Final Results

RNS Number : 7049J

JPMorgan Chinese Inv Tst PLC

06 December 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2018

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 2018.

CHAIRMAN'S STATEMENT

I have great pleasure in presenting the Annual Report of the JPMorgan Chinese Investment Trust PLC ('the Company') for the year ended 30th September 2018.

Last year, my predecessor spoke about the developing investment opportunities in China and the proposal from MSCI to include A-shares in our benchmark, the MSCI China Index. From May 2018, 230 new stocks were added, representing 0.7% of the Index and supported by an increase in the daily amount of A-shares that could be traded by international investors through the Shanghai and Shenzhen Stock Connect programme.

For the year ended 30th September the MSCI China Index showed a small positive return of 0.6%. However the growing trade tensions between China and the United States with the imposition of new goods tariffs and the threat of more to come has created growing uncertainty about the impact on economic growth in China. The effect has been a fall of 9.6% in the MSCI China Index during the month of October and 13.8% over the three months to end October.

On a more positive note the MSCI has begun discussions to increase the number of A-shares in the Index in 2019 and plans to broaden the inclusion to Mid Cap shares in 2020. These changes should increase the liquidity and international interest in the A-share market.

Activity within the Company

At the Annual General Meeting ('AGM') in January 2018 the Company received approval under the continuation vote. The next vote will be in January 2023. However, there was a sizeable vote against continuation. A key rationale for the Company's existence is positive long-term investment performance, which I believe the Investment Manager has delivered. To confirm our continuing commitment to this objective the Board has agreed an obligation to put forward proposals for a tender offer for up to 15% of the Company's issued share capital at a price equal to the net asset value ('NAV') less costs, if, over the next five years (from the start of the 2018 financial year) the Company's NAV underperforms its benchmark.

Performance

In volatile market conditions over the year to 30th September 2018, the Company's Total Return on Net Assets was a fall of 1.4% which comprises the change in NAV with dividends reinvested. This compares with the small positive return of the MSCI China Index of 0.6%. In keeping with most emerging market funds, the discount at which shares were traded increased during the year with the result that the Total Return to Shareholders of the Company over the year was a fall of 5.0%.

Stock selection was a positive contributor to relative performance against the index of 2.2% but outweighed by the impact of the gearing. Also, the fall in the value of the Chinese Yuan had an overall negative impact on performance.

A fuller commentary on the contributors to performance is provided in the Investment Managers report.

Investment Approach

The investment team has continued to grow and develop the depth and experience of its research capability and we have encouraged the team to look for more investment opportunities in the A-share market. The investment policy currently limits the proportion of the portfolio that can be invested in China A-shares and China related ADRs to 60% of the portfolio's value. With improved access to China A-shares and further increases in the weighting of China A-shares in the MSCI China Index expected in 2019 and 2020, the Board believes that it is appropriate to remove this restriction. Accordingly, the Board will propose a resolution to Shareholders at the AGM to amend the investment policy to remove the limit on investment in China A-shares and China related ADRs.

We expect the team to make greater use of the gearing potential where it finds new stock ideas. Our due diligence visit in October focussed on discussions with the investment managers and analysts in Hong Kong, Taiwan and Shanghai. We are optimistic they will continue to find interesting companies among the listed A-share companies with overweight exposures towards structural growth names in the consumer, healthcare and information technology sectors.

The investment approach may result in greater short-term volatility relative to the Benchmark as we encourage the investment managers to deliver long-term outperformance through investment in A-shares.

Value for Money

We look closely at the costs of investment and were encouraged by the decision of the Investment Manager to pay for third party research costs following the implementation of MiFID II at the beginning of 2018. We have also been in discussion with the Manager about the appropriate level of the management fee in a market that develops and matures as it opens to foreign investment. The Board has agreed a management fee on net, rather than gross, assets under management of 0.9% per annum with effect from 1st April 2019. Based on assets at 30th September 2018 this would amount to a reduction of 12.9% in the management fee payable in our 2019 Financial Year and a further reduction of 14.8% in 2020.

Revenue and Dividends

Revenue for the year, after taxation, was £3,152,000 (2017: £850,000). The revenue return per share calculated on the average number of shares in issue was 4.32 pence (2017: 1.16 pence).

The Board is recommending a dividend of 3.5 pence (2017: 1.6 pence) in respect of the financial year ended 30th September 2018. Subject to shareholders' approval at the AGM, this dividend will be paid on 6th February 2019 to shareholders on the register at the close of business on 14th December 2018.

The increase in the dividend is primarily the result of the change to allocation of expenses. Following the change in the benchmark to the MSCI China Index the Board reviewed its policy of allocation of expenses (management fees and finance costs) to revenue and capital. With effect from the current financial year the Board decided to split the allocation of expenses between 75% to capital and 25% to income. In order to maintain our investment trust status this results in an increase in dividends paid out by the Company.

Gearing

In January 2018 the Company extended its £30 million facility with Scotiabank for a further three months. In February 2018 the Board agreed that the facility be increased from £30 million to £50 million. In April 2018, the Company renewed the £50 million facility with Scotiabank for a further 364 day period on the same terms but at an increased margin. The current facility matures on 18th April 2019 at which point the Board will consider another gearing facility.

During the year the Company's gearing ranged from 9.3% to 19.0% (based on month end data) and, at the time of writing, was 17.1%. At the time of the arrangement, the facility allowed the Investment Managers the flexibility to manage the gearing facility 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 224,794 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 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 daily net assets during the year, were 1.34% (2017: 1.38%).

Board of Directors

In July 2018 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.

Kathryn Matthews, our longest-serving director, will retire from the Board at the AGM in January 2019. She joined the Board in July 2010 and has made a significant contribution to the Board and the performance of the Company. On behalf of the Board, I would like to thank Kathryn for her valuable contribution to the Company over the years.

As part of the succession planning the Board has appointed Alexandra Mackesy to succeed Kathryn Matthews. Alexandra is a strong successor to Kathryn, bringing extensive investment experience of China and as a director of investment trusts.

In accordance with the UK Corporate Governance Code David Graham, Oscar Wong and myself will retire at the forthcoming AGM and, being eligible, will offer ourselves for reappointment by shareholders. In addition Alexandra Mackesy, having been appointed during the financial year, will stand for appointment at the AGM.

Annual General Meeting

This year's AGM will be held at 60 Victoria Embankment, London EC4Y 0JP on Monday 28th January 2019 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.

John Misselbrook

Chairman                                                                                                                                6th December 2018

INVESTMENT MANAGERS' REPORT

Setting the scene

The Company's financial year to 30th September 2018 began promisingly but became increasingly challenging as the year unfolded. This has been a tough time for equity markets around the world - global growth appears to have peaked and adverse political influences have cast their shadow. Trade tensions have been building, stirring fears of inflation and obstructions to global supply chains. The low volatility and positive market returns that characterised 2017 have been supplanted by global stock market corrections and an overwhelming sense of investor uncertainty in 2018.

China has not been immune to the climate of negativity that has dominated markets. Indeed, the country has been in sharp focus as fears of mounting trade wars between the US and its global trading partners have dealt a blow to Chinese stock markets. US-China trade tensions are not a new phenomenon but the imposition of trade tariffs on US imports of certain Chinese goods has created fears of a full-on trade war. The short-term prospects for Chinese exports look difficult and this is contributing to overall weakness in the economy, a slowdown in retail sales and a vulnerable currency. This uncertainty is causing manufacturers to reduce inventory and thereby precipitating a fall in revenue for the whole manufacturing supply chain.

After years of supercharged economic growth, the Chinese economy - the world's second largest - has slowed down in recent months and may grow by only 6.5% in 2018. These are still robust growth figures that confirm China's status as a global economic superpower but, nevertheless, economic growth in 2018 is likely to fall to its lowest level since the global financial crisis of 2008.

At the half way point of the year, covering the six months to 31st March 2018, the Company's performance had been comfortably ahead of its benchmark, the MSCI China Index. However, the economic and geopolitical landscape has shifted materially since then, as highlighted above, and the Chinese stock market has reflected this over the second half of the year, with certain stocks and sectors in which the Company invests particularly impacted.

Against this backdrop, the Company's NAV total return over the year to 30th September 2018 was -1.4%, underperforming its benchmark, which rose by +0.6% (on a total return, net basis, in sterling terms). The value of the Company's shares (including dividends) fell by -5.0% over the period. The use of gearing, which averaged 14% over the period under review, contributed negatively to returns as we had not anticipated the extent of the market fall in the second half of the year.

Spotlight on stocks and sectors

Although the Chinese economy has grown at a phenomenal pace in recent years, the year under review has demonstrated that it is not immune from global economic challenges and certain Chinese stocks have been hit hard. In this section we highlight specific companies and sectors that have impacted portfolio performance (both positively and negatively) over the year.

Oil prices hit a 4-year high in September, reflecting supply shortage concerns, and, unsurprisingly, Energy stocks rose in tandem. However, relative to our benchmark we have an underweight exposure to the Energy sector and this has detracted from performance.

Chinese Information Technology stocks have soared in recent years and China has proved that tech innovation is not confined to Silicon Valley. The Chinese IT market is massive, but it remains largely impenetrable for the leading US tech giants like Amazon and Google. The so-called 'BAT' stocks (the internet giants Baidu, Alibaba and Tencent) are top ten holdings, which have been unstoppable for a long time. This year, however, they have suffered sharp corrections on the back of both macro issues and specific challenges. Tencent's performance, for example, was hampered by specific regulatory woes, with Beijing suggesting that approvals of new games should be slowed down following evidence that too much screen time causes eye problems. We remain positive on the long-term prospects for all three BAT stocks. We believe they have diverse interests and plenty of firepower for future growth. For example, Tencent owns WeChat, China's most popular messaging app, Alibaba continues to expand its core e-commerce business, and Baidu, already China's leading search engine, has been investing heavily in key areas like Artificial Intelligence and car automation, while offloading non-core businesses, a move welcomed by investors. As such, the BAT stocks are likely to remain significant holdings in the portfolio subject to the investment policy restrictions for any particular stock.

Looking more generally at IT, hardware suppliers have suffered over the year, reflecting investor concerns on weaker-than-expected demand for smartphones, with incrementally weaker iPhone momentum and mounting cost pressure on component providers. In addition, the escalation in China-US trade tensions have had a significant impact on tech names, initially from the sanctions imposed on Chinese phone maker ZTE and then more broadly impacting companies that have had to reduce capacity and hiring amidst the ongoing trade uncertainties.

Over the year, our overweight positions in AAC Technologies, Largan Precision, BOE Technology and Shenzhen Sunway detracted from performance. We subsequently sold our holdings in Largan Precision and Shenzhen Sunway, while trimming our exposure to AAC Technologies, to concentrate on our higher conviction picks.

Stock selection in Financials contributed positively. Our long-term core positions in China's biggest insurer Ping An Insurance and China Merchants Bank were the top contributors both in their sector and in our portfolio overall. Ping An Insurance continued to report strong operational results given its competitive strength; its share price has been much more resilient than the rest of the sector. China Merchants Bank was established in 1987 and now has more than 70,000 employees. It outperformed thanks to its highest return-on-assets amongst its peers, strong capital position, improving deposit franchise and its outward-looking approach. We remain on the side lines when it comes to index-heavy, large cap banks, where we feel challenges may lie ahead.

Our stock picks in the Consumer Discretionary and Consumer Staples sectors were another key source of strength over this challenging period. Textile manufacturer Shenzhou International is one of our high conviction holdings because of its strong and visible earnings growth momentum, as well as its competitive edge in both pricing and delivery lead time. We believe these factors should generate further market share gains. Premium liquor brand Kweichow Moutai is another high conviction choice that contributed to returns. It is the leader in the high-end Baijiu (Chinese grain alcohol) sector, which is highly fragmented with room for consolidation, and in a market that should continue to benefit from rising consumer demand.

Overall stock selection in the Healthcare sector delivered mixed results for the portfolio, with sector sell-off occurring in response to a vaccine scandal and policy uncertainty. In July, one of the largest domestic vaccine producers was investigated for fabricating production and inspection data, triggering widespread public concern. Subsequent probes revealed failings at the regulatory body, the China Food and Drug Administration (CFDA), and several senior officials were dismissed. Investors feared that the change in CFDA personnel would lead to a slowdown in the drug approval process. In September, the National Medical Insurance Bureau proposed a centralised pharmaceutical procurement policy. This, and the possibility of greater industry regulation, prompted concerns of potential downward pricing pressures. Sino Biopharm, one of the industry's leading players, was negatively impacted and ended the period a top detractor for the Company. However, other holdings, including Jiangsu Hengrui Medicine, CSPC Pharmaceutical and Aier Eye Hospital, held up well and added value over the last 12 months.

Finally, it's pleasing to note that several new portfolio acquisitions have added value. Travel related names performed strongly on strong air traffic and yields, including Shanghai International Airport and China International Travel Service Corp, both rising on solid reported results. iQiyi, one of the largest online video sites in the world and the Chinese equivalent of Netflix, came to market via an Initial Public Offering (IPO) earlier in 2018. It is majority owned by Baidu and its shares rallied on good results over the period. iQiyi's above-average subscriber and revenue growth and massive potential market for its services give us confidence that the stock remains well supported for the future.

Positioning the portfolio to face the current challenges

Naturally we are cautious in the current economic environment, with escalating US-China trade tensions a major concern. The rise in corporate debt in recent years has also been worrisome but we are reassured by the regulatory crackdown on debt-like savings products that had driven up leverage to such unprecedented levels. We are also encouraged by the government's efforts (on both monetary and fiscal fronts) to protect the economy from external risks via structural reforms. This backdrop has given us the confidence to retain gearing at current levels.

We continue to position the portfolio to benefit from the structural growth opportunities in the Consumer, Technology and Healthcare sectors. Our resolve to invest in 'New China' (and the broad contour of the portfolio) is unaffected by short term political and economic worries. We are underweight in our exposure to the low growth, low quality and old industrials names. We have trimmed exposure to companies with greater economic or export sensitivity, an already modest part of the portfolio, including banks, autos and technology. In turn, we added to areas like software since both corporate and public sectors are catching up on software spending where they have traditionally underspent.

We continue to find a variety of investment opportunities in Healthcare, concentrating our exposure to those with long-term structural potential, such as the most innovative drug manufacturers. We also increased our exposure to the online operators, a growing presence in the portfolio, given the level of IPO activity we've seen in the Technology sector. As well as iQiyi, we initiated new positions in Pinduoduo (e-commerce), Meituan Dianping (online food delivery and services), Bilibili (online content) and Weibo (social media) in the last year, in addition to the existing holdings in the 'BAT' stocks.

Outlook - as the pendulum shifts

One of the great unknowns at the time of writing is just how the US-China trade war is going to play out. Whatever happens, the likelihood is that Chinese exports will face tougher times ahead and Chinese economic growth will continue to moderate further. We believe, however, that the decline is likely to be both modest and controlled, as targeted and coordinated policy responses by the Chinese government should offset growth headwinds resulting from the financial deleveraging efforts and the ongoing trade war.

Beijing's reforms reflect the changing economic landscape at home, acknowledging that the pendulum has shifted and targeting effort on reforms to minimise the impact of external challenges. The increased emphasis on domestic demand and a consumer-led recovery leading to less dependence on export growth should counteract the adverse effects of any further trade escalations with the US as well as the risks of higher inflation and slower global growth.

Our research focus remains on "New China" companies and sectors that are capitalising on the transition of the country to a more consumer-driven economy.  Being on the ground in mainland China is a significant advantage for us. We acknowledge that Chinese stocks have been hit hard over recent months, reflecting negative news flow, volatility and US Dollar strength but are reassured that interest in the domestic market from foreign investors has remained strong.

We continue to adopt a patient, long-term approach to investing as we believe this offers the Company's shareholders the best likelihood of benefiting from the economic transformation of China and its evolving role as a global economic powerhouse. There will always be short-term uncertainties that threaten to derail performance but the long-term case for China remains robust. We are excited by the prospect of discovering many more interesting investment opportunities that will benefit from the growth of the Chinese domestic market. Above all, we still believe that investing in Chinese equities can deliver positive and sustained returns over the long-term.

Howard Wang

Rebecca Jiang

Investment Managers                                                                                                                      6th December 2018

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 managers, who attend 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/Political

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. In addition, the Company is exposed to political risks, such as the imposition of restrictions on the free movement of capital. 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.

•      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.

•      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 in the Annual 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, currency risk, liquidity risk and credit risk. Further details are disclosed in note 21 of the Annual Report and Financial Statements.

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 financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards), comprising 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, 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 preparing these financial statements, the Directors are required to:

•      select suitable accounting policies and then apply them consistently;

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

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

•      prepare the financial statements on 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 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 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 Strategic Report, a Directors' Report and a Directors' Remuneration Report that comply with that law. The Strategic Report and the Directors' report include a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

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 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 Directors consider that the annual report and accounts, 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

John Misselbrook

Chairman                                                                                                                                     6th December 2018

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30th September 2018

	2018			2017
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held
at fair value through profit or loss	-	(1,330)	(1,330)	-	48,152	48,152
Net foreign currency (losses)/gains1	-	(2,091)	(2,091)	-	763	763
Income from investments	4,625	-	4,625	3,480	-	3,480
Interest receivable and similar income	299	-	299	207	-	207
Gross return	4,924	(3,421)	1,503	3,687	48,915	52,602
Management fee	(713)	(2,139)	(2,852)	(2,092)	-	(2,092)
Other administrative expenses	(500)	-	(500)	(595)	-	(595)
Net return/(loss) on ordinary   activities before finance costs
and taxation	3,711	(5,560)	(1,849)	1,000	48,915	49,915
Finance costs	(254)	(761)	(1,015)	(352)	-	(352)
Net return/(loss) on ordinary activities before taxation	3,457	(6,321)	(2,864)	648	48,915	49,563
Taxation (charge)/credit	(305)	-	(305)	202	-	202
Net return/(loss) on ordinary
activities after taxation	3,152	(6,321)	(3,169)	850	48,915	49,765
Return/(loss) per share	4.32p	(8.67)p	(4.35)p	1.16p	66.78p	67.94p

¹ (£1,857,000) due to an exchange loss on the loan which is denominated in US dollar. (£234,000) due to net exchange losses on cash and cash equivalents, (2017: £718,000 due to an exchange gain on the loan which is denominated in US dollar, £45,000 due to net exchange gains on cash and cash equivalents).

A final dividend of 3.5p (2017: 1.6p) has been proposed in respect of the year ended 30th September 2018, totalling £2,545,000 (2017: £1,167,000). Further details are given in note 10 of the Annual Report and Financial Statements.

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 2018

	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 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 2)	-	-	-	-	-	-	(1,178)	(1,178)
At 30th September 2017	19,481	13,321	3	581	37,392	153,136	2,048	225,962
Repurchase of shares into Treasury	-	-	-	-	-	(664)	-	(664)
Net (loss)/return from
ordinary activities	-	-	-	-	-	(6,321)	3,152	(3,169)
Dividends paid in the year (note 2)	-	-	-	-	-	-	(1,167)	(1,167)
At 30th September 2018	19,481	13,321	3	581	37,392	146,151	4,033	220,962

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

STATEMENT OF FINANCIAL POSITION

As at 30th September 2018

	2018	2017
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	260,541	246,881
Current assets
Debtors	785	1,781
Cash and cash equivalents	7,174	1,890
	7,959	3,671
Current liabilities
Creditors: amounts falling due within one year	(47,538)	(24,590)
Net current liabilities	(39,579)	(20,919)
Total assets less current liabilities	220,962	225,962
Net assets	220,962	225,962
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	146,151	153,136
Revenue reserve	4,033	2,048
Total shareholders' funds	220,962	225,962
Net asset value per share	303.9p	309.8p

STATEMENT OF CASH FLOWS

For the year ended 30th September 2018

	2018	2017
	£'000	£'000
Net cash outflow from operations before dividends and interest	(3,307)	(2,394)
Dividends received	4,363	3,018
Interest received	11	6
Overseas tax recovered	45	431
Interest paid	(909)	(310)
Net cash inflow from operating activities	203	751
Purchases of investments	(187,015)	(156,348)
Sales of investments	172,261	152,898
Settlement of foreign currency contracts	10	(30)
Net cash outflow from investing activities	(14,744)	(3,480)
Repurchase of shares into Treasury	(664)	(2,525)
Dividends paid	(1,167)	(1,178)
Repayment of bank loan	(2,544)	(1,860)
Drawdown of bank loan	24,209	9,667
Net cash inflow from financing activities	19,834	4,104
Increase in cash and cash equivalents	5,293	1,375
Cash and cash equivalents at start of year	1,890	515
Exchange movements	(9)	-
Cash and cash equivalents at end of year	7,174	1,890
Increase in cash and cash equivalents	5,293	1,375
Cash and cash equivalents consist of:
Cash at bank	464	1,890
Cash held in JPMorgan US Dollar Liquidity Fund	6,710	-
	7,174	1,890

NOTES TO THE FINANCIAL STATEMENTS

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 February 2018.

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.     Dividends

Dividends paid and proposed

	2018	2017
	£'000	£'000
Dividend paid
2017 final dividend paid of 1.6p (2016: 1.6p) per share	1,167	1,178
Dividend proposed
2018 final dividend proposed of 3.5p (2017: 1.6p) per share	2,545	1,167

The dividend proposed in respect of the year ended 30th September 2018 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 2019.

3.     (Loss)/return per share

	2018	2017
	£'000	£'000
Revenue return	3,152	850
Capital (loss)/return	(6,321)	48,915
Total (loss)/return	(3,169)	49,765
Weighted average number of shares in issue during the year	72,887,822	73,253,728
Revenue return per share	4.32p	1.16p
Capital (loss)/return per share	(8.67)p	66.78p
Total (loss)/return per share	(4.35)p	67.94p

4.     Net asset value per share

	2018	2017
Net assets (£'000)	220,962	225,962
Number of shares in issue	72,703,188	72,928,162
Net asset value per share	303.9p	309.8p

5.     Status of results announcement

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.

2018 Financial Information

The figures and financial information for 2018 are extracted from the published Annual Report and Financial Statements for the year ended 30th September 2018 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

6th December 2018

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.

JPMORGAN FUNDS LIMITED

 

END

 

 

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