Final Results

RNS Number : 3116D

JPMorgan Russian Securities PLC

27 January 2015

 



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 2014

Chairman's Statement

Russia's economy and external politics experienced exceptional turbulence during the year under review. Western economic sanctions in response to Russia's involvement in the conflict in Ukraine, the rapid fall in the value of the Ruble and decreasing price of oil were some of the significant factors which led to strongly negative sentiment in the equity market. Trading conditions deteriorated significantly with reduced liquidity and sharp price falls for individual stocks.

Against this background, the Company's benchmark, the MSCI Russian 10/40 Equity Indices Index, fell 21.0% over the year. It is disappointing that both the Company's return to shareholders and the net asset value total return underperformed the benchmark index, with returns of -28.8% and -26.7% respectively. Since the Company's year end, market sentiment has worsened on the back of a further sharp reduction in the price of crude oil and fears of a deep recession in Russia. In the two months to 31st December 2014 the benchmark index lost a further 27.3% and the Company's NAV 28.5%.

As implied by the underperformance of the share price compared to the Company's NAV, the discount at which the Company's shares trade relative to the net asset value widened over the period. At year end the discount to NAV was 14.0% compared with 11.3% the previous year.

In the reporting period the Company's performance was 5.7% below benchmark, with stock selection being the main factor. You will find details of the investment decisions which led to this underperformance in the Investment Manager's Report.

During the particular uncertainties of the summer of 2014 the Board took special steps to confirm that the Company was compliant with all sanctions in place. The Company remains compliant with all sanctions, and the Board continues to track developments in the region closely, with the assistance of JPMorgan Asset Management's compliance & investment functions. While the sanctions have created significant negative investor sentiment, they have not prevented the Company's Manager from maintaining a diversified portfolio of Russian equities which adheres to the Company's investment and risk control guidelines.

In addition to its regular meetings, the Board carefully monitored the impact of economic sanctions against Russian entities, holding weekly reviews when the severity of sanctions applied increased. We also carried out a comprehensive review of the Company's risk profile in light of the deteriorating political situation, and you will see details of what we judge to be the key risks set out in the Annual Report and Accounts.

The Board continues to pay close attention to the particular political and economic risks of investing in Russia which remain at heightened levels.

Regulatory change meant that we were required to ensure compliance with the demands of the Alternative Investment Fund Managers Directive ('AIFMD'), requiring the development of new agreements for the management and administration of the Company. This process was successfully completed on 1st July 2014.

Dividends

Revenue for the year, after taxation, was £7,029,000 (2013: £9,657,000) and the revenue return per share, calculated on the average number of shares in issue, was 13.38 pence (2013: 18.14 pence).

Therefore, based upon the revenue generated by the portfolio this year, the Board proposes a dividend of 13.00 pence (2013: 15.30 pence), to be paid on 11th March 2015 to ordinary shareholders on the register at the close of business on 6th February 2015. If approved by shareholders, this distribution will amount to a total of £6,829,000 (2013: £8,058,000).

The Company's objective remains that of capital growth, and the payment of dividends to investors is dependent on Russian companies making sustained dividend distributions to their shareholders. The Board reviews income expectations throughout the year. Given the uncertain macro-economic outlook it is too early to make any accurate predictions for 2015, however dividend receipts and announcements of distributions by key holdings have so far been encouraging.

Discount Control

During the year the Company repurchased 135,000 (2013: 1,160,000) shares for cancellation at an average discount to net asset value of 13.5% (2013: 12.1%). 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 intends, subject to market conditions, to buy shares at discounts above 8% to achieve this. Over the course of the reporting 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. However, post year end the Company recently repurchased 195,000 shares at an average discount of 15.9%. 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

In compliance with corporate governance best practice, all Directors 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 Investment Manager is subject to an annual review including performance record, management processes, investment style, resources and risk control mechanisms.

Following this review the Board considers that the continuing appointment of JPMorgan Funds Limited for the provision of these services is in the best interests of shareholders as a whole. At a time when there is increasing downward pressure on investment management fees we have responded by requesting that JPMorgan Funds Limited reduce their fee. With effect from 1st November 2014 the investment management fee has been reduced to 1.0% per annum of the Company's net assets.

Vitaly Kazakov, who stood down from the investment management team in the previous reporting period has now been replaced by Sonal Tanna. Both Oleg Biryulyov and Sonal Tanna are fully supported by JPMorgan Asset Management (UK) Limited's (JPMAM) emerging markets equity team.

Annual General Meeting

The Company's Annual General Meeting will be held on Thursday, 5th March 2015 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 risks associated with the Russian market have not been as acute since the financial crisis of 2008/9. The market may have priced in much of the bad news, but with the current degree of uncertainty in the political arena, and the likelihood of negative fallout in the economy, Russian equities may see further downside. On the other hand, our Investment Manager believes that the Russian economy will not collapse in 2015 under the significant pressures of Western economic sanctions, Ruble devaluation and the falling oil price. The Russian market remains cheap relative to other emerging markets, and dividend yields remain attractive relative to historical levels and to bond markets. In this environment, our Investment Manager sees grounds for caution but believes there are good reasons to remain invested and continues to seek opportunities to invest in stocks with long-term growth potential at attractive entry points.

Lysander Tennant

Chairman

27th January 2015

Investment Manager's Report

Market Review

2014 was a difficult year for investors in the Russian market. There were several internal and external factors, which led to a significant drop in the value of the Company's NAV. At the time of writing this report, some three months after your Company's year end trading conditions were challenging as share price volatility has increased markedly and liquidity, particularly in the smaller cap names, has reduced considerably. Despite this reduction in liquidity, we remain able to buy and sell holdings in the companies that we wish to gain or reduce exposure to. We will use this opportunity to provide an explanation of our performance against the benchmark, give you our view of the current situation, the rationale for our key holdings and our outlook on the market.

Performance

I am sorry to report that, as a result of difficult market conditions and in particular as a result of some stock specific issues, during the year under review the Company's NAV fell 26.7% on a total return basis, and the return to shareholders decreased 28.8% in sterling terms. This resulted in the Company underperforming its benchmark, the MSCI Russian 10/40 Equity Indices Index by 5.7% on a net asset value basis. The main driver for this underperformance was the overweight positions in domestic consumer related stocks and small cap names, which represented approximately half of the Company's NAV at year end. A core part of our investment strategy is investing in smaller companies where we believe the prospects for outperformance over the longer term are greater than for larger companies. However, small caps often underperform their larger peers in a falling market, as we experienced over the last 12 months. We intend to maintain the portfolio's existing exposure to this sector in the belief that it will generate the best return for shareholders over the longer term.

The Economy and Political Events

The crisis in Ukraine dominated the market this year and we do not consider a quick resolution likely. We expect economic logic and the necessity for Ukraine to retain good trading relations with Russia to prevail eventually, although the timing of this is uncertain. Ukraine has historically had strong economic ties with Russia and could be said to benefit from its status as a key route for goods in transit to and from its neighbour. We believe the most likely scenario for Ukraine will be a gradual progression towards an uneasy peace, with prolonged negotiations and tensions between Kiev and eastern break-away provinces. We do not think that full blown civil war or war with Russia will occur, but until resolution is achieved, we expect these risks to weigh heavily on the Russian equity market.

In reaction to Russia's involvement in Ukraine and its annexation of the Crimea earlier in the year, the USA and EU countries imposed economic sanctions on Russia. In our view, pressure from Western leaders is unlikely to compel Russia to give up the Crimea. As a result, we believe that economic sanctions targeted at the Crimea will remain in place for the foreseeable future. There is a chance that some EU sanctions will be lifted in the third quarter of 2015 but American sponsored sanctions are likely to stay in place for longer. It is our view that it is not the sanctions themselves but their indirect impact and fear of escalation of the situation that is negative for market sentiment, so any improvement in outlook will have a positive impact.

The recent sharp falls in the price of oil were unexpected. Although it is impossible to predict with any accuracy future commodity prices, our general assumption is that some normalisation of the price will eventually take place. The oil price of below $50/bbl at the time of writing will have a significant negative impact on the outlook for the Russian economy. Our in-house forecast is for the oil price to stay at a level of $60+/- $10/bbl for the next six to nine months and to trend upwards over the next three to five years, which will then be supportive for Russia.

The rapid devaluation of the Ruble has added significantly to negative market sentiment. However, this has deflected attention from what may be regarded as one of the most positive economic reforms Russia has made in the last five years - the Central Bank of Russia's decision to make the Ruble a free-floating currency. This decision provided the economy with the means to adjust for oil price volatility, and as a result of the depreciation of the Ruble, the price of oil in Ruble terms has remained virtually unchanged from when crude was trading above $100/bbl. Unfortunately, the Russian state is a major loser from the falling oil price, as the state collected 90% of proceeds from sales of crude when the oil price was above $60/bbl. Nonetheless the Russian economy could be said to be in far better shape today than during the crises of 2008 and 1998 because Russia has limited foreign currency debt and is reported to have significant foreign currency reserves

There seems little doubt that Russia's GDP for 2015 will adjust down in USD terms on the back of the currency devaluation. Our current estimate is that the economy will shrink by 20% to 25%. History tells us that following a large devaluation we could see some signs of recovery the following year on the back of further import substitution and investment. Therefore we believe that the current gloomy scenarios regarding the economic collapse of Russia and a further contraction of GDP in 2015 and 2016 are premature. Clearly however, the Russian economy has been significantly negatively impacted by current events.

Russia's domestic politics could be described as stable with President Putin currently reported to be amongst the most popular leaders globally with very high approval ratings. He has another four years of his current term remaining and can stand in elections for a second term after that. He is 62 years old, in good health and with little obvious significant opposition. It is very likely that there will be no challenges to Mr Putin's political leadership in Russia and he seems likely to stay in power for some time.

Portfolio Positioning

We maintain our long held preference for consumer related domestic stocks. We have increased exposure to exporters, such as Surgutneftegas, Norilsk Nickel, Phosagro - which will be major beneficiaries of the current currency weakness. We funded these purchases by reducing positions in Mobile Telesystems and Sberbank. We continue to avoid utilities as a sector as it suffers from low pricing power, large capital expenditure requirements and a generally poor regulatory environment.

The stocks responsible for the underperformance during the year included Tinkoff Credit Systems, Bashneft and Sistema holdings. At 31st October 2014 we remained invested in two of these as a proxy for future market growth with almost option value, but exited Bashneft. This was not because of any concerns with Bashneft's assets or management, but because we were not comfortable with the potential legal risks and challenges from the state for ownership and trading in equity with unclear privatisation status. Stock selection reduced returns by 5.6%.

One of the Company's largest portfolio holding is in Lukoil, which is the leading private oil company in Russia with substantial operations outside Russia, mainly in Iraq and Uzbekistan, as well as refining assets in Romania and Italy. Management is confident that it can sustain 3% production growth and is committed to increase dividends by 15% p.a. The company still has a low dividend payout ratio of less than 20%, vs its global industry peers of 50+%, so there is still room to sustain and grow dividends even when earnings experience a slowdown. Trading at 3x Price Earnings (PE) in 2014, Lukoil represents good value in our opinion.

The other large position held by the Company is in Magnit. The company has become one of the larger retailers in Europe in less than 15 years and is highly profitable. Due to the internal structure and balance sheet discipline, Magnit continues to perform well in both good and bad times. It has about 6% market share which seems likely to grow significantly over the next five years. Despite such rapid growth and relatively high investment multiples it produces a very credible 2% dividend yield. This is one of our core strategic positions, and as long as management adheres to its basic strategy and keeps producing good returns to shareholders, you are likely to see it in the portfolio for many years to come.

Surgutneftegas, Norilsk Nickel and Moscow Exchange are three companies with similar weightings in the portfolio and are important holdings for the Company.

Surgutneftegas has one of the strongest corporate balance sheets in Russia. The dividend policy consists of preferred shareholders receiving 25% of its net income. Our estimate is that the dividend yield for the preferred shares could be above 20% this year. It seems an attractive proposition as the dividend is due to be paid within the next six months and seems likely to generate a good return.

Norilsk Nickel, is the leading producer of Nickel worldwide. Close to 90% of its production is exported, while 85% of its costs are Ruble denominated. This could be regarded as the perfect play on currency devaluation. We were impressed by the new management team and their drive to improve cost efficiency and commit firm numbers to the dividend payout. In the current environment the company is expected to generate an attractive low double digit dividend yield.

Moscow Exchange benefits from rising flows and deposits. The company is not expected to have issues with client non-performing loans or provisions. The management team is highly professional and is committed to generating returns to shareholders with the dividend policy and corporate governance as key priorities. Coupled with an attractive valuation and prospects for growth in line or above its peers, Moscow Exchange is our preferred play on the Russian financial sector.

We reduced our exposure to Mobile Telesystems this year mainly as a result of the worsening operational environment in Ukraine, which represented 10% of revenue for the group. We consider the management to be good quality and the company's business solid. However, compared to its industry peers, revenue growth is pedestrian and lower disposable income for consumers limits its upside potential. We will continue to review this holding and potentially add to it, but for now we have trimmed this position as we have better investment opportunities elsewhere.

Finally, we reduced our position in Sberbank this year. We believe that Sberbank is the best banking franchise in Russia and has attractive prospects for long-term growth, but 2015 is likely to be poor in terms of loan growth as the economy slows down. This usually leads to an increase in non-performing loans and a rapid rise in general as well as specific provisions. Interest rate hikes made through 2014 (seven increases amounting to a total increase of more than 10% overall), have reduced banking sector profitability, but over time net interest margins are likely to recover. We will revisit this holding in the future and have no doubts that it will be increased over time and may one day return to the portfolio's top five largest positions.

Whilst acknowledging that the Company's performance has been below benchmark, there are no changes currently planned to the investment philosophy and our approach to portfolio construction, as we believe that the market will eventually turn in our favour. We will continue to shy away from what we regard as state controlled and poorly regulated sectors such as utilities. The balance of risk return has to be right for us to initiate a position. We like less cyclical consumer demand related stories. We want to have a majority of the portfolio in companies with the potential to become a national, regional and global industry leader. Higher than average and sustainable rates of return on equity continue to be our key investment parameters.

Outlook

Sentiment towards the Russian market is overwhelmingly negative at present as investors focus on the economic fallout from the falling oil price, sanctions and political risk. We believe that given the possibility of further political turbulence and worsening of the economy, there is a continuing risk of further downside in the Russian market despite cheap stock valuations. Nonetheless we also consider that the fundamentals for economic growth and prosperity exist in the Russian economy.

Further reforms supporting property rights, privatisation and competition would be very welcome but are perhaps unlikely in the current environment. High costs of capital force companies to generate extraordinarily high returns, from which investors with a higher risk tolerance and a longer time horizon will benefit. We think that the Company's closed-ended structure supports a long term investment approach. We believe that the fundamental case for investing in Russian equities is in place and is supported by low valuations and high dividend yields, while remaining cognisant that the current risks of investing in Russia are significantly higher than they have been historically.

Once the negative news has been discounted by the market and there is greater clarity on the political front, we would expect to see an improvement in investment returns. The currency seems unlikely to get substantially cheaper, unless the price of oil falls further, and valuations appear to have discounted much of the bad news. Earnings may stabilise and improve as we see recovery in GDP and potentially the oil price. Perceptions of political risk may erode investor value for some time to come, but we strongly believe that the market is cheap on both historic and relative bases. Whilst recognising an unusually high level of current risks, we believe the market presents an opportunity for the patient, long-term investor who is prepared to accept these risks.

Oleg I. Biryulyov

Sonal Tanna

Investment Managers

27th January 2015

Strategic Report

Principal Risks

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 identified heightened risks arising mainly as a result of the introduction of 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. 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 and led to further increases in the Company's share discount. 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 by undertaking 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. 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 of the Annual Report and Accounts. 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 JP Morgan's Cyber Security Programme. The information technology controls around the physical security of JP Morgan'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.

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

Lysander Tennant

Chairman

27th January 2015

Income Statement

for the year ended 31st October 2014

		2014		2013
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at
fair value through profit or loss	-	(91,746)	(91,746)	-	33,247	33,247
Net foreign currency gains/(losses)	-	127	127	-	(145)	(145)
Income from investments	9,383	-	9,383	12,901	-	12,901
Other interest receivable and similar income	-	-	-	1	-	1
Gross return/(loss)	9,383	(91,619)	(82,236)	12,902	33,102	46,004
Management fee	(660)	(2,640)	(3,300)	(753)	(3,014)	(3,767)
Other administrative expenses	(787)	-	(787)	(849)	-	(849)
Net return/(loss) on ordinary activities
before finance costs and taxation	7,936	(94,259)	(86,323)	11,300	30,088	41,388
Finance costs	-	-	-	-	(1)	(1)
Net return/(loss) on ordinary activities
before  taxation	7,936	(94,259)	(86,323)	11,300	30,087	41,387
Taxation	(907)	-	(907)	(1,643)	-	(1,643)
Net return/(loss) on ordinary activities
after taxation	7,029	(94,259)	(87,230)	9,657	30,087	39,744
Return/(loss) per share	13.38p	(179.37)p	(165.99)p	18.14p	56.52p	74.66p

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 2012	538	63	48,482	251,898	(2,146)	298,835
Repurchase of the Company's own shares for cancellation	(11)	11	-	(6,176)	-	(6,176)
Net return on ordinary activities	-	-	-	30,087	9,657	39,744
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

Balance Sheet

at 31st October 2014

		2014	2013
		£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		235,986	327,200
Investment in liquidity fund held at fair value through profit or loss		-	4,015
Total investment portfolio		235,986	331,215
Current assets
Debtors		290	1,939
Cash and short term deposits		2,248	3,627
		2,538	5,566
Creditors: amounts falling due within one year		(2,106)	(4,378)
Net current assets		432	1,188
Total assets less current liabilities		236,418	332,403
Net assets		236,418	332,403
Capital and reserves
Called up share capital		526	527
Capital redemption reserve		75	74
Other reserve		47,764	48,482
Capital reserves		181,024	275,809
Revenue reserve		7,029	7,511
Total equity shareholders' funds		236,418	332,403
Net asset value per share		450.0p	631.1p

Company registration number: 4567378.

Cash Flow Statement

for the year ended 31st October 2014

	2014	2013
	£'000	£'000
Net cash inflow from operating activities	5,606	5,117
Returns on investments and servicing of finance
Interest paid	-	(1)
Taxation
Overseas tax recovered	281	-
Capital expenditure and financial investment
Purchases of investments	(188,087)	(156,670)
Sales of investments	189,964	159,030
Other capital charges	(178)	(188)
Net cash inflow from capital expenditure
and financial investment	1,699	2,172
Dividend paid	(8,037)	-
Net cash (outflow)/inflow before financing	(451)	7,288
Financing
Repurchase of the Company's own shares for cancellation	(1,055)	(7,733)
Net cash outflow from financing	(1,055)	(7,733)
Decrease in cash for the year	(1,506)	(445)

Notes to the Accounts

for the year ended 31st October 2014

1.    Accounting policies

Basis of accounting

The accounts 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 accounts have been prepared on a going concern basis.

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

2.   Dividend

The final dividend of 13.00 per share proposed in respect of the year ended 31st October 2014 is subject to approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the accounts for the year ending 31st October 2015.

3.   Return / (loss) per share

The revenue return per share is based on the revenue returnattributable to the ordinary shares of £7,029,000 (2013: £9,657,000) and on the weighted average numberof shares in issue during the yearof 52,549,571 (2013: 53,232,345).

The capital loss per share is based on the capital loss attributable to the ordinary shares of £94,259,000 (2013: £30,087,000 return) and on the weighted average numberof shares in issue during the yearof 52,549,571 (2013: 53,232,345).

The total loss per share is based on the total loss attributable to the ordinaryshares of £87,230,000 (2013: £39,744,000 return) and on the weighted average number of shares in issue during the yearof 52,549,571 (2013: 53,232,345).

4.   Net Asset Value per share  

The net asset value per share is based on the net assets attributable to the ordinary shareholders of £236,418,000 (2013: £332,403,000) and on the 52,532,112 (2013: 52,667,112) shares in issue at the year end.

5.   Status of announcement

2013 Financial Information

The figures and financial information for 2013 are extracted from the Annual Report and Accounts for the year ended 31st October 2013 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.

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.

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.

Annual Report and Accounts

The Annual Report and Accounts will be posted to shareholders on or around 4th February 2015 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.

For further information please contact:

Paul Winship

For and on behalf of

JPMorgan Funds Limited, Secretary - 020 7742 4000

27th January 2015

ENDS

 

END

 

 

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