Final Results

RNS Number : 1310Z

JPMorgan Chinese Inv Tst PLC

12 December 2017

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2017

Legal Entity Identifier: 549300S8M91P5FYONY25

Information disclosed in accordance with DTR 4.2.2

The Directors announce the Company's results for the year ended 30th September 2017.

chairman's statement

I have great pleasure in presenting the Annual Report of the JP Morgan Chinese Investment Trust Plc ('the Company') for the year ended 30th September 2017. During the year the MSCI for the first time decided to include the shares of Chinese companies quoted on the Shanghai and Shenzhen exchanges ('A' shares) in their China index providing the positive long term signal for the development of the onshore markets and accessibility for foreign investors. In my statement a year ago, reference was made to the prospects for greater accessibility which would enable the Company's investment team to unearth a wider range of interesting growth companies in which to invest. This is happening. The 19th National Party Congress which took place in late October displayed a confident, outward looking China in which the economic priorities were highlighted and a long term policy road map for balanced growth and financial stability projected. The emphasis on environmental issues, healthcare, artificial intelligence, food production and consumption are positives for investors and the distinctive investment approach being taken by the investment team favouring undervalued companies in these areas bodes well for our shareholders.

Activity within the Company

At the Annual General Meeting ('AGM') in January 2016 the Company received approval to change its benchmark to the MSCI China Index with the flexibility to invest up to 30% of the portfolio outside the new benchmark (predominately in Taiwan and Hong Kong), be granted flexibility over the use of gearing and increase exposure to China 'A' shares and China 'A' Share ADRs. Apart from taking advantage of the opportunities and greater investment access to Chinese companies as referred above, the objective was to encourage the investment team to differentiate itself from other China focused investment vehicles. The investment team has responded well to the decisions; the Investment Managers' report below demonstrates this. The new hirings to the team particularly the range and experience of the analysts that have joined in or operate out of Hong Kong, Shanghai and Taipei is encouraging as they seek to produce good ideas and identify the next Alibaba or Tencent.

Performance

The Board is pleased to report that despite volatile market conditions, in the year to 30th September 2017, the Company delivered a return to Ordinary shareholders of +36.4%. This includes the final dividend of 1.6 pence paid in February 2017. The Company's total return on net assets was +28.5%, which comprises the change in net asset value ('NAV') with dividends reinvested. This return was just marginally behind the MSCI China Index return of +28.8%.

Investment Approach

Well researched stock selection and a focus on providing absolute returns for shareholders lie at the heart of the benchmark agnostic investment approach of the fund management team. The structure of the portfolio is not expected to change much over the next 12 months which means that the Company will continue to hold 'Core investments', Ping An being a good example, and growth New China companies. Examples of New China companies are Hangzhou Hikvision, which the Board visited a year ago, Hans Laser and AAC Technologies, which the Board visited this year. The weighting in 'A' shares, comprising around 21% of the portfolio, will continue to grow being where the more growth-oriented listed companies can be found. There will be an acceleration of IPOs as early stage private equity investors exit from their holdings thereby providing opportunities for value portfolio investors such as the Company. Alibaba, can be expected to continue to spawn new companies within its umbrella, the fast growing payments company Alipay being an example, and dynamic groups such as Tencent can be expected also to spin off components of their group. The analysts have been finding interesting health care and life sciences companies amongst the listed 'A' share companies as well as companies focussed on the lucrative tutorial sector of education and amongst the many multi brand consumer companies. All forms of technology development can be found readily but too often overpriced. The banking sector is looking healthier and the Company's largest holding in this sector, China Merchants Bank is performing well under good management. Where good investment opportunities may be found in Taiwan, Hong Kong or Macau, they will not be overlooked by the Manager. Overall, the Board is comfortable with the approach that the Manager is adopting and that the use of the gearing flexibility given to the Manager is being used effectively when well-priced ideas are uncovered to provide performance uplift. The 2.8% contribution from gearing and cash to total return provides evidence that this approach is working. With regard to good corporate governance, a problem in the past, evidence suggests that its importance is readily understood at regulatory level and encouragingly has been improving.

Outlook

The 19th National Party Congress confirmed the policy road map for the next ten years with an emphasis on supporting a balanced growth of the economy and financial stability with importance given to environmental issues and consumption. The much publicised Belt Road initiative which emphasises the 'China Dream' of becoming an outward looking predominant global trading nation, is taking shape. A cautionary note for investors is whether there will be sufficient checks and balances in the system to provide sufficient warnings of road bumps ahead before they are actually reached. However, other than that, the outlook is positive with strong external growth supporting the macro-economy and a greater understanding of the needs of investors.

Investment Team

During the year the Company's Investment Management team was enhanced by the hire of additional experienced personnel in both portfolio management and research. Rebecca Jiang joined the team to work alongside Howard Wang on the Company's portfolio as Co-Portfolio Manager. Shumin Huang continues to lead the Greater China Research Analysts who are now a significant and fully integrated part of the investment process. The Taiwan investment team remains unchanged and is the regional home for a number of the analysts.

Board due diligence trip to Shanghai, Shenzhen and Hong Kong

In October, the Board visited Shanghai, Shenzhen and Hong Kong over one working week to review the activities of the JPMorgan Asset Management ('JPMAM') China Team. In Shanghai, the Board looked at the structure and activities of CIFM, JPMorgan's joint venture Chinese asset management company and spent time with JPMorgan's recently established wholly owned Shanghai based investment management company, where it met the China sectorial analysts attached to the Company and sought views on the future of investing in China from the Company's management. The Board also visited various Shanghai based companies held in the portfolio including the Shanghai office of Ping An insurance a significant holding and contributor to the Fund's performance. In Shenzhen, whose Stock Exchange has become increasingly important as a listing centre for technologically - driven growth 'A' share companies, the Board met a number of existing and potential new portfolio companies including several notable holdings in the portfolio such as Tencent and China Merchants Bank. In Hong Kong, the Board reviewed amongst others, JPMorgan's preparedness for MiFID II and the workings of the back, middle and risk management offices as well as meeting those remaining members of the greater China investment team it had not already met in Shanghai earlier in the week. The timing of the visit was propitious coinciding with that of the 19th Party Plenum, being a directional indicator of China as an investment destination. The Board concluded from the visit that the JPMorgan investment operations for China are well organised to meet the challenges and opportunities ahead as bottom-up stock pickers.

Revenue and Dividends

The revenue for the year, after taxation, was £850,000 (2016: £1,335,000). The revenue return per share, calculated on the average number of shares in issue, was 1.16 pence (2016: 1.79 pence).

The Board is recommending a dividend of 1.60 pence (2016: 1.60 pence) per share in respect of the financial year ended 30th September 2017. Subject to shareholders' approval at the Annual General Meeting, this dividend will be paid on 7th February 2018 to shareholders on the register at the close of business on 15th December 2017.

As previously stated, shareholders should note that the Company's objective remains that of long term capital growth and dividends will vary from year to year accordingly. However, the Board aims to reduce the volatility of the payout and maintain a stable dividend.

On 22nd November 2017, the Board announced that it had recently reviewed its policy of allocation of expenses (management fee and finance costs) to revenue and capital. Since the launch of the Company in October 1993, the Company has allocated 100% of expenses to revenue. However, with effect from 1st October 2017, the Board has decided to split the allocation of expenses between 75% to capital and 25% to revenue. This change will result in an increase in future dividends paid out by the Company such that it is able to maintain its investment trust status.

Gearing

In January 2017 the Company renewed its £30 million facility with Scotiabank for a further 364 day period on the same terms but at a reduced margin. The facility matures on 19th January 2018 at which point the Board will consider another gearing facility.

During the year the Company's gearing ranged from 6.0% to 9.3% geared and, at the time of writing, was 8.8%. At the time of the arrangement, the facility allowed the Investment Managers the flexibility to manage the gearing tactically within a range set by the Board of 10% net cash to 20% geared.

Share Issues and Repurchases

The Directors have authority to issue new Ordinary shares for cash and to repurchase shares in the market for cancellation or to hold in Treasury. The Company will reissue shares held in Treasury only at a premium to NAV.

During the year, the Company did not issue any new Ordinary shares, although it did repurchase 1,146,773 shares into Treasury. The Board believes that its policy of share issuance and repurchases has helped to reduce discount volatility in the past and therefore recommends that the authorities be kept in place. Accordingly, it is seeking approval from shareholders to renew the share issuance and repurchase authorities at the forthcoming AGM

Review of services provided by the Manager

During the year the Board carried out a thorough review of the investment management, secretarial and marketing services provided to the Company by the Manager. Following this review, the Board has concluded that the continued appointment of the Manager on the terms agreed is in the interests of the shareholders as a whole.

The Company's ongoing charges for the financial year, as a percentage of the average of the daily net assets during the year, were 1.38% (2016: 1.44%).

Board of Directors

As advised in our Half Year Report & Financial Statements I shall be retiring from the Board at the Company's AGM in January 2018, which coincides with the Company's next continuation vote, and David Graham was appointed in May 2017 to fill my vacating board seat. Since taking up his appointment David's contribution to the board has been exemplary. The Board has agreed unanimously that my successor as Chairman of the Company should be John Misselbrook and that David Graham will assume the role of Chairman of the Audit Committee.

In accordance with corporate governance best practice John Misselbrook, Kathryn Matthews and Oscar Wong will retire at the forthcoming AGM and, being eligible, will offer themselves for reappointment by shareholders. In addition, David Graham, having been appointed during the financial year, will stand for appointment at the AGM.

As part of the important annual evaluation process of the Board, its effectiveness and its Committees undertaken through its Nomination and Remuneration Committee, the Board has considered succession planning and it has agreed to continue with its policy for a planned phased exit for the longest-serving Director. Kathryn Matthews will have served nine years on the Board in July 2019 and therefore the process to find a replacement Director would commence at the next Nomination and Remuneration Meeting during 2018.

Continuation of the Company

In accordance with the Company's Articles of Association, an ordinary resolution will be put to shareholders at the forthcoming AGM that the Company continues in existence as an investment trust for a further five year period.

Following consultation with the Company's largest shareholders and its advisers, the Board will introduce, subject to the passing of the resolution in favour of the Company's continuation, an obligation on the Board to put forward proposals for a tender offer for up to 15% of the Company's issued share capital at price equal to net asset value less costs if, over the next five years (from the start of the current financial year, being 1st October 2017), the Company underperforms its benchmark. Should it be required to implement such a tender, it would be for up to 15% of the Company's issued share capital.

The Board believes that the long term outlook for the Greater China Region remains favourable, despite some near term challenges. Equally it believes that JPMAM has the resources and process to deliver better results for shareholders. Accordingly, the Board believes that the continuation of the Company is in the best interests of all shareholders and strongly recommends that shareholders vote in favour of the resolution, as they intend to do in respect of their own holdings. Given the importance of this resolution, shareholders are encouraged to vote, either in person at the AGM, or by completing a Form of Proxy/Voting Instruction Form.

If the resolution is not passed, the Company's Articles of Association require that the Directors shall within four months of the AGM convene a General Meeting of the Company at which a special resolution will be proposed, designed to result in the holders of shares in the Company receiving, in lieu of their shares, units in a unit trust scheme (or equivalent) or in the reorganisation of the Company's share capital in some other manner or which shall be a resolution requiring the Company to be wound up voluntarily.

Valedictory Thoughts

As advised, I shall be retiring from the Board of the Company following the 2018 AGM in January after having served on the Board from 2004 until now and as its Chairman from 2011.

Investing in China over this period has been an extraordinary journey in terms of China's breathtaking development, a fact not always comprehended by western investors who had not always benefited from this phenomenon. I had witnessed the development of the China of Mao suits and bicycles in 1978 to an emerging giant in 2004 but nothing compares with what we have seen over the past 14 years. At the beginning of the present decade, Facebook had not been invented, now used by more than a quarter of the world's population and Apple was struggling to survive. But Alibaba, Tencent and other Chinese private sector giants, household names in China today and beyond, are challenging those Western path setters. It is extraordinary to recall that they were just beginning their journeys to global renown like their US counterparts such a short time ago and for the investor today there are countless Chinese companies taking advantage of the many ways technology is driving sustainable economic development and investment returns.

When I joined the Board in 2004, it roughly divided it's investment exposure equally between Hong Kong, Taiwanese and mainland Chinese companies listed outside China. Shanghai listed companies were predominately former state owned institutions and investment policy largely "hugged" its then benchmark index. Accessing listed private sector mainland Chinese companies was as hard as it was challenging with good corporate governance more often than not a problem. All this has changed and is changing. The approach of the China team at JPMAM has been particularly impressive with its focus on the long term value of Chinese equities, and its emphasis on seeking-out and holding the ones that matter. They have well-demonstrated that they understand better than most that China is experiencing changes that are being underwritten by huge pools of wealth generated from sectors that often did not even exist 15 years ago.

Thanks to the team's analytical and investment skills, our market cap has increased significantly with a portfolio I would describe as being ever interesting. While a good moment to retire, I believe the real opportunities for shareholders are only just beginning.

Annual General Meeting

This year's AGM will be held at 60 Victoria Embankment, London EC4Y 0JP on Friday, 26th January 2018 at 11.30 a.m. In addition to the formal proceedings, there will be a presentation by a representative of the investment management team, who will also be available to respond to questions on the Company's portfolio and investment strategy. I look forward to seeing as many of you as possible at the meeting. If you have any detailed questions, you may wish to raise these in advance with the Company Secretary or via the Company's website. Shareholders who are unable to attend the AGM in person are encouraged to use their proxy votes. Shareholders who hold their shares through CREST are able to lodge their proxy votes electronically.

William Knight

Chairman

12th December 2017

Investment managers' report

Performance commentary

Over the 12 months ended 30th September 2017, the Company delivered +28.5% return compared to the benchmark return of +28.8%. Stock selection in China was the most positive contributor to relative performance while exposure to the non-index markets of Taiwan and Hong Kong detracted a little. Also, while the two largest holdings in the portfolio, Tencent and Alibaba, rose by 58.0% and 63.0% respectively, we have limited our exposure to these holdings to 10% which is underweight their index exposure of 16.5% and 13.3% respectively; this has had a small negative impact on performance relative to the index but we think it is important for the portfolio to remain broadly diversified. During a period of rising markets gearing, that averaged 8.1%, added value.

A-share holdings were among the top contributors. The overweight in the surveillance solution provider, Hangzhou Hikvision, continued to add value on strong earnings backed by promising product expansion into new industry sectors. Han's Laser rose on the back of the Apple product cycle and capex demand and the order and sales momentum is expected to continue. Stocks were also lifted on MSCI's decision to include A-shares in the indices next year. Stocks held in the information technology sector, especially the key Apple smartphone component suppliers, fared well. In addition to Han's Laser, AAC Technologies and Largan Precision outperformed, as share prices rose on a continued upbeat outlook for acoustics and dual-camera lens respectively. Despite some profit-taking in the Apple supply chain in September, on weaker sentiment around the new iPhone 8 launch, concerns may be overdone as orders have not incorporated the potential demand for iPhone X. Stock exposures within financials also contributed to returns as the underweight in large cap, index heavy banks, added value. They lagged the stronger performance of the overall market, despite delivering positive performance over the period on improving asset quality and margins. One of our highest conviction holdings in the Trust, Ping An Insurance, also contributed on the back of strong earnings and the government's intensified scrutiny on high guarantee wealth management products. Remaining with zero exposure to China Mobile benefited relative performance as the stock fell by 12.0% over the year.

Meanwhile, not owning leveraged real estate developers, which continued their rally this year, hurt performance. A lack of exposure to Sunac China, China Evergrande and Country Garden detracted from performance. We retain our preference for CR Land and China Overseas Land & Investment, the latter of which was a new purchase in the portfolio in the latest quarter, given their sustainable return profiles, good track records and attractive valuations.

Several of the top detractors were driven by company specific reasons. Regina Miracle was the biggest single detractor for the period as the textile supplier struggled with structural changes from its key clients and this holding has now been sold. The share price of IMAX China also halved during this period as its film titles lagged the overall China box office. However, the position has been retained as there are signs of a sequential recovery in growth rate and results in the latest quarter. The share price of Spring Airlines sold off as its earnings results came under pressure after its international routes, particularly to Japan and Thailand, were loss-making given increased competition and weakened demand. China Resources Phoenix Healthcare, a hospital service provider, fell 30% and the stock was sold given the limited upside in its current businesses and difficulties in integration following the recent merger.

Positioning

The overall shape of the portfolio remained broadly unchanged with overweight exposures concentrated in the structural growth companies and underweight exposures in the low growth, low quality and old industrials stocks. To find the best ideas across the Greater China markets, regardless of the stock listing, the portfolio remains predominantly invested in China, with the weighting in A-shares of 20.6%, as of end of September. This is a position that has doubled from the September 2016. This allocation is expected to continue to rise over time, particularly following the inclusion of A-shares in MSCI indices in 2018 and the introduction of Hong Kong China Stock Connect in 2015/6, which has facilitated access to the onshore China market where typically more growth orientated companies are listed.

At the stock level, quality and structural growth holdings continue to be concentrated in the consumer, healthcare, information technology and environmental services sectors. These sectors are well-positioned to deliver better earnings growth than the market and peers over the long term. The exposure to the consumer discretionary and healthcare sectors has been increased at the margin, particularly in the textile and apparel-wear space. Anta Sports, the quality sportswear brand, has delivered strong earnings given its strong multi-brand strategy. Another addition was the textile manufacturer Shenzhou International given the company's well-planned expansion strategy and good execution capabilities, backed by its stand out focus on environmental protection and labour law compliance. A holding was initiated in New Oriental Education & Technology, the largest tutoring service provider in China which stands to gain from strong demand growth due to China's admission exam reform and social demographic change. A purchase was made in Focus Media, an A-share advertising company that is well-positioned in the steadily growing 'new' out-of-home advertising segments with leading positions in both in-building advertising and cinema advertising. Elsewhere, the portfolio capitalised on the improving consumer market through holdings in A-share companies, the custom furniture maker Suofeiya Home Collection, the white goods producer Qingdao Haier and the premium liquor brand Kweichow Moutai.

The portfolio increased exposure to the turnaround in the Macau gaming industry, both the VIP and mass gaming markets, through holding a number of the major operators, MGM China, Galaxy Entertainment and Sands.

Healthcare is another area with exciting opportunities in A-shares, especially, across a variety of business models, as China is the second largest healthcare market in the world. Opportunities span from traditional Chinese medicine, with the likes of A-share holdings Dong-E-E-Jiao and Yunnan Baiyao and more conventional medicine through China Medical Systems, which commercializes multinational pharmaceutical companies (MNC) drugs through its distribution network, and CSPC Pharmaceutical, which benefits from potential high growth when its flagship drugs are included in the National Reimbursement Drug List.

Outlook

Economic rebalancing is progressing well and deflationary pressures have subsided through supply side reforms and foreign exchange liberalisation. Although the stimulus is being withdrawn, economic growth is being driven by the consumer and exports. The deleveraging has been aimed at non-bank lending, as interbank rates have been allowed to rise, while the prime lending rates that fund the real economy have remained stable. This has driven lending back to the mainstream large cap banks like ICBC. As a result, the rate of lending growth and rate of debt accumulation have started to slow. This time, the PBOC has ensured sufficient liquidity in the system to offset capital outflows. Although policy risk remains in China it appears that the authorities have executed this last round of tightening quite successfully. Despite debt levels remaining high, the slower pace of the build-up and the shift in sources of the lending are incremental positives.

Further on the policy front, the 19th National Party Congress took place in late October highlighting China's economic priorities and laying out the policy roadmap for the next couple of decades. While there are no major surprises, there was an emphasis of quality over quantity in terms of growth objectives, which supports not only financial stability but also a more balanced growth path focusing on environmental issues and consumption, which are key positives for investors.

MSCI's decision, in June, to include some A-share representation in their China index (5% from June 2018) has been well received. Although the near-term impact on the A--share market is expected to be limited, the long-term positive implication for the development of the onshore markets is extremely positive. The decision acknowledges the significant effort China has made to liberalise their capital markets and improve accessibility to foreign investors. It is hoped that this will provide a much needed catalyst for the lagging China A-share market. The higher foreign participation should help rebalance the investment styles and horizon of the market which is currently dominated by retail investors. In addition, foreign investors are likely to focus on the quality companies in sectors enjoying structural growth which have been favoured by this portfolio.

The outlook continues to be positive for Chinese equities given the supportive outlook for corporate earnings, the accommodative liquidity conditions and strong external global growth supporting the macro-economy. The portfolio will see further broadening and deepening of the exposure to China consumer discretionary stocks, especially in services, while retaining a positive tilt towards technology and healthcare, as structural growth sectors drive further re-rating.

Howard Wang

Rebecca Jiang

Shumin Huang

Investment Managers

12th December 2017

PRINCIPAL RISKS

Investors should note that there can be significant economic and political risks inherent in investing in emerging economies. As such, the Greater China markets can exhibit more volatility than developed markets and this should be taken into consideration when evaluating the suitability of the Company as a potential investment.

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The risks identified have not changed over the year under review, and the ways in which they are managed or mitigated are summarised as follows:

With the assistance of the Manager, the Board has completed a robust risk assessment and drawn up a risk matrix, which identifies the key risks to the Company. In assessing the risks and how they can be mitigated, the Board has given particular attention to those issues that threaten the viability of the Company. These key risks fall broadly under the following categories:

•      Investment Underperformance: An inappropriate investment decision may lead to sustained underperformance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. The Board manages this risk by diversification of investments through its investment restrictions and guidelines which are monitored and reported on by the Manager. The Manager provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates and transaction reports. The Board monitors the implementation and results of the investment process with the investment manager, who attends all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The investment managers employ the Company's gearing within a strategic range set by the Board.

•      Strategy/Business Management: An ill-advised corporate initiative, for example an inappropriate takeover of another company or an ill-timed issue of new capital; misuse of the investment trust structure, for example inappropriate gearing; or if the Company's business strategy is no longer appropriate, may lead to a lack of investor demand. The Board discusses these risks regularly and takes advice from the Manager and its professional advisers.

•      Loss of Investment Team or Investment Manager: A sudden departure of several members of the investment management team could result in a deterioration in investment performance. The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team-based approach, as well as special efforts to retain key personnel.

•      Share Price Discount: A disproportionate widening of the discount relative to the Company's peers could result in a loss of value for shareholders. In order to manage the Company's discount, which can be volatile, the Company operates a share repurchase programme and the Board regularly discusses discount policy and has set parameters for the Manager and the Company's broker to follow. The Board receives regular reports and is actively involved in the discount management process.

•      Market: Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines, which are monitored and reported on by the Manager. The Board monitors the implementation and results of the investment process with the Investment Managers.

•      Political, Economic and Governance: Changes in financial, regulatory or tax legislation, including in the European Union, may adversely affect the Company. The Manager makes recommendations to the Board on accounting, dividend and tax policies and the Board seeks external advice where appropriate. In addition, the Company is subject to administrative risks, such as the imposition of restrictions on the free movement of capital. These risks are discussed by the Board on a regular basis.

•      Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Structure of the Company' in the Annual Report. Were the Company to breach Section 1158, it may lose investment trust status and, as a consequence, gains within the Company's portfolio would be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by the Manager and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules, Disclosure Guidance and Transparency Rules ('DTRs') and, as an Investment Trust, the Alternative Investment Fund Managers Directive ('AIFMD'). A breach of the Companies Act 2006 could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary, JPMorgan Funds Limited and its professional advisers to ensure compliance with the Companies Act 2006, the UKLA Listing Rules, DTRs and AIFMD.

•      Corporate Governance and Shareholder Relations: Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance statement in the Annual Report.

•      Operational Risk and Cybercrime: Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the depositary's or custodian's records may prevent accurate reporting and monitoring of the Company's financial position. Details of how the Board monitors the services provided by the Manager, its associates and depositary and the key elements designed to provide effective internal control are included within the Risk Management and Internal Control section of the Directors' Report. The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Company benefits directly or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested independently.

        The risk of fraud or other control failures or weaknesses within the Manager or other service providers could result in losses to the Company. The Audit Committee receives independently audited reports on the Manager's and other service providers' internal controls, as well as a report from the Manager's Compliance function. The Company's management agreement obliges the Manager to report on the detection of fraud relating to the Company's investments and the Company is afforded protection through its various contracts with suppliers, of which one of the key protections is the Depositary's indemnification for loss or misappropriation of the Company's assets held in custody.

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

RELATED PARTY TRANSACTIONS

During the financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the year.

statement of directors' responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:

•      select suitable accounting policies and then apply them consistently;

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

•      make judgements and accounting estimates that are reasonable and prudent; and

•      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

and the Directors confirm that they have done so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.

The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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

Each of the Directors, whose names and functions are listed in Directors' Report confirm that, to the best of their knowledge:

•      the Company's financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

•      the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Directors consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

For and on behalf of the Board

William Knight,

Chairman

12th December 2017

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME

the year ended 30th September 2017

	2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	48,152	48,152	-	47,348	47,348
Net foreign currency gains/(losses)	-	763	763	-	(1,776)	(1,776)
Income from investments	3,480	-	3,480	3,548	-	3,548
Interest receivable and similar income	207	-	207	83	-	83
Gross return	3,687	48,915	52,602	3,631	45,572	49,203
Management fee	(2,092)	-	(2,092)	(1,660)	-	(1,660)
Other administrative expenses	(595)	-	(595)	(476)	-	(476)
Net return on ordinary activities before finance costs and taxation	1,000	48,915	49,915	1,495	45,572	47,067
Finance costs	(352)	-	(352)	(252)	-	(252)
Net return on ordinary activities before taxation	648	48,915	49,563	1,243	45,572	46,815
Taxation	202	-	202	92	(21)	71
Net return on ordinary activities after taxation	850	48,915	49,765	1,335	45,551	46,886
Return per share	1.16p	66.78p	67.94p	1.79p	60.87p	62.66p

A final dividend of 1.6p (2016: 1.6p) has been proposed in respect of the year ended 30th September 2017, totalling £1,167,000 (2016: £1,185,000). Further details are given in note 10 in the Annual Report.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. Net return on ordinary activities after taxation represents the profit for the year and also total comprehensive income.

STATEMENT OF CHANGES IN EQUITY

for the year ended 30th September 2017

	Called up		Exercised	Capital
	share	Share	warrant	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2015	19,481	13,321	3	581	37,392	62,763	2,391	135,932
Repurchase of shares into Treasury	-	-	-	-	-	(1,673)	-	(1,673)
Net return from ordinary activities	-	-	-	-	-	45,551	1,335	46,886
Dividends paid in the year (note 10)	-	-	-	-	-	-	(1,350)	(1,350)
At 30th September 2016	19,481	13,321	3	581	37,392	106,641	2,376	179,795
Repurchase of shares into Treasury	-	-	-	-	-	(2,420)	-	(2,420)
Net return from ordinary activities	-	-	-	-	-	48,915	850	49,765
Dividends paid in the year (note 10)	-	-	-	-	-	-	(1,178)	(1,178)
At 30th September 2017	19,481	13,321	3	581	37,392	153,136	2,048	225,962

¹This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

STATEMENT OF FINANCIAL POSITION

at 30th September 2017

	2017	2016
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	246,881	195,157
Current assets
Debtors	1,781	1,599
Cash and cash equivalents	1,890	515
	3,671	2,114
Current liabilities
Creditors: amounts falling due within one year	(24,590)	(17,476)
Net current liabilities	(20,919)	(15,362)
Total assets less current liabilities	225,962	179,795
Net assets	225,962	179,795
Capital and reserves
Called up share capital	19,481	19,481
Share premium	13,321	13,321
Exercised warrant reserve	3	3
Capital redemption reserve	581	581
Other reserve	37,392	37,392
Capital reserves	153,136	106,641
Revenue reserve	2,048	2,376
Total shareholders' funds	225,962	179,795
Net asset value per share	309.8p	242.7p

STATEMENT OF CASH FLOWS

For the year ended 30 September 2017

	2017	2016
	£'000	£'000
Net cash outflow from operations before dividends and interest	(2,394)	(1,122)
Dividends received	3,018	3,121
Interest received	6	11
Overseas tax recovered	431	344
Interest paid	(310)	(249)
Net cash inflow from operating activities	751	2,105
Purchases of investments	(156,348)	(136,224)
Sales of investments	152,898	143,560
Settlement of foreign currency contracts	(30)	(43)
Net cash (outflow)/inflow from investing activities	(3,480)	7,293
Dividends paid	(1,178)	(1,350)
Repurchase of shares into Treasury	(2,525)	(1,568)
Drawdown of bank loan	9,667	3,427
Repayment of bank loan	(1,860)	(14,033)
Net cash inflow/(outflow) from financing activities	4,104	(13,524)
Increase/(decrease) in cash and cash equivalents	1,375	(4,126)
Cash and cash equivalents at start of year	515	4,636
Exchange movements	-	5
Cash and cash equivalents at end of year	1,890	515
Increase/(decrease) in cash and cash equivalents	1,375	(4,126)
Cash and cash equivalents consist of:
Cash at bank	1,890	515
	1,890	515

Notes to the financial statements

for the year ended 30th September 2017

1.     Accounting policies

        Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014, and updated in January 2017.

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

The financial statements have been prepared on a going concern basis. The disclosures on going concern in the Directors' Report form part of these financial statements.

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

2.     Return per share

		2017	2016
		£'000	£'000
	Revenue return	850	1,335
	Capital return	48,915	45,551
	Total return	49,765	46,886
	Weighted average number of shares in issue during the year	73,253,728	74,824,831
	Revenue return per share	1.16p	1.79p
	Capital return per share	66.78p	60.87p
	Total return per share	67.94p	62.66p

3.     Dividends

(a)   Dividends paid and proposed

		2017	2016
		£'000	£'000
	Dividend paid
	2016 final dividend paid of 1.6p (2015: 1.8p) per share	1,178	1,350
	Dividend proposed
	2017 final dividend proposed of 1.6p (2016: 1.6p) per share	1,167	1,185

The dividend proposed in respect of the year ended 30th September 2017 is subject to shareholder approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 30th September 2018.

The dividend proposed in respect of the year ended 30th September 2016 amounted to £1,185,000. However the amount paid amounted to £1,178,000 due to shares repurchased after the balance sheet date but prior to the share register record date.

(b)  Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of the dividend proposed in respect of the financial year, shown below. The revenue available for distribution by way of dividend for the year is £850,000 (2016: £1,335,000).

		2017	2016
		£'000	£'000
	Final dividend proposed of 1.6p (2016: 1.6p) per share	1,167	1,185

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

The revenue reserve after payment of the final dividend will amount to £881,000 (2016: £1,191,000).

4.     Net asset value per share

		2017	2016
	Net assets (£'000)	225,962	179,795
	Number of shares in issue	72,928,162	74,074,935
	Net asset value per share	309.8p	242.7p

5.     Status of results announcement

2016 Financial Information

The figures and financial information for 2016 are extracted from the published Annual Report and Financial Statements for the year ended 30th September 2016 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2017 Financial Information

The figures and financial information for 2017 are extracted from the published Annual Report and Financial Statements for the year ended 30th September 2017 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement

JPMORGAN FUNDS LIMITED

12th December 2017

For further information, please contact:

Lucy Dina

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

ENDS

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The annual report will shortly be available on the Company's website at www.jpmchinese.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 

END

 

 

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