Final Results

RNS Number : 7650J

JPMorgan Chinese Inv Tst PLC

21 December 2015

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

ANNOUNCEMENT OF FINAL RESULTS

The Directors of JPMorgan Chinese Investment Trust plc announce the Company's results for the year ended 30th September 2015.

Chairman's Statement

Performance

In the year to 30th September 2015, the Company achieved a return to Ordinary shareholders, which includes the final dividend of 1.60 pence paid in February 2015, of -7.0%. The Company's total return on net assets, which comprises the change in net asset value ('NAV') with the dividends received reinvested, amounted to 0.2%. By comparison, the return of the Company's benchmark, the MSCI Golden Dragon Index, was flat over the same period. The small outperformance was achieved as a result of careful stock selection. The widening discount has been a reflection of the benchmark used rather than the Company's own performance.

China Outlook

This has been a highly difficult year for foreign investors in China. They have been faced with roller-coaster conditions while the economy continues to slow down and emphasis is placed on the growth of consumerism as an integral phase in the new modernisation programme agreed to at the 2014 party plenum. The slowing economy, the risks arising from investing in cyclical industries and the structural difficulties faced by state-owned industries and the banking and property sectors have challenged fund managers. The giddy rise and fall in value of companies listed on the 'A' share domestic markets in Shanghai and Shenzhen, fueled by domestic investors, and the consequential panic reaction by officialdom not familiar at the time with how best to respond to restore calmness and stability, have compounded the difficulties for fund managers.

Despite these challenges, China's transition from its original economic model provides an exciting momentum for the value investor and ultimate stock picker, the hall marks of the JPMorgan Greater China investment team. The Manager's report highlights very interesting sectors in which good growth companies may be found as well as what can be achieved through careful stock selection in politically charged sectors such as banking and property (China Merchants Bank and China Vanke respectively). The standout sectors include: automation, travel and tourism, healthcare, insurance, logistics, environmental services, food production and the ever-growing use of e-commerce by consumers even in 3rd and 4th tier cities. The construction industry can be expected to benefit from the essential requirement for schools and hospitals in China and the massive infrastructure and communication needs across South-East Asia and other parts of the globe where China's construction industry is, or is looking to be, active.

Many of these sectors were identified by us a year ago and a number of the chosen companies within these sectors continue to grow impressively. Spring Airlines in the travel and tourism sector and Tencent, the internet giant, come to mind. We expect to have greater access to 'A' share listed companies especially when the Shanghai - Hong Kong Stock Connect includes the Shenzhen exchange (and eventually a Shanghai - London Connect is established). As with many Chinese companies, western style standards of corporate governance with regard to the treatment of minority shareholders are lacking. However, with greater access by analysts, fund managers and shareholders to the ownership and management of 'A' share quoted companies, greater transparency and better corporate governance is beginning slowly to be adopted by many of the companies as they comprehend the expectations of foreign investors better - it is an educational process after all. Investing in China therefore is an exciting prospect and no longer is it a question of whether to invest in China but whether an investor can afford not to.

Taiwan Outlook

Investing in Taiwan in many respects is the antidote to China. So often has attribution to Taiwanese stocks provided value to the performance of the Company not least because of the long established, strong JPMorgan investment team based in Taipei. Advanced technology and financial services have long been the mainstays of Taiwanese company stock selection, although seasonality amongst technology stocks can produce some volatility. Technology will continue to be an important driver and the financial services sector should grow significantly with the expected establishment of the Shanghai-Taipei Stock Connect. What is changing is the impact of the travel and tourist industry on the Taiwanese economy as mainland Chinese visitors discover Taiwan in ever greater numbers. Food production - and it should be noted the success of Taiwanese food production companies in mainland China - health care and e-commerce are other sectors of promise, just as they are on the mainland. Elections are pending in Taiwan but whatever the result, undervalued Taiwanese companies with growth prospects will continue to form part of our Greater China portfolio.

Hong Kong Outlook

Hong Kong has been suffering from the economic slowdown in China and the measures taken by the government to drive down corruption. The result is that visits to Hong Kong by mainland visitors have slowed appreciably. Retailers of consumer branded products are consequently suffering as is the gaming sector of Macau. However, property prices would appear to be holding up driven by the importance of Hong Kong as a global financial services centre and its ability to take advantage of the opportunities deriving from the internationalisation of the RMB. Hong Kong is good at adapting to changing circumstances and as a time zone service centre to complement London and New York, Hong Kong excels even if its importance to China is less strong than it was. Although the Shanghai-Hong Kong Stock Connect has been slow to gather momentum it can be expected to galvanise liquidity going forward.

Revenue and Dividends

The revenue for the year, after taxation, was £1,701,000 (2014: £1,281,000). The revenue return per share, calculated on the average number of shares in issue, was 2.25 pence (2014: 1.70 pence).

The Board is recommending a dividend of 1.80 pence (2014: 1.60 pence) per share in respect of the financial year ended 30th September 2015 given the Company's return on its Revenue Account. Subject to shareholders' approval at the Annual General Meeting, this dividend will be paid on 2nd February 2016 to shareholders on the register at the close of business on 11th December 2015.

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 2015 the Company renewed its £20 million facility with Scotiabank for a further 364 day period on the same terms but at a reduced margin. On 5th May 2015 the facility was further increased to £30 million. The facility matures on 21st January 2016 at which point the Board will consider another gearing facility.

During the year the Company's gearing ranged from 7.4% to 14.0% geared and, at the time of writing, was 9.2%.  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 15% geared. The Board has reviewed the gearing policy. One of the advantages of the investment trust structure is that it allows the Manager to use gearing to enhance returns for shareholders and with this in mind the Board has decided to increase that maximum level of gearing from 15% to 20%, subject to shareholder approval of the new investment policy as discussed below.

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 525,956 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.

An agreement has been reached with J.P. Morgan Funds Ltd ('JPMF') to remove the performance fee element from the current fee arrangement and revert to a management fee only at a flat fee of 1% per annum of the Company's total assets less current liabilities, after adding back any loans. This change was implemented at the Company's year end (30th September 2015).

The Company's ongoing charges for the financial year, as a percentage of the average of the daily net assets during the year, were 1.42%, which includes the increased costs associated with the AIFMD.

Board of Directors

In August 2015, 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 Directors, ahead of the Company's next continuation vote in 2018. Sir Andrew Burns will retire from the Board at the conclusion of the 2016 AGM. He joined the Board in 2003. On behalf of the Board, I would like to thank Sir Andrew for his valuable contribution to the Company over the years.

Proposed Changes to Benchmark and Investment Objective and Policy

The Board, in conjunction with the Manager, has conducted a review of the benchmark that the Company is managed against. At the time of the Company's launch in 1993, the MSCI Golden Dragon Index offered the best comparator of the investment opportunity. However, as the investment opportunities in mainland China have increased in recent years, the Board and the Manager now consider that the MSCI China Index provides a better reflection of the investment opportunity. In light of the increase in investment opportunities in mainland China and reflecting the proposed change in the benchmark, the Company is proposing certain changes to its investment policy including allowing for a greater allocation to China A-Shares. However, the Manager continues to find quality investments in Taiwan and Hong Kong which will also give exposure to the wider China economy and therefore the proposed investment policy will continue to allow for investment in Taiwan and Hong Kong listed companies. These changes reflect an evolution of the market and the changing access to mainland Chinese companies that has occurred since the launch of the Company. The proposed new investment objective and investment policy, as set out in the Appendix to the Company's annual report and accounts for the year ended 30th September 2015, will be proposed at the forthcoming AGM and the Board recommends shareholders vote in favour of this resolution. The change in the Company's benchmark will take effect following the AGM, conditional on shareholder approval of the new investment objective and investment policy.

Annual General Meeting

This year's Annual General Meeting will be held at 60 Victoria Embankment, London EC4Y 0JP on Monday, 25th January 2016 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                                                                                                                                             

21st December 2015

Investment Managers' Report

For the financial year ended 30th September 2015, the Company delivered a total return on net assets of +0.2% (in GBP terms) against a benchmark return of 0.0%. During this period, stock selection in China and Taiwan contributed positively while stock selection in Hong Kong detracted. In terms of asset allocation, despite corrections in the Chinese markets in recent months, China A-shares still enjoyed gains over the past year and our overweight position contributed to performance. Meanwhile, an average gearing of 10.0% detracted from returns, primarily driven by a leverage to falling markets in the last quarter of the financial year, when the Company was geared at an average of 13.8%.

Over the reporting period, the Company's portfolio was helped by stock selection in China. Our overweight position in the financial sector, in names such as Ping An (insurance), China Merchants Bank (mid-sized bank) and China Vanke (property), contributed to returns as stocks rallied over this period on the back of a supportive liquidity environment. Our technology stock picks also helped performance. Overweight positions in component providers AAC Technologies and Catcher Technology worked well as they are leveraged to the Apple food chain and geared to capture market share and new revenue opportunities through the new-generation iPhones. Positive contribution also came from a variety of secular growth names across healthcare (Sino Biopharmaceutical), internet (Tencent), environmental related play (Zhengzhou Yutong Bus) and consumption (Spring Airlines). As we underwent episodes of market volatility this year, we have taken advantage of the indiscriminate sell-down as buying opportunities to add to quality growth companies we like, with the belief that, in China's transition to a 'New Normal,' these are the investments with strong multi-year growth prospects.

On the negative side, the casino operators sold off sharply over this period on weak gaming revenue growth, pressured by ongoing anti-corruption clampdowns, renewed concerns over capital flow restrictions and the latest junket scandal. The collapse in the energy complex hurt companies such as Sinopec Oilfield Service and China Petroleum & Chemical, where our overweight positions detracted from returns. Lackluster global growth also negatively impacted several companies in the materials sector, such as Angang Steel and China Steel Chemical, with weak demand weighing on earnings. Additionally, our overall underweight exposure in China Mobile hurt returns, as the stock's defensive earnings stream held up better than peers. The recent top-level leadership reshuffle among the largest three telecom operators also drove share price volatility. We continue to be underweight in the space due to rich valuations, limited growth prospects and reform dependency given its state-owned enterprise constituents.

China Review

Chinese equities rallied in the fourth quarter of 2014, with offshore-listed equities up 7% and domestic A-shares (CSI 300) rising sharply, up 44%. The key catalysts were the rate cut in late November - the first cut since 2012 - coupled with a steady recovery in property transactions and further progress on structural reforms (such as local government financing vehicle ('LGFV') debt). The rise was led almost solely by financial sectors, which benefited from the avoidance of a hard landing, rate sensitivity and attractive valuations.

Market strength continued into the first quarter of this calendar year, with offshore-listed equities up 8% and domestic A-shares (CSI 300) up 15%. The key catalysts were accommodative policy in terms of both cyclical stimulus (easing monetary/fiscal policies) and structural reforms (relating to LGFV debt swaps and deposit insurance, for example), despite the macroeconomic backdrop remaining weak. The gains have been led by both cyclical names (beneficiaries of policy easing) as well as growth sectors.

In the second quarter of 2015, however, the stock market began to struggle with volatility, driven by fears of a government crackdown on grey market margin financing. Both onshore and offshore Chinese equities came sharply down in June, with the latter suffering from a spill-over and renewed concerns over Greece. Despite a rollercoaster second quarter in 2015, however, the Chinese markets ended the period with H-shares up 4.2% and domestic A-shares up 10.4%.

Markets were less resilient in the last quarter of the financial year as the summer was impacted with further concerns over margin financing rules, the sudden devaluation of the renminbi and weaker earnings potential due to further macro weakness. The government's less coordinated crackdown of grey market financing resulted in a sharp share price fall after forced selling and dried-up market liquidity, despite support from buying by quasi-government funds. Chinese equities ended sharply down in the third quarter, with offshore-listed equities falling 23.2% and domestic A-shares (CSI 300) losing 28.4% in local currencies.

China Outlook

We expect macro indicators to stabilise from very low levels. The government has stepped up its efforts on fiscal policy easing. August fiscal spending from central government increased to 31% year on year compared to the 15% growth achieved in the first eight months of the year, despite fiscal revenue slowing to single-digit growth from double digits. The stabilised renminbi shows the PBoC's determination to defend the currency from overshooting, potentially providing a cushion for further monetary easing. Some green shoots are emerging. September NBS Manufacturing PMI picked up moderately to 49.8% from 49.7% in August, surpassing expectations. The recovery was partly driven by the resumption of production after the factory shutdown in northern China for the 3rd September Military Parade, as well as by government-led investment since September.

On the structural reform front, the picture looks mixed. The government's heavy-handed intervention in the stock market represents a clear setback for financial reform. We are keeping a close eye on the potential rollout of government measures to move the capital market mechanism towards a more market-driven model. Meanwhile, a RMB 3.2 trillion local government debt swap has surprised on the upside. New guidelines for state-owned enterprise reforms have also been announced, although execution will remain critical.

Market valuations now stand close to trough levels, at 9X forward one-year price-to-earnings. We believe the key swing factor is expectations for the renminbi, given the potential consequences of the 'Impossible Trinity' - the economic theory that dictates that if a government has exchange-rate and interest-rate targets as well as free capital flows, it can only control two - but not all three - factors at the same time. Any longer-term market re-rating would hinge on the degree to which structural reforms can help put economic recovery and growth on a more sustainable footing.

Hong Kong Review

Hong Kong equities managed only a modest gain in the fourth quarter of 2014, held back by substantial weakness in the Macau gaming sector. The highly-anticipated Shanghai-Hong Kong Stock Connect scheme commenced with disappointing volumes, especially on the southbound route. Meanwhile, the student-led prodemocracy protests were cleared up without much further incident due to waning public support. However, the aftermath of these protests may result in further political gridlock, affecting the ability of the government to move forward with its economic policy initiatives.

Hong Kong equities continued to advance in the first quarter of 2015, driven by proposed corporate restructuring. The market then witnessed explosive growth in turnover towards the end of the quarter and into the second, spurred by the clarification of rules designed for domestic mainland China funds investing in Hong Kong equities under the Stock Connect programme. Market turnover set record highs on multiple fronts, including full utilisation of the southbound quota for the first time, though still benefitting China-related counters more than Hong Kong equities. However, at the end of the second quarter, the market sold off on concerns over Greece's potential exit from the eurozone, coupled with a substantial market correction in the domestic China equity market.

Hong Kong equities ended the financial year on a soft note, suffering a steep decline in last quarter along with the sharp correction in China, driven by government crackdown on margin financing and dampened investor sentiment from a surprise RMB devaluation, as well as concerns over global growth as the Fed delayed its interest rate hike.

On the property front, primary sales projects continued to achieve decent volumes on a more selective basis, while secondary prices have started to pull back. There has also been a more pronounced slide in retail rentals, given the continued decline in retail sales and weak mainland tourist numbers. After rallying on the back of a relaxation of the transit visa rules - the first positive policy change in over a year, the Macau gaming sector continued its recent downward spiral given the Chinese stock market sell-offs, new regulations on casino junket operations and cash transfers from mainland China, and nervous sentiment exacerbated by the scandal over a junket manager absconding with client money.

Hong Kong Outlook

Uncertainty over the US rate hike and the slowing Chinese economy continue to weigh on the Hong Kong stock market. However, we do not subscribe to the hard-landing scenario in China, nor to an accompanying credit crisis. The current share valuation should therefore provide good support despite slowing economic momentum.

The property sector has become more challenging as the residential segment appears to be capitulating, while the retail sector remains in the doldrums. However, share prices have discounted a fairly negative price scenario. On the other hand, central office vacancy rates are now close to 1%, setting the scene for further rental increases.

After the recent further price correction, Macau gaming shares are now trading at reasonable valuations relative to historical ranges. Moreover, the Chinese government appears to be open to measures to support the Macau economy, including the gaming sector. However, continued economic weakness and capital control measures are keeping per capita gaming spending on a downward trend, meaning gaming revenue growth could be challenging to achieve.

Taiwan Review

The Taiwan index ended the fourth quarter of 2014 with an almost 4% quarter-on-quarter gain, with a late year-end rally. The quarter was weighed down by a number of negative factors, such as technology seasonality, sentiment over the government's tax plan on large retail investors, concerns over Ebola, and the Kuomintang's potential weak showing in the November election, offset by the decline in oil price and a turnaround in sentiment after digesting the landslide victory for the opposition party in the election and the delay in the tax implementation.

Gains continued into the first quarter of 2015. The market saw some profit-taking in the technology sector initially, particularly in stocks that are part of the Apple supply chain, following a very strong iPhone 6 launch late in the third quarter of last year, as well as concerns that the consumer technology product cycle will be much more moderate in 2015. However, the selling reversed quickly as the Taiwanese market continued to deliver the best earnings revisions in the region, while still being seen as one of the most defensive of emerging markets, with a high dividend yield and a high current account surplus-to-GDP ratio of 12-13%.

The Taiwan Stock Exchange Index trended higher in April, but failed to sustain this momentum in latter sessions and finished down 2.7% quarter on quarter. The strength in April was boosted by speculation over the establishment of a stock trading link between Taipei and Shanghai. Unsurprisingly, financials were one of the strongest performers, as they also reported stronger-than expected first-quarter 2015 results. The market turned weak in May and June, with investors locking in profits ahead of the summer. Technology wrapped up the quarter with a 4.5% quarter-on-quarter decline, with weakness in most subsectors, including PCs, notebooks and smartphones. Non-technology fared better in comparison, with gains in energy, textiles, financials and food.

The market continued to fall in the last quarter of the financial year, ending down 15.2%, its biggest quarterly decline in the last four years. The index trended steadily down in July and August with the slump in Chinese stocks, but stabilised in September. Defensive sectors outperformed. Weak technology demand and relatively high inventory levels have not only led to a disappointing results season in the second quarter, but also to a weaker outlook for the technology sector in the third quarter, affecting Apple iPhone supply chain names as well. The 2015 GDP growth forecast has been lowered from 3.3% to 1.6%, impacted by the weak export and manufacturing sectors. However, private consumption and fixed investment growth seem to show some stabilisation.

Taiwan Outlook

The Fed rate outlook is one of the key constraints on a rate cut by emerging market policymakers, although the Central Bank of the Republic of China (Taiwan) unexpectedly cut its discount rate by 12.5 basis points to 1.75%. Taiwan has a strong current account surplus, averaging an elevated 9.6% of GDP for the three years through 2013, and surged to 12.4% of GDP in 2014. The wide current account surplus should leave room for the central bank to continue implementing accommodative monetary policies without triggering significant concerns about external balance vulnerabilities and the currency.

With the weak guidance in the technology sector, investors remain cautious about further potential earnings downgrade. The technology sector has seen a major sell-off over concerns with slower global smartphone demand and lacklustre demand for PCs, notebooks and LCD TVs. However, we remain positive on tech given near-trough valuations. Further earnings downside should be limited unless we experience a global demand shock. At the same time, we could be at the late stage of inventory correction by the fourth quarter. Outside of technology, demand for certain consumer discretionary goods remains strong, as evidenced by strong results from Nike. Overall, value is emerging and despite the shaky outlook, we maintain a constructive view given Taiwan's muted performance within the region.

Greater China Outlook

While the industrial economy has clearly stalled out based on micro-level indicators, we do not believe we are on the verge of a banking crisis, and China's consumer and service economy continues to be robust. Admittedly, market corrections may not be pleasant for investors, but it's important to keep a few things in perspective. The equity sell-offs not only moderated frothy valuations and afforded us good buying opportunities for the stocks we like, but also have a fairly marginal impact on the Chinese consumer given low household equity holdings. The property market, on the other hand, matters more in reducing economic risk, and we have seen stabilisation there. Rising sales volume and property prices paired with weak housing starts are evidence of inventory digestion. We believe macro indicators should stabilise from very low levels and the policy direction to be largely unchanged, though execution will be key. Any further RMB depreciation should be slow, as a stabilised RMB shows the PBoC's determination to defend the currency from overshooting, potentially providing a cushion for further monetary easing. Near term sentiment may remain volatile through this growth transition and further deleveraging, but we still believe there are plenty of secular growth opportunities in China's 'new economy' sectors, such as healthcare, internet, consumption and environmental services, with strong multi-year prospects, despite an overall slower growth environment. Any longer-term market re-rating would hinge on the degree to which structural reforms can help put economic recovery and growth on a more sustainable footing.

Howard Wang

Emerson Yip

Shumin Huang

William Tong

Investment Managers                                                                                                                               

21st December 2015

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 these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported on by the Manager. The Manager provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, transaction reports and shareholder analyses. 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.

•   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 and Accounts. 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 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 and Accounts.

•   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 and Accounts..

•   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 detailed in the Annual Report and Accounts..

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

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 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) 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 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 have been followed, subject to any material departures disclosed and explained in the 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 on pages 26 and 27 of the Annual Report and Accounts, confirms that, to the best of their knowledge:

•   the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards) and applicable law, give a true and fair view of the assets, liabilities, financial position and return or loss of the Company; 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 strategy and business model of the Company.

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

21st December 2015

Income Statement

for the year ended 30th September 2015

2015				2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at
fair value through profit or loss	-	(297)	(297)	-	9,138	9,138
Net foreign currency losses	-	(981)	(981)	-	(72)	(72)
Income from investments	4,436	-	4,436	3,585	-	3,585
Gross return/(loss)	4,436	(1,278)	3,158	3,585	9,066	12,651
Management fee	(1,764)	-	(1,764)	(1,417)	-	(1,417)
Performance fee	-	(59)	(59)	-	(254)	(254)
Other administrative expenses	(467)	-	(467)	(454)	-	(454)
Net return/(loss) on ordinary activities
before finance costs and taxation	2,205	(1,337)	868	1,714	8,812	10,526
Finance costs	(211)	-	(211)	(178)	-	(178)
Net return/(loss) on ordinary activities
before taxation	1,994	(1,337)	657	1,536	8,812	10,348
Taxation	(293)	-	(293)	(255)	-	(255)
Net return/(loss) on ordinary activities
after taxation	1,701	(1,337)	364	1,281	8,812	10,093
Return/(loss) per share (note 3)	2.25p	(1.77)p	0.48p	1.70p	11.66p	13.36p

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. The Total column represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL'). For this reason a STRGL has not been presented.

Reconciliation of Movements in Shareholders' Funds

	Called up		Exercised	Capital
	share	Share	warrant	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2013	19,481	13,321	3	581	37,392	56,313	1,827	128,918
Net return from ordinary activities	-	-	-	-	-	8,812	1,281	10,093
Dividends appropriated in the year	-	-	-	-	-	-	(1,209)	(1,209)
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 appropriated 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

Balance Sheet

at 30th September 2015

	2015	2014
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	154,813	151,184
Investments in liquidity funds at fair value through profit or loss	2,310	-
	157,123	151,184
Current assets
Debtors	890	301
Cash and short term deposits	2,326	1,071
	3,216	1,372
Creditors: amounts falling due within one year	(24,407)	(14,754)
Net current liabilities	(21,191)	(13,382)
Total assets less current liabilities	135,932	137,802
Net assets	135,932	137,802
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	62,763	65,125
Revenue reserve	2,391	1,899
Total equity shareholders' funds	135,932	137,802
Net asset value per share (note 4)	181.2p	182.4p

Company registration number: 02853893.

Cash Flow Statement

for the year ended 30th September 2015

	2015	2014
	£'000	£'000
Net cash inflow from operating activities	1,184	106
Returns on investments and servicing of finance
Interest paid	(215)	(172)
Net cash outflow from returns on investments and servicing of finance	(215)	(172)
Taxation
Taxation recovered	21	-
Capital expenditure and financial investment
Purchases of investments	(166,477)	(128,064)
Sales of investments	159,180	131,362
Other capital charges	(57)	(72)
Net cash (outflow)/inflow from capital expenditure and financial investment	(7,354)	3,226
Dividend paid	(1,209)	(1,209)
Net cash (outflow)/inflow before financing	(7,573)	1,951
Financing
Net drawdown/(repayment) of bank loan	9,638	(3,300)
Repurchase of shares into Treasury	(1,025)	-
Net cash inflow/(outflow) from financing	8,613	(3,300)
Net increase/(decrease) in cash for the year	1,040	(1,349)

Notes to the Financial Statements 

for the year ended 30th September 2015

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') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the AIC in January 2009.

All of the Company's operations are of a continuing nature.

The financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments at fair value through profit or loss. The Directors consider it appropriate to prepare the financial statements on a going concern basis.

The policies applied in these financial statements are consistent with those applied in the preceding year.

2.  Dividends

(a) Dividends paid and proposed

	2015	2014
	£'000	£'000
2014 Final dividend paid of 1.6p (2013: 1.6p)	1,209	1,209
2015 Final dividend proposed of 1.8p (2014: 1.6p)1	1,350	1,209

¹    Based on Ordinary shares in issue of 75,005,470 (2014: 75,531,426).

The final dividend proposed in respect of the year ended 30th September 2015 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 accounts for the year ending 30th September 2016.

(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, as follows:

	2015	2014
	£'000	£'000
Final dividend proposed of 1.8p (2014: 1.6p)	1,350	1,209

The revenue available for distribution by way of dividend for the year is £1,701,000 (2014: £1,281,000).

3.  Return/(loss) per share

The revenue return per share is based on the revenue return attributable to the ordinary shares of £1,701,000 (2014: £1,281,000) and on the weighted average number of shares in issue during the year of 75,384,066 (2014: 75,531,426) excluding shares held in Treasury.

The capital loss per share is based on the capital loss attributable to the ordinary shares of £1,337,000 (2014: gain of £8,812,000) and on the weighted average number of shares in issue during the year of 75,384,066 (2014: 75,531,426) excluding shares held in Treasury.

The total return per share is based on the total return attributable to the ordinary shares of £364,000 (2014: £10,093,000) and on the weighted average number of shares in issue during the year of 75,384,066 (2014: 75,531,426) excluding shares held in Treasury.

4.  Net asset value per share

The net asset value per share is based on the net assets attributable to the ordinary shareholders of £135,932,000 (2014: £137,802,000) and on the 75,005,470 (2014: 75,531,426) shares in issue at the year end excluding 2,909,495 (2014: 2,383,539) shares held in Treasury.

5. Status of results announcement

2014 Financial Information

The figures and financial information for 2014 are extracted from the published Annual Report and Accounts for the year ended 30th September 2014 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.

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.

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

 

 

FR PKDDKQBDDQBB