Final Results

RNS Number : 7831N

JPMorgan Russian Securities PLC

02 February 2016

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN RUSSIAN SECURITIES PLC

ANNOUNCEMENT OF FINAL RESULTS

The Directors of JPMorgan Russian Securities plc announce the Company's results
for the year ended 31st October 2015

HIGHLIGHTS

-     Total return on net assets -14.2% (benchmark -13.4%)

-     Ordinary dividend 13.00p (2014:13.00p)

-     Special dividend 4.00p (2014: nil)

CHAIRMAN'S STATEMENT

Performance and overview

The fall in the Russian Equity market that began in earnest in 2014 continued into 2015 with the MSCI 10/40, the index against which we benchmark your Company's performance, falling a further -13.4% (2014: -21.0%). Both the Company's return to shareholders and the net asset value total return slightly underperformed the benchmark index, with falls of -13.5% and -14.2% respectively. The Company's NAV performance was thus 0.8% below benchmark, with stock selection being the main contributory factor. You will find details of the investment decisions which led to this underperformance in the Investment Manager's Report.

In the two months to 31st December 2015 the benchmark index fell -4.2% and the Company's NAV fell -2.8%. There is still plenty of cause for concern including uncertainty regarding the long term direction of the price of oil and the potential for deterioration in relations with Turkey and other countries arising from Russia's continuing involvement in Ukraine and Crimea, and more recently its activities in Syria.

During the Company's financial year under review Russia's economy and external politics once again experienced significant turbulence. There was extreme volatility in both interest rates which rose substantially in December 2014, and the value of the Ruble, which experienced large devaluations in the earlier part of the period. The United States and European Union economic sanctions due to Russia's involvement in the conflict in Ukraine remain in force. Understandably these events continued to have a negative impact on the Russian economy, where both state and corporate investment levels fell and retail sales suffered. This meant that many companies experienced falls in corporate earnings and share prices. Nevertheless, the revenue earned by your Company rose significantly due to some exceptionally high dividend payouts from certain companies we hold. The discount at which the Company's shares trade relative to the net asset value remained unchanged over the period. At year end the discount to NAV was 13.8%.

With the assistance of JPMorgan Asset Management's compliance & investment functions, the Company ensures that it remains compliant with all sanctions. Developments and risks in the region are closely monitored. The Board carried out regular reviews of the Company's risk profile and you will see details of what we judge to be the key risks set out in the Company's Annual Report & Accounts. The Company's Manager maintains a diversified portfolio which adheres to the Company's investment and risk control guidelines.

Objective and Strategy of the Company

The Board holds a strategy day each year during which it reviews the external environment in which the Company operates and other major factors affecting the Company. We have been increasingly concerned that the investment universe in Russia in which the Company can invest is becoming limited as there are a reduced number of investable stocks listed on the Russian market. We have therefore decided that in order to provide greater investment flexibility we should propose to change the Company's investment objective and policies to permit up to 10% of the Company's gross assets to be invested in companies that operate or are located in former Soviet Union Republics. It is the intention that this will allow the investment management team to use their knowledge of companies with links in Russia.

Therefore, a resolution to amend the Company's investment objective and policies to permit investments will be proposed at the forthcoming AGM and the Board recommends shareholders vote in favour of this resolution. The change in the Company's investment objective and policies is detailed in an appendix to the Company's Annual Report and Accounts. Subject to approval of the resolution by shareholders, the intention is that the proposed change in the Company's investment objective and policies to permit such investments will take effect following the AGM on 3rd March 2016.

Dividends

Revenue for the year, after taxation, was £10,268,000 (2014: £7,029,000) and the revenue return per share, calculated on the average number of shares in issue, was 19.60 pence (2014: 13.38 pence).

Based upon the revenue generated by the portfolio, the Board proposes an ordinary dividend of 13.00 pence (2014: 13.00 pence).   The significant devaluation of the Ruble during the year resulted in a number of portfolio companies reporting exceptional foreign exchange profits, which were then reflected in exceptional dividend payments. Based on the Company's forecasts such large increases are not expected in the forthcoming year. Therefore, in order to reflect the exceptional scale of dividend receipts in the Company's year ended 31st October 2015, the Board propose the payment of a special dividend of 4.0 pence. Both dividends are proposed to be paid on 11th March 2016 to ordinary shareholders on the register at the close of business on 12th February 2016, if approved by shareholders the ordinary dividend will amount to £6,804,000 (2014: £6,804,000) and the special dividend to £2,093,000 (2014: £0). The total of the two dividends amounts to £8,897,000.

The Company's objective remains that of capital growth, and the payment of dividends to investors is dependent on the level of dividend distributions from the companies in the portfolio. The Board reviews income expectations throughout the year. However, given the uncertain outlook for the Russian economy it is not possible to make any predictions as to the sustainability of dividends for 2016. From next year and thereafter, assuming sufficient distributable reserves, the Board will consider the payment of an interim dividend as well as a final dividend.

Discount Control

During the year the Company repurchased 195,000 (2014: 135,000) shares for cancellation at an average discount to net asset value of 13.9% (2014: 13.5%).

The Board's objective is to use the share repurchase authority to assist in managing any imbalance between supply and demand for the Company's shares, thereby reducing the volatility of the discount. The Board operates a policy under which the Company considers, subject to market conditions, buying shares at discounts above 8% to achieve this. Over the course of the year during periods of heightened volatility in the Russian market the Board has refrained from implementing share buybacks when the discount widened beyond 8%, as in the Board's opinion purchases of shares were unlikely to assist in stabilising the discount.

The Board continues to monitor discount movements closely. The Company will only repurchase shares at a discount to their prevailing net asset value, and issue shares when they trade at a premium to their net asset value, so as not to prejudice existing shareholders. The Board will seek authority to renew the Company's share issuance and buyback powers at the forthcoming Annual General Meeting.

Board of Directors

As announced in the Company's 2015 Half Year Report and Accounts on 11th June 2015, Lysander Tennant stood down as Chairman of the Company and the Board agreed that I be appointed as Chairman on 12th June 2015. Lysander also indicated at that time that he would retire as a director of the Company at the Annual General Meeting on 3rd March 2016. I would like to take this opportunity to thank Lysander for his long and valuable service on the Board and wish him well in the future.

In compliance with corporate governance best practice, all Directors (except Lysander Tennant) will be standing for reappointment at the forthcoming Annual General Meeting. Further to the Company's annual evaluation of the Directors, the Chairman, the Board and its Committees, the Board recommends to shareholders that all Directors be reappointed.

Investment Manager

The Board pays particular attention to the way in which the Trust is run and the cost of so doing. As part of the Board's scrutiny of the management of the Trust the Investment Manager is subject to an annual review including performance record management processes, investment style, resources and risk control mechanisms. As referred to in the previous annual report, this year's fees were lower with effect from 1st November 2014 as the investment management fee of JPMorgan Funds Limited (JPMF) had been reduced from 1.2% to 1.0% per annum of the Company's net assets.

Annual General Meeting

The Company's Annual General Meeting will be held on Thursday, 3rd March 2016 at 12.00 noon, at 60 Victoria Embankment, London EC4Y 0JP. In addition to the formal part of the meeting, there will be a presentation from Oleg Biryulyov, who will be available to answer questions on the portfolio and performance. There will also be an opportunity to meet the Board, the Investment Manager and representatives of JPMF and JPMAM. I look forward to seeing as many of you as possible at this meeting. Shareholders are asked to submit in writing any detailed or technical questions that they wish to raise at the AGM in advance to the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP. Alternatively you can lodge questions on the Company's website at www.jpmrussian.co.uk.

Outlook

The markets have had a difficult start to the year, with stock market turmoil in China and further falls in the oil price. The heightened risks associated with the Russian market continue unabated. There is uncertainty regarding the outcome of Russia's involvement in Syria and how this will impact on relations with the West and its neighbours. Adverse outcomes regarding Russia's military actions in the region would seem to have potential to cause even greater negative fallout in the economy. However, our Investment Manager points out that valuations may be attractive and dividend yields are certainly healthy relative to other regions. On the basis that investors are willing to take the risks associated with Russia, there may be cause for cautious optimism.

Gill Nott

Chairman                                                                                                                                                                                                  1st February 2016

INVESTMENT MANAGERS' REPORT

Market Review and Performance

The Company's 2015 reporting year was another rollercoaster year. What started off as a very disappointing quarter came to a head in December 2014 with the fall in oil prices causing a sharp depreciation in the Ruble. Constructive central bank policy action as well as signs of stabilisation led to a recovery in the first half of 2015, however there was subsequently further weakness in the Russian market as emerging markets came under pressure once more, resulting in our benchmark index dropping by 13.4% over the year.

As a result of volatile market conditions and in particular some stock specific issues, during the year under review the Company's NAV fell -14.2% on a total return basis, and the return to shareholders decreased to -13.5% in sterling terms. This resulted in the Company underperforming its benchmark, the MSCI Russian 10/40 Equity Indices Index by -0.8% on a net asset value basis. The stocks that were detractors comprised mainly of companies not held as we do not fundamentally believe them to be quality investments, but which however performed strongly in the surprise recovery in early 2015 (VTB bank, Transneft). Domestic consumer exposed companies that struggled with the fall in consumption (Dixy, Sollers, Qiwi) and commodity or related companies (Rusal, Volga gas, Novoliptsk steel, TMK) were also detractors.

Economic and Political Events

As we commented last year, the Central Bank of Russia's decision to make the Ruble a free-floating currency was one of the most significant changes for the Russian economy in recent years. As a result of this policy our view is that the current account and fiscal balances are less vulnerable to oil price volatility and this has allowed the economy to begin to gradually recover, despite an unfavourable backdrop of low oil prices and economic sanctions. As we write, it is felt that the worst of the real economic impact is behind us. While consumption remains weak, the monthly trend is improving. It seems that the contribution to growth from new exports, such as chemicals and simple machinery, is positive and investment too is showing signs of stabilisation. Falling inflation should allow the Central Bank to cut interest rates and support the recovery.

The key risk to the above thesis is a renewed fall in oil prices to even lower levels. In this scenario the currency could continue to adjust, and inflation remain higher than expected, delaying rate cuts. While near term volatility in the oil price is impossible to forecast, our general assumption is for prices to normalise at higher levels over the next three to five years, which would be supportive for Russia.

While President Putin's popularity remains high, there are some signs of economic distress leading to political tensions. With slower growth we remain hopeful that this will encourage reforms; however, there seems to be a risk that such attempts to redistribute economic rent and profit may lead to new protests.

US and European sanctions imposed last year following Russia's involvement in Ukraine and the annexation of Crimea remain in place. There was some hope that European sanctions would be lifted by default (i.e. not renewed) but these have been recently extended for a further six months. We continue to believe that the Kremlin will not give in to Western demands over Ukraine; however the changing geopolitical landscape with regards to Russia's involvement in Syria has led to some speculation about sanction relief. In summary, given that the original aim of the sanctions in our view remains unachievable, political motivations could lead to some relaxation over time, and would be viewed positively by the market. The extent to which relations between Russia and Turkey deteriorate following the shooting down of a Russian fighter jet by Turkey in November 2015 and the potential economic consequences, remain to be seen.

PERFORMANCE ATTRIBUTION

FOR THE YEAR ENDED 31ST OCTOBER 2015

	%	%
Contributions to total returns
Benchmark return		-13.4
Asset allocation	1.3
Stock selection	-0.6
Gearing/(net cash)	-0.1
Investment Manager contribution		0.6
Portfolio return		-12.8
Management fee/other expenses	-1.4
Return on net assets		-14.2
Effect of movement in discount over the year		0.7
Return to Ordinary shareholders		-13.5

Source: FactSet, JPMAM and Morningstar. All figures are on a total return basis.

Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark index.

A glossary of terms and definitions is provided on page 62.

We think that there are three fundamental long term questions for investors in the Russian market:

-     does the Russian economy offer the potential for growth?

-     do Russian companies have an opportunity to reinvest capital with returns above their cost of capital?

-     are Russian companies willing to share profit with minority shareholders?

Our short answers to all of above questions are 'yes' and the rest of this report will explain our views on these issues as well as highlighting some of the risks that are associated with investing in Russia.

Growth

It is generally acknowledged that a combination of lower oil prices and geopolitical tensions has led to significant adjustments and changes in the Russian economy. The increasingly stronger protectionist bias to policy and greater urgency of capital stock modernisation is a result of these tensions, and, we would argue, pave the way for a more self-sustained economic development strategy. The development strategy is further supported by the new flexible exchange rate regime. Tighter budget constraints will continue to impose greater discipline on State Owned Enterprises (SOE) and should help foster reform. Longer life expectancy and a higher retirement age are also likely to create incentives to invest in human capital.

We acknowledge that the challenges remain significant. There seems to be a risk of increased taxation, in particular that of resource companies as the state's taxation revenues have decreased. There is also a risk of greater pricing controls which would be contrary to the reform agenda that we hope for. Political priorities and patronage remain hurdles that need to be overcome.

Reinvestment opportunities

Our thinking is that well run Russian companies are now in a better position to grow and generate superior economic returns and there is now greater room for domestic players to grab market share as multinational corporates retreat. Scarcity of finance is expected to accelerate consolidation of fragmented sectors, benefitting leading players. Stronger incentives for the long overdue structural reforms may unlock growth opportunities in sectors such as railways, healthcare, housing and communal services.

The key risks here are that policy choices are not clear and therefore predictability of return on invested capital is poor, and consequently the cost of capital remains high. Also the possible greater involvement of the state in directing scarce capital to resources could lead to poor spending decisions.

Willingness of companies to share profits with minorities

We see two areas here. The Ministry of Finance wants additional revenues from SOE's and we have seen higher dividend pay-outs being considered. For private companies, often principal shareholders are keen to diversify wealth and extract high dividends from their companies.

The other side to these supportive factors is that with capital markets closed, there is a stronger incentive to preserve retained earnings, and also SOE's may lobby for lower pay-outs to offset the impact of higher taxation.

There are clearly significant challenges, but we believe the opportunities are also significant. Furthermore, the current market valuations do take these hurdles into account. On our part, we remain hopeful that the successes from more market oriented policies like exchange rate flexibility will influence policy and we will see further reforms going forward.

Portfolio Positioning

The Investment Manager actively manages the portfolio which includes using fundamental bottom-up research to help identify growth companies that are well managed.

Performance contribution was split across the spectrum with significant gains coming from:

Ros Agro - one of the largest food/agri businesses in Russia, and has been a major beneficiary of import substitution. The prices for their products (sugar, pork, grains) are, to an extent, USD linked and consequently the company enjoyed margin expansion with the weakness in the Ruble. Furthermore the sector has been able to obtain subsidies from the government, so has been sheltered from the rising cost of capital in Russia.

Surgutneftegaz - as per our assumption last year, the company paid a large dividend yield as a result of the return generated on its USD cash holdings. We understand that its effective yield was 21%. We continue to own this company based on its strong balance sheet and willingness to share its profits with minorities. We also think that it provides us with a hedge in the event of further Ruble weakness.

Sberbank - we increased our position in Sberbank during the course of the year after having reduced it last year. While we consider it to be the best banking franchise in Russia, it is highly leveraged to economic recovery and Ruble recovery, while trading at an attractive valuation.

Phosagro - we bought this company during the review year. It is a producer of phosphate fertilisers, with USD linked revenues that have benefitted from Ruble devaluation. Reports indicate that they are also in the process of adding 20% additional capacity, while it is trading on a 6%+ expected dividend yield.

The other significant trade in the year was buying Rosneft. Our view is that Rosneft has some of the best assets, and also a large debt pile, which resulted in the market putting a low value (5x PE) for this company. However, we believe that the leverage and implied balance sheet risk is overstated by the market. Information indicates that the company is supported by the Russian state and banks as a strategic asset, and effectively has access to scarce capital resources. This is therefore a valuation normalisation story for us.

Funding for these changes came from disposals of Lukoil, Mobile Telesystems and Surgutneftegaz. We reduced our position in Lukoil over concerns that the company may not be able to comfortably fund its dividend, and because it seemed relatively less attractive than Rosneft and Gazprom (on a valuation basis).

We sold out of our position in Mobile Telesystems as a result of our view of the poor operating environment and lack of pricing power, as well as poor handling of risks related to their Uzbekistan operations.

Investment Management Team

We continue to build up our investment expertise and to assemble a strong internal research capability. During the course of the year the JPMorgan Emerging Markets and Asia Pacific Group (EMAP) was formed in April 2015, bringing together two of the markets' most experienced and well-resourced teams, which had previously focussed on the Pacific Region and Emerging Markets respectively. Together they have approximately 90 people with expertise of investing in emerging markets equities.

Post year end

Post year end we added to Gazprom, based on very low valuation assigned by the market. It seems that the concerns around gas prices and the large capex plans have weighed on the stock and it is trading at extremely low levels (2.5x PE). In addition, we understand that the dividend yield is 5%+, with the potential of almost 10% dividend yield should the company decide to pay-out the 20% minimum that is suggested but not yet formally committed to.

Outlook

We believe that any stabilisation of the economic landscape would be beneficial for Russian equities.

A stronger or stable oil price could lead to a stronger currency and expansion of the domestic economy. That in turn may lead to recovery of earnings and we could even see the double impact of accelerating growth and a stronger currency, which may push earnings growth for the leading domestic stocks into double digits in USD terms.

In our opinion the reduction of interest rates is a very powerful monetary policy tool. We expect to see a continuation of interest rates cuts through the next 12-18 month period together with lower inflation within the next five years in Russia. Such a scenario could provide a chance for a re-rating of the country risk free rate and re-pricing of present values for long term projects. The Russian equity market is dominated by capital intensive industries with long term investment projects and long payback periods. Discounted cash flows for such projects have been depressed by very high costs of capital and in most cases projects with more than a 10 year life span suffered from these calculations significantly. We think that if the cost of capital becomes normalised we will see adjustments for values of such long term projects which could have a beneficial impact on the valuation of such companies.

We continue to see scope for reforms and hope that slowly but surely further liberalisation and restructuring of the Russian economy will take place. Such a restructuring process could be linked with further privatisation and development of the equity market. We believe that it could be a deeper and wider market in five years time. Expansion of the market could create opportunities for active fund managers and experienced long term equity investors.

The domestic political outlook currently seems rather more stable in Russia. Although we would expect to see some rotation of specialists in the government and presidential administration we think that the senior leadership in the country will remain unchanged for the foreseeable future. The global political outlook would appear to be rather uncertain with western sanctions continuing and the conflict in Syria heightening tensions in the region.

Overall, we see the Russian story as a glass half full rather than half empty. We think that valuations are supportive for investors willing to accept the current level of country risk.

Oleg I. Biryulyov

Sonal Tanna

Investment Managers                                                                                                                                                                              1st February 2016

Principal Risks

The Directors confirm that they have carried out an assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The risks identified and the ways in which they are managed or mitigated are summarised as follows:

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company and the Company's actions to manage the risks.

In the year under review the Board monitored the risks arising which included continuing sanctions against Russia and the significant falls in the price of oil and valuation of the Ruble which have impacted market sentiment.

These key risks fall broadly under the following categories:

•     Investing in Russia: Investors should note that there are significant risks inherent in investing in Russian securities not typically associated with investing in securities of companies in more developed countries. In terms of gauging the economic and political risk of investing in Russia, it frequently appears in the higher risk categories when compared with most Western countries. The value of Russian securities, and therefore the net asset value of the Company, may be affected by uncertainties such as economic, political or diplomatic developments, social and religious instability, taxation and interest rates, currency repatriation restrictions, crime and corruption and developments in the law or regulations in Russia and, in particular, the risks of expropriation, nationalisation and confiscation of assets and changes in legislation relating to the level of foreign ownership.

The Board, with the assistance of the Manager, monitors the Company's activities to ensure that they remain compliant with the current sanctions regime including the specific requirements applicable to the Manager as a company subject to the laws of the United States of America. The Board acknowledges the negative impact of sanctions on the wider market although the current sanctions regime has not prevented the Company from operating within its investment guidelines.

•     Share Price Discount to Net Asset Value ('NAV') per Share: If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount. The widening of the discount can be seen as a disadvantage of investment trusts which could discourage investors. Although it is common for an investment trust's shares to trade at a discount, the current sanctions regime and recent large falls in the price of oil and value of the Ruble have negatively impacted market sentiment. The Board monitors the Company's discount level and seeks, where deemed prudent, to address imbalances in the supply and demand of the Company's shares through a programme of share buybacks.

•     Investment Under Performance and Strategy: An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to underperformance against the Company's benchmark index and peer companies. The Board manages these risks by diversification of investments through its investment restrictions and guidelines, which are monitored and reported on by the Manager. The Manager provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. 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.

Possible actions include changing the portfolio manager or selecting another manager.

•     Failure of Investment Process: A failure of process could lead to losses. The Manager mitigates this risk through internal controls and monitoring. Fraud requires immediate notification to the Board and regular reports are provided on control processes.

•     Loss of Investment Team or Investment Manager: The sudden departure of the investment manager or several members of the wider investment management team could result in a short term 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.

•     Operational and Cyber Crime: Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary or custodian's records could prevent accurate reporting and monitoring of the Company's financial position. Under the terms of its agreement, the Depositary has strict liability for the loss or misappropriation of assets held in custody. See note 19(c) for further details on the responsibilities of the Depositary. Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective internal control are included within the Internal Control section of the Corporate Governance report in the Annual Report & Accounts on pages 25 and 29. The threat of Cyber attack is increasing and regarded as having the ability to cause equivalent disruption to the Company's business as more traditional business continuity and security threats. The Company benefits from 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 by Deloitte and reported every six months against the AAF standard.

•     Board Relationship with Shareholders: The risk that the Company's strategy and performance does not align with shareholders expectations is addressed by the Manager and includes the organisation of a programme of visits to major shareholders, and the provision of an extensive range of investor information including nationwide presentations by sales teams. Feedback from shareholders is received directly and via brokers which is fed back to the Board regularly.

•     Political and Economic: Changes in financial 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. A widening of the capital controls recently introduced by the Russian Government could negatively impact the Company. The introduction of limitations on the ability of Russian companies to distribute dividends to foreign companies could materially reduce the Company's revenue and amount available for distribution to shareholders.

•     Regulatory and Legal: Breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties, or a qualified audit report. Loss of investment trust status could lead to the Company being subject to tax on capital gains. The Directors seek to comply with all relevant regulation and legislation and rely on the services of its Company Secretary, the Manager, and its professional advisors to monitor compliance with all relevant requirements.

•     Market and Financial: The Company's assets consist of listed securities and it is therefore exposed to movements in the prices of individual securities and the market generally. The Board considers asset allocation and stock selection on a regular basis and has set investment restrictions and guidelines, which are monitored and reported on by the Manager. The recent significant falls in the price of oil and devaluation of the Ruble have had a negative impact on the Company's NAV. The financial risks faced by the Company include market price risk, interest rate risk, foreign currency risk, liquidity risk and credit risk. Further details are disclosed in note 19 on pages 51 to 56 in the Annual Report & Accounts. The Manager regularly monitors the liquidity of the portfolio including determining the market valuation of securities held, the average daily volume and number of days to liquidate a holding. As can be seen in Note 18 on page 50, all the Company's assets are categorised as Level 1 as they have quoted prices in an active market.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report and financial statements, and the Directors' Remuneration Report 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 prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the annual report and accounts 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 addition, to provide these confirmations, and in preparing these financial statements, the Directors must be satisfied that, taken as a whole, the annual report and accounts are fair, balanced and understandable. In order to provide these confirmations and in preparing these annual 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 they have done so.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and 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.

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

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

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

•     The Directors confirm that, taken as a whole, the annual report and accounts are fair, balanced and understandable and provide the information necessary for shareholders to assess the strategy and business model of the Company.

•     That the Strategic Report and Directors Report include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces.

The Board confirms it is satisfied that the annual report and accounts taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the performance, business model and strategy of the Company.

The accounts are published on the www.jpmrussian.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 Auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditors accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. The financial statements are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

For and on behalf of the Board

Gill Nott

Chairman

1st February 2016

INCOME STATEMENT

for the year ended 31st October 2015

		2015			2014
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments held at
fair value through profit or loss	2	-	(43,618)	(43,618)	-	(91,746)	(91,746)
Net foreign currency gains		-	199	199	-	127	127
Income from investments	3	13,598	-	13,598	9,383	-	9,383
Gross return/(loss)		13,598	(43,419)	(29,821)	9,383	(91,619)	(82,236)
Management fee	4	(397)	(1,587)	(1,984)	(660)	(2,640)	(3,300)
Other administrative expenses	5	(840)	-	(840)	(787)	-	(787)
Net return/(loss) on ordinary activities
before taxation		12,361	(45,006)	(32,645)	7,936	(94,259)	(86,323)
Taxation	6	(2,093)	324	(1,769)	(907)	-	(907)
Net return/(loss) on ordinary activities
after taxation		10,268	(44,682)	(34,414)	7,029	(94,259)	(87,230)
Return/(loss) per share	8	19.60p	(85.31)p	(65.71)p	13.38p	(179.37)p	(165.99)p

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. 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	Capital
	share	redemption	Other	Capital	Revenue
	capital	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st October 2013	527	74	48,482	275,809	7,511	332,403
Repurchase of the Company's own shares for cancellation	(1)	1	(718)	-	-	(718)
Net (loss)/return on ordinary activities	-	-	-	(94,259)	7,029	(87,230)
Dividends appropriated in the year	-	-	-	(526)	(7,511)	(8,037)
At 31st October 2014	526	75	47,764	181,024	7,029	236,418
Repurchase of the Company's own shares for cancellation	(2)	2	(560)	-	-	(560)
Net (loss)/return on ordinary activities	-	-	-	(44,682)	10,268	(34,414)
Dividends appropriated in the year	-	-	-	-	(6,804)	(6,804)
At 31st October 2015	524	77	47,204	136,342	10,493	194,640

BALANCE SHEET

at 31st October 2015

		2015	2014
	Notes	£'000	£'000
Fixed assets	9
Investments held at fair value through profit or loss		191,910	235,986
Investment in liquidity fund held at fair value through profit or loss		3,419	-
		195,329	235,986
Current assets	10
Debtors		552	290
Cash and short term deposits		911	2,248
		1,463	2,538
Creditors: amounts falling due within one year	11	(2,152)	(2,106)
Net current (liabilities)/assets		(689)	432
Total assets less current liabilities		194,640	236,418
Net assets		194,640	236,418
Capital and reserves
Called up share capital	12	524	526
Capital redemption reserve	13	77	75
Other reserve	13	47,204	47,764
Capital reserves	13	136,342	181,024
Revenue reserve	13	10,493	7,029
Total equity shareholders' funds		194,640	236,418
Net asset value per share	14	371.9p	450.0p

Company registration number: 4567378.

CASH FLOW STATEMENT

for the year ended 31st October 2015

		2015	2014
	Notes	£'000	£'000
Net cash inflow from operating activities	15	9,055	5,606
Taxation
Overseas tax recovered		66	281
Capital expenditure and financial investment
Purchases of investments		(143,903)	(188,087)
Sales of investments		140,721	189,964
Other capital charges		(111)	(178)
Net cash (outflow)/inflow from capital expenditure
and financial investment		(3,293)	1,699
Dividend paid		(6,804)	(8,037)
Net cash outflow before financing		(976)	(451)
Financing
Repurchase of the Company's own shares for cancellation		(560)	(1,055)
Net cash outflow from financing		(560)	(1,055)
Decrease in cash for the year	16	(1,536)	(1,506)

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31st October 2015

1.   Accounting policies

(a)  Basis of accounting

The financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in January 2009. All of the Company's operations are of a continuing nature.

The financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments at fair value.

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

2.   Return/(loss) per share

The revenue return per share is based on the revenue return attributable to the ordinary shares of £10,268,000 (2014: £7,029,000) and on the weighted average number of shares in issue during the year of 52,379,071 (2014: 52,549,571).

The capital loss per share is based on the capital loss attributable to the ordinary shares of £44,682,000 (2014: £94,259,000) and on the weighted average number of shares in issue during the year of 52,379,071 (2014: 52,549,571).

The total loss per share is based on the total loss attributable to the ordinary shares of £34,414,000 (2014: £87,230,000) and on the weighted average number of shares in issue during the year of 52,379,071 (2014: 52,549,571).

3.   Net asset value per share

The net asset value per share is based on the net assets attributable to the ordinary shareholders of £194,640,000 (2014: £236,418,000) and on the 52,337,112 (2014: 52,532,112) shares in issue at the year end.

4.   Dividend

(a)  Dividends paid and proposed

	2015	2014
	£'000	£'000
Dividend paid
2014 final dividend of 13.00p (2013: 15.30p)	6,804	8,037
Dividend proposed
2015 final ordinary dividend of 13.00p (2014: 13.00p)	6,804	6,829
2015 special dividend of 4.00p (2014: 0.00p)	2,093	-

For the year ended 31st October 2014, the Company declared a dividend of £6,829,000 but the final dividend paid amounted to £6,804,000 due to shares repurchased for cancellation after the balance sheet date but prior to the share register record date.

The final ordinary and special dividends proposed in respect of the year ended 31st October 2015 are subject to approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, these dividends will be reflected in the accounts for the year ending 31st October 2016.

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

The proposed dividends of £8,897,000 (2014: £6,804,000 paid) are the amounts on which the requirements of Section 1158 are considered. The revenue available for distribution by way of dividend is £10,268,000 (2014: £7,029,000).

5.   Status of announcement

2014 Financial Information

The figures and financial information for 2014 are extracted from the Annual Report and Accounts for the year ended 31st October 2014 and do not constitute the statutory accounts for the year. The Annual Report and Accounts includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Registrar of Companies in due course.

2015 Financial Information

The figures and financial information for 2015 are extracted from the Annual Report and Accounts for the year ended 31st October 2015 and do not constitute the statutory accounts for the year. The Annual Report and Accounts includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Registrar of Companies in due course.

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

For further information please contact:

Paul Winship

For and on behalf of

JPMorgan Funds Limited, Secretary - 020 7742 4000

2nd February 2016

ENDS

Annual Report and Accounts

The Annual Report and Accounts will be posted to shareholders on or around 3rd February 2016 and will shortly be available on the Company's website (www.jpmrussian.co.uk ) or in hard copy format from the Company's Registered Office, 60 Victoria Embankment  London EC4Y 0JP.

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 is also available on the Company's website at www.jpmrussian.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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