JPMorgan China G&I - Half-year Report
29/05/2024 12:48
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RNS Number : 3096Q JPMorgan China Growth & Income PLC 29 May 2024
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN CHINA GROWTH & INCOME TRUST PLC
UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS
ENDED 31ST MARCH 2024
Legal Entity Identifier: 549300S8M91P5FYONY25
Information disclosed in accordance with DTR 4.2.2
The Directors announce the Company's results for the six months ended 31st
March 2024.
Chairman's Statement
Introduction
During the six months to 31st March 2024, the extreme volatility that has
battered Chinese stock markets since March 2023 continued to overshadow market
performance. Sentiment remained depressed, impacted by concerns about fragile
domestic consumer confidence, the significant challenges facing the Chinese
property and regional financial sectors, global macroeconomic concerns and
continued geopolitical tensions, particularly between the US and China.
Against this difficult backdrop, Chinese growth stocks, which have long been
the focus of our disciplined Portfolio Managers, remained out of favour, and
the Company's performance suffered accordingly.
Performance
Faced with this market volatility and these challenges, the Company's total
return on net assets (with net dividends reinvested) fell 13.1% over the six
months ended 31st March 2024, underperforming the MSCI China Index, which
declined 9.5%. Over the same period, the total return to shareholders declined
11.9%, reflecting the narrowing of the discount to net asset value ('NAV') at
which the Company's shares trade, from -11.5% at the previous financial year
end to -10.4% at the half year end.
While this short-term performance is disappointing, we are mindful of the
Company's 30 year track record as a listed entity, and the importance of
taking a long-term view. We are encouraged that over the longer term, our
Company has made positive absolute returns, comfortably outperforming the
benchmark over ten years. The relative underperformance to the benchmark index
is explained in the Investment Manager's Report in the Half Year Report. This
report provides a detailed commentary on the portfolio positioning, the
investment strategy and the outlook for investing in China.
Loan Facility and Gearing
The Portfolio Managers have been given the flexibility by the Board to manage
gearing tactically within a range set by the Board of 10% net cash to 20%
geared. During the period, the Company's gearing ranged from 3.8% to 15.6%,
ending the half year at 4.3%.
During the reporting period, the Company continued to utilise its facility
agreement with Industrial and Commercial Bank of China Limited, London Branch
(ICBC), in respect of a revolving loan facility of up to £60.0 million to
maintain a meaningful but modest level of gearing. Due to market movements and
after discussions with ICBC, the Company's loan agreement was amended on
28th March 2024 and the facility was reduced to a commitment of up to £30.0
million. Some changes were also made to certain financial covenants.
There is currently £9.2 million drawn down on the existing loan facility,
which expires in July 2025.
Our Dividend Policy
In the absence of unforeseen developments, the Company's dividend policy aims
to pay regular, quarterly dividends, equivalent in total to 4% of the
Company's NAV on the last business day of the preceding financial year, in
order to provide clarity to shareholders over the income stream they can
expect during the following 12 months. This is paid by way of four equal
interim dividends on the first business day in December, March, June and
September.
On 2nd October 2023, the Company announced that the cum income Net Asset Value
at the close of business on 30th September 2023 (the Company's year-end) was
276.05 pence per share. In line with the Company's distribution policy, the
Directors declared the first quarterly interim dividend of 2.76 pence per
share. Since then, two further dividend declarations have been made on 2nd
January 2024 and 2nd April 2024, both of 2.76 pence per share. With the
planned declaration of the final quarterly dividend of 2.76 pence per share on
1st July 2024, in the absence of unforeseen circumstances, the annual dividend
for the year ending 30th September 2024 will be 11.04 pence per share (2023:
13.68 pence).
Share Capital
At the time of writing, the Company's issued share capital consists of
83,202,465 Ordinary shares. The Company currently holds no shares in Treasury.
During the six-month reporting period, the Company did not repurchase or issue
any shares.
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 Half Year Report.
Outlook
China stock markets have stabilised since January, as concerns about the
Chinese property market and the broader economy eased. Investors have also
been encouraged by the Chinese government's indications of a planned economic
stimulus programme and continued evidence of companies raising dividend
payouts and buying back shares. Reflecting this, the Company's share price has
risen to 236.5p on 27th May 2024, climbing 12.6% since 31st March 2024, with
the discount to NAV narrowing from 10.4% to 9.3% over the same period.
As a Board, we are mindful that challenges remain. While the Chinese
government has recently confirmed its GDP forecast of 5% for 2024, domestic
consumer demand is still subdued. While recent talks between China and US have
been encouraging, an escalation in anti-Chinese rhetoric ahead of this year's
US presidential election cannot be ruled out. Concerns also remain about
shifting patterns in global supply chains and the ongoing conflicts in Ukraine
and the Middle East, which may also dampen market sentiment in the short term.
That said, our Portfolio Managers are increasingly optimistic about the
prospects for Chinese equities over the coming year. Determined to recover
lost performance, they are using the opportunities offered by current low
valuations to build up positions in quality companies that offer robust
long-term growth. As a Board, we share our Managers' optimism. We remain
confident that their disciplined investment strategy, combined with the skills
and experience of the well-resourced investment team, will enable the Company
to deliver superior long-term returns.
Alexandra Mackesy
Chairman
29th May 2024
INVESTMENT MANAGER'S REPORT
Introduction
During the six months ended 31st March 2024, the Company's total return on net
assets declined 13.1% (in sterling terms), compared to a benchmark decline of
9.5%. However, the Company's long-term track record of outright gains and
outperformance remains intact. In the ten years ended March 2024, the
portfolio outperformed its benchmark by a total of 23.4 percentage points.
Setting the scene
China's economic recovery remained relatively tepid during the period under
review, registering GDP growth of 5.2% in real terms. The key reason for this
is that it is taking time for the economy to work through the challenges it
faces, including the bursting of the property sector bubble and high local
government indebtedness.
Domestic policy makers remain responsive but are reluctant to launch large
scale stimulus packages, as China did in 2008 in the wake of the global
financial crisis, mainly because of concerns about local government debt
levels. In the National People's Congress meeting in March 2024, the Premier
announced that the authorities are targeting GDP growth of 5% (in real terms)
and a government deficit of 3% of GDP. He also indicated plans to issue USD1.0
trillion of ultra-long dated treasury bonds to support fiscal spending in
regions where local governments are subject to austerity measures. These
announcements aligned with matched expectations of modest fiscal expansion.
The People's Bank of China (PBoC) continues to ease monetary policy via cuts
in the reserve ratio and the loan prime rate. However, the PBoC wants to limit
the exchange rate impact of monetary easing, so its scope to loosen monetary
settings further is being constrained by stickier than expected US inflation,
which is likely to prevent the Fed from cutting rates as quickly as many
hoped.
Turning to developments in specific industries, property sales and investment
in new development projects continued to decline in the first quarter of 2024
on a year-on-year basis. However, we saw more measures intended to stimulate
demand in the property sector. On the demand side, we saw reductions in down
payment requirements and mortgage rates, and the removal of purchase
restrictions in almost all but the largest cities. On the supply side, the
government is calling on banks and local governments to make a coordinated
effort to prevent key developers from defaulting. Elsewhere, in an attempt to
boost weak consumer confidence, central and local governments launched
stimulatory measures such as subsidies for scrapped vehicles and home
appliances. To support business confidence, governments promised fiscal
support for investment in technological development and equipment upgrades,
with details yet to be disclosed.
Thanks at least in part to all these measures, the Chinese economy started to
show some signs of recovery during the first quarter of 2024. The purchasing
managers index (PMI), which is a forward indicator of activity in the
manufacturing sector, returned to 50.8% meaning the manufacturing sectors are
growing compared to the previous month, and inflation turned positive in
February 2024. Investors welcomed industry-specific stimulus policies, and
stock market sentiment began to improve from a very low level, assisted by
state-owned investment funds, which began buying domestic stock ETFs. This
buying sent a very strong signal of the government's willingness to support
capital markets.
Valuations remain very attractive compared with both long-term historic levels
and other major stock markets, especially given the authorities' recent
efforts to improve shareholder returns. Returns on equity (ROE) and dividend
payout ratios have become important key performance indicators (KPIs) for
managers of state-owned enterprises (SOEs), and they are being urged to
increase dividend payouts and become more shareholder friendly. In addition,
the security market regulator, the China Securities Regulatory Commission
(CSRC), pledged to improve shareholder returns and to crack down on capital
market misconduct. These policy initiatives are widely regarded as signals of
a shift in the authorities' mindset, from viewing the equity market as a tool
to fund economic growth to seeing it as the means of wealth creation for
shareholders. With the economy stabilising, valuations attractively low and
shareholder returns increasing, international investors are once again
focusing their attention on Chinese stock markets.
The external environment still presents challenges, but we believe tensions
between China and the US have eased significantly, following a series of
high-level engagements, including a Biden-Xi summit, and visits by the US
Secretary of State and Treasury Secretary to meet their Chinese counterparts.
As President Biden says, the US wants competition, not confrontation, with
China.
Performance commentary
Investing in Chinese equities has been especially challenging during the past
three years. Some of the risks encountered were completely unanticipated and
beyond the control of companies and investors. Many of the growth companies we
favour failed to meet their forecasts, and valuations came under pressure from
rising interest rates relevant to international investors. In addition, the
decline in domestic interest rates increased the attraction of high dividend
yielding stocks, creating another style headwind for the company.
Our style bias in favour of growth stocks remained a drag on performance over
the past six months. The MSCI China Growth Index declined by 11.6% (in GBP
terms), lagging the MSCI China Value Index, which fell by only 4.8%. The value
sectors that we tend to underweight, including Financials, Energy and
Materials, outperformed the benchmark. Amongst our more growth-oriented
holdings, sector allocation and stock selection in healthcare were the biggest
detractors, along with stock selection in industrials.
Within Financials, large SOE banks such as China Construction Bank and Bank of
China outperformed our holdings of more market-oriented banks such as China
Merchants Bank, which we believe possess better long-term growth prospects.
The main reasons for the SOEs' outperformance are attractive high single digit
dividend yields as a result of low valuations; and investors generally assume
dividends will not be reduced as the dividend stream is an important source of
revenue for the central government. Despite China Merchants Bank's recent
underperformance, we have retained our long-term holding. We believe it is
still the best managed Chinese bank, and its healthy ROE and capitalisation
make it one of the few Chinese banks with real scope to increase dividend
payouts. Elsewhere in the financial sector, life insurers, including China
Pacific Insurance which we hold, underperformed the sector on concerns about
downward pressure on premiums and returns, after regulators banned the sales
of certain investment products.
Energy outperformed, lead by petroleum and coal companies, primarily due to
their high dividend yields. We are zero-weighted in this sector, as we
struggle to find companies with repeatable growth, and we think the high
dividend yields are not sufficient to offset the inherent volatility of these
businesses. We also avoid petroleum and coal companies due to the high carbon
intensity of their products. Materials also outperformed as demand for copper
and aluminum was better than expected, and the supply side responded to
cyclical low demand for aluminium by cutting capacity. However, the high
growth companies making innovative materials that we hold, such as Sunresin
New Material, a supplier of specialist industrial resins, underperformed. The
decline in Sunresin's valuation provided us with the opportunity to top up our
position at an attractive level. Within this sector, we also like companies
producing materials such as copper and lithium, that play an important role in
the production and supply of renewable energy.
Our stock selection in Health Care and Industrials contributed negatively to
our performance. Wuxi Biologics and Asymchem, our holdings in the contract
development & manufacturing organisation (CDMO) sector, which conducts
R&D on a contract basis, saw their share prices plummet after the
US House of Representatives sought to pass the Biosecure Act, which would
prevent US federally funded projects from employing Chinese CDMOs on national
security grounds. Investors also worried that the Act, if passed, may also
adversely impact the willingness of US pharmaceutical companies to use Chinese
CDMOs, even though these commercial projects are not funded by the US
government. We are retaining our position in Wuxi Biologics because its
valuation is attractive after the share price fall, even allowing for
geopolitical risks. In addition, this company's fundamental businesses are
resilient, and it has been building global capacity during the past few years
in response to client demand. Some of its European factories are becoming
profitable, in part due to strong order growth from European pharmaceutical
companies. Asymchem, although not specifically mentioned in the Biosecure Act,
also saw its valuation drop due to the same concerns. In addition, the company
suffered from temporary capacity underutilization after the collapse in demand
for COVID-related drugs.
Our holdings in several industrial names derated on concerns about sluggish
fixed asset investment and oversupply in the solar and electric vehicle
sectors. Affected holdings included Shanghai Liangxin Electricals, which
specialises in low voltage electrical apparatus, Hongfa Technology, which
produces electrical appliances and equipment, and Jiangsu Hengli Hydraulic,
which supplies hydraulic pumps and electric motors for construction and other
heavy machinery. We cannot dismiss the adverse impact of macroeconomic
cyclicality on our industrial holdings, but there are lots of positive
idiosyncratic factors in play, such as market share gains, growing export
demand and new product launches, that we expect to support their
outperformance over time. We made small adjustments to some position sizes but
maintain our positive long-term assessment of our industrial holdings.
On the positive side, stock selection in some sectors has resulted in positive
returns. At the sectoral level, our exposure to Consumer Discretionary
contributed the most. Holdings in travel related names such as Trip.com, an
online travel agency, and hotelier H World outperformed as leisure travel
remained strong. Competition in this industry is benign and both companies
executed really well. In the auto sector, we prefer to gain exposure to the
rising penetration of electrical vehicles (EVs) globally through component
makers such as Fuyao Glass, an auto glass maker, and Hongfa Technology, a high
voltage relay maker, rather than via original equipment makers (OEM), which
use those components to manufacturer equipment for use in EVs. Our decision
not to own several EV OEMs, namely Xpeng, Nio, Li Auto and BYD, collectively
contributed to relative returns. Despite exciting model launches,
profitability in this industry struggles due to fierce competition between
traditional auto OEMs and new entrants. In Communication Services, there was a
positive contribution from Kanzhun, which operates Boss Zhipin, the largest
online job matching platform in China. Boss Zhipin continues to gain market
share and revenues. Judging from leading indicators on its platform, the
overall employment market is recovering, which bodes well for future demand
for its services. Not owning Baidu, the largest search engine, and Kuaishou, a
short video social media platform, also contributed positively, as these
companies are losing market share in their core businesses of online
advertising and short video social media due to increased pressure from
competitors.
Performance attribution
For the six months ended 31st March 2024
% %
Contributions to total returns
Benchmark Return -9.5
Sector allocation 1.0
Stock allocation -3.5
Currency effect 0.1
Gearing/Cash -0.6
Investment manager contribution -3.0
Dividends/residual 0.2
Portfolio return -12.3
Management fee/other expenses -0.8
Return on net assets(A) -13.1
Impact of change in discount 1.2
Return to shareholders(A) -11.9
Source: FactSet, JPMAM and Morningstar.
Performance attribution analyses how the Company achieved its recorded
performance relative to its benchmark index.
(A) Alternative Performance Measure ('APM').
Transactions and sector allocation
Despite the adverse effect on recent performance of our bias towards growth
stocks, we intend to maintain our preference for growth. Firstly, we believe
that despite cyclical headwinds and talks about diversifying supply chains to
include countries other than China, many Chinese companies remain capable and
competitive on a global basis. In addition, we increasingly see our quality
growth holdings launching 'self-help' measures to support their share prices,
including cost cutting, more generous dividend payouts and large-scale
buybacks.
Our sector weightings are largely unchanged. We remain overweight in sectors
with long-term growth opportunities in information technology, internet
platforms, health care, and globally competitive manufacturing businesses.
Meanwhile, we continue to review our forecasts for some growth companies, as
we want to concentrate our positions in companies in which we have the highest
conviction.
We have executed more complete exits in the past six months than usual, in
part to increase the concentration of our portfolio, and also because we
reduced leverage in December to meet NAV covenants. We sold a few small
positions where our conviction levels had waned. We also sold several
outperformers whose valuations were looking expensive. For example, we took
profits on China Yangtze Power, China's largest hydro power producer, which
generates low-cost, eco-friendly electricity. Outperformance had pushed the
dividend yield down to some 4% and, as its EPS growth looked set to remain in
the low single digits, we sold the position. We also realised gains on
Shanghai Baosight Software, a software and automation solution provider
servicing the steel industry, and on Beijing Kingsoft Office, a business
software provider.
We exited some positions when performance had disappointed expectations,
forcing us to sell at a loss. For example, we sold two discretionary
consumption plays, Aier Eye Hospital which specialises in treatments such as
refractive eye surgery, and Jiumaojiu International, a casual dining
restaurant chain. Originally, we expected these businesses to benefit from
pent-up demand following the post-pandemic economic re-opening, but weak
consumer confidence and deflation in the consumer sector made them far less
attractive than we originally estimated. We also exited a few companies that
operate in highly competitive industries, where we no longer have confidence
in their ability to consolidate their positions. Sales in this group included
JD.com, one of China's largest ecommerce platforms, ZTO Express, a delivery
company, Yunnan New Energy Material, a lithium battery separator maker, and
Longi Green Energy Technology, a manufacturer of solar wafers and panels.
We are still actively seeking and investing in structural growth
opportunities. In January 2024, we bought a new position in Taiwan
Semiconductor Manufacturing Company (TSMC). Its strong position in the
semiconductor business is further cemented in the AI era by its capability in
advanced node and its ownership of Chip-on-Wafer-on-Substrate (CoWoS), its
proprietary packaging technology platform. TSMC's valuation is very attractive
considering its status as an AI enabler. We also topped up Foxconn Industrial
Internet, which makes communications network and cloud services equipment,
including graphic processing units (GPU), for Nvidia, enterprise data centers
and cloud service providers. The complexity, intensive energy consumption and
rapid product evolution which characterise such businesses generate great
growth opportunities for Foxconn. We bought a modest position in the world's
largest lithium battery maker, Contemporary Ampertex Technology Limited
(CATL), a company which we have previously owned. This industry has been
dogged by oversupply, and, reflecting this, CATL's valuation became more
reasonable. Auto makers value CATL for its quality, and lower tier battery
makers are struggling to compete, so the unit profit on its batteries has
stabilised.
We are also looking for quality businesses offering great potential that are
recovering from the cyclical downturn. We initiated a new position in iQIYI, a
long video streaming platform, similar to Netflix. China's long video
streaming industry has consolidated in the past few years into a duopoly, with
iQIYI and Tencent Video as the two largest players. This has heralded a few
positive changes, including lower content costs, higher membership fees, and
the accumulation of content libraries that help retain members at low cost.
These changes should see iQIYI's cash generation improve significantly, which
will allow it to repay expensive borrowing and implement share buybacks.
In the broad consumer sector, we favour businesses with pricing power. We
initiated a position in Chacha Food, the largest sunflower, nut and seed snack
brand in China. The company's margins are improving thanks to efficiency gains
and price hikes, and it has committed to maintaining its good track record of
paying dividends by raising its payout ratio even further. We also bought
China Resources Sanjiu, a market leader in traditional, over-the-counter
Chinese medicines for minor ailments. Sanjiu has become a household name
following decades of sophisticated brand building. Given its strong brand and
its control of distribution channels, it has an ample capability to pass on
raw material cost increases to its customers. In addition, as a highly cash
generative and well-managed SOE, it is likely to gradually increase its payout
ratio.
We maintain our focus on good ESG practices and our preference for quality,
cash generative businesses that return excess capital to shareholders. As part
of our active engagement on ESG matters with the companies in our portfolio,
we have been encouraging them to improve shareholder returns via larger
dividend payments and share buybacks.
Outlook
We believe the worst is probably behind us both in terms of the slowdown of
China's economic growth, and the derating of Chinese equities. There are good
reasons to view the outlook more positively. For a start, we see some signs
of a domestic economic recovery. At the same time, exports have remained
resilient throughout the economic downturn. Several domestically focused
internet and consumer companies have become even more cash generative, thanks
to improved operating efficiencies and reductions of non-core investments.
Like the SOEs, they are returning more cash to shareholders. The property
sector is also showing some signs of stabilising. After declining for two
years, we believe sales of new homes are now close to a level justified by
long-term trends in population growth and new family formation. The sector's
drag on GDP is also diminishing, although it will still detract from growth
this year. We expect 2024 to bring more local stimulus policies to support
housing demand, and perhaps even a comprehensive clean-up of developers' bad
loans. Contagion risks to the financial sector are contained at the moment,
helped by provisions made in the past and decline in deposit rates. In the
solar and electric vehicle sectors, oversupply should ease gradually as some
weaker, poorly-funded suppliers struggle to compete and eventually exit the
market.
Valuations are now at very attractive levels. Using the conservative valuation
metrics of price to book, the ratio of the MSCI China Index is 1.22x, a level
only seen during SARS in 2003 and China's 2016 slowdown. Chinese stock markets
are now priced more cheaply than they were during the 2008-2009 Global
Financial Crisis. Geopolitics are partially to blame, but we believe this
dampener on sentiment and risk appetite is abating. In the wake of several
recent high level meetings between US and Chinese leaders and officials, it is
now widely accepted that China and US will continue to compete in various
areas, irrespective of which candidate wins the US Presidency. Direct
confrontation and war is highly unlikely, as both parties agree that this
would be counter to their best interests. Concerns regarding tensions across
the Taiwan Strait also seem to have eased after Taiwan's presidential election
proceeded peacefully. The victor, William Lai of the pro-independence
Democratic Progressive Party, favours preserving Taiwan's current political
status. As the election did not deliver a majority to any one party, it is
highly unlikely that Taiwan's legislature will pass any radical resolution
imposing pressure on the cross-strait relationship.
Valuations may be boosted over the medium term by official pressure to improve
shareholder returns. Our portfolio should benefit accordingly. While many of
our cash rich holdings are already increasing payout ratios and conducting
buybacks, there is scope for some to do even more. While challenges
undoubtedly remain, given the amount of risk, disappointment and possible
pessimism priced into the market at current levels, we see potential for
upside surprises to results and valuations in the next twelve months, possibly
encouraged by ongoing market support from government financial institutions.
For all these reasons, we are becoming more optimistic about the prospects for
Chinese equities over the coming financial year. We are determined to grasp
the opportunities created by an economic and market recovery to claw back lost
performance, and we look forward to reporting on the company's progress as our
portfolio companies realise their true worth.
We thank you for your ongoing support.
Rebecca Jiang
Howard Wang
Li Tan
Investment Team
29th May 2024
INTERIM MANAGEMENT REPORT
The Company is required to make the following disclosures in its half year
report:
Principal and Emerging Risks and Uncertainties
Supported by a detailed risk matrix, the Board has identified the principal
risks and uncertainties which face the Company. These risks fall into the
following broad categories: geopolitical; investment underperformance;
investment strategy; loss of Investment Team or Investment Manager; share
price discount; corporate governance; shareholder relations; financial;
cybercrime; fraud/other operating failures or weaknesses; legal and
regulatory; global pandemics; ESG risk; and climate change. While these
categories have not changed from those reported in the Strategic Report within
the Annual Report and Financial Statements for the year ended 30th September
2023, the Board considers that some uncertainties within these categories have
increased in risk since the year end and are monitoring them carefully. These
include the continuing conflict between Russia and the Ukraine and more
recently the conflict between Israel and Palestine, heightened tensions
between the US and China, the introduction of trade-related sanctions by both
the US and China, and fragile consumer demand in China. Last year, the Board
also identified the following emerging risks: social unrest within China; and
Artificial Intelligence.
Related Parties Transactions
During the first six months of the current financial year, no transactions
with related parties have taken place which have materially affected the
financial position or the performance of the Company during the period.
Going Concern
The Directors believe, having considered the Company's investment objectives,
risk management policies, capital management policies and procedures, nature
of the portfolio and expenditure projections, that the Company has adequate
resources, an appropriate financial structure and suitable management
arrangements in place to continue in operational existence for the foreseeable
future and, more specifically, that there are no material uncertainties
pertaining to the Company that would prevent its ability to continue in such
operational existence for at least 12 months from the date of the approval of
this half yearly financial report. In reaching that view, the Directors have
considered the impact of economic conditions in China, risks relating to the
Chinese property market, the financial stability of provincial governments and
continuing geopolitical tensions between China and the US on the Company's
financial, operational position and market conditions. They have
also considered the wider implications of the ongoing Russia-Ukraine conflict
and more recently the conflict between Israel and Palestine. For these
reasons, they consider there is reasonable evidence to continue to adopt the
going concern basis in preparing the accounts.
Directors' Responsibilities
The Board of Directors confirms that, to the best of its knowledge:
(i) the condensed set of Financial Statements contained within the
half yearly financial report has been prepared in accordance with FRS 104
'Interim Financial Reporting' and gives a true and fair view of the state of
affairs of the Company and of the assets, liabilities, financial position and
net return of the Company, as at 31st March 2024, as required by the UK
Listing Authority Disclosure and Transparency Rule ('DTR') 4.2.4R; and
(ii) the interim management report includes a fair review of the
information required by DTR 4.2.7R and DTR 4.2.8R of the UK Listing Authority
Disclosure and Transparency Rules.
In order to provide these confirmations, and in preparing these financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the
financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business;
and the Directors confirm that they have done so.
For and on behalf of the Board
Alexandra Mackesy
Chairman
29th May 2024
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st March 2024 31st March 2023 30th September 2023
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments
held at fair value through
profit or loss - (30,253) (30,253) - 20,148 20,148 - (45,372) (45,372)
Net foreign currency gains - 923 923 - 4,542 4,542 - 4,740 4,740
Income from investments 615 - 615 270 - 270 3,305 - 3,305
Interest receivable and similar
income(1) 33 - 33 290 - 290 440 - 440
Gross return/(loss) 648 (29,330) (28,682) 560 24,690 25,250 3,745 (40,632) (36,887)
Management fee (231) (692) (923) (329) (988) (1,317) (617) (1,851) (2,468)
Other administrative expenses (324) - (324) (280) - (280) (628) - (628)
Net return/(loss) before
finance costs and taxation 93 (30,022) (29,929) (49) 23,702 23,653 2,500 (42,483) (39,983)
Finance costs (161) (482) (643) (363) (1,088) (1,451) (735) (2,206) (2,941)
Net (loss)/return before
taxation (68) (30,504) (30,572) (412) 22,614 22,202 1,765 (44,689) (42,924)
Taxation (18) - (18) (8) - (8) (208) - (208)
Net (loss)/return after taxation (86) (30,504) (30,590) (420) 22,614 22,194 1,557 (44,689) (43,132)
(Loss)/return per share (note 3) (0.10)p (36.66)p (36.76)p (0.50)p 27.18p 26.68p 1.87p (53.71)p (51.84)p
(1) Includes income from securities lending.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or
discontinued in the period.
The 'Total' column of this statement is the profit and loss account of the
Company and the 'Revenue' and 'Capital' columns
represent supplementary information prepared under guidance issued by the
Association of Investment Companies.
The net return/(loss) after taxation represents the return/(loss) for the
period and also the total comprehensive income.
CONDENSED STATEMENT OF CHANGES IN EQUITY
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
Six months ended 31st March 2024
(Unaudited)
At 30th September 2023 20,803 80,951 3 581 37,392 90,042 - 229,772
Proceeds from share forfeiture(3) - - - - - 323 - 323
Net loss - - - - - (30,504) (86) (30,590)
Dividend paid in the period (note 4) - - - - - (4,593) - (4,593)
Refund of unclaimed divdiends (note 4) - - - - - 161 - 161
At 31st March 2024 20,803 80,951 3 581 37,392 55,429 (86) 195,073
Six months ended 31st March 2023
(Unaudited)
At 30th September 2022 20,803 80,951 3 581 37,392 144,556 - 284,286
Net return/(loss) - - - - - 22,614 (420) 22,194
Dividend paid in the period (note 4) - - - - - (5,692) - (5,692)
At 31st March 2023 20,803 80,951 3 581 37,392 161,478 (420) 300,788
Year ended 30th September 2023
(Audited)
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 4) - - - - - (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 distribution to investors.
(3) During the period the Company undertook an Asset Reunification
Program for its shareholders. In accordance with the Company's Articles of
Association, shares that could not be traced to shareholders over 12 years old
were forfeited. These share were sold in the open market and the proceeds
returned to the Company.
CONDENSED STATEMENT OF FINANCIAL POSITION
(Unaudited) (Unaudited) (Audited)
At At At
31st March 31st March 30th September
2024 2023 2023
£'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 203,446 348,361 262,005
Current assets
Debtors 74 954 157
Cash and cash equivalents 1,514 7,798 87
1,588 8,752 244
Current liabilities
Creditors: amounts falling due within one year(1) (724) (56,325) (669)
Net current assets/(liabilities) 864 (47,573) (425)
Total assets less current liabilities 204,310 300,788 261,580
Non current liabilities
Creditors: amounts falling due after more than one year(1) (9,237) - (31,808)
Net assets 195,073 300,788 229,772
Capital and reserves
Called up share capital 20,803 20,803 20,803
Share premium 80,951 80,951 80,951
Exercised warrant reserve 3 3 3
Capital redemption reserve 581 581 581
Other reserve 37,392 37,392 37,392
Capital reserves 55,429 161,478 90,042
Revenue reserve (86) (420) -
Total shareholders' funds 195,073 300,788 229,772
Net asset value per share (note 5) 234.5p 361.5p 276.2p
(1) As at 31st March 2024, £9.2m (31st March 2023: £52.6m; 30th
September 2023: £31.8m) was drawn down from the loan facility.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st March 31st March 30th September
2024 2023 2023
£'000 £'000 £'000
Cash flows from operating activities
Net (loss)/profit before finance costs and taxation (29,929) 23,653 (39,983)
Adjustment for:
Net losses/(gains) on investments held at fair value through
profit or loss 30,253 (20,148) 45,372
Net foreign currency gains (923) (4,542) (4,740)
Dividend income (615) (270) (3,305)
Interest income (13) (117) (216)
Realised (gains)/losses on foreign exchange transactions (29) (809) 95
Realised exchange losses on the JPMorgan USD Liquidity Fund - (310) (990)
Increase in accrued income and other debtors - (12) (8)
(Decrease)/increase in accrued expenses (79) (24) 44
Net outflow from operating activities before dividends
and interest (1,335) (2,579) (3,731)
Dividends received 680 310 3,068
Interest received 13 117 216
Net cash outflow from operating activities (642) (2,152) (447)
Purchases of investments (19,801) (122,398) (184,366)
Sales of investments 48,604 127,557 208,204
Net cash inflow from investing activities 28,803 5,159 23,838
Equity dividends paid (note 4) (4,432) (5,692) (11,382)
Refund of unclaimed dividends (note 4) 161 - -
Repayment of bank loan (21,618) (4,317) (53,866)
Drawdown of bank loan - 4,723 34,318
Proceeds from share forfeiture 323 - -
Loan interest paid (1,007) (1,187) (2,804)
Net cash outflow from financing activities (26,734) (6,473) (33,734)
Increase/(decrease) in cash and cash equivalents 1,427 (3,466) (10,343)
Cash and cash equivalents at start of period/year 87 10,950 10,950
Exchange movements - 314 (520)
Cash and cash equivalents at end of period/year 1,514 7,798 87
Cash and cash equivalents consist of:
Cash and short term deposits 481 272 83
Cash held in JPMorgan USD Liquidity Fund 1,033 7,526 4
Total 1,514 7,798 87
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Financial Statements
The information contained within the condensed financial statements in this
half year report has not been audited or reviewed by the Company's auditors.
The figures and financial information for the year ended 30th September 2023
are extracted from the latest published financial statements of the Company
and do not constitute statutory accounts for that year. Those financial
statements have been delivered to the Registrar of Companies and included the
report of the auditors which was unqualified and did not contain a statement
under either section 498(2) or 498(3) of the Companies Act 2006.
2. Accounting policies
The financial statements are prepared 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.
FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting
Council ('FRC') in March 2015, has been applied in preparing this condensed
set of financial statements for the six months ended 31st March 2024.
All of the Company's operations are of a continuing nature.
The accounting policies applied to this condensed set of financial statements
are consistent with those applied in the financial statements for the year
ended 30th September 2023.
3. (Loss)/return per share
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st March 2024 31st March 2023 30th September 2023
£'000 £'000 £'000
(Loss)/return per share is based on the following:
Revenue (loss)/return (86) (420) 1,557
Capital (loss)/return (30,504) 22,614 (44,689)
Total (loss)/return (30,590) 22,194 (43,132)
Weighted average number of shares in issue during
the period/year 83,202,465 83,202,465 83,202,465
Revenue (loss)/return per share (0.10)p (0.50)p 1.87p
Capital (loss)/return per share (36.66)p 27.18p (53.71)p
Total (loss)/return per share (36.76)p 26.68p (51.84)p
4. Dividends paid
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st March 2024 31st March 2023 30th September 2023
£'000 £'000 £'000
First quarterly interim dividend 2,296 2,846 2,846
(2024: 2.76p; 2023: 3.42p)
Second quarterly interim dividend 2,297 2,846 2,846
(2024: 2.76p; 2023: 3.42p)
Third quarterly interim dividend - - 2,845
(2023: 3.42p)
Fourth quarterly interim dividend - - 2,845
(2023: 3.42p)
Total dividends paid 4,593 5,692 11,382
Refund of unclaimed dividends over 12 years old (161) - -
Net dividends paid 4,432 5,692 11,382
A third quarterly dividend of 2.76p has been declared for payment on 30th June
2024 for the financial year ending 30th September 2024.
Dividend payments in excess of the revenue amount will be paid out of the
Company's distributable capital reserves.
5. Net asset value per share
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st March 2024 31st March 2023 30th September 2023
Net assets (£'000) 195,073 300,788 229,772
Number of shares in issue 83,202,465 83,202,465 83,202,465
Net asset value per share 234.5p 361.5p 276.2p
6. Fair valuation of investments
The fair value hierarchy disclosures required by FRS 102 are given below:
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
31st March 2024 31st March 2023 30th September 2023
Assets Liabilities Assets Liabilities Assets Liabilities
£'000 £'000 £'000 £'000 £'000 £'000
Level 1 200,116 - 332,785 - 256,299 -
Level 2 3,330(1) - 15,576(2) - 5,706(3) -
Total 203,446 - 348,361 - 262,005 -
(1) Participatory Notes. 31st March 2024: (Shanghai Liangxin Electrical,
Qingdao Haier Biomedical, Amoy Diagnostics).
(2) Participatory notes. 31st March 2023: (Acrobiosystems, Amoy Diagnostics,
Bestechnic, OPT Machine Vision, Qingdao Haier Biomedical, Shanghai Liangxin
Electrical, SUPCON Technology).
(3) Participatory notes. 30th September 2023: (Shanghai Liangxin Electrical,
Amoy Diagnostics, Qingdao Haier Biomedical, Yunnan Energy New Material).
7. Analysis of Changes in Net Debt
As at Other As at
30th September non-cash 31st March
2023 Cash flows charges 2024
£'000 £'000 £'000 £'000
Cash and cash equivalents
Cash and short term deposits 83 398 - 481
Cash held in JPMorgan USD Liquidity Fund 4 1,029 - 1,033
87 1,427 - 1,514
Borrowings
Bank loan (31,808) 21,618 953 (9,237)
Net debt (31,721) 23,045 953 (7,723)
JPMORGAN FUNDS LIMITED
29th May 2024
For further information, please contact:
Lucy Dina
For and on behalf of
JPMorgan Funds Limited
020 7742 4000
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.
ENDS
A copy of the 2024 Half Year Report 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://data.fca.org.uk/#/nsm/nationalstoragemechanism)
The Half Year Report 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.
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