Half-year Report

RNS Number : 3640P

JPMorgan Chinese Inv Tst PLC

25 May 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31ST MARCH 2018

Legal Entity Identifier: 549300S8M91P5FYONY25

Information disclosed in accordance with DTR 4.2.2

The Directors announce the Company's results for the six months ended 31st March 2018.

chairman's statement

Performance

As my first communication to shareholders since becoming Chairman, I am delighted to report that over the six months period ended 31st March 2018, the Company's total return on net assets of +10.1% (with net dividend reinvested) significantly outperformed the benchmark, the MSCI China Index, which delivered +4.8% (in sterling terms). In addition the total return to shareholders was +8.4%.

This outperformance relative to the benchmark index is explained in the Investment Managers' Report which provides a detailed commentary on the portfolio positioning and the positive outlook for investing in onshore China.

Loan Facility and Gearing

The Investment Managers have been given the flexibility by the Board to manage the gearing tactically within a range set by the Board of 10% net cash to 20% geared. During the period the Company's gearing ranged from 8.4% to 17.2% geared, ending the half year at 16.6% geared.

On 19th January 2018 the Company extended its £30 million credit facility with Scotiabank for a further three months. This facility was then increased to £50 million on 14th February 2018. On 19th April the Board renewed the loan facility of £50 million for a further 364 days with an increased margin of 80 bps. £41.3 million was drawn down on this facility as at 31st March 2018.

Share Repurchases and Issues in the Period

At the time of writing, the Company's issued share capital consists of 72,928,162 Ordinary shares, excluding shares held in Treasury. During the six months reporting period the Company did not repurchase or issue any shares.

Board of Directors

You will recall that William Knight retired as Chairman following the AGM in January 2018. The Board subsequently invited me to take over as Chairman and David Graham as Audit Committee Chairman.

The Board has engaged an external search consultancy to seek a new non-executive Director to join the Board this year as part of the Board's ongoing succession plan.

Outlook and Strategy

As our Manager states, in spite of increased volatility in markets and concerns over escalating trade friction with US, the outlook for Greater China equities remains positive in the current economic environment supported by the Chinese government's continuing structural reforms. We continue to have confidence that the investment team, supported by the well resourced research team, continues to find interesting companies that will benefit from the growth in the Chinese domestic market.

John Misselbrook

Chairman

25th May 2018

Investment Managers' Report

Performance commentary

Over the six months ended 31st March 2018, the Company delivered +10.1% compared to the benchmark return of +4.8%. Stock selection in China, particularly our exposure to China A-shares, was the key driver of performance, while the overall exposure to Taiwan detracted from returns. During a period of rising markets, an average level of 11% in gearing added value.

Stock selection in the healthcare sector was amongst the biggest contributors, where the scope for growth is structural as China is the second largest healthcare market globally. In particular AK Medical, the largest domestic artificial joint manufacturer, CSPC Pharmaceutical, which has a strong drug pipeline and Jiangsu Hengrui, the leading A-share R&D drug manufacturer with a dominant market share in oncology, performed strongly. Key holdings in the financials sector also made a positive contribution. Despite the short term cyclical benefit of an improving macro economic environment and operational trends in the large banks, there are greater opportunities in those companies exposed to the structural changes. Ping An, the long-term quality company in the Chinese life insurance sector, is the only large scale private sector enterprise in a market dominated by state owned players. Holdings in Noah, the high net worth manager and China Merchants Bank also benefited performance.

Meanwhile, the largest detractors were holdings exposed to the Apple supply chain given investor concerns of a deterioration in the smartphone cycle and limited upside for related component makers, such as Largan Precision, Shenzhen Sunway and Goertek. The latter two companies were subsequently sold. The increased trade tensions between the US and China has had some short term impact on stock performance, particularly in the automotive sector where holdings in OEM Brilliance Automotive and auto power steering manufacturer Nexteer Automotive have detracted.

Positioning

The portfolio remains exposed to structural growth companies in the consumer, healthcare and information technology sectors whilst underweight those companies in low growth low quality sectors. The fund continues to be predominantly invested in mainland China. The A-share exposure increased to 26.2% of the overall portfolio, up from 18.9% six months earlier. We continue to find new and interesting ideas in the domestic listed companies including; Bank of Ningbo, which is exposed to retail banking growth with strong credit risk management, Inner Mongolia Yili Industrial, a leading dairy producer, BOE Technology, a low cost producer of LCD screens and Shanghai International Airport. The anticipated inclusion of China A-shares in the MSCI indices along with the improved access to the on-shore market for overseas investors via Stock Connect will only serve to increase the focus of these companies in the future.

Purchases have also been made in those companies listed outside of the domestic exchanges including Country Garden, a niche property developer with attractive exposure in Tier 2 and Tier 3 cities and Chongqing Rural Commercial Bank a regional bank with a strong deposit and loans franchise. These have been funded from sales in utility holdings CGN Power and Guangdong Investment, as well as Dong-E-E-Jiao and Sany Heavy.

Outlook

The 13th National People's Congress session held in March confirmed the objective of delivering better quality, sustainable growth. At the same time the party continued to centralise power by integrating various levels of government. This is seen as broadly positive for investors as it should maintain economic stability whilst enabling the consumer and service oriented 'New China' continue to grow.

The anticipated inclusion of China A-shares in the MSCI Indices effective June 2018 is seen as a key step in the overall liberalization process of China's capital markets. Foreign investor participation should increase over time and help to diversify the investment landscape as well as rebalance the investment horizon.

In spite of the market volatility amid concerns over escalating trade tensions we remain positive on Greater China equities given the macro economic outlook and the Chinese government's continued structural reforms. The increased emphasis on the domestic demand and a consumer led recovery leading to less dependence on export growth should minimize the adverse effects of any further trade escalations with the US as well as the risks of higher inflation and slower global growth. We continue to position the portfolio to benefit from the structural growth opportunities in the consumer, technology and healthcare sectors.

Howard Wang

Rebecca Jiang

Investment Team

25th May 2018

Interim Management Report

The Company is required to make the following disclosures in its half year report:

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into the following broad categories: investment underperformance; strategy/business management; loss of Investment Team or Investment Manager; share price discount; market; political, economic and governance; legal and regulatory; corporate governance and shareholder relations; operational risk and cybercrime; and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th September 2017.

Related Parties Transactions

During the first six months of the current 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 period.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)    the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with FRS 104 'Interim Financial Reporting' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st March 2018, as required by the UK Listing Authority Disclosure and Transparency Rule ('DTR') 4.2.4R; and

(ii)   the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•   select suitable accounting policies and then apply them consistently;

•   make judgements and 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 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.

For and on behalf of the Board

John Misselbrook
Chairman

25th May 2018

statement of Comprehensive income
for the six months ended 31st March 2018

	(Unaudited) Six months ended 31st March 2018			(Unaudited) Six months ended 31st March 2017			(Audited) Year ended 30th September 2017
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	23,333	23,333	-	14,641	14,641	-	48,152	48,152
Net foreign currency gains/(losses)	-	1,221	1,221	-	(723)	(723)	-	763	763
Income from investments	126	-	126	68	-	68	3,480	-	3,480
Interest receivable and similar income	113	-	113	123	-	123	207	-	207
Gross return	239	24,554	24,793	191	13,918	14,109	3,687	48,915	52,602
Management fee	(348)	(1,043)	(1,391)	(973)	-	(973)	(2,092)	-	(2,092)
Other administrative expenses	(243)	-	(243)	(275)	-	(275)	(595)	-	(595)
Net (loss)/return on ordinary activities before finance costs and taxation	(352)	23,511	23,159	(1,057)	13,918	12,861	1,000	48,915	49,915
Finance costs	(70)	(209)	(279)	(142)	-	(142)	(352)	-	(352)
Net (loss)/return on ordinary activities before taxation	(422)	23,302	22,880	(1,199)	13,918	12,719	648	48,915	49,563
Taxation (charge)/credit	(16)	-	(16)	365	-	365	202	-	202
Net (loss)/return on ordinary activities after taxation	(438)	23,302	22,864	(834)	13,918	13,084	850	48,915	49,765
(Loss)/return per share (note 3)	(0.60)p	31.95p	31.35p	(1.13)p	18.92p	17.79p	1.16p	66.78p	67.94p

All revenue and capital items in the above statement derive from continuing operations.

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.

The net return on ordinary activities after taxation represents the profit for the period and also the total comprehensive income.

statement of changes in equity
for the six months ended 31st March 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
Six months ended 31st March 2018 (Unaudited)
At 30th September 2017	19,481	13,321	3	581	37,392	153,136	2,048	225,962
Net return/(loss) on ordinary activities	-	-	-	-	-	23,302	(438)	22,864
Dividend paid in the period (note 4)	-	-	-	-	-	-	(1,167)	(1,167)
At 31st March 2018	19,481	13,321	3	581	37,392	176,438	443	247,659
Six months ended 31st March 2017 (Unaudited)
At 30th September 2016	19,481	13,321	3	581	37,392	106,641	2,376	179,795
Repurchase of shares into Treasury	-	-	-	-	-	(2,419)	-	(2,419)
Net return/(loss) on ordinary activities	-	-	-	-	-	13,918	(834)	13,084
Dividend paid in the period    (note 4)	-	-	-	-	-	-	(1,178)	(1,178)
At 31st March 2017	19,481	13,321	3	581	37,392	118,140	364	189,282
Year ended 30th September 2017 (Audited)
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 on ordinary activities	-	-	-	-	-	48,915	850	49,765
Dividend paid in the year     (note 4)	-	-	-	-	-	-	(1,178)	(1,178)
At 30th September 2017	19,481	13,321	3	581	37,392	153,136	2,048	225,962

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

statement of financial position
at 31st March 2018

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2018	31st March 2017	30th September 2017
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	288,773	206,160	246,881
Current assets
Debtors	73	204	1,781
Cash and cash equivalents	2,940	1,549	1,890
	3,013	1,753	3,671
Current liabilities
Creditors: amounts falling due within one year1	(44,127)	(18,631)	(24,590)
Net current liabilities	(41,114)	(16,878)	(20,919)
Total assets less current liabilities	247,659	189,282	225,962
Net assets	247,659	189,282	225,962
Capital and reserves
Called up share capital	19,481	19,481	19,481
Share premium	13,321	13,321	13,321
Exercised warrant reserve	3	3	3
Capital redemption reserve	581	581	581
Other reserve	37,392	37,392	37,392
Capital reserves	176,438	118,140	153,136
Revenue reserve	443	364	2,048
Total shareholders' funds	247,659	189,282	225,962
Net asset value per share (note 5)	339.6p	259.5p	309.8p

¹ As at 31st March 2018, £41.1 million (31st March 2017: £17.8 million; 30th September 2017: £23.3 million) was drawn down from the loan facility.

Statement of cashflows
for the six months ended 31st March 2018

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2018	31st March 2017	30th September 2017
	£'000	£'000	£'000
Net cash outflow from operations before dividends and interest	(1,680)	(1,201)	(2,394)
Dividends received	536	279	3,018
Interest received	4	-	6
Overseas tax recovered	-	375	431
Interest paid	(226)	(139)	(310)
Net cash (outflow)/inflow from operating activities	(1,366)	(686)	751
Purchases of investments	(95,255)	(78,469)	(156,348)
Sales of investments	79,632	82,898	152,898
Settlement of foreign currency contracts	17	(33)	(30)
Net cash (outflow)/inflow from investing activities	(15,606)	4,396	(3,480)
Dividends paid	(1,167)	(1,178)	(1,178)
Repurchase of shares into Treasury	-	(2,524)	(2,525)
Drawdown of bank loan	21,723	2,889	9,667
Repayment of bank loan	(2,544)	(1,860)	(1,860)
Net cash inflow/(outflow) from financing activities	18,012	(2,673)	4,104
Increase in cash and cash equivalents	1,040	1,037	1,375
Cash and cash equivalents at start of period	1,890	515	515
Exchange movements	10	(3)	-
Cash and cash equivalents at end of period	2,940	1,549	1,890
Increase in cash and cash equivalents	1,040	1,037	1,375
Cash and cash equivalents consist of:
Cash and short term deposits	1,229	1,549	1,890
Cash held in JPMorgan US Dollar Liquidity Fund	1,711	-	-
Total	2,940	1,549	1,890

Notes to the Financial Statements
for the six months ended 31st March 2018

1.     Financial statements

The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended 30th September 2017 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies and including the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.     Accounting policies

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the revised 'SORP') issued by the Association of Investment Companies in November 2014, and updated in February 2018.

FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 31st March 2018.

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

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 30th September 2017, with the following exception:

Change in allocation of expenses

With effect from 1st October 2017, the management fee and finance costs incurred by the Company have been allocated 75% to capital and 25% to revenue. In previous periods, these charges were allocated 100% to revenue. In line with the guidance provided in the SORP, this change is not considered to be a matter of accounting policy and consequently no prior period restatements have been made.

3.     (Loss)/return per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2018	31st March 2017	30th September 2017
		£'000	£'000	£'000
	(Loss)/return per share is based on the following:
	Revenue (loss)/return	(438)	(834)	850
	Capital return	23,302	13,918	48,915
	Total return	22,864	13,084	49,765
	Weighted average number of shares in issue during the period/year	72,928,162	73,581,082	73,253,728
	Revenue (loss)/return per share	(0.60)p	(1.13)p	1.16p
	Capital return per share	31.95p	18.92p	66.78p
	Total return per share	31.35p	17.79p	67.94p

4.     Dividends paid

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2018	31st March 2017	30th September 2017
		£'000	£'000	£'000
	2017 Final dividend of 1.6p (2016: 1.6p)	1,167	1,178	1,178

No interim dividend has been declared in respect of the six months ended 31st March 2018 (2017: nil).

All dividends paid and declared in the period have been funded from the Revenue Reserve.

5.     Net asset value per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2018	31st March 2017	30th September 2017
	Net assets (£'000)	247,659	189,282	225,962
	Number of shares in issue	72,928,162	72,928,162	72,928,162
	Net asset value per share	339.6p	259.5p	309.8p

JPMORGAN FUNDS LIMITED

25th May 2018

For further information, please contact:

Lucy Dina

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

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 ASSET MANAGEMENT (UK) LIMITED

ENDS

A copy of the Half Year Report has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

The Half Year Report will also 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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