JPMorgan China G&I - Final Results
12/12/2023 16:27
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RNS Number : 5380W JPMorgan China Growth & Income PLC 12 December 2023
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN CHINA GROWTH & INCOME PLC
FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2023
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
2023.
CHAIRMAN'S STATEMENT
The year ended 30th September 2023 proved to be a period of remarkably
different halves. During the first six months ended 31st March 2023, Chinese
stock markets greeted with relief both the unexpected, immediate end of the
Chinese government's zero-COVID policy and the government's decision to
reverse several key policies, which had negatively impacted market sentiment.
Reflecting this, the Company's total return on net assets (with net dividends
reinvested) rose 7.9% in the first half, marginally outperforming the MSCI
China Index.
With the impact of the country's reopening post COVID proving far less
vigorous than originally anticipated, sentiment swiftly changed in the second
half of the financial year. Consequently, Chinese stock markets have been
volatile since March, buffeted by fragile business and consumer confidence,
and increased concerns about rising youth unemployment, the heavily indebted
property market and weakening export demand. Broader concerns about global
macroeconomics, continued political tensions between the US and China, and the
ongoing Russian-Ukrainian war dampened sentiment further. Faced with these
challenges, growth stocks, which dominate the portfolio, fell sharply out of
favour yet again. As a result, the Company's total return on net assets fell a
disappointing -15.8% in the year ended 30th September 2023, underperforming
the MSCI China Index, which, cushioned by state-owned value stocks
particularly in the energy and financial services sector, declined by a more
moderate -3.7%. The Company delivered a return to shareholders of -15.3% over
the year, with the discount at which the shares traded over the 12 month
period narrowing marginally.
While the Company's short-term performance is obviously disappointing, the
Company has maintained its longer term track record of absolute gains over
both five and ten years, comfortably outperforming its benchmark over these
periods. This reflects the Manager's disciplined focus on long-term growth
opportunities. Full details of investment performance, changes to the
portfolio and the outlook can be found in the Investment Manager's Report in
the Annual Report.
During the period of increased trading volatility during the second half of
the year, the Board was in regular contact with the Manager and corporate
broker, monitoring the Company's investment portfolio, its cash flows and loan
covenants and the discount at which the Company's shares were trading.
Following the lifting of COVID restrictions, the Board resumed its annual
visit to China. In addition to spending time with the locally-based Portfolio
Managers and supporting analysts, we met senior representatives of the
Manager's recently acquired, domestically focused JPMorgan Asset Management
(China) in Shanghai, visited some investee companies and met with industry
experts and business leaders in Shanghai and Hong Kong.
Dividend
In line with the Company's dividend policy, for the year ended 30th September
2023, four quarterly dividends of 3.42 pence were paid to shareholders. For
the year to 30th September 2024, in the absence of unforeseen circumstances, a
quarterly dividend of 2.76 pence per share will be paid. This represents an
annual dividend of 4% of the Company's NAV as at 29th September 2023.
Gearing
In July 2021, the Company extended its £50 million loan facility (with an
option to increase to £60 million) with Scotiabank for a further two years.
On 14th July 2023, this facility expired and the Company entered into a new
loan facility agreement for two years with Industrial and Commercial Bank of
China Limited, London Branch (ICBC), in respect of a revolving loan facility
of up to £60.0 million. Following the year-end, as a result of market
movements, the Company breached one of its loan covenants and subsequently
repaid some of the loan facility to avoid any further breaches.
At the year-end the Company was 14.0% geared, having averaged approximately
15.9% throughout the year and, at the time of writing, was 14.6%. The
Portfolio Managers have the flexibility to manage the gearing facility within
a range set by the Board of 10% net cash to 20% geared, subject to daily
market movements.
Share Issues and Repurchases
At last year's Annual General Meeting ('AGM'), shareholders granted the
Directors authority to allot new shares and to repurchase the Company's shares
for cancellation or to be held in Treasury. During the year, the Company did
not repurchase or allot any shares. As in previous years, the Board's
objective is to use share repurchase and share issuance authorities to help
reduce the volatility in discounts and premiums by managing imbalances between
supply and demand. We are therefore seeking approval from shareholders to
renew the share issuance and repurchase authorities at the AGM.
The Board
In July 2023, the Board, through its Nomination 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.
As a result of a change in personal commitments, May Tan has decided to retire
from the Board at the forthcoming Annual General Meeting in January 2024. She
joined the Board in August 2021 and has made a significant contribution to the
Board during her tenure. On behalf of the Board, I would like to thank May,
particularly for the support she gave the management team in Hong Kong during
the COVID period. In accordance with its long-term succession programme, the
Board plans to recruit a new Director during 2024 to replace May.
In accordance with the UK Corporate Governance Code, all of the Directors,
with the exception of May Tan, will retire at the forthcoming AGM and, being
eligible, will offer themselves for reappointment by shareholders.
Board Diversity
The Board recognises the value and importance of diversity in the boardroom. I
am pleased to report that the Board meets the FCA Listing rules targets on
gender diversity criteria, female representation in a senior role and ethnic
representation on the Board.
Review of services provided by the Manager
During the year, the Board, through its Management Engagement Committee,
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.
The Company's ongoing charges for the financial year, as a percentage of the
average of the daily net assets during the year, were 1.12% (2022: 1.09%).
This small increase reflected the decline in net assets during the period,
combined with the relatively high proportion of fixed costs.
Reduction in Management Fees
The Board believes the Company should demonstrably represent value for money.
After discussions with the Manager about the appropriate level of the
management fee in a rapidly developing market such as China, the Board has
agreed with the Manager that, with effect from 1st April 2024, we will
introduce a tiered fee rate of 0.80% for the first tier of up to £400
million of net assets and 0.75% thereafter. Based on these revised fees, the
proforma management fee would fall by over 11% and the proforma ongoing charge
would be reduced to 1.04%.
Environment, Social and Governance (ESG) considerations
The Board has continued to engage with the Manager on the integration of ESG
factors into its investment process. The Board has conducted a review during
the year to satisfy itself that the Manager has a robust process in place with
sufficient resources behind it and that ESG considerations are considered by
the Portfolio Managers at every stage of the investment decision.
The Board shares the Manager's view of the importance of financially material
ESG factors when making investments for the long term and, in particular, the
necessity of continued engagement with investee companies throughout the
duration of the investment. The Portfolio Managers' ESG report describes the
developments in the ESG process that have taken place during the year together
with examples of how these are implemented in practice.
Task Force on Climate-related Financial Disclosures (TCFD)
As a regulatory requirement, JPMorgan Asset Management (JPMAM) published its
first UK TCFD Report for the Company in respect of the year ended 31st
December 2022 on 30th June 2023. The report discloses estimates of the
Company's portfolio climate-related risks and opportunities according to the
Financial Conduct Authority (FCA) Environmental, Social and Governance (ESG)
Sourcebook and TCFD. The report is available on the Company's website under
the ESG documents section:
https://am.jpmorgan.com/content/dam/jpm-am-aem/emea/regional/en/regulatory/esg-information/jpmorgan-china-growth-and-income-plc-esg-fund-report.pdf
(https://am.jpmorgan.com/content/dam/jpm-am-aem/emea/regional/en/regulatory/esg-information/jpmorgan-china-growth-and-income-plc-esg-fund-report.pdf)
The Board is aware that best practice reporting under TCFD is still evolving
with respect to metrics and input data quality, as well as the interpretation
and implications of the outputs produced, and will continue to monitor
developments as they occur.
Annual General Meeting
The Company's twenty-ninth Annual General Meeting will be held at 60 Victoria
Embankment, London EC4Y 0JP on Friday, 26th January 2024 at 11.30 a.m. The
Board cannot stress strongly enough the importance of all shareholders
exercising their right to vote, regardless of their size of holding, and hopes
to welcome as many shareholders as possible to the AGM. As with previous
years, you will have the opportunity to hear from members of our investment
team. Their presentation will be followed by a question and answer session.
Shareholders wishing to follow the AGM proceedings but choosing not to attend
will be able to view them live and ask questions through conferencing
software. Details on how to register, together with access details, can be
found on the Company's website: www.jpmchinagrowthandincome.co.uk, or by
contacting the Company Secretary at invtrusts.cosec@jpmorgan.com.
In accordance with normal practice, all voting on the resolutions will be
conducted on a poll. Due to technological reasons, shareholders viewing the
meeting via conferencing software will not be able to vote on the poll. We
therefore encourage all shareholders, and particularly those who cannot attend
physically, to submit their proxy votes in advance of the meeting, so that
they are registered and recorded at the AGM. Proxy votes can be lodged in
advance of the AGM either by post or electronically: detailed instructions are
included in the Notes to the Notice of Annual General Meeting in the Annual
Report. In addition, shareholders are encouraged to send any questions ahead
of the AGM to the Board via the Company Secretary at the email address above.
We will endeavour to answer relevant questions at the meeting or via the
website depending on arrangements in place at the time.
If there are any changes to the above AGM arrangements, the Company will
update shareholders through its website and, if appropriate, through an
announcement on the London Stock Exchange.
My fellow Board members, representatives of JPMorgan and I look forward to the
opportunity to meet and speak with shareholders after the formalities of the
meeting have been concluded.
Stay Informed
The Company delivers email updates with regular news and views, as well as the
latest performance. If you have not already signed up to receive these
communications and you wish to do so, you can opt in via
https://tinyurl.com/JCGI-Sign-Up or by scanning the QR code in the front of
the Annual Report.
Outlook
With economic growth, domestic consumption and demand for exports in China
likely to remain sluggish in the shorter term, Chinese stock markets look set
to face continued challenges over the coming year. Moreover, while the recent
resumption of high-level talks is encouraging, tensions between China and the
US are likely to persist, and an escalation in anti-Chinese rhetoric ahead of
next year's US presidential election cannot be ruled out. Other challenges
include the continued uncertainties in the Chinese property market, the
financial health of the nation's regional governments, rising youth
unemployment and China's relations with Taiwan. Concerns about global supply
chains and conflict in the Ukraine, as well as Israel and Palestine, may also
impact market sentiment in the near term.
Whatever China's near-term prospects, the Portfolio Managers continue to focus
on the bottom-up fundamentals of high-quality Chinese businesses that are
capable of generating excess returns over the longer term. The Portfolio
Managers are encouraged by recent shifts in Chinese government policies,
designed to promote economic growth and boost consumer confidence. Moreover,
they continue to find attractive investment opportunities provided by Chinese
companies that offer superior earnings growth or that are benefitting
shareholders by introducing regular dividend payments or share buyback
programmes.
Having visited China this year, the Board shares the Portfolio Managers'
optimism about the long-term prospects for the Chinese stock markets and the
opportunities that will benefit the patient investor, and we believe our
Company deserves a place within any fully diversified global portfolio. Since
the listing of the Company 30 years ago, the Portfolio Managers have
demonstrated their skills in navigating turbulent markets by focusing on
investing in attractively priced, quality companies that offer sustainable
long-term growth. We remain confident that the investment strategy, combined
with the skills and experience of our well-resourced investment team, will
enable the Company to deliver superior returns over the longer term.
Alexandra Mackesy
Chairman
12th December 2023
INVESTMENT MANAGER'S REPORT
Introduction
During the financial year ended 30th September 2023, the Company's net assets
(in total return terms) declined 15.8% (in sterling terms) compared to a
benchmark decline of 3.7%. However, the Company's long-term track record of
outright gains and outperformance remains intact. In the ten years ended
September 2023, it delivered average annualised returns of 7.1%, compared to
an average benchmark return of 4.8% pa.
Setting the scene
The year under review was marked by a series of unexpected challenges. The
most prominent was China's abrupt exit from its stringent zero COVID policy
last December. Following a wave of COVID infections, life returned to normal
by Q2 2023. After an initial round of enthusiasm about reopening, China's
sluggish economic recovery undershot many people's expectations, with the
exception of travel-related consumption. There are several reasons for this
disappointing turn of events. Primarily, as we have discussed in previous
reports, China faces the structural challenge of transitioning away from its
heavy reliance on fixed asset investment, in particular property development.
This process will take years, and meanwhile the property sector, which
comprises 6% of the Chinese economy and 13% including related activities,
remains challenged. Concerns about developers' balance sheet strength and
declining property sales and prices are adversely impacting consumption and
domestic growth more generally. What has disappointed us is that it is taking
longer than expected for domestic consumer confidence to recover. This is
reflected in lukewarm non-travel discretionary consumption, and a reluctance
to invest.
A decline in Chinese exports has also been a drag on growth. Total exports
declined 5.6% in USD terms in the first eight months of 2023, due in part to
the depreciation of the renminbi. Higher overseas interest rates have dampened
demand for Chinese exports, and there was a degree of front-loading
of consumption during COVID, while some multinational companies have adopted
a 'China+1' sourcing strategy, to strengthen their supply chains by reducing
reliance on Chinese imports.
China's policy response to the economic slowdown became more active in 2023.
In the property market, the regulatory focus has shifted from preventing an
asset bubble to stimulating demand. Local governments were given the green
light to remove various purchase restrictions, which should help unleash
pent-up housing demand, while the legacy mortgage rate, which was set
artificially high to prevent property speculation, was lowered to reduce the
debt servicing burden on households. The loan prime rate (LPR) was also cut to
reduce borrowing costs, and bank deposit rates were lowered simultaneously to
protect bank margins. To stimulate demand for properties, the central
government has advocated the redevelopment of shantytowns in large cities. All
these policies are in addition to supply-side stimuli such as renewed access
to onshore bond and equity markets for developers, intended to help strengthen
their balance sheets. Arrangements are now in place to restructure the debt of
troubled local government financing vehicles (LGFV, i.e. the issuers of
quasi-municipal bonds). At the end of October, China's legislature approved a
plan to issue RMB 1trn additional sovereign debt and to raise the fiscal
deficit ratio for 2023 to 3.8% above the long-term ceiling of 3%. The
magnitude and frequency of this stimulus policy surprised the market.
In terms of domestic politics, it was no surprise that President Xi secured
his third term as leader in March, and assembled a new cabinet. Since then,
industrial policies have generally been pro-business and pro-growth,
acknowledging the challenges faced by the economy. To name a few of these
policies, the government established a bureau, headed by the country's top
economic planner, to oversee the development of the private economy.
Cyber-security reviews of internet platforms were completed. After the last
round of online platform regulations, online platform companies now operate
under clearer regulations and guidelines. The way regulation is conducted has
also changed from punishment and fines post events to consultation and setting
guidelines before events. A good example of this is that regulators quickly
proposed regulations on generative AI and large language models in order to
safeguard the development of this new industry.
In terms of the external environment, persistently high inflation in US and
Europe shaped the expectation that interest rates will be 'higher for longer'.
Higher debt servicing costs squeezed household budgets and in turn cast a
shadow over the demand for Chinese exports, putting further downward pressure
on the renminbi. But there were also some positive developments. We were happy
to see the resumption of high-level engagement between the China and US
governments, which should help to reduce the risks of future misunderstandings
and miscalculations.
Performance commentary
To our disappointment, the company underperformed the market in the last
financial year, due to both sector allocation and stock selection decisions.
The use of gearing also contributed negatively, as the market declined over
the period. During the review period, the outperformance of value stocks, led
by state-owned enterprises in the energy and financial sectors, created a
style headwind for our growth-tilted strategy. Over the year, the MSCI China
Value Index has risen by 1.4% (in GBP) while the MSCI China Growth Index has
fallen by 7.2% (in GBP). Our portfolio avoided capital-intensive state-owned
enterprises and was overweight in several growth-oriented sectors including
Information Technology, Consumer Discretionary and Healthcare. Our stock
selection within these sectors detracted from returns over the period.
Within IT, Starpower, the Chinese leader in the production of power
semiconductors, derated on ongoing concerns about oversupply, as the industry
attracted several new entrants. Silergy, a Chinese producer of power
management integrated circuits, suffered from longer-than-expected inventory
digestion in the tech hardware space. However, we believe the company still
has long-term structural growth opportunities and scope to gain market share.
A few of our holdings in the Solar Industry, including equipment makers
Zhejiang Jingsheng Mechanical and Suzhou Maxwell Technology, solar panel maker
Longi Green Energy and solar glass maker Xinyi Solar, derated significantly
due to concerns about industry overcapacity over the medium term.
Performance attribution
Year ended 30th September 2023
% %
Contributions to total returns
Benchmark return -3.7
Sector allocation -3.1
Stock selection -6.8
Currency -0.4
Gearing/net cash -0.2
Investment Manager contribution -10.5
Dividend/residual -0.5
Portfolio total return -14.7
Management fee/Other expenses -1.1
Net asset value total return -15.8
Ordinary share price total return -15.3
Source: Factset, JPMAM, Morningstar.
Performance attribution analyses how the Company achieved its recorded
performance relative to its benchmark.
Consumer discretionary detracted from relative returns due to our exposure to
China's major e-commerce platforms Meituan, Alibaba and JD, which were marked
down due to the insipid post-pandemic rebound. Historically widely owned by
overseas investors, these were particularly susceptible to capital outflows
from Hong Kong and foreign-based investors. However, in the case of Meituan
and Alibaba, fundamental performance tracked expectations. Although top-line
growth slowed from pre-COVID levels, margins and earnings growth were
supported by cost saving measures. JD underperformed, as it is losing market
share to other e-commerce channels and the initiatives taken to rekindle
growth have so far proved ineffective.
The adverse performance as a result of our exposure to Healthcare was mainly
due to an error of judgement on our part. We were optimistic about the
post-pandemic recovery in discretionary healthcare demand, and positioned for
it via exposure to Angelalign, a transparent orthodontics device maker, Aier
Eye Hospital, a private eye hospital, and Imeik Technology, a dermo filler
maker. However, these stocks all derated on concerns about the sustainability
of discretionary healthcare service spending, despite respectable growth in Q1
and Q2 2023. Our holdings in healthcare equipment, namely Shenzhen Mindray and
Qingdao Haier Biomedical, underperformed due to tight local government funding
and delays in equipment tenders caused by an anti-corruption campaign in the
public healthcare sector. We believe this adverse event is temporary in nature
and will not change the long-term demand for better healthcare facilities in
China and the competitiveness of these two companies in a global context.
Relative Stock
weight return Impact
Top 10 Detractors Company description (%) (%) (%)
Suzhou Maxwell Solar equipment manufacturer with a focus on heterojunction 1.5 -62.3 -1.25
Technologies Co., Ltd. solar cell technology.
Meituan The largest Chinese online-to-offline local life services platform 1.9 -36.4 -0.86
providing services such as food delivery, hotel booking and
coupon sales.
Yunnan Energy New The largest lithium battery separator manufacturer in the world. 0.8 -68.4 -0.86
Material Co., Ltd.
ENN Energy Holdings A gas distributor to households and businesses. 1.3 -41.8 -0.73
Limited
JD.com, Inc. A leading e-commerce company with a strong position in 1.0 -46.2 -0.70
electronics and household products supported by its
strong inhouse logistic capabilities.
Alibaba Group Holding A leading e-commerce company that also offers a -5.0 -24.4 -0.67
Limited comprehensive digital infrastructure including payment and
cloud services.
StarPower The Chinese leader in the production of power semiconductors used in electric 1.0 -50.5 -0.60
vehicles and solar panels.
Semiconductor Ltd.
Zhejiang Jingsheng A dominant supplier of silicon wafer growth furnaces, which 1.3 -38.6 -0.52
Mechanical & Electrical are used to make photovoltaic cells.
Angelalign Technology Inc. A medical device company making transparent orthodontics 1.0 -29.9 -0.49
devices.
Xinyi Solar Holdings Ltd. A leading manufacturer of solar panel glasses. 1.2 -34.2 -0.48
Our overweight and stock selections in Communication Services and Real Estate
contributed positively, partially offsetting the above mentioned negative
impacts. Netease, China's second largest online gaming producer after Tencent,
enhanced returns thanks to the resumption of online gaming title approval,
improving margins and the company's ongoing share buyback programme. Focus
Media, a niche advertisement agency providing offline display units and
advertising in the lifts, outperformed as offline traffic recovered
post-pandemic. The company has also made a significant effort to acquire new
clients. Our relative outperformance in the troubled real estate sector was
driven by our holdings in quality players with strong balance sheets - namely
KE Holding, China's largest real estate agent network and property website,
and China Resources Mixc Lifestyle Services, a property services company
managing residential properties and premium shopping malls.
At the stock level, negative contributions were derived from both companies
that we didn't own as well as those that we did own. Energy, a sector that
comprises mainly state-owned, carbon-intensive energy companies such as
Petrochina and China Shenhua Energy, was the best-performing sector over the
review period, and our zero weighting hurt performance. We avoid this sector
due to our view that it offers no structural growth and there are very few
company-specific growth drivers in addition to the companies' carbon
intensity. Our underweight position in Financials also detracted, as this
sector also outperformed. Within financials, our preference for
market-oriented joint stock banks such as China Merchants Bank, rather than
large state-owned banks such as Industrial & Commercial Bank of China,
also hurt performance.
Relative Stock
weight return Impact
Top 10 Contributors Company description (%) (%) (%)
Beijing Kingsoft Office The company provides office and document editing software 1.2 65.7 1.0
Software. Inc. with over 500 million monthly active users.
Netease Inc A leading provider of self-developed mobile and PC games 2.1 26.1 0.8
along with multimedia services.
Pinduoduo, Inc. A leading e-commerce company focusing on the value segment with a rapidly 1.8 43.5 0.7
growing international business
branded as Temu.
BeiGene Ltd Biotech company focusing on the R&D of oncology 0.1 56.0 0.6
drugs.
NIO Inc. Founded in 2014, Nio is an electric vehicle brand that now holds over 50% -0.7 0.0 0.5
market share in the premium EV
market in China.
Li Ning Company Limited A sportswear and sports equipment company. -0.8 0.0 0.4
Shanghai Baosight A software provider focusing on improving production efficiency and automation 1.3 32.3 0.4
level of the steel industry.
Software Co., Ltd.
It also has an internet data centre business.
Jiangsu Hengli Hydraulic A manufacturer of hydraulic pumps and valves that are used in 1.3 27.7 0.4
Co., Ltd. construction equipment.
Bilibili, Inc. Video sharing platform that specialses in Anime, Comics and 0.1 52.8 0.3
Games (ACG) and appeals to young audience.
Kangji Medical Holdings A medical device company making invasive surgical instruments and accessories. 0.4 55.3 0.3
Limited
Transactions and sector allocation
Despite facing style headwinds due to our growth tilt, the Company maintained
its overweights in sectors such as e-Commerce, Information Technology,
Industrials and Renewable Energy, where we tend to find structural growth
opportunities. However, we tried to rotate our holdings into companies with
more certain prospects and/or more measured downside risks.
One of the most significant changes was our Q1 2023 decision to buy Alibaba,
reducing our large underweight in this name. Although the company's growth has
slowed, our decision to acquire exposure to the company again was based on
some positive recent developments: (1) Alibaba's market share in core
e-commerce businesses has stabilised; (2) the company has implemented a new
organisation structure, intended to improve the accountability of each
subsidiary's contribution to profitability; (3) it announced a plan to list
a few subsidiaries, which may help to unlock value over time; and (4) its
valuation had become very attractive.
This acquisition was funded in part by exiting Bilibili, the anime, comics
& games (ACG) video platform, as its path to profitability was further
delayed. We also took profits on some consumer stocks that had outperformed in
the previous year, including Chongqing Brewery, Carlsberg's Chinese
subsidiary.
Within the IT sector, we initiated a new position in BOE Technology, now the
world's largest consumer electronics panel maker. This purchase is intended to
increase our exposure to the cyclical recovery of the panel industry. The
prices of some of the company's products have started to recover, and most
importantly, its Korean competitors exited some areas of the market, creating
a more favourable supply and demand picture going forwards. We also initiated
a position in Foxconn Industrial International, a subsidiary of Taiwan-listed
Hon Hai, which provides OEM and ODM services to consumer electronics and
enterprise computing. It is benefiting from the global capex build-out of
graphic processing unit (GPU) servers, due to its close ties with Nvidia, the
semiconductor manufacturer, and US cloud suppliers. In addition, Foxconn's
consumer electronics and traditional central processing unit (CPU) data centre
businesses are recovering from post-pandemic destocking. These purchases were
funded by reducing Beijing Kingsoft Office, a Chinese Microsoft Office
equivalent with growth drivers from increasing subscriptions and potential
opportunities to raise prices as AI functionality increases. We believed
Beijng Kingsoft's valuation was stretched due to excessively optimistic
assumptions, so we took the opportunity to reduce our exposure. We also booked
some profits on Supcon Technology, an automation system provider for
petrochemical processors and other industries following recent outperformance.
Within industrials, we maintained our exposure to the long-term structural
growth prospects of solar energy and electric vehicles (EVs), but rotated
positions to more attractively valued companies. We exited China's largest
battery maker, Contemporary Aperex Technology, in Q1 2023, as our expected
return was relatively unattractive. We also expect the business to experience
margin pressures, as it may have to pass on more economic value to its
downstream automaker clients, as many of them are still loss-making. We exited
Changzhou Xingyu Lighting, an auto light component maker, as the valuation was
no longer attractive based on our expected return framework. We initiated a
new position in Ningbo Tuopu, an auto vibration control and lightweight
chassis supplier that is very exposed to Tesla and has a good chance of
supplying key components to Tesla's humanoid robot that is under development.
We also added Hongfa Technology, a relay component maker supplying a wide
range of industrial products, including EVs. Based on its success with Tesla
and Chinese EV brands, Hongfa has secured major orders from European
manufacturers, which allows it to grow its global market share.
In solar, we exited Tongwei, China's largest supplier of polysilicon, which is
used in the production of solar panels. Tongwei has done well in the past two
years, when polysilicon supplies were tight, whereas now the price of
polysilicon is trending lower, as supply catches up with demand. We initiated
a new position in Zhejiang Jingsheng Machinery (ZJM), a dominant supplier of
silicon wafer growth furnaces, which are used to make photovoltaic cells. This
industry has relatively high technical barriers to entry and ZJM has a growing
consumable business producing silicon wafer growth crucibles. We also
purchased Hangzhou First Applied Material, the largest solar panel membrane
producer. In contrast to polysilicon, the price of solar panel membranes is
slowly recovering from its cyclical trough.
We also made some portfolio changes in two sectors sensitive to the
macroeconomic environment, namely property and financials. We exited property
services companies Country Garden Services and Onewo, which are controlled by
property developers Country Garden and China Vanke respectively. Prolonged
weakness in new property sales has imposed further pressure on developers'
balance sheets, reducing their capacity to develop new projects, which in turn
damages the long-term growth profile of these facility management companies.
We initiated a new position in the property platform KE Holding. The company
should benefit from an incremental alleviation of property purchase
restrictions in the secondary property market. It has demonstrated a great
capability to manage cash flow during the downturn, as it has remained a
highly cash-generative business.
We are taking advantage of low valuations to slowly reduce our underweight to
financials by adding selective names. For example, we initiated a new position
in China Pacific Insurance. The life insurance industry is showing signs of
recovery after several years of restructuring which has rationalised the use
of sales agents, and China Pacific's protection and investment-type products
are both proving popular with customers in uncertain times.
Ten largest investments
As at 30th September
2023 2022
Valuation Valuation
Company Description of Activities £'000 %(1) £'000 %(1)
Tencent A Chinese technology company focusing on internet services. It is the world's 27,858 10.6 28,091 8.4
largest video game vendor. It owns WeChat, among the largest Chinese and
therefore global, social media app as well as a number of music, media and
payment service providers. Its
venture capital arm has holdings in over 600 companies with a focus on
technology start-ups across Asia.
Alibaba A provider of online sales services. The Company provides internet 14,888 5.7 - -
infrastructure, electronic commerce, online financial, and internet content
services through its subsidiaries. Alibaba offers its products and services
worldwide.
Meituan An e-commerce company that offers services like food, dining and delivery on 13,355 5.1 20,417 6.1
its platform throughout China.
NetEase A leading China-based technology company involved in developing and operating 9,291 3.5 8,921 2.7
online games. Its online gaming services cover both mobile and personal
computer games.
Pinduoduo Founded in 2015, it started as an online fresh produce vendor before expanding 9,273 3.5 13,325 4.0
into a leading social commerce platform serving close to 900 million users.
Pinduoduo pioneered 'Team Purchase' and 'C2M' (consumer to manufacturer)
processes to aggregate user demand and share the information with
manufacturers to tailor make products according to users' preferences.
WuXi Biologics (Cayman) Founded in 2010, it has become a leading global Contract Research, 7,516 2.9 8,281 2.5
Development and Manufacturing Organization (CRDMO) offering end-to-end
solutions that enable partners to discover, develop and manufacture biologics
from concept to commercialisation.
KE Holdings An operator of an integrated online and offline platform for housing 7,002 2.7 - -
transactions and services in China. The Company offers existing and new home
sales, home rentals, home renovation, real estate financial solutions, and
other services.
JD.com China's leading one-stop e-commerce platform, providing 588.3 million active 5,820 2.2 11,940 3.6
customers with direct access to a wide selection of products to tap into
China's fast-growing e-commerce market through its mobile applications and
websites.
Kweichow Moutai It manufactures and sells Moutai and other spirits which are sold in China and 5,730 2.2 - -
globally.
China Merchants Bank China's first joint-stock commercial bank wholly owned by corporate legal 5,419 2.1 7,766 2.4
entities. Since its inception, CMB has been a trend setter in China's banking
industry through a series of pioneering efforts.
Ten Largest Investments 106,152 40.5
(1) Based on total investments of £262.0m (30th September 2022:
£333.2m). Top ten investments at September 2022 representing £119.4m and
35.9% of total investments.
Gearing
The average gearing ratio of the company over the year was 15.9%, compared to
15.6% during the previous financial year. Our intention initially was to keep
the total borrowing level unchanged, as we believed that a lot of bad news had
been priced into stock prices at current levels and we saw scope for some
improvement in market fundamentals, as corporate earnings growth was starting
to turn around, thanks to stimulus policies and cost-cutting initiatives. In
June 2023, we opted to reduce the size of our debt facility, as tight credit
market conditions meant we had to renew the loan on less favourable terms. As
a result, although net borrowing has been reduced, the gearing level edged up
slightly due to the market fall.
ESG Engagement over the year
Our investment philosophy centres on identifying quality companies with
sustainable growth potential. We have a strong conviction that Environmental,
Social and Governance (ESG) considerations (particularly Governance) should be
the foundation of any long-term investment process. In our view, corporate
policies at odds with such considerations are not sustainable over time. We
therefore believe that integrating ESG factors into the investment process is
critical to its success. To this end, we work closely with JPMAM's dedicated
Sustainable Investment (SI) team, which pro-actively engages with existing
portfolio names on ESG matters.
Examples of how we have worked with the SI team over the past year to address
ESG issues in our portfolio companies and information regarding how ESG
matters are integrated into our investment process are detailed in the ESG
Report in the Annual Report. This report includes case studies relating to our
ESG engagement with Alibaba, Silergy and Tencent.
Key voting statistics are given in the ESG report and some examples are
provided to illustrate the principles which inform our voting.
Outlook
One of the biggest and most welcome changes since our last annual report is
that all levels of the Chinese government have become increasingly
pro-business and pro-growth. The key focus of the government's economic and
industry policies has shifted from preventing asset bubbles to rejuvenating
growth and restoring consumer confidence. We believe the authorities will
deploy more policy tools until these goals are realised. We expect monetary
and fiscal policies to remain supportive. On the fiscal front, policy
initiatives may include a broader restructuring of local government debt, and
greater support for households. In addition, the latest economic indicators
show some early signs that the Chinese economy is stabilising and gathering
some fresh momentum. We remain cautious on the near-term outlook for export
demand, as foreign inflation and interest rates remain high and stickier than
expected, and as overseas customers continue to expand their supply chains
beyond China. However, we are seeing some evidence that foreign customers are
regaining confidence in the stability of Chinese supply chains now the economy
has fully reopened.
On the geopolitical front, against the grim backdrop of major conflicts in
Eastern Europe and the Middle East, we believe that a competitive, yet still
collaborative relationship between China and the US is in the best interests
of both nations and the entire world. We expect tensions between the US and
China to persist, as the two great powers compete for global influence, and we
would not be surprised by an escalation in anti-Chinese rhetoric in the run-up
to next year's US presidential election. Having said that, we believe the risk
that the relationship will deteriorate sharply has been greatly reduced,
following the recent resumption of high-level talks between the two
superpowers.
Putting politics aside, China's economy is certainly facing some headwinds,
but given the sheer size and breadth of its corporate sector, we are still
finding idiosyncratic organic growth opportunities to enhance our portfolio.
Although we now forecast Chinese GDP to grow 4% and 3.5% in real-terms in 2024
and 2025, lower than the 7-8% in real-terms achieved prior to COVID, there are
still many companies that are forecast to grow earnings much more rapidly. For
example, in the healthcare sector, global pharmaceutical companies are once
again employing the services of Chinese contract development and manufacturing
organisations (CDMOs), which are valued for the quality of their output and
speed to market. The CDMOs have been especially helpful in the development and
manufacture of the new and highly sought-after GLP-1 (glucagon-like peptide),
a revolutionary treatment for diabetes and obesity. Our long-term holding in
Asymchem Laboratories, and our new acquisition Sunresin New Materials, a
supplier of purification resins used to make GLP-1, are both benefiting from
this strong global demand.
Within the electric vehicle industry, Western countries have made headline
news by restricting imports of Chinese vehicle manufacturers and battery
makers. However, we have found a group of Chinese auto components makers that
have proved themselves as reliable suppliers to Chinese EV brands and are now
making inroads into Western markets. For example, Tesla has verified several
such companies, including Hongfa Technology, Ningbo Tuopu Group and our
long-term holding Fuyao Glass (auto glass maker), as Tier 1 suppliers. Such an
endorsement has helped them win contracts from other American and European
auto producers for their forthcoming EV models. These companies have also been
astute in building production capacity outside China to serve overseas clients
and save import tariffs.
Elsewhere, it is encouraging to see that even well-known large caps such as
Alibaba, JD, Tencent and KE Holdings, whose top-line growth has slowed, are
supporting profits by making efficiency gains. More importantly, these
corporate behemoths have become increasingly investor-friendly - they are
starting to pay dividends to support their share prices with continuous share
buyback schemes, and to distribute their non-core investment portfolios to
shareholders directly such as Tencent distributing its Meituan and JD shares
to investors.
We are also pleased to report to our shareholders that JPMorgan has completed
its 100% acquisition of China International Fund Management and has rebranded
it JPMorgan Asset Management (China) Limited. It has over 30 seasoned
investment professionals, all based in Shanghai and focusing on domestic
equities.
In summary, in a slowing growth environment, some companies are becoming more
mature and sophisticated in terms of their capital allocation by prioritising
dividends and buybacks over non-core investment, which should enhance
shareholder returns. Equity market valuations are now pricing in significant
risk - the current Price/Earnings (P/E) ratio of the MSCI China Index is close
to the lowest it has been in the last ten years, and the current Price/Book
(P/B) ratio of the index is comparable to levels seen in 2009, at the time of
the global financial crisis, and in 2003 during the SARS epidemic. We believe
most of the widely discussed bad news has been priced in. At these low levels,
we believe the market has significant scope to respond positively to
incremental good news. We look forward to generating good returns for our
shareholders in the coming year and beyond, to maintain the Company's long
track record of outright gains and outperformance of the market.
Rebecca Jiang
Howard Wang
Li Tan
Investment Team
12th December 2023
PRINCIPAL AND EMERGING RISKS
The Directors confirm that they have carried out a robust assessment of the
principal and emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or liquidity.
With the assistance of the Manager, the Audit Committee maintains a risk
matrix which identifies the principal risks to which the Company is exposed
and methods of mitigating against them as far as practicable. The risks
identified and the broad categories in which they fall, and the ways in which
they are managed or mitigated are summarised below.
The AIC Code of Corporate Governance requires the Audit Committee to put in
place procedures to identify emerging risks. At each meeting, the Board
reviews all potential risks and considers emerging risks which it defines as
potential trends, sudden events or changing risks which are characterised by a
high degree of uncertainty in terms of occurrence probability and possible
effects on the Company. As the impact of emerging risks is understood, these
risks may be entered on the Company's risk matrix and mitigating actions
considered as necessary.
Movement in risk
status in year to
Principal risk Description Mitigation/Control 30th September 2023
Investment management and performance
Geopolitical Geopolitical risk can cause volatility in the markets in which the Company is The Board meets advisers and gathers insights from both JP Morgan and è
invested; restrictions on the ability to invest and the free movement of independent sources on a regular and ongoing basis and takes advice from the
capital and also potentially impact the ability of the Manager and other Manager and its professional advisers.
service providers to carry on business as usual. Specifically in China, we
have seen instances of the government interfering in certain sectors of the
financial markets as well as concerns relating to US-China trade tensions,
potential conflict involving Taiwan and wider questions about supply chains
and human rights in China. These concerns have led to international investors
reducing their investments in China, and could risk damaging overseas
sentiment towards Chinese equities further.
Investment Under-performance An inappropriate investment decision may lead to sustained investment The Board aims to manage this risk by diversification of investments through é
underperformance against the Company's benchmark index and peer companies, its investment restrictions and guidelines which are monitored and reported on
resulting in the Company's shares trading on a wider discount as well as by the Manager. The Manager provides the Directors with timely and accurate
discontent amongst the Company's shareholders. 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.
Investment Strategy An ill-advised corporate initiative, for example an inappropriate takeover of The Board discusses this on a regular and ongoing basis with the Manager and é
another company or an ill-timed issue of new capital; misuse of the investment corporate advisers based on information provided both at and between Board
trust structure, for example inappropriate gearing; or if the Company's chosen meetings (see above risk regarding Investment Underperformance). The Company
strategy is no longer appropriate, may lead to a lack of investor demand. states its strategy clearly in its Half-Year and Annual Reports and its
website. The investment managers employ the Company's gearing within a
strategic range set by the Board.
Loss of Investment Team or Investment Manager A sudden departure of one or more members of the investment management team The Board seeks assurance that the Manager takes steps to reduce the è
could result in a deterioration in investment performance. 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. The Board engages privately with the investment managers on
a regular basis and visits them annually in Shanghai and Hong Kong.
Share Price Discount A disproportionate widening of the discount relative to the Company's peers In order to manage the Company's discount, which can be volatile, the Company é
could result in a loss of value for shareholders. operates a share repurchase programme. 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.
Corporate Governance Changes in financial, regulatory or tax legislation may adversely affect the The Manager makes recommendations to the Board on accounting, dividend and tax è
Company. policies and the Board seeks external advice where appropriate. The Board
receives regular reports from its broker, depositary, registrar and Manager as
well as its legal advisers and the Association of Investment Companies on
changes to governance and regulations which could impact the Company and its
industry. The Company monitors events and relies on the Manager and its other
key third party providers to manage this risk by preparing for any changes.
It also receives updates from its advisors on corporate governance issues and
reviews its related policies regularly.
Shareholder Relations Details of the Company's compliance with Corporate Governance best practice, The Board receives regular reports from the Manager and the Company's broker è
including information on relations with shareholders, are set out in the about shareholder communications, their views and their activity.
Corporate Governance Statement in the Annual Report. In addition, the Board engages directly with major shareholders and
encourages all shareholders to engage with the Board and Investment Managers
at the AGM and through the increased use of webcasts, periodic meetings and
the introduction of email updates.
Financial The financial risks faced by the Company include market price risk, interest Counterparties are subject to daily credit analysis by the Manager. In é
rate risk, currency risk, liquidity risk and credit risk. 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 the Annual Report.
Operational risks
Cyber crime Disruption to, or failure of, the Manager's accounting, dealing or payments Details of how the Board monitors the services provided by the Manager, its è
systems or the depositary's or custodian's records may prevent accurate associates and depositary and the key elements designed to provide effective
reporting and monitoring of the Company's financial position. internal control are included within the Risk Management and Internal Control
section of the Directors' Report in the Annual Report•. The threat of cyber
In addition to threatening the Company's operations, such an attack is likely attack, in all its guises, is regarded as at least as important as more
to raise reputational issues which may damage the Company's share price and traditional physical threats to business continuity and security. The Company
reduce demand for its shares. 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.
Fraud/other operating failures or weaknesses The risk of fraud or other control failures or weaknesses within the Manager The Audit Committee receives independently audited reports on the Manager's è
or other service providers could result in losses to the Company. 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.
Regulatory risk
Legal and Regulatory In order to qualify as an investment trust, the Company must comply with The Section 1158 qualification criteria are continually monitored by the è
Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Manager and the results reported to the Board each month. The Company must
Company's approval are given under 'Structure of the Company'. Were the also comply with the provisions of the Companies Act 2006 and, since its
Company to breach Section 1158, it may lose investment trust status and, as shares are listed on the London Stock Exchange, the UKLA Listing Rules,
a consequence, gains within the Company's portfolio would be subject to Disclosure Guidance and Transparency Rules ('DTRs') and, as an Investment
Capital Gains Tax. 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.
Economic and geopolitical
Global pandemics COVID-19 has highlighted the speed and extent of economic damage that can The Board receives reports on the business continuity plans of the Manager and ê
arise from a pandemic. The risk remains that new variants or other viruses may other third party providers. The effectiveness of these measures were assessed
not respond to existing vaccines, may be more lethal and may spread rapidly throughout the course of the COVID-19 pandemic and the Board will continue to
around the world, presenting risks to the operations of the Company, the monitor developments as they occur and seek to learn lessons which may be of
Manager and its investee companies. use in the event of future pandemics.
ESG Risk Failure to recognise non-financial risks in portfolio construction and stock The Manager integrates ESG scoring into stock selection alongside financial è
selection and/or to explain our ESG approach to current/potential investors. measures and portfolio level measures such as carbon intensity/CO2 emissions
are aggregated and presented alongside the benchmark index. The Board can
determine the appetite for ESG as well as financial factors in portfolio
construction via investment restrictions and guidelines and the investment
policy. The Board determines the description of the ESG approach and policies
in the Annual Report and other investor communications.
Climate change Climate change is one of the most critical issues confronting asset managers The Manager's investment process integrates consideration of environmental, è
and their investors. Climate change may have a disruptive effect on individual social and governance factors into decisions on which stocks to buy, hold or
investee companies and the operations of the Manager and other major service sell (see the ESG report). This includes the approach investee companies take
providers. to recognising and mitigating climate change risks. The Manager aims to
influence the management of climate related risks through engagement and
voting and is a participant of Climate Action 100+ and a signatory of the
United Nations Principles for Responsible Investment.
As extreme weather events become more common, in particular with the typhoons,
flooding and droughts experienced in China, the resiliency, business
continuity planning and the location strategies of our services providers will
come under greater scrutiny.
Emerging risk Description Mitigation/Control
Social unrest within China If economic growth and consumer demand remain sluggish and unemployment rises The Board and the Portfolio Managers understand the inherent risks associated
in China, there is a risk disruptive social unrest could occur at a local or with investing in emerging markets such as China. While focusing on the long
national level. Such disorder could disrupt the companies in which our Company term, the Manager is mindful of these risks when considering investment
invests, and negatively impact both our manager's operations within China and strategy and portfolio construction, and keeps the Board regularly informed
international sentiment towards Chinese equities. about any issues that might impact China and the portfolio.
China - US tensions Increased anti-China rhetoric in the run up to the US Presidential election The Board works with the Manager using
which may heighten tensions between the US and China.
JPMorgan's resources to monitor developments on a continuous basis. Working
closely with the Board, the Portfolio Managers will keep shareholders
regularly informed of its views using various communication methods such as
webcasts, monthly fact sheets and the Company's website.
Artificial Intelligence (AI) While it might equally be deemed a force for good, there appears to be an The Board will work to monitor developments concerning AI as its use evolves
increasing risk to society from the threat posed by AI. Advances in computing and consider how it might threaten the Company's activities, which may include
power means that AI has become a powerful tool that will impact society, with a heightened threat to cybersecurity. The Board will work closely with JPMF in
a wide range of applications that include the potential to harm. identifying these threats and, in addition, monitor the strategies of our
service providers.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors' Report in the
Annual Report. The management fee payable to the Manager for the year was
£2,468,000 (2022: £3,399,000).
Safe custody fees amounting to £51,000 (2022: £72,000) were payable to
JPMorgan Chase Bank N.A. during the year of which £21,000 (2022: £17,000)
was outstanding at the year end.
The Manager may carry out some of its dealing transactions through group
subsidiaries. These transactions are carried out at arm's length. The
commission payable to JPMorgan Securities Limited for the year was £9,000
(2022: £26,000).
Handling charges on dealing transactions amounting to £34,000 (2022:
£52,000) were payable to JPMorgan Chase Bank N.A. during the year of which
£6,000 (2022: £6,000) was outstanding at the year end.
The Company also held cash in the JPMorgan US Dollar Liquidity Fund, which is
managed by JPMorgan Asset Management (Europe) S.à r.l. At the year end this
was valued at £4,000 (2022: £8,085,000). Interest amounting to £212,000
(2022: £59,000) was receivable during the year.
Fees amounting to £224,000 (2022: £434,000) were receivable from stock
lending transactions during the year. JPMorgan Investor Services Limited
commissions in respect of such transactions amounted to £25,000 (2022:
£48,000).
At the year end, total cash of £83,000 (2022: £2,865,000) was held with
JPMorgan Chase Bank, N.A. in a non interest bearing current account.
Full details of Directors' remuneration and shareholdings can be found in the
Director's Remuneration Report in the Annual Report.
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 applicable law and United Kingdom
Accounting Standards, comprising Financial Reporting Standard 102 'the
Financial Reporting Standard applicable in the UK and Republic of Ireland'
(FRS 102). 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;
• make judgments and accounting estimates that are reasonable
and prudent; and
• 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 Financial Statements are published on the
www.jpmchinagrowthandincome.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 the Directors'
Report confirm that, to the best of their knowledge:
• the Company's Financial Statements, which have been prepared
in accordance with applicable law and United Kingdom Accounting Standards,
comprising FRS102, give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
• the Strategic 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 Financial Statements, taken
as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's position, performance,
business model and strategy.
For and on behalf of the Board
Alexandra Mackesy
Chairman
12th December 2023
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30th September 2023
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net losses on investments held at fair value through
profit or loss - (45,372) (45,372) - (158,974) (158,974)
Net foreign currency gains/(losses)(1) - 4,740 4,740 - (10,027) (10,027)
Income from investments 3,305 - 3,305 3,693 - 3,693
Other income 440 - 440 493 - 493
Gross return/(loss) 3,745 (40,632) (36,887) 4,186 (169,001) (164,815)
Management fee (617) (1,851) (2,468) (850) (2,549) (3,399)
Other administrative expenses (628) - (628) (605) - (605)
Net return/(loss) before finance costs and taxation 2,500 (42,483) (39,983) 2,731 (171,550) (168,819)
Finance costs (735) (2,206) (2,941) (281) (845) (1,126)
Net return/(loss) before taxation 1,765 (44,689) (42,924) 2,450 (172,395) (169,945)
Taxation charges (208) - (208) (199) - (199)
Net return/(loss) after taxation 1,557 (44,689) (43,132) 2,251 (172,395) (170,144)
Return per share 1.87p (53.71)p (51.84)p 2.71p (207.20)p (204.49)p
(1) £6,155,000 due to an exchange gain on the loan which is
denominated in US dollars and £1,415,000 due to net exchange loss on cash and
cash equivalents (2022: £11,660,000 due to an exchange loss on the loan which
is denominated in US dollars and £1,633,000 due to net exchange gains on cash
and cash equivalents).
STATEMENT OF CHANGES IN EQUITY
For the year ended 30th September 2023
Called up Exercised Capital
share Share warrant redemption Other Capital Revenue
capital premium reserve reserve reserve(1) reserves(2) reserve(2) Total
£000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 30th September 2021 20,803 80,951 3 581 37,392 333,672 - 473,402
Net (loss)/return - - - - - (172,395) 2,251 (170,144)
Dividend paid in the year (note 2) - - - - - (16,721) (2,251) (18,972)
At 30th September 2022 20,803 80,951 3 581 37,392 144,556 - 284,286
Net (loss)/return - - - - - (44,689) 1,557 (43,132)
Dividend paid in the year (note 2) - - - - - (9,825) (1,557) (11,382)
At 30th September 2023 20,803 80,951 3 581 37,392 90,042 - 229,772
(1) Created during the year ended 30th September 1999, following a
cancellation of the share premium account.
(2) These reserves form the distributable reserves of the Company and
may be used to fund distributions to investors.
STATEMENT OF FINANCIAL POSITION
At 30th September 2023
2023 2022
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 262,005 333,206
Current assets
Debtors 157 1,997
Cash and cash equivalents 87 10,950
244 12,947
Current liabilities
Creditors: amounts falling due within one year (669) (61,867)
Net current liabilities (425) (48,920)
Total assets less current liabilities 261,580 284,286
Non current liabilities
Creditors: amounts falling due after more than one year (31,808) -
Net assets 229,772 284,286
Capital and reserves
Called up share capital 20,803 20,803
Share premium 80,951 80,951
Exercised warrant reserve 3 3
Capital redemption reserve 581 581
Other reserve 37,392 37,392
Capital reserves 90,042 144,556
Revenue reserve - -
Total shareholders' funds 229,772 284,286
Net asset value per share 276.2p 341.7p
STATEMENT OF CASH FLOWS
For the year ended 30th September 2023
2023 2022(1)
£'000 £'000
Cash flows from operating activities
Net loss before finance costs and taxation (39,983) (168,819)
Adjustment for:
Net losses on investments held at fair value through profit or loss 45,372 158,974
Net foreign currency (gains)/losses (4,740) 10,027
Dividend income (3,305) (3,693)
Interest income (216) (59)
Realised gain/(loss) on foreign exchange transactions 95 (776)
Realised exchange (loss)/gain on liquidity fund (990) 1,089
Increase in accrued income and other debtors (8) (17)
Increase in accrued expenses 44 6
Net cash outflow from operations before dividends and interest (3,731) (3,268)
Dividends received 3,068 3,412
Interest received 216 59
Net cash (outflow)/inflow from operating activities (447) 203
Purchases of investments (184,366) (233,601)
Sales of investments 208,204 265,482
Settlement of foreign currency contracts - (129)
Net cash inflow from investing activities 23,838 31,752
Dividends paid (11,382) (18,972)
Repayment of bank loans (53,866) (12,470)
Drawdown of bank loans 34,318 9,995
Utilisation of bank overdraft - (124)
Interest paid (2,804) (920)
Net cash (outflow) from financing activities (33,734) (22,491)
(Decrease)/increase in cash and cash equivalents (10,343) 9,464
Cash and cash equivalents at start of year 10,950 36
Exchange movements (520) 1,450
Cash and cash equivalents at end of year 87 10,950
Cash and cash equivalents consist of:
Cash and short term deposits 83 2,865
Cash held in JPMorgan US Dollar Liquidity Fund 4 8,085
Total 87 10,950
(1) The presentation of the Cash Flow Statement, as permitted under
FRS 102, has been changed so as to present the reconciliation of 'net
return/(loss) before finance costs and taxation' to 'net cash (outflow)/inflow
from operating activities' on the face of the Cash Flow Statement. Previously,
this was shown by way of note. Interest paid has also been reclassified to
financing activities, previously shown under operating activities, as this
relates to the loans drawn down. Other than consequential changes in
presentation of the certain cash flow items, there is no change to the cash
flows as presented in previous periods.
Analysis of changes in net debt
As at Other As at
30th September non-cash 30th September
2022 Cash flows charges(1) 2023
£'000 £'000 £'000 £'000
Cash and cash equivalents
Cash 2,865 (2,495) (287) 83
Cash equivalents 8,085 (7,848) (233) 4
10,950 (10,343) (520) 87
Borrowings:
Debt due within one year (57,511) 49,142 8,369 -
Debt due after one year - (29,594) (2,214) (31,808)
(57,511) 19,548 6,155 (31,808)
Net debt (46,561) 9,205 5,635 (31,721)
(1) Other non-cash charges represents the foreign exchange gains and
losses on amounts held in foreign currency.
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 July 2022.
All of the Company's operations are of a continuing nature.
The Financial Statements have been prepared on a going concern basis. In
forming this opinion, the Directors have considered the Company's investment
objective, risk management policies, capital management policies and
procedures, the nature of the portfolio and revenue as well as expenditure
projections, taking into account the heightened market volatility since the
COVID-19 outbreak, the growing geopolitical risk to include tensions between
China and the United States and the ongoing conflict between Russia and
Ukraine and more recently Israel and Palestine. The Company's shareholders
voted for the continuation of the Company at the 2023 AGM. The next
continuation vote will be at the 2028 AGM.
The policies applied in these Financial Statements are consistent with those
applied in the preceding year.
2. Dividends
(a) Dividends paid and declared
2023 2022
£'000 £'000
Dividends paid
2023 first quarterly interim dividend of 3.42p (2022: 5.7p) 2,846 4,743
2023 second quarterly interim dividend of 3.42p (2022: 5.7p) 2,846 4,743
2023 third quarterly interim dividend of 3.42p (2022: 5.7p) 2,845 4,743
2023 fourth quarterly interim dividend of 3.42p (2022: 5.7p) 2,845 4,743
Total dividends paid in the period 11,382 18,972
In respect of the year ending 30th September 2024, the first quarterly interim
dividend of 2.76p per share amounting to £2,296,000 (2023: 3.42p per share
amounting to £2,846,000) has been declared and paid. In accordance with the
accounting policy of the Company, this dividend will be reflected in the
Financial Statements for the year ending 30th September 2024.
(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
paid and declared in respect of the financial year, shown above. For the year
ended 30th September 2023, the dividends declared were paid during the year as
shown above.
The aggregate of the distributable reserves is £90,042,000 (2022:
£144,556,000). Please note that at the Annual General Meeting ('AGM') in
February 2020, shareholders approved an amendment to the Company's Articles of
Association to allow the Company to distribute capital as income to enable the
implementation of the Company's dividend policy.
The aggregate of the distributable reserves after the payment of the first
quarterly dividend for the year ended 2024 will amount to £87,746,000 (2022:
£141,710,000).
3. Return/(loss) per share
2023 2022
£'000 £'000
Revenue return 1,557 2,251
Capital loss (44,689) (172,395)
Total loss (43,132) (170,144)
Weighted average number of shares in issue during the year 83,202,465 83,202,465
Revenue return per share 1.87p 2.71p
Capital loss per share (53.71)p (207.20)p
Total loss per share (51.84)p (204.49)p
4. Net asset value per share
2023 2022
Net assets (£'000) 229,772 284,286
Number of shares in issue 83,202,465 83,202,465
Net asset value per share 276.2p 341.7p
5. Status of results announcement
2022 Financial Information
The figures and financial information for 2022 are extracted
from the Annual Report and Financial Statements for the year ended 30th
September 2022 and do not constitute the statutory accounts for that year.
The Annual Report and Financial Statements has 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.
2023 Financial Information
The figures and financial information for 2023 are extracted
from the Annual Report and Financial Statements for the year ended 30th
September 2023 and do not constitute the statutory accounts for that year.
The Annual Report and Financial Statements includes the Report of the
Independent Auditor 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 Financial Statements 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.
12th December 2023
For further information:
Lucy Dina,
JPMorgan Funds Limited
020 7742 4000
ENDS
A copy of the 2023 Annual Report and Financial Statements will shortly be
submitted to the FCA's National Storage Mechanism and will be available for
inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://secureweb.jpmchase.net/readonly/https:/lnks.gd/l/eyJhbGciOiJIUzI1NiJ9.eyJidWxsZXRpbl9saW5rX2lkIjoxMDIsInVyaSI6ImJwMjpjbGljayIsImJ1bGxldGluX2lkIjoiMjAyMDA0MDUuMTk3NzA4MDEiLCJ1cmwiOiJodHRwczovL2RhdGEuZmNhLm9yZy51ay8jL25zbS9uYXRpb25hbHN0b3JhZ2VtZWNoYW5pc20ifQ.b7Q7NXHGRA8MjB_Ugl8Tv4JxhiU28TbcoNb04FTTMiY/br/77057565556-l)
The 2023 Annual Report and Financial Statements will also shortly be available
on the Company's website at www.jpmchinagrowthandincome.co.uk
(http://www.jpmchinagrowthandincome.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
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