Final Results

RNS Number : 0520X

JPMorgan Chinese Inv Tst PLC

16 December 2019

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2019

Legal Entity Identifier: 549300S8M91P5FYONY25

Information disclosed in accordance with DTR 4.2.2

The Directors announce the Company's results for the year ended 30th September 2019.

chairman's statement

I have great pleasure in presenting the Annual Report of the JPMorgan Chinese Investment Trust plc ('the Company') for the year ended 30th September 2019.

In volatile market conditions, the Company achieved a 16.0% total return on net assets with dividends reinvested and a 19.4% return to shareholders. This compares to the return of 1.7% for our benchmark index, MSCI China. Over three years the comparable figures are a 46.9% return on net assets, a 54.7% return to shareholders and a 31.8% return on the MSCI China Index.

The market volatility was primarily driven by the continuing trade dispute between China and the US with sentiment fluctuating as expectations of a trade deal ebbed and flowed. Trade issues have been a significant factor combined with pressures on domestic consumer demand and deleveraging of the economy leading to a downturn in China growth forecasts.

One positive development is the continued increase in the weighting of China 'A' shares in the MSCI Emerging Markets and China indices. In February 2019 the MSCI announced an increase in the index for large and mid-cap China 'A' shares in three phases through the year from 5% to 20% of the MSCI Emerging Markets. These changes have resulted in increasing foreign interest in the China market.

Investment Approach and Performance

JPMorgan began managing its first Asia Pacific equity portfolio mandate in 1971 and the Company has been investing in China since 1993. As a long-term investor we have stayed consistent to our investment approach of capital growth from bottom up stock selection and top down sector allocation. Two years ago we encouraged the Investment Manager to increase our weighting to the 'A' share market. Our conviction does not always benefit us over short periods and last year was an example of a year when we struggled to perform in line with our benchmark index. This year, however, the depth of the investment resources available to visit companies and meet management combined with the rigour and discipline of our investment process has demonstrated our ability to outperform over the cycle. Details of how this has been achieved are given in the Investment Managers' report.

Sustainable Investing

Environmental, Social and Governance issues are important considerations for the Board and for JPMorgan. They can be a challenging aspect of investing in China. They are built into our investment approach and we have provided details of how we approach them in this report.

Revenue and Dividends

As reported last year the investment management fee paid to the manager was reduced to 0.9% per annum of the net assets under management with effect from 1st April 2019 from 1.0% of gross assets under management. This amounts to a reduction of 12.9% in the management fee payable in 2019 and a further 14.8% reduction in the current year to September 2010.

The Company's ongoing charges for the financial year, as a percentage of the average daily net assets during the year, were 1.26% (2018: 1.34%).

Revenue for the year, after taxation, was £1,788,000 (2018: £3,152,000). The revenue return per share calculated on the average number of shares in issue was 2.46 pence (2018: 4.32 pence). This fall results from the fall in dividends received from our investments.

The Board is recommending a dividend of 2.5 pence (2018: 3.5 pence) in respect of the financial year ended 30th September 2019. Subject to shareholders' approval at the AGM, this dividend will be paid on 12th February 2020 to shareholders on the register at the close of business on 27th December 2019.

Growth and Income

This year the Company has delivered top decile performance compared to competitor funds. While we are pleased with this, an ongoing challenge is that the share price has continued to trade at a discount to net asset value, fluctuating between 9.4% and 14.3% over the year and ending the year at 11.1%.

A persistent discount of this size detracts from the return to you as shareholders and prevents the Company from growing by issuing new shares with all the benefits that this can bring in greater investment opportunities and improved liquidity.

In a bid to broaden the Company's investor base and so reduce the discount over the longer term, the Board is proposing to pay an annual dividend of 4% per annum in the future, payable in four quarterly instalments. In order to pay this, any shortfall on the dividend income received from the underlying investments of the portfolio will be paid out of the capital growth of the portfolio. The first two quarterly payments of 1% each will be made in June and September 2020, based on the NAV as at 31st March 2020.

Our investment policy will not change. The investment team will pursue the same mandate and investment process and continue to invest in companies that will deliver long-term capital growth. However, reflecting the change to our dividend policy we are proposing to rename the Company JPMorgan China Growth & Income plc.

If shareholders pass Resolution 13 in relation to amendment of the Company's Articles of Association (as further explained below) the Directors will effect the name change shortly thereafter.

Amendments to the Articles of Association

The Board will propose a resolution at the Company's 2020 Annual General Meeting ('AGM') to amend the Company's Articles of Association to allow the Company to distribute capital as income to allow for the long-term implementation of the revised distribution policy.

The Board is also taking the opportunity to propose some additional amendments to the Articles of Association to reflect other recent regulatory changes. These changes are further detailed in the Annual Report.

Gearing

In April 2019, the Company reduced the loan facility from £50 million to £40 million (with an option to increase to £50 million) and renewed the facility with Scotiabank for a further 364 day period on the same terms but at a reduced margin. The current facility matures on 16th April 2020 at which point the Board will consider another gearing facility.

During the year the Company's gearing ranged from 7% to 19% (based on month end data) and, at the time of writing, was 9%. At the time of the arrangement, the facility allowed the Investment Managers the flexibility to manage the gearing facility within a range set by the Board of 10% net cash to 20% geared.

Share Issues and Repurchases

The Directors have authority to issue new Ordinary shares for cash and to repurchase shares in the market for cancellation or to hold in Treasury. The Company will reissue shares held in Treasury only at a premium to NAV. During the year, the Company did not issue any new Ordinary shares or repurchase any shares into Treasury. The Board believes that its policy of share issuance and repurchases has helped to reduce the discount volatility and therefore it is seeking approval from shareholders to renew the share issuance and repurchase authorities at the AGM.

Review of services provided by the Manager

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

Board of Directors

In July 2019, the Board, through its Nomination and Remuneration Committee, carried out a comprehensive evaluation of the Board, its Committees, the individual Directors and the Chairman. Topics evaluated included the size and composition of the Board, Board information and processes, shareholder engagement and training and accountability. The evaluation confirmed the efficacy of the Board. Subsequent to this review the Board decided to create a Management Engagement Committee to have oversight of the services provided by the Manager and third party service providers. Reflecting the 2018 AIC Code of Corporate Governance we have also split the Nomination and Remuneration committee into two committees, Nomination and Remuneration.

In terms of succession planning, following the appointment of Mrs Alexandra Mackesy last year, the Nomination Committee agreed that it was satisfied with this existing Board, which had four directors with broad experience and a wide and diverse skill set. In addition all Directors have been on the board for less than nine years.

In accordance with the UK Corporate Governance Code, David Graham, Oscar Wong, Alexandra Mackesy and myself will retire at the forthcoming AGM and, being eligible, will offer ourselves for reappointment by shareholders.

Annual General Meeting

This year's AGM will be held at 60 Victoria Embankment, London, EC4V 0JP on Monday, 3rd February 2020 at 11.30 a.m. In addition to the formal proceedings, there will be a presentation by a representative of the investment management team who will also be able to respond to questions on the Company's portfolio and investment strategy. I look forward to seeing as many of you as possible at the meeting. If you have any detailed questions, you may wish to raise these in advance with the Company Secretary or via the Company's website. Shareholders who are unable to attend the AGM in person are encouraged to use their proxy votes. Shareholders who hold their shares through CREST are able to lodge their proxy votes electronically.

John Misselbrook

Chairman

16th December 2019

INVESTMENT MANAGERS' REPORT

Setting the scene

The political and economic landscape for the year to 30th September 2019 has been challenging and uncertain for investors. The global economy has faltered, and China has seen more than its share of setbacks, with domestic economic data decidedly muted. The year has been dominated by the deepening - and still unresolved - trade wrangles between China and the United States which has not only contributed towards a considerable slowdown of the Chinese economy and hit investor sentiment but could go on to seriously hamper global supply chains. China's transition to a consumption-based economy and its unsustainable corporate debt levels have also contributed to the prevailing volatility.

Although trade fears cast their shadow over the year as a whole, the second half of the review period was less tumultuous than the first. Sentiment improved as the US Federal Reserve led other central banks in changing direction and cutting interest rates. In China, the mood was lightened by the Beijing government's economic stimulus plan which gained traction. The package comprised fiscal and monetary policies designed to support the Chinese economy and rebalance it more towards 'home-grown' domestic consumption and regional trade. Measures included VAT reforms and cuts to personal and corporate taxes whilst monetary policy was supportive, with the People's Bank of China lowering interbank funding costs and cutting the amount of cash reserves that banks must hold, in order to improve liquidity.

Against this testing macro backdrop, our focus on higher-quality businesses in sectors where we see structural growth opportunities has delivered strong performance in both absolute and relative terms. Over the year to 30th September 2019, the Company's return on net assets was +16.0%, significantly outperforming its benchmark, the MSCI China Index which rose by +1.7% (on a total return, net basis, in sterling terms). The value of the Company's shares (including dividends) rose by +19.4% over the period. The use of gearing, which averaged 13% over the period, contributed slightly negatively to returns, due to a higher gearing level during the steep market sell-off in late 2018.

Spotlight on stocks and sectors

Given the prevailing uncertainty, the mixed results in China's most recent earnings season was unsurprising, although technology and consumer-facing companies reported good and resilient results. In this section we highlight specific sectors and companies within the portfolio that have impacted the Company's performance (both positively and negatively) over the year.

Stock selection in the Information Technology and Health Care sectors contributed the most. Within the hardware sector, China's leading producer of mobile phone camera modules and lenses Sunny Optical is our preferred hardware name and was among our top contributors, as was smartphone supplier Luxshare Precision; both companies benefitted from product upgrades and their own market share gains. Meanwhile, leading network security provider Venustech performed strongly on the back of structural growth demand in China's cybersecurity market. Within Health Care, a broad number of stocks we own delivered solid results and added value, amidst positive industry growth for the sector. Jiangsu Hengrui Medicine, Hangzhou Tigermed, and Aier Eye Hospital Group were among the leading contributors.

Stock selection in Financials was another key source of strength. Our long-term core positions in China's biggest insurer Ping An Insurance and one of its largest lenders China Merchants Bank (CMB) continued to be top contributors both in their sector and in our portfolio overall. Ping An's profits rose thanks to higher investment returns and banking income and we remain upbeat on its prospects following recent meetings with its management. In the case of CMB, it has recently established a wealth management subsidiary and overcame a competitive marketplace and still-weakened credit demand to increase both its net income and net profits. Meanwhile, just as last year, we remain on the side lines when it comes to index-heavy, large cap banks, where we feel challenges may still lie ahead.

Our stock picks in the Consumer Discretionary and Consumer Staples sectors also contributed positively. Premium liquor brand Kweichow Moutai climbed on strong earnings, benefitting from increasing consumer demand for premium brands. China's sportswear powerhouse ANTA Sports also did well. The company has been one of the best growth stories in China in recent years and its strong performance this year stems from positive industry news flow, store efficiency improvements plus market confidence in its multi-brand strategy that covers a wide market segment. Social e-commerce platform Pinduoduo also contributed. The company has achieved a rapid rise to prominence in its relatively short life, delivering strong growth in revenue, user numbers and underlying spend per user. Pinduoduo stood up well in the face of fierce competition from its larger e-commerce rivals, such as Alibaba (which remains one of our preferred stocks).

Within Industrials, our overweight position in residential property management service provider Country Garden Services helped overall performance. The stock's price rose over the year on strong earnings growth from its core property management service as well as its proven track record on mergers and acquisitions that provide the launch pad for the business's ongoing expansion. Shanghai International Airport also performed strongly, riding high on increasing numbers of Chinese outbound travellers and their duty-free product spending habits.

On the other hand, our stock selection in Communication Services detracted. Internet names iQiyi and Weibo were among the weakest performers, both dropping over 30% over the year. Both companies were negatively impacted by general weakness in the advertising market and tighter regulatory control. China's largest outdoor advertising media operator Focus Media's results disappointed, due to the combined impact of slowing momentum in the advertising marketplace and higher operational costs. Despite the underperformance, we retain our positive outlook for the stock. For the aforementioned internet names, we believe that video subscription and social media platform services provide a structural growth opportunity, with both iQiyi and Weibo increasing investment in original content.

Positioning the portfolio under the 'New Normal'

The ongoing macro slowdown and the U.S.-China trade dispute present investment challenges. However, these situations are not new to us as we are accustomed to investing in markets during periods of political and/or economic uncertainty. It is also worth highlighting that despite the protracted trade impasse, the Chinese economy has still been growing at more than 6% a year, with the Government taking measures to drive up domestic consumption. As such, we believe the economy is much better placed to withstand international trade tensions than may be appreciated. There will be both winners and losers from an increasingly divergent "new normal" scenario, with the best investment opportunities likely to be found amongst businesses focused on domestic consumption rather than on exports. We expect such domestically-focused opportunities to increase, especially from businesses that target growth as a predominant source of returns. This backdrop has given us the confidence to retain gearing at current levels, confident that we can continue to uncover highly attractive stock opportunities.

Our bottom-up stock selection continues to reflect the structural growth opportunities in the Consumer, Technology and Health Care sectors. Our resolve to invest in 'New China' companies and sectors that are capitalising on the transition of the country to a more consumer-driven economy is unaffected by short term political and economic worries. Key holdings remain largely unchanged amidst these concerns.

Update on significant investments

We have three investments that each account for over 5% of total investments: Alibaba (9.6%), Tencent (9%) and Ping An Insurance (5.7%).

Alibaba continued to see strong growth from its core e-commerce business, driven by healthy user growth, higher customer spending, and more advertising revenue. Looking forward, we expect Alibaba to maintain its dominant position in China's online marketplace while continuing to expand its initiatives in enterprise internet, including cloud and big data.

Tencent experienced certain challenges during the year from a slowdown in regulatory approval of its mobile games, as well as increased competition in the Chinese advertising market. That said, we believe Tencent owns a diversified portfolio of businesses which includes high quality consumer internet properties well-positioned for domestic and overseas growth opportunities.

Ping An Insurance delivered quality results with steady business growth, good profitability and strong capital returns. We remain confident that it is the best positioned financial operator that will continue to benefit from rising consumer demand for financial services and in particular for life insurance products in China.

Portfolio changes

Our investment shifts over the year were driven by opportunities to invest in robust stocks at attractive prices. Following the strong outperformance of 'growth' stocks and onshore China equities, we made certain portfolio changes, rotating to stocks we believe possess more attractive risk-reward profiles; this judgement is driven by analysis of likely shifts in demand and earnings cycles, as well as where we have witnessed prices falling to attractive entry points.

Within the Consumer sector, we initiated new positions in Foshan Haitian Flavouring & Food, a leading manufacturer of sauces and flavourings, and Wuliangye, a premium Chinese liquor brand. In Health Care, we increased our exposure to research/manufacturing organisations such as WuXi Biologics and Hangzhou Tigermed Consulting. We also initiated an investment in Autobio Diagnostics, a medical equipment manufacturer, given its growth potential within an under-penetrated market. On the other hand, we exited pharmaceuticals company Tonghua Dongbao due to poor management execution. Finally, in Financials, we trimmed our investment in China Merchants Bank, rotating to Ping An Bank and Postal Savings Bank (which has the largest branch network in China) where we identified respective risk-reward opportunities.

ESG engagement over the year in review

Our investment philosophy centres on identifying quality companies with sustainable growth potential. We believe strongly that Environmental, Social and Governance (ESG) considerations (particularly Governance) need to be a foundation of any investment process supporting long-term investing and that corporate policies at odds with ESG criteria are not sustainable in the long run. We believe that integration of these factors is critical to successful investing across our markets.

For example, we have maintained a constant dialogue with Tencent, one of our largest holdings. We discussed Social issues, including better protection of minors from spending too much time playing video games and cybersecurity matters related to online payments. Our discussions with management reassured us that Tencent has proactive measures in place to address the issues raised, including its 'Guardian Program' to control the time spent online by minors. It has also invested heavily in protecting consumers' data privacy. On Governance, we discussed capital allocation and board governance issues. On board composition, we remain concerned over the relative lack of internet industry experience on the board, which in our view limits the board's ability to meaningfully challenge executives. Management advised us that an extensive search had failed to identify a suitable candidate who was not already a serving executive at the company's commercial rivals. We also raised the issue of zero female representation on the board, which Tencent acknowledged. The company indicated that it intends to address this in time for its next annual general meeting.

Outlook

Although the geopolitical and economic landscape remains highly uncertain - and the trade disputes present an undeniable risk - we are confident that Chinese government initiatives can stimulate the country's cooling economy. We believe that Beijing's actions should ease concerns of a more pronounced slowdown and that it will continue to promote more coordinated pro-growth policies and deepen reform measures in order to deal with the cyclical (domestic) headwinds and structural (external) challenges. Nevertheless, the positive impact of such supportive policies will be dependent on the actual outcome of the China-U.S. trade negotiations as well as other external and domestic risks that could hold back progress from here.

We acknowledge that Chinese equity markets can be volatile and subject to external shocks, such as trade disputes and geopolitics. Nonetheless, we are reassured that foreign investors have continued to be attracted to China's domestic market, following the opening up of many of its onshore equity markets (including the financial sector) to foreign access. 

We expect the Government's personal and corporate tax cuts, together with more market-oriented reforms, to support domestic demand and private sector productivity from here. Reassuringly, Chinese equity markets remain at a reasonable level for long-term investors, close to average valuations in both price-to-book and price-to-earnings terms, so we remain broadly optimistic about finding future stock opportunities.

Our research spotlight remains on "New China" companies and those sectors that are capitalising on the transition of the country to a more consumer-driven economy.  Our strong focus on research capabilities and being on the ground in mainland China is a significant advantage for us in identifying suitable higher-quality businesses that can progress on the back of this transition and where we see such structural growth opportunities.

Over the review period, we have demonstrated our ability to deliver strong and positive returns even when investment sentiment has been subdued and volatile. We will continue to adopt a patient, long-term approach to investing as we believe this offers the Company's shareholders the best likelihood of benefitting from the economic transformation of China and its evolving role as a global economic powerhouse. There will always be short-term uncertainties that threaten to derail performance but the long-term case for China remains robust. These short-term pullbacks could, in fact, present us with opportunities to add to quality, structural growth names with high expected returns and more quantifiable regulatory risks.

We are excited by the prospect of discovering many more interesting investment opportunities that will benefit from the growth of the Chinese domestic market. Above all, we still believe that investing in Chinese equities can deliver positive and sustained returns over the long term.

Howard Wang
Rebecca Jiang

Investment Managers

16th December 2019

Principal Risks

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

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

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

•   Geopolitical

Geopolitical risk arises from uncertainty about the future prices of the Company's investments, the ability to trade in those investments, and the imposition of restrictions on the free movement of capital. Changes in economic or political conditions or other factors can substantially and potentially adversely affect the value of investments. The Board considers the broader geopolitical situation on a regular basis and takes advice from the Manager and its professional advisers.

•   Investment Underperformance

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

•   Strategy and Business Management

An ill-advised corporate initiative, for example an inappropriate takeover of another company or an ill-timed issue of new capital; misuse of the investment trust structure, for example inappropriate gearing; or if the Company's business strategy is no longer appropriate, may lead to a lack of investor demand.

•   Loss of Investment Team or Investment Manager

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

•   Share Price Discount

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

•   Governance

Changes in financial, regulatory or tax legislation, including in the European Union, may adversely affect the Company. The Manager makes recommendations to the Board on accounting, dividend and tax policies and the Board seeks external advice where appropriate.

•   Legal and Regulatory

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

•   Corporate Governance and Shareholder Relations

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

•   Operational Risk and Cybercrime

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

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

•   Financial

The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. Counterparties are subject to daily credit analysis by the Manager. In addition the Board receives reports on the Manager's monitoring and mitigation of credit risks on share transactions carried out by the Company. Further details are disclosed in note 21 of the Annual Report and Financial Statements.

RELATED PARTY TRANSACTIONS

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

Statement of Directors' Responsibilities

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

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the annual report and financial statements are fair, balanced and understandable; provide the information necessary for shareholders to assess the Company's performance, business model and strategy; and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

•   select suitable accounting policies and then apply them consistently;

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

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

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

and the Directors confirm that they have done so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the www.jpmchinese.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

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

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

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

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

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

For and on behalf of the Board
John Misselbrook
Chairman

16th December 2019

FINANCIAL STATEMENTS

statement of comprehensive income

for the year ended 30th September 2019

	2019			2018
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss	-	36,566	36,566	-	(1,330)	(1,330)
Net foreign currency losses1	-	(1,128)	(1,128)	-	(2,091)	(2,091)
Income from investments	2,836	-	2,836	4,625	-	4,625
Interest receivable and similar income	469	-	469	299	-	299
Gross return/(loss)	3,305	35,438	38,743	4,924	(3,421)	1,503
Management fee	(575)	(1,726)	(2,301)	(713)	(2,139)	(2,852)
Other administrative expenses	(507)	-	(507)	(500)	-	(500)
Net return/(loss) before finance costs and taxation	2,223	33,712	35,935	3,711	(5,560)	(1,849)
Finance costs	(268)	(804)	(1,072)	(254)	(761)	(1,015)
Net return/(loss) before taxation	1,955	32,908	34,863	3,457	(6,321)	(2,864)
Taxation charges	(167)	-	(167)	(305)	-	(305)
Net return/(loss) after taxation	1,788	32,908	34,696	3,152	(6,321)	(3,169)
Return/(loss) per share (note 2)	2.46p	45.26p	47.72p	4.32p	(8.67)p	(4.35)p

        ¹ (£1,345,000) due to an exchange loss on the loan which is denominated in US dollars. £217,000 due to net exchange gains on cash and cash equivalents (2018: (£1,857,000) due to an exchange loss on the loan which is denominated in US dollars, (£234,000) due to net exchange losses on cash and cash equivalents).

A final dividend of 2.5p (2018: 3.5p) has been proposed in respect of the year ended 30th September 2019, totalling £1,818,000 (2018: £2,545,000). Further details are given in note 10 of the Annual Report and Financial Statements.

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

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

statement of changes in equity

for the year ended 30th September 2019

	Called up		Exercised	Capital
	share	Share	warrant	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2017	19,481	13,321	3	581	37,392	153,136	2,048	225,962
Repurchase of shares into Treasury	-	-	-	-	-	(664)	-	(664)
Net (loss)/return	-	-	-	-	-	(6,321)	3,152	(3,169)
Dividend paid in the year (note 3)	-	-	-	-	-	-	(1,167)	(1,167)
At 30th September 2018	19,481	13,321	3	581	37,392	146,151	4,033	220,962
Net return	-	-	-	-	-	32,908	1,788	34,696
Dividend paid in the year (note 3)	-	-	-	-	-	-	(2,545)	(2,545)
At 30th September 2019	19,481	13,321	3	581	37,392	179,059	3,276	253,113

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

statement of financial position

as at 30th September 2019

	2019	2018
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	278,020	260,541
Current assets
Debtors	363	785
Cash and cash equivalents	3,134	7,174
	3,497	7,959
Current liabilities
Creditors: amounts falling due within one year	(28,404)	(47,538)
Net current liabilities	(24,907)	(39,579)
Total assets less current liabilities	253,113	220,962
Net assets	253,113	220,962
Capital and reserves
Called up share capital	19,481	19,481
Share premium	13,321	13,321
Exercised warrant reserve	3	3
Capital redemption reserve	581	581
Other reserve	37,392	37,392
Capital reserves	179,059	146,151
Revenue reserve	3,276	4,033
Total shareholders' funds	253,113	220,962
Net asset value per share (note 4)	348.1p	303.9p

statement of cash flows

for the year ended 30th September 2019

	2019	2018
	£'000	£'000
Net cash outflow from operations before dividends and interest	(2,176)	(3,307)
Dividends received	2,695	4,363
Interest received	100	11
Overseas tax recovered	-	45
Interest paid	(1,127)	(909)
Net cash (outflow)/inflow from operating activities	(508)	203
Purchases of investments	(101,831)	(187,015)
Sales of investments	121,821	172,261
Settlement of foreign currency contracts	(54)	10
Net cash inflow/(outflow) from investing activities	19,936	(14,744)
Repurchase of shares into Treasury	-	(664)
Dividends paid	(2,545)	(1,167)
Repayment of bank loan	(25,058)	(2,544)
Drawdown of bank loan	4,121	24,209
Net cash (outflow)/inflow from financing activities	(23,482)	19,834
(Decrease)/increase in cash and cash equivalents	(4,054)	5,293
Cash and cash equivalents at start of year	7,174	1,890
Exchange movements	14	(9)
Cash and cash equivalents at end of year	3,134	7,174
(Decrease)/increase in cash and cash equivalents	(4,054)	5,293
Cash and cash equivalents consist of:
Cash at bank	3,134	464
Cash held in JPMorgan US Dollar Liquidity Fund	-	6,710
	3,134	7,174

Notes to the financial statements

1.   Accounting policies

      Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014, and updated in February 2018. The revised SORP issued in October 2019 is applicable for accounting periods beginning on or after 1st January 2019. The Company has chosen not to early adopt the revised SORP.

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

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

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

2.   Return/(loss) per share

		2019	2018
		£'000	£'000
	Revenue return	1,788	3,152
	Capital return/(loss)	32,908	(6,321)
	Total return/(loss)	34,696	(3,169)
	Weighted average number of shares in issue during the year	72,703,188	72,887,822
	Revenue return per share	2.46p	4.32p
	Capital return/(loss) per share	45.26p	(8.67)p
	Total return/(loss) per share	47.72p	(4.35)p

3.   Dividends

(a) Dividends paid and proposed

		2019	2018
		£'000	£'000
	Dividend paid
	2018 final dividend paid of 3.5p (2017: 1.6p) per share	2,545	1,167
	Dividend proposed
	2019 final dividend proposed of 2.5p (2018: 3.5p) per share	1,818	2,545

The dividend proposed in respect of the year ended 30th September 2019 is subject to shareholder approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 30th September 2020.

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

The requirements of Section 1158 are considered on the basis of the dividend proposed in respect of the financial year, shown below. The revenue available for distribution by way of dividend for the year is £1,788,000 (2018: £3,152,000).

		2019			2018
		£'000			£'000
Final dividend proposed of 2.5p (2018: 3.5p) per share				1,818		2,545

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

The revenue reserve after payment of the final dividend will amount to £1,458,000, (2018: £1,488,000).

4.   Net asset value per share

		2019	2018
	Net assets (£'000)	253,113	220,962
	Number of shares in issue	72,703,188	72,703,188
	Net asset value per share	348.1p	303.9p

5.     Status of results announcement

2018 Financial Information

The figures and financial information for 2018 are extracted from the published Annual Report and Financial Statements for the year ended 30th September 2018 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2019 Financial Information

The figures and financial information for 2019 are extracted from the published Annual Report and Financial Statements for the year ended 30th September 2019 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

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

JPMORGAN FUNDS LIMITED

16th December 2019

For further information, please contact:

Lucy Dina

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

ENDS

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

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

JPMORGAN FUNDS LIMITED

 

END

 

 

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