Annual Financial Report

RNS Number : 3766R

JPMorgan Chinese Inv Tst PLC

09 December 2016

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2016

The Directors of JPMorgan Chinese Investment Trust plc announce the Company's results for the year ended 30th September 2016.

chairman's statement

It has been a difficult year for many investors who have been surprised by political developments around the world. The challenge to globalisation which has been such a critical factor in the growth of Asia is being attacked as the key cause of social divide and is, therefore, coming under increasing threat. In spite of this we continue to believe that the domestic agenda in China will provide great opportunities for investors as China becomes ever more accessible thereby enabling the JP Morgan Chinese Investment Trust to position itself actively to unearth a wide range of interesting growth companies in which to invest.

The opening of mutual market access between the Shenzhen exchange and that of Hong Kong, which is due to come on stream by end of the year, in a similar way to the access between Shanghai and Hong Kong which has been functioning for two years, will significantly increase the investment opportunity set. Shenzhen Connect will enable investors to have exposure to many of the 'New China' sectors and the addition of it to the Connect programme will allow 67% of total and 68% of the free float of the 'A' share market cap to become tradable in the overall programme. It will also add an aggregate total/free float market of USD1.9 trillion to the investable universe for global investors. MSCI has not so far included 'A' shares in their indices but if they did at current levels the inclusion of China 'A' shares would represent 26% of the MSCI China index. Investing in China is, therefore, becoming a fast changing and most interesting space for investors in growth companies.

Activity within the Company

To reflect the importance to investors of the developments that are taking place in China in terms of accessibility to growth companies, the Board, at its Annual General Meeting in January this year, received approval to change the benchmark to the MSCI China index from the MSCI Golden Dragon Index. The rationale for this was explained in my Chairman's statement of the 21st December 2015. When the new benchmark was adopted, the Board gave the investment management team the flexibility to invest up to 30% of the portfolio in Hong Kong and Taiwanese companies which are outside the new benchmark. This was because not only does the team possess longstanding knowledge and expertise for investing in Taiwan but also companies in Taiwan, particularly semi conductor companies, may be considered as the dividend heroes of the region with a robust culture of paying out a high percentage of their earnings as dividends. The team was also given the ability to invest in good opportunities identified in Hong Kong and Macau. In this way the team's overall experience of investing in growth companies in the China region would be utilised to the full. At the same time the Board increased the maximum exposure to China 'A' shares and China 'A' share ADRs from 20% to 50%.

Another important decision taken by the Board was to provide the investment team with greater flexibility over the use of gearing, by raising the maximum limit from 15% to 20%. The overall objective of these changes is to differentiate the Company from other China focused investment vehicles while adding value through the investment process.

The investment team has responded most positively to these decisions increasing the number of specialist research analysts to concentrate on undervalued interesting growth companies quoted on the 'A' share markets of Shanghai and Shenzhen.

Performance

Performance for the year to 30th September 2016 resulted in the Company achieving a return to Ordinary shareholders of +38.0%. This includes the final dividend of 1.80 pence paid in February 2016. The Company's total return on net assets was +35.2%, which comprises the change in net asset value ('NAV') with dividends reinvested. This compared favourably with the return of 34.0%, a combination of the MSCI Golden Dragon Index up to 26th January 2016 and thereafter the MSCI China Index. Over the full reporting year the return on the old benchmark, MSCI Golden Dragon Index, was 36.0%. The outperformance was achieved as a result of successful stock selection and the more flexible approach to levels of gearing.

Outlook and Approach

There have been multiple developments in the Chinese markets this year. Some are symptomatic of an economy still in the midst of rebalancing with many positive steps forward. Others are the re-focus on supply side reforms to sustain growth at reasonable levels. The correction in the market at the beginning of 2016 was triggered by another devaluation of the RMB. The recovery following this setback had an impact on short term performance as value stocks led the rally ahead of the well managed growth companies in which we are invested. Despite some trials and errors, the Chinese leadership will continue to be mindful of striking the right balance, as reflected in the recent residential property tightening measures in response to price increases. Elsewhere we are encouraged by progress in China's capital markets, such as the RMB's inclusion in the IMF's 'Special Drawing Rights' (SDR) basket and the inclusion of US-listed Chinese companies, known as 'American depository receipts' (ADRs), into MSCI indices.

As referred to above, the MSCI at their latest annual review held off including China 'A' shares in their indices. However, inclusion would seem to be inevitable during 2017. The Shenzhen-Hong Kong Connect programme, once it is launched, should therefore lead to the Company's exposure to domestic companies becoming of increasing importance. In an environment where economic growth is expected to be driven by 'New China' companies, the team and its research analysts will therefore be focussing on the future winners rather than on the old industrial models termed 'Old China'. They will, and are, seeking out good ideas amongst the companies that provide the most exciting often technologically driven investment opportunities; sectors include: the consumer space, healthcare, internet, drone and robot technology and environmental services.

To take fuller advantage of these trends the investment team is looking at the construction of the investment portfolio slightly differently than in the past. In future it will be divided between 'Core' investments', the high liquidity components of any investment portfolio such as Alibaba, Tencent, JD, Ping An Insurance and well-analysed New China growth companies to be found quoted on the 'A' share markets. This approach should play to the strength of the Company as a closed-end investment trust which can invest and hold promising lesser known investments without fear of enforced redemptions. 'Core' investments in sectors no longer liked will be sold as has happened with regard to investments in the banking and property sectors. The flexibility to invest outside the benchmark of mainland China means that in terms of Hong Kong and Macau a few investments will continue to be held - not necessarily core but offering value.

Taiwan continues to offer up promising technology companies. While the sector has and can be impacted by seasonality and global demand, select investments, notably in smartphone component providers that are able to gain market share through the upgrade cycle and withstand the pricing pressure along the value chain, continue to be an important part of the portfolio. The Taiwanese company approach to paying good dividends thereby offering good returns on capital is always a good reason for investing there. The key for the investment team remains therefore, to focus on businesses that will benefit from changing economic models and the evolving capital market landscape.

Investment Team

A further refinement from previous years is a restructuring of the responsibilities of the named investment team to maximise the approach that is being taken for the Company. Howard Wang will continue to lead the team with Emerson Yip as his deputy. Shumin Huang, as head of research, will oversee an enhanced team of analysts concentrating on the opportunities expected to emerge from amongst 'New China' companies listed on the 'A' share exchanges of Shanghai and Shenzhen. The Taiwan investment team remains unchanged and also is the regional home for a number of the analysts

Board due diligence trip to Hong Kong, Taiwan and China

At the end of October, the Board made a due diligence visit to Hong Kong, Taipei and Beijing. Discussions took place with department heads at JP Morgan Asset Management covering, amongst others, dealing, risk, compliance and Asia-wide value investing. A review of the various processes was undertaken. The Board was also given a comprehensive update on the preparations that had been made in readiness for the launch of Shenzhen-Hong Kong Connect and the resultant opportunities for the Company. The Board met the investment team handling the China region and held a series of highly useful one-on-one discussions with the various research analysts. In addition the Board met a number of Taiwanese companies, who confirmed their robust approach to paying dividends, as well as meeting a range of industry specialists covering a number of the 'New China' sectors in which the Company is investing and it received updates on China's economic direction and other macro topics of relevance. The Board came away from an intensive week with an enhanced belief in China and the China region as an essential investment destination and confidence that the JP Morgan China team possesses the depth and preparedness for the stock picking opportunities ahead supported by sound processes, with back and middle office strength.

Revenue and Dividends

The revenue for the year, after taxation, was £1,335,000 (2015: £1,701,000). The revenue return per share, calculated on the average number of shares in issue, was 1.79 pence (2015: 2.25 pence).

The Board is recommending a dividend of 1.60 pence (2015: 1.80 pence) per share in respect of the financial year ended 30th September 2016 given the Company's return on its Revenue Account. Subject to shareholders' approval at the Annual General Meeting, this dividend will be paid on 8th February 2017 to shareholders on the register at the close of business on 16th December 2016.

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.

Gearing

In January 2016 the Company renewed its £30 million facility with Scotiabank for a further 364 day period on the same terms but at a reduced margin. The facility matures on 20th January 2017 at which point the Board will consider another gearing facility.

During the year the Company's gearing ranged from 5.7% to 12.2% geared and, at the time of writing, was 7.6%. The current facility allows 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 930,535 shares into Treasury. However, 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 Annual General Meeting.

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 1.44%, which includes the increased costs associated with the AIFMD.

Board of Directors

In July 2016, the Board through its Nomination and Remuneration Committee carried out a comprehensive evaluation of the Board, its committees, the individual Directors and the Chairman. Topics evaluated included the size and composition of the Board, Board information and processes, shareholder engagement and training and accountability. The report confirmed the efficacy of the Board.

As part of the evaluation process, the Board has considered succession planning and has agreed a planned phased exit for the longest-serving Director being myself, ahead of the Company's next continuation vote.

Annual General Meeting

This year's Annual General Meeting will be held at 60 Victoria Embankment, London EC4Y 0JP on Tuesday, 31st January 2017 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 by following the 'Ask the Chairman' link at www.jpmchinese.co.uk. Shareholders who are unable to attend the Annual General Meeting 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

8th December 2016

Investment managers' report

Introduction

As the Chinese economy has continued to rebalance towards 'New China' we have used the change in the benchmark and the investment guidelines, introduced in January 2016, to increase the allocation to mainland listed Chinese stocks. In particular we have taken advantage of the opening up of the onshore markets, with the introduction of the Hong Kong-Shanghai Connect, to increase the exposure to 'A' shares. Nevertheless we still continue to find our best ideas across all three markets of the Greater China region; China, Hong Kong and Taiwan, regardless of where the shares are listed, to deliver returns over the long term. Compared to a year ago, our overall weight to China has increased by 25.6% to 86.2% whilst the total weight of Hong Kong and Taiwan stocks stand at a combined 13.8% of the portfolio. Within the China universe, our weight in 'A' shares has increased from 6.2% to 10.9%, reflecting our view that the onshore domestic market will increasingly offer more attractive investment opportunities going forward. In addition, we have been more active in deploying gearing, and over the year, the level of gearing has ranged between 5.7% and 12.2%. We have also increased our conviction in the holdings in the portfolio and the number of positions in the portfolio has reduced from 63 at the start of the year to 58.

Performance commentary

Over the 12 months ended 30th September 2016, the Company delivered +35.2% compared to the benchmark return of +34.0% (the benchmark is a combination of the MSCI Golden Dragon Index up to 26th January 2016 and thereafter the MSCI China Index). During this period, stock selection was positive overall. Our stock holdings in China and Taiwan added value whereas the overall exposure to 'A' shares detracted as the onshore quoted companies lagged those companies quoted in Hong Kong and Taiwan. Gearing, which averaged 9.4% over the period, added value in an environment of rising markets.

Over the reporting period, stock selection in technology, particularly in Taiwan, continued to be a top contributor, while positions in select Apple supply chain companies worked well. AAC Technologies remains well-positioned for the strong upgrade cycle in acoustics. We believe the positive outlook for specification upgrades should continue to drive demand for dual camera lenses, benefiting Largan Precision. The overweighting in semi-conductor stocks also helped returns. Silicon Motion Technology, the fabless semiconductor company, added value and should gain from the adoption of Solid State Drive (SSD) in PCs, while Taiwan Semiconductor Manufacturing, the chip industry bellwether, continued to execute well and its shares hit all-time highs. Regina Miracle, a textile manufacturer, performed well as it recovered from the impact of its key customer, L Brands, changing business strategy whilst its sports products lines continued to grow. China Resources Gas, a natural gas distributor, benefited from strong growth in both sales volume and new residential connection rollouts, whilst at the same time remaining well positioned for a recovery in demand and an increase in market penetration. We benefited from underweight positions in China Mobile and Baidu Inc., which underperformed, as we continued to see better growth opportunities elsewhere.

Overweights in China Taiping Insurance and Ping An Insurance detracted on the back of fears about the increased risk of asset impairments. However in the long-term they should be well supported by a secular tailwind in demand for insurance products. A handful of structural growth names also detracted from performance for stock specific reasons. Sino Biopharmaceutical fell on headline noise around plans to buy shares of China Cinda AMC and inventory de-stocking. CAR Inc also detracted on concerns over consumer demand, increasing competition given the Didi-Uber merger and weakness in its rental business, all of which contributed to the stock's derating. We exited the stock as the fundamentals deteriorated. Spring Airlines fell sharply, along with the broader 'A' share market correction earlier in the year, over market concerns of aircraft delivery delays impacting the near term earnings; although the shares have subsequently rallied. Catcher also fell over fears that its growth outlook was under pressure given a decision by Apple to change its casing materials supplier resulting in significant pricing pressure. As a result we sold out of the holding. Additionally, JD.com corrected after failing to meet market expectations as gross merchandise volume growth dampened and adjustments in the marketplace caused some near-term disruptions. However, we continue to believe the company has the potential to be an efficient and profitable online retailer.

Positioning

The portfolio is broadly constructed of two categories of stocks; the core holdings and those which are held for opportunistic reasons. Primarily we invest in companies that we consider as long term core holdings, which satisfy our key characteristics of being well-managed with growth-focused franchises as well as having structural tailwinds. These companies are typically highly liquid, such as Tencent, Ping An or attractive New China growth companies in the 'A' share markets of Shanghai and Shenzhen. These positions are typically held over a longer term investment horizon and in bigger position sizes, as we are less concerned about the impact of shorter term macro influences. In addition, we take more tactical positions in opportunities that tend to be cyclical in nature with the expectation of a recovery in the valuation or due to imbalances in demand and supply. We own select holdings here in smaller positions and usually with a shorter term investment horizon, to capitalize on the turn in the cycle. Core holdings are currently about 90% of the Investment Trust, which has increased from 75% over the last 18 months.

As a result, given that we hold more of the longer term investments, there tends to be a lower turnover in the individual companies held in the portfolio. Nevertheless, we may trade around positions, buying and selling on valuation opportunities as they present themselves. In other words, if the investment thesis behind a stock is intact, we are likely to buy on weakness and trim on strength. We also make incremental trades in a holding to comply with the portfolio guidelines on single stock position limits. Such trading amounted to 92% in annualized turnover over the last 12 months. However, we believe the turnover in actual names is more reflective of change in bottom-up conviction. Among our top 30 holdings, usually our highest conviction names, the turnover lowers to 25%, indicating an average holding period of 4 years, compared to a year ago even given the change of the benchmark during this period.

Of the core holdings, we continue to be well-positioned in the New China economies, in areas including consumers, healthcare, technology and the internet and environmental services, which offer the most exciting investment opportunities over the next couple of years. Among the consumer stocks, we own a variety of names in media, tourism, autos, and house appliances, primarily in China but also across all the Greater China region markets. For example, we hold IMAX China, the cinematic operator, where we expect earnings to grow as consumers become more willing to pay up for a ticket to have a better cinematic experience. Brilliance China Automotive, a BMW dealer and manufacturer in China, should also gain from a similar trend as consumers upgrade their purchases to more luxury car brands. We hold a position in the travel service provider Ctrip.com, given the ADR's underperformance following its recent capital raising to consolidate the industry. We also purchased a Taiwan sportswear accessory manufacturer, Taiwan Paiho, on the back of its unique product launches in shoe-related businesses that should surprise the market on the upside for the next 2-3 years. Another example of a core 'A' share holding is Hangzhou Robam, a kitchen appliances company, which is explicitly tailored for the Chinese consumer, as it specialises in kitchen range hoods suitable for the high content of smoke, grease and odour found in Chinese cooking. The healthcare sector should experience a structural tailwind as expenditure increases as a percentage of GDP combined with the aging demographics of the population. Within this sector, we remain selective about the companies that we believe are positioned to be the long-term winners, such as the hospital operator, Phoenix Healthcare, and successful R&D drug companies, such as Sino Biopharmaceutical and, 'A' share listed, Jiangsu Hengrui. Technology is another fertile ground for stock picking, with diverse business models, content and end consumption. Our investments range from long-standing holdings in the portfolio, such as Tencent which we like for its robust internet ecosystems and Apple component suppliers, to more niche growth names, such as Wangsu Science and Technology, a dominant internet service enabler, as well as 'A' share companies such as Hangzhou Hikvision, a top surveillance solutions provider. These are some examples of our investment approach, focusing on the best stock ideas regardless of market or listing.

Of the opportunistic holdings, we focus on cyclical companies which can benefit from a valuation recovery or turn in the earnings cycle. We are selective in this space, owning quality operators in their particular sector. Attractive investments include select holdings with exposure to the property market, including the real estate developer KWG Property and building materials manufacturer BBMG. We also own CNOOC, the only energy play in the portfolio to benefit from a recovery in oil price as a pure upstream exploration and production company.

On the corporate governance front Taiwan continues to improve, however, China is still going through a period of change and remains work in progress. Over the last year, we are still seeing companies being directed by the government to perform national service, such as a pharmaceutical company announcing plans to purchase shares of a distressed asset management company. Chinese companies are also not as focused on cash flow, as they believe they can raise money if needed. However, we are seeing some positives such as earnings-based key performance indicators (KPIs) for managerial incentives, even though there are ways to artificially set these targets so they are met. We are looking for real reforms in State Owned Enterprises to take hold, with the introduction of private ownerships and more management incentives linked to shareholder interest. While we are realistic about the overall standard of corporate governance practices, broadly, not measuring up to those in the developed markets, we do consider governance to be an important pillar in looking for quality franchises. As a result we conduct thorough due diligence of the companies we invest in and are selective in investing in high quality operators, as this is key to achieving sustainability of earnings over the cycle.

Outlook

We have seen multiple developments in the Chinese markets this year. While some are symptomatic of an economy still in the midst of rebalancing, many are marked positive steps forward. The re-focus on the supply side reforms has driven a recovery in various old industrial cyclicals. This presented a temporary setback to our investment performance as our preference is for well-managed growth companies which lagged the value rally, following the sharp correction at the beginning of 2016 triggered by further RMB devaluation and the failure of the circuit breaker mechanism, another measure of government intervention that did not deliver the intended results. Despite some trials and errors, we believe the Chinese leadership is watching the impact of their policy management and will continue to be mindful of striking the right balance. An example of this is in the recent residential property tightening measures in response to price increases. Elsewhere, we are encouraged by the progress in China's capital markets, such as the RMB's inclusion in the IMF's Special Drawing Rights (SDR) basket and the inclusion of US-listed Chinese companies into MSCI indices. The potential inclusion of China 'A' Shares in the MSCI indices will result in domestic companies becoming a strategically significant part of an investor's asset allocation decision and we believe we are significantly well placed in our investment knowledge and experience in investing in these stocks. Additionally, the long-awaited launch of the Shenzhen-Hong Kong Connect programme on 5th December 2016 will give investors another way to access the onshore China markets. Having upped the exposure to domestic Chinese companies to nearly 12% by the end of the financial year, we expect this to be an area that will be of increasing importance and we will continue to add more attractive ideas over time. In an environment where economic growth will remain subdued compared to previous periods, despite the support behind the Old China industries, we believe New China will continue to foster winners.

In Hong Kong, the US interest rate outlook far remains the biggest overhang on the market and we see mixed performance particularly from the property and retail sectors. While the domestic Hong Kong market is less attractive and we have few investments there, Taiwan continues to offer up promising technology companies. We continue to focus on those businesses which will succeed in the changing economic environment and the evolving capital market landscape. We look for the best long term investments that can benefit from changing dynamics within their industries and have multi-year growth forecasts.

Howard Wang

Emerson Yip

Shumin Huang

Investment Managers

8th December 2016

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 drawn up a risk matrix, which identifies the key risks to the Company. These key risks fall broadly under the following categories:

•      Investment Underperformance: An inappropriate investment decision may lead to 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 review 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. The Board holds an annual strategy meeting in addition to at least four Board meetings.

•      Loss of Investment Team: 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.

•      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.

•      Change of Corporate Control of the Manager: The Board holds regular meetings with senior representatives of JPMF in order to obtain assurance that the Manager continues to demonstrate a high degree of commitment to its investment trusts business through the provision of significant resources.

•      Accounting, 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, the Manager 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: Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary or Custodian's records could prevent accurate reporting and monitoring of the Company's financial position. Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective internal control are included with the Risk Management and Internal Control section of the Corporate Governance report in the Annual Report.

•      Going concern: Pursuant to the Sharman Report, Boards are now advised to consider going concern as a potential risk, whether or not there is an apparent issue arising in relation thereto. Going concern is considered rigorously on an ongoing basis and the Board's statement on going concern is in the Annual Report.

•      Financial: The financial risks faced by the Company include market risk, liquidity risk and credit risk. Further details are disclosed in note 21 in the Annual Report.

Related Parties 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 accounts 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 elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising Financial Reporting Standard 102, The Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102)) and applicable law. Under company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the annual report and accounts are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's position and 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 order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•      select suitable accounting policies and then apply them consistently;

•      make judgements and estimates that are reasonable and prudent;

•      state whether applicable UK Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;

•      notify the Company's shareholders in writing about the use of disclosure exemptions, if any, in FRS 102 used in the preparation of financial statements; and

•      prepare the financial statements on a 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 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 to 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.

The accounts are published on the www.jpmchinese.co.uk 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 Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report, Strategic Report, Statement of Corporate Governance and Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed in the Annual 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 net return or loss of the Company; and

•      the Strategic 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 Board confirms that it is satisfied that the annual report and accounts, taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

The Board also confirms that it is satisfied 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.

For and on behalf of the Board
William Knight,
Chairman

8th December 2016

STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30th September 2016

	2016			2015
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss	-	47,348	47,348	-	(547)	(547)1
Net foreign currency losses	-	(1,776)	(1,776)	-	(731)	(731)1
Income from investments	3,548	-	3,548	4,434	-	4,434
Interest receivable	83	-	83	2	-	2
Gross return/(loss)	3,631	45,572	49,203	4,436	(1,278)	3,158
Management fee	(1,660)	-	(1,660)	(1,764)	-	(1,764)
Performance fee	-	-	-	-	(59)	(59)
Other administrative expenses	(476)	-	(476)	(467)	-	(467)
Net return/(loss) on ordinary activities before finance costs and taxation	1,495	45,572	47,067	2,205	(1,337)	868
Finance costs	(252)	-	(252)	(211)	-	(211)
Net return/(loss) on ordinary activities before taxation	1,243	45,572	46,815	1,994	(1,337)	657
Taxation	92	(21)	71	(293)	-	(293)
Net return/(loss) on ordinary activities after taxation	1,335	45,551	46,886	1,701	(1,337)	364
Return/(loss) per share	1.79p	60.87p	62.66p	2.25p	(1.77)p	0.48p

¹      Relevant figures have been amended in line with the current presentation adopted. Under FRS 102, liquidity funds are classified as cash equivalents.

A final dividend of 1.6p (2015: 1.8p) has been proposed in respect of the year ended 30th September 2016, totalling £1,185,000 (2015: £1,350,000). Further details are given in note 9 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/(loss) on ordinary activities after taxation represents the profit/(loss) for the year and also Total Comprehensive Income.

STATEMENT OF CHANGES IN EQUITY

for the year ended 30th September 2016

	Called up		Exercised	Capital
	share	Share	warrant	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2014	19,481	13,321	3	581	37,392	65,125	1,899	137,802
Repurchase of shares into Treasury	-	-	-	-	-	(1,025)	-	(1,025)
Net (loss)/return from ordinary activities	-	-	-	-	-	(1,337)	1,701	364
Dividends paid in the year	-	-	-	-	-	-	(1,209)	(1,209)
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	-	-	-	-	-	-	(1,350)	(1,350)
At 30th September 2016	19,481	13,321	3	581	37,392	106,641	2,376	179,795

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 2016

	2016	2015
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	195,157	154,813
Current assets
Debtors	1,599	890
Cash and cash equivalents1	515	4,636
	2,114	5,526
Current liabilities
Creditors: amounts falling due within one year	(17,476)	(24,407)
Net current liabilities	(15,362)	(18,881)
Total assets less current liabilities	179,795	135,932
Net assets	179,795	135,932
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	106,641	62,763
Revenue reserve	2,376	2,391
Total shareholders' funds	179,795	135,932
Net asset value per share	242.7p	181.2p

¹      This line item combines the two lines of 'Investments in liquidity funds held at fair value through profit or loss' and 'Cash and short term deposits' in the financial statements for the year ended 30th September 2015 into one. Under FRS 102, liquidity funds are considered cash equivalents as they are held for cash management purposes.

Notes to the financial statements

for the year ended 30th September 2016

1.     Accounting policies

(a)   Basis of accounting

The financial statements are prepared 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.

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.

2.     Dividends¹

(a)   Dividends paid and proposed

		2016	2015
		£'000	£'000
	Dividend paid
	2015 Final dividend paid of 1.8p (2014: 1.6p) per share	1,350	1,209
	Dividend proposed
	2016 Final dividend proposed of 1.6p (2015: 1.8p) per share	1,185	1,350

The dividend proposed in respect of the year ended 30th September 2016 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 2017.

(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 £1,335,000 (2015: £1,701,000).

		2016	2015
		£'000	£'000
	Final dividend proposed of 1.6p (2015: 1.8p) per share	1,185	1,350

¹      All dividends paid and proposed in the period are funded from the revenue reserve.

The revenue reserve after payment of the final dividend will amount to £1,191,000 (2015: £1,041,000)

3.     Return/(loss) per share

		2016	2015
		£'000	£'000
	Revenue return	1,335	1,701
	Capital return/(loss)	45,551	(1,337)
	Total return/(loss)	46,886	364
	Weighted average number of shares in issue during the year	74,824,831	75,384,066
	Revenue return per share	1.79p	2.25p
	Capital return/(loss) per share	60.87p	(1.77)p
	Total return per share	62.66p	0.48p

4.     Net asset value per share

		2016	2015
	Net assets (£'000)	179,795	135,932
	Number of shares in issue	74,074,935	75,005,470
	Net asset value per share	242.7p	181.2p

5.     Status of results announcement

2015 Financial Information

The figures and financial information for 2015 are extracted from the Annual Report and Accounts for the year ended 30th September 2015 and do not constitute the statutory accounts for the year. The Annual Report and Accounts include 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 Register of Companies in due course.

2016 Financial Information

The figures and financial information for 2016 are extracted from the published Annual Report and Accounts for the year ended 30th September 2016 and do not constitute the statutory accounts for that year. The Annual Report and Accounts has 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

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.

JPMORGAN FUNDS LIMITED

 

END

 

 

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