Half Yearly Report

RNS Number : 9795H

JPMorgan Chinese Inv Tst PLC

23 May 2014

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST MARCH 2014

Chairman's Statement

Performance

For the six months to 31st March 2014, despite a volatile first half of the Company's financial year, the Company's return on net assets (with net dividends reinvested) of -0.2% still outperformed the return of the Company's benchmark, the MSCI Golden Dragon Index, which experienced a 2.5% reduction (in sterling terms). The total return to shareholders was +3.9%. The Investment Managers' Report provides further comments on the Company's performance and portfolio and market developments.

Loan Facility and Gearing

On 23rd January 2014 the Company renewed its £20 million credit facility with Scotiabank for a further 364 days, and £11.4 million was drawn down on this facility as at 31st March 2014. The Board has given the Investment Managers the flexibility to manage the gearing tactically within a range set by the Board of 10% net cash to 15% geared. During the period the Company's gearing ranged from 6.1% to 9.7% geared, ending the half year at 6.1% geared.

Share Repurchases and Issues in the Period

At the time of writing, the Company's issued share capital consists of 75,531,426, Ordinary shares, excluding shares held in Treasury. During the six month reporting period the Company did not repurchase or issue any Ordinary shares.

The Alternative Investment Fund Managers Directive ('AIFMD')

The Company must comply with the AIFMD by 22nd July 2014. JPMorgan has now been authorised as an AIFM and the Company is currently preparing to enter into a new management agreement with JPMorgan Funds Limited. The Board has also agreed to appoint Bank of New York Mellon ('BoNY') as its depositary under the new regime and a depositary agreement with BoNY is currently being finalised.

Board of Directors

As stated in the Company's 2013 Annual Report, the Board has taken into account the ongoing requirements of the UK Corporate Governance Code and as a result has a succession plan in place. The Board has agreed that one of the longer serving Directors will retire at the next Annual General Meeting in January 2015 and the Board is currently in the process of interviewing candidates with the intention to recruit a new Director this summer.

Outlook

As China embarks on a multiyear deleveraging process, the government has indicated that no large stimulus plans will come through in the short-term. However, we do see small steps in reform underway. Supply-side reforms such as state-owned enterprise reform, break-up of monopolies, tax reduction, interest rate liberalisation and fewer government controls are needed to support growth and get it onto a sustainable path, instead of heavy reliance on demand-side management such as infrastructure spending or property sector policy swings. We expect the macro environment to stabilise going into the second and third quarters of 2014, mildly rebounding from the first-quarter low. This is likely to be underpinned by selective easing recently initiated by the government, including increased infrastructure spending, a pick-up in social housing and tax cuts for small and medium enterprises.

We are turning more cautious on Hong Kong and anticipate continued market volatility in the near-term given the investment community's concerns over China's economic slowdown, as well as expectations of rising interest rates in the US. Conversely, we have been increasing our weighting in Taiwan, particularly in exporters given their positive leverage to a pick-up in the US import growth. This includes stocks in the technology and medical precision sectors which are in the midst of a positive earnings revision cycle.

William Knight

Chairman   

23rd May 2014

Investment Managers' Report

Over the six month period ended 31st March 2014, the Company achieved a total return on net assets of -0.2% (in sterling terms), outperforming the Company's benchmark return of -2.5% by 2.3%.

Stock selection across all three Greater China markets contributed to the majority of the outperformance. In Taiwan, stock selection was strong within the technology sector (e.g. smart-phone supply chain related stocks), whereas in Hong Kong/China most of the returns came from favourable stock selection in IT and 'environmental' plays (e.g. Water treatment and natural gas) and selective consumer names (e.g. Macau gaming).

China Review

Chinese equities diverged in the fourth quarter of 2013, with offshore-listed equities continuing the rally while domestic A-shares (CSI 300) posted a decline. Overseas investors were positively surprised by the broad reform blueprint outlined in CCP's 3rd Plenum. Domestic investors, however, worried about the potential negative impact from higher interbank interest rates as banks deleverage. Reform beneficiaries, such as insurance and environmental plays led the rally in the fourth quarter, while potential targets of reform such as oil majors and telecommunication stocks lagged.

Chinese equities fell in the first quarter of 2014, with offshore-listed equities down 5.9% and domestic A-shares (CSI 300) down 7.9%. Most of the decline took place in January when the US Federal Reserve's announcement on the tapering of its quantitative easing programme renewed concerns about emerging market currencies and triggered de-risking from investors. The gradual decline in interbank rates from their fourth-quarter high did not alleviate market concerns over decelerating growth, cases of trust/bond defaults and lack of evidence for further reform progress. Economic-sensitive sectors such as financials, consumer discretionary and commodities/industrials lagged, while structural growth sectors such as internet and health care outperformed. Earnings revisions turned negative vs. the fourth quarter of 2013, led mainly by cyclicals, such as technology, transportation and auto, or reform targets, such as telecoms and energy. Upward revisions were in health care or beneficiaries of lower costs such as utilities.

China Outlook

The macro environment should begin to stabilise going into the second and third quarters. This is likely to be underpinned by selective easing recently initiated by the government, such as increased infrastructure spending, a pickup in social housing and tax cuts for small and medium enterprises. Overall, we expect growth to remain at the low end of the 7%-8% GDP range when the new leadership carries out structural reforms to improve quality of growth.

Hong Kong Review

Despite the announcement of the long anticipated tapering in the US, Hong Kong equities managed to eke out further gains during the fourth quarter of 2014, largely driven by strength in the Macau gaming sector. Property developers continued their strategy of launching new projects at attractive prices, sometimes at par with neighboring secondary units, in order to generate interest.  However, despite this successful selling strategy, property stocks fell due to concerns over tapering and fears of further pricing pressures given more upcoming launches in 2014. Bank stocks went sideways as tapering concerns dampened the sector. Retail sales growth rebounded in November back to 8.5% after two months of mid single-digit growth. 

Much like China, Hong Kong equities retreated in the first quarter of 2014 due to concerns over slowing economic growth in China, including worries surrounding trust products and corporate bonds, coupled with talks of earlier-than-expected interest rate increases in the US. Despite strong quarterly growth in gaming revenues, including 13% growth for March off a high base and 20% growth for the quarter, there was profit-taking in the Macau gaming sector. Hong Kong banks reported generally positive operating results. However, it appears that the Hong Kong Monetary Authority is exerting pressure for banks to bolster their capital in case of a credit downturn.

Hong Kong Outlook

Market volatility will remain in the near term given the concerns over China's economic slowdown as well as rising rate pressures in the US. The commitment to reforms in China, while negative for short-term growth momentum, should result in more sustainable growth path and market re-rating. Despite market speculation, property tightening policies in Hong Kong are unlikely to be reversed any time soon. Sectorial growth stories remain in Hong Kong, including the gaming sector and companies benefitting from economic recovery overseas.

Taiwan Review

Thanks to the year-end window dressing, the Taiwan Index (TWSE) closed +5.35% quarter on quarter in local currency for the fourth quarter of 2013. Non-technology stocks continued to perform well for the quarter with rotational buying among the sub-sectors within non technology space, offsetting the volatility from technology earnings results. Technology performance was mixed, component plays were quite encouraging on restocking demand, while communication was dragged down by HTC as the handset firm announced two consecutive quarters of operating losses.

After shrugging off several market shocks in the beginning of 2014, including US Federal Reserve chair Janet Yellen's indication of a possible rate rise in six months and home-grown protests over a trade deal with China, the TWSE hit new yearly highs, to close with a 2.8% gain from the fourth quarter of 2013. Among the major losers were financials stocks, down 5.5% quarter on quarter, as students continued to occupy Taiwan's parliament, demanding the withdrawal of a services pact with mainland China. Taiwan's economic monitoring indicator hit a 32-month high of 25 for February. The government expects it to be between 23-31 in March if the global economy continues to improve.

Taiwan Outlook

The healthy global macro backdrop will drive earnings growth for the technology sector of another 10%-15% in 2014, following profit growth of 30%-40% in 2013. A key event to monitor is whether the Cross-Strait Service Trade Agreement can be passed by Taiwan's legislature in May or June this year. While the service pact will have less impact on the technology sector, it will meaningfully benefit Taiwanese financials.

Summary

Overall, our top-down assumptions remain unchanged and we remain broadly optimistic on our principal portfolio themes. China will sacrifice quantity of growth for quality of growth during a de-leveraging and reform process, while developed-market facing exporters in Taiwan should continue to see positive earnings revisions. While certain results were disappointing (and are reflective of Chinese corporates in need of reform), we have added to our positions in environmental protection and healthcare plays in China as well as exporters in Taiwan. We have continued to reduce our holdings in Hong Kong financials to finance these purchases.

Howard Wang

Emerson Yip

William Tong

Shumin Huang

Investment Managers

23rd May 2014

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 have not changed and fall into the following broad categories: investment underperformance; loss of investment team; discount; market; political and economic; accounting, legal and regulatory; corporate governance and shareholder relations; operational; going concern 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 2013.

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. 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 the Accounting Standards Board's Statement 'Half Yearly Financial Reports' 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 2014, as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; and

(ii)  the interim management report includes a fair review of the information required by 4.2.7R and 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

William Knight

Chairman

23rd May 2014

Income Statement

for the six months ended 31st March 2014

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st March 2014			31st March 2013			30th September 2013
	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	-	900	900	-	22,765	22,765	-	19,697	19,697
Net foreign currency gains/(losses)	-	346	346	-	(1,010)	(1,010)	-	65	65
Income from investments	215	-	215	143	-	143	3,620	-	3,620
Gross return	215	1,246	1,461	143	21,755	21,898	3,620	19,762	23,382
Management fee	(717)	-	(717)	(629)	-	(629)	(1,334)	-	(1,334)
Performance fee	-	(536)	(536)	-	(1,052)	(1,052)	-	(1,467)	(1,467)
Other administrative expenses	(204)	-	(204)	(267)	-	(267)	(516)	-	(516)
Net (loss)/return on ordinary activities   before finance costs and taxation	(706)	710	4	(753)	20,703	19,950	1,770	18,295	20,065
Finance costs	(116)	-	(116)	(109)	-	(109)	(223)	-	(223)
Net (loss)/return on ordinary activities   before taxation	(822)	710	(112)	(862)	20,703	19,841	1,547	18,295	19,842
Taxation	(7)	-	(7)	-	-	-	(306)	-	(306)
Net (loss)/return on ordinary activities   after taxation	(829)	710	(119)	(862)	20,703	19,841	1,241	18,295	19,536
(Loss)/return per Ordinary share (note 4)	(1.10)p	0.94p	(0.16)p	(1.13)p	27.04p	25.91p	1.63p	23.99p	25.62p

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

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

Reconciliation of Movements in Shareholders' Funds

	Called up		Exercised	Capital
Six months ended	share	Share	warrant	redemption	Other	Capital	Revenue
31st March 2014	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2013	19,481	13,321	3	581	37,392	56,313	1,827	128,918
Net return/(loss) on ordinary activities	-	-	-	-	-	710	(829)	(119)
Dividends appropriated in the period	-	-	-	-	-	-	(1,209)	(1,209)
At 31st March 2014	19,481	13,321	3	581	37,392	57,023	(211)	127,590
	Called up		Exercised	Capital
Six months ended	share	Share	warrant	redemption	Other	Capital	Revenue
31st March 2013	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2012	19,595	13,129	3	581	37,392	39,709	1,811	112,220
Issue of Ordinary shares on exercise of Subscription shares	3	18	-	-	-	-	-	21
Repurchase of Ordinary shares into   Treasury	-	-	-	-	-	(163)	-	(163)
Net return/(loss) on ordinary activities	-	-	-	-	-	20,703	(862)	19,841
Dividends appropriated in the period	-	-	-	-	-	-	(1,225)	(1,225)
At 31st March 2013	19,598	13,147	3	581	37,392	60,249	(276)	130,694
	Called up		Exercised	Capital
Year ended	share	Share	warrant	redemption	Other	Capital	Revenue
30th September 2013	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2012	19,595	13,129	3	581	37,392	39,709	1,811	112,220
Issue of Ordinary shares on exercise of   Subscription shares	12	66	-	-	-	-	-	78
Repurchase of Ordinary shares into   Treasury	-	-	-	-	-	(1,691)	-	(1,691)
Cancellation of Subscription shares	(126)	126	-	-	-	-	-	-
Net return on ordinary activities	-	-	-	-	-	18,295	1,241	19,536
Dividends appropriated in the year	-	-	-	-	-	-	(1,225)	(1,225)
At 30th September 2013	19,481	13,321	3	581	37,392	56,313	1,827	128,918

Balance Sheet

at 31st March 2014

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2014	31st March 2013	30th September 2013
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss:
China	74,115	78,141	78,179
Taiwan	38,191	37,233	33,583
Hong Kong	23,047	34,798	32,518
Total investments	135,353	150,172	144,280
Current assets
Debtors	2,192	372	1,086
Cash and short term deposits	3,770	83	2,603
	5,962	455	3,689
Creditors: amounts falling due within one year	(13,725)	(18,600)	(18,796)
Bank overdraft	-	(281)	-
Net current liabilities	(7,763)	(18,426)	(15,107)
Total assets less current liabilities	127,590	131,746	129,173
Performance fees	-	(1,052)	(255)
Net assets	127,590	130,694	128,918
Capital and reserves
Called up share capital	19,481	19,598	19,481
Share premium	13,321	13,147	13,321
Exercised warrant reserve	3	3	3
Capital redemption reserve	581	581	581
Other reserve	37,392	37,392	37,392
Capital reserves	57,023	60,249	56,313
Revenue reserve	(211)	(276)	1,827
Total equity shareholders' funds	127,590	130,694	128,918
Net asset value per Ordinary share (note 5)	168.9p	170.8p	170.7p

Cash Flow Statement

for the six months ended 31st March 2014

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2014	31st March 2013	30th September 2013
	£'000	£'000	£'000
Net cash (outflow)/inflow from operating activities   (note 6)	(1,896)	(818)	1,100
Net cash outflow from returns on investments   and servicing of finance	(107)	(103)	(219)
Taxation recovered	-	-	67
Net cash inflow/(outflow) from capital expenditure and financial investment	9,299	(2,419)	347
Dividend paid	(1,209)	(1,225)	(1,225)
Net cash (outflow)/inflow from financing	(4,811)	3,653	1,848
Increase/(decrease) in cash for the period	1,276	(912)	1,918
Reconciliation of net cash flow to movement in net debt
Net cash movement	1,276	(912)	1,918
Loans drawn down in the period	(4,811)	(5,249)	(4,916)
Exchange rate movements	356	(1,010)	65
Movement in net debt in the period	(3,179)	(7,171)	(2,933)
Net debt at the beginning of the period	(14,070)	(11,137)	(11,137)
Net debt at the end of the period	(17,249)	(18,308)	(14,070)
Represented by:
Cash and short term deposits	3,770	83	2,603
Bank overdraft	-	(281)	-
Debt falling due within one year	(21,019)	(18,110)	(16,673)
Net debt at the end of the period	(17,249)	(18,308)	(14,070)

Notes to the Accounts

for the six months ended 31st March 2014

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 2013 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included 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 accounts have been prepared in accordance with 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' issued in January 2009.

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

The accounting policies applied to these half year accounts are consistent with those applied in the accounts for the year ended 30th September 2013.

3.   Dividend

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2014	31st March 2013	30th September 2013
	£'000	£'000	£'000
Final dividend paid in respect of the year ended
30th September 2013 of 1.6p (2012: 1.6p)	1,209	1,225	1,209

No interim dividend has been declared in respect of the six months ended 31st March 2014 (2013: nil).

4.   (Loss)/return per Ordinary share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2014	31st March 20131	30th September 2013
	£'000	£'000	£'000
(Loss)/return per Ordinary share is based   on the following:
Revenue (loss)/return	(829)	(862)	1,241
Capital return	710	20,703	18,295
Total (loss)/return	(119)	19,841	19,536
Weighted average number of Ordinary shares in   issue during the period	75,531,426	76,569,011	76,255,930
Revenue (loss)/return per Ordinary share	(1.10)p	(1.13)p	1.63p
Capital return per Ordinary share	0.94p	27.04p	23.99p
Total (loss)/return per Ordinary share	(0.16)p	25.91p	25.62p

¹On 29th May 2013, the Subscription share rights had lapsed.

5.   Net asset value per Ordinary share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2014	31st March 20131	30th September 2013
Ordinary shareholders funds (£'000)	127,590	130,694	128,918
Number of Ordinary shares in issue	75,531,426	76,534,334	75,531,426
Net asset value per Ordinary share (pence)	168.9	170.8	170.7

¹On 29th May 2013, the Subscription share rights had lapsed.

6.   Reconciliation of net (loss)/return on ordinary activities before finance costs and taxation to net cash (outflow)/inflow from operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2014	31st March 2013	30th September 2013
	£'000	£'000	£'000
Net return on ordinary activities before finance   costs and taxation	4	19,950	20,065
Less capital return before finance costs   and taxation	(710)	(20,703)	(18,295)
Scrip dividends received as income	-	-	(206)
Decrease in accrued income	105	84	4
Decrease/(increase) in other debtors	4	(21)	(9)
Decrease in accrued expenses	(81)	(128)	(75)
Performance fee paid	(1,212)	-	-
Overseas taxation	(6)	-	(384)
Net cash (outflow)/inflow from operating   activities	(1,896)	(818)	1,100

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 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 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

 

 

IR LLFFEESIVFIS