash and cash equivalents at start of year 515 4,636
Exchange movements - 5
Cash and cash equivalents at end of year 1,890 515
---------------------------------------------------------------- ---------- ----------
Increase/(decrease) in cash and cash equivalents 1,375 (4,126)
---------------------------------------------------------------- ---------- ----------
Cash and cash equivalents consist of:
Cash at bank 1,890 515
---------------------------------------------------------------- ---------- ----------
1,890 515
---------------------------------------------------------------- ---------- ----------
Notes to the financial statements
for the year ended 30th September 2017
1. Accounting policies
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 November 2014, and updated
in January 2017.
All of the Company's operations are of a continuing nature.
The financial statements have been prepared on a going concern
basis. The disclosures on going concern in the Directors' Report
form part of these financial statements.
The policies applied in these financial statements are
consistent with those applied in the preceding year.
2. Return per share
2017 2016
GBP'000 GBP'000
------------------------------------------------------------ ----------- ------------
Revenue return 850 1,335
Capital return 48,915 45,551
------------------------------------------------------------ ----------- ------------
Total return 49,765 46,886
------------------------------------------------------------ ----------- ------------
Weighted average number of shares in issue during the year 73,253,728 74,824,831
Revenue return per share 1.16p 1.79p
Capital return per share 66.78p 60.87p
------------------------------------------------------------ ----------- ------------
Total return per share 67.94p 62.66p
------------------------------------------------------------ ----------- ------------
3. Dividends
(a) Dividends paid and proposed
2017 2016
GBP'000 GBP'000
------------------------------------------------------------- -------- --------
Dividend paid
2016 final dividend paid of 1.6p (2015: 1.8p) per share 1,178 1,350
------------------------------------------------------------- -------- --------
Dividend proposed
2017 final dividend proposed of 1.6p (2016: 1.6p) per share 1,167 1,185
------------------------------------------------------------- -------- --------
The dividend proposed in respect of the year ended 30th
September 2017 is subject to shareholder approval at the
forthcoming Annual General Meeting. In accordance with the
accounting policy of the Company, this dividend will be reflected
in the financial statements for the year ending 30th September
2018.
The dividend proposed in respect of the year ended 30th
September 2016 amounted to GBP1,185,000. However the amount paid
amounted to GBP1,178,000 due to shares repurchased after the
balance sheet date but prior to the share register record date.
(b) Dividend 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 available for distribution by way of dividend
for the year is GBP850,000 (2016: GBP1,335,000).
2017 2016
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Final dividend proposed of 1.6p (2016: 1.6p) per share 1,167 1,185
-------------------------------------------------------- -------- --------
All dividends paid and proposed in the period are and will be
funded from the revenue reserve.
The revenue reserve after payment of the final dividend will
amount to GBP881,000 (2016: GBP1,191,000).
4. Net asset value per share
2017 2016
--------------------------- ----------- -----------
Net assets (GBP'000) 225,962 179,795
Number of shares in issue 72,928,162 74,074,935
--------------------------- ----------- -----------
Net asset value per share 309.8p 242.7p
--------------------------- ----------- -----------
5. Status of results announcement
2016 Financial Information
The figures and financial information for 2016 are extracted
from the published Annual Report and Financial Statements for the
year ended 30th September 2016 and do not constitute the statutory
accounts for that year. The Annual Report and Financial Statements
have been delivered to the Registrar of Companies and included the
Report of the Independent Auditors which was unqualified and did
not contain a statement under either section 498(2) or section
498(3) of the Companies Act 2006.
2017 Financial Information
The figures and financial information for 2017 are extracted
from the published Annual Report and Financial Statements for the
year ended 30th September 2017 and do not constitute the statutory
accounts for that year. The Annual Report and Financial Statements
have been delivered to the Registrar of Companies and included the
Report of the Independent Auditors which was unqualified and did
not contain a statement under either section 498(2) or section
498(3) of the Companies Act 2006.
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
JPMORGAN FUNDS LIMITED
12th December 2017
For further information, please contact:
Lucy Dina
For and on behalf of
JPMorgan Funds Limited
020 7742 4000
ENDS
A copy of the annual report will shortly be submitted to the
National Storage Mechanism and will be available for inspection at
www.morningstar.co.uk/uk/NSM
The annual report will shortly be available on the Company's
website at www.jpmchinese.co.uk 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 company news service from the London Stock Exchange
END
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