TIDMJCGI
RNS Number : 5460W
JPMorgan China Growth & Income PLC
12 December 2023
The following amendment has been made to the Final Results
announcement released on 12 December 2023 at 16:27 under RNS No
5380W.
The gearing figure as at the time of writing, stated in the
Chairman's statement, has been amended from 14.6% to 10.6%.
All other details remain unchanged. The full amended text is
shown below.
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN CHINA GROWTH & INCOME PLC
FINAL RESULTS FOR THE YEARED 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 GBP50 million loan
facility (with an option to increase to GBP60 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 GBP60.0 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 10.6%. 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 GBP400 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
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 (%) (%) (%)
------------------------- --------------------------------------- --------- ------- -------
Solar equipment manufacturer with
Suzhou Maxwell a focus on heterojunction 1.5 -62.3 -1.25
Technologies Co., solar cell technology.
Ltd.
The largest Chinese online-to-offline
Meituan 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
Material Co., Ltd. manufacturer in the world. 0.8 -68.4 -0.86
A gas distributor to households
ENN Energy Holdings and businesses. 1.3 -41.8 -0.73
Limited
A leading e-commerce company with
JD.com, Inc. a strong position in 1.0 -46.2 -0.70
electronics and household products
supported by its
strong inhouse logistic capabilities.
A leading e-commerce company that
Alibaba Group Holding also offers a -5.0 -24.4 -0.67
Limited comprehensive digital infrastructure
including payment and
cloud services.
The Chinese leader in the production
StarPower of power semiconductors used in
Semiconductor Ltd. electric vehicles and solar panels. 1.0 -50.5 -0.60
A dominant supplier of silicon wafer
Zhejiang Jingsheng growth furnaces, which 1.3 -38.6 -0.52
Mechanical & Electrical are used to make photovoltaic cells.
Angelalign Technology A medical device company making
Inc. transparent orthodontics 1.0 -29.9 -0.49
devices.
Xinyi Solar Holdings A leading manufacturer of solar
Ltd. 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 The company provides office and
Office document editing software 1.2 65.7 1.0
Software. Inc. with over 500 million monthly active
users.
A leading provider of self-developed
Netease Inc mobile and PC games 2.1 26.1 0.8
along with multimedia services.
A leading e-commerce company focusing
on the value segment with a rapidly
Pinduoduo, Inc. growing international business 1.8 43.5 0.7
branded as Temu.
Biotech company focusing on the
BeiGene Ltd R&D of oncology 0.1 56.0 0.6
drugs.
Founded in 2014, Nio is an electric
vehicle brand that now holds over
50% market share in the premium
NIO Inc. EV -0.7 0.0 0.5
market in China.
Li Ning Company A sportswear and sports equipment
Limited company. -0.8 0.0 0.4
A software provider focusing on
improving production efficiency
Shanghai Baosight and automation level of the steel
Software Co., Ltd. industry. 1.3 32.3 0.4
It also has an internet data centre
business.
Jiangsu Hengli A manufacturer of hydraulic pumps
Hydraulic and valves that are used in 1.3 27.7 0.4
Co., Ltd. construction equipment.
Video sharing platform that specialses
Bilibili, Inc. in Anime, Comics and 0.1 52.8 0.3
Games (ACG) and appeals to young
audience.
Kangji Medical A medical device company making
Holdings invasive surgical instruments and
Limited accessories. 0.4 55.3 0.3
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 GBP'000 %(1) GBP'000 %(1)
----------------- ------------------------------------------------ ---------- ----- ---------- -----
A Chinese technology company focusing
on internet services. It is the world's
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
Tencent technology start-ups across Asia. 27,858 10.6 28,091 8.4
A provider of online sales services.
The Company provides internet infrastructure,
electronic commerce, online financial,
and internet content services through
its subsidiaries. Alibaba offers its
Alibaba products and services worldwide. 14,888 5.7 - -
An e-commerce company that offers services
like food, dining and delivery on its
Meituan platform throughout China. 13,355 5.1 20,417 6.1
A leading China-based technology company
involved in developing and operating
online games. Its online gaming services
cover both mobile and personal computer
NetEase games. 9,291 3.5 8,921 2.7
Founded in 2015, it started as an online
fresh produce vendor before expanding
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
Pinduoduo users' preferences. 9,273 3.5 13,325 4.0
Founded in 2010, it has become a leading
global Contract Research, Development
and Manufacturing Organization (CRDMO)
offering end-to-end solutions that
enable partners to discover, develop
WuXi Biologics and manufacture biologics from concept
(Cayman) to commercialisation. 7,516 2.9 8,281 2.5
----------------- ------------------------------------------------ ---------- ----- ---------- -----
An operator of an integrated online
and offline platform for housing transactions
and services in China. The Company
offers existing and new home sales,
home rentals, home renovation, real
estate financial solutions, and other
KE Holdings services. 7,002 2.7 - -
----------------- ------------------------------------------------ ---------- ----- ---------- -----
China's leading one-stop e-commerce
platform, providing 588.3 million active
customers with direct access to a wide
selection of products to tap into China's
fast-growing e-commerce market through
JD.com its mobile applications and websites. 5,820 2.2 11,940 3.6
It manufactures and sells Moutai and
other spirits which are sold in China
Kweichow Moutai and globally. 5,730 2.2 - -
China's first joint-stock commercial
bank wholly owned by corporate legal
entities. Since its inception, CMB
has been a trend setter in China's
China Merchants banking industry through a series of
Bank pioneering efforts. 5,419 2.1 7,766 2.4
Ten Largest
Investments 106,152 40.5
------------------------------------------------------------------- ---------- ----- ---------- -----
(1) Based on total investments of GBP262.0m (30th September
2022: GBP333.2m). Top ten investments at September 2022
representing GBP119.4m 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 Description Mitigation/Control 30th September
risk 2023
------------------------------- -------------------------------------- ---------------
Investment management and performance
Geopolitical Geopolitical risk The Board meets advisers è
can cause volatility and gathers insights from
in the markets in both JP Morgan and independent
which the Company sources on a regular and
is invested; restrictions ongoing basis and takes advice
on the ability to from the Manager and its
invest and the free professional advisers.
movement of capital
and also potentially
impact the ability
of the Manager and
other 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 An inappropriate investment The Board aims to manage é
Under-performance decision may lead this risk by diversification
to sustained investment of investments through its
underperformance against investment restrictions and
the Company's benchmark guidelines which are monitored
index and peer companies, and reported on by the Manager.
resulting in the Company's The Manager provides the
shares trading on Directors with timely and
a wider discount as accurate management information,
well as discontent including performance data
amongst the Company's and attribution analyses,
shareholders. 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 An ill-advised corporate The Board discusses this é
Strategy initiative, for example on a regular and ongoing
an inappropriate takeover basis with the Manager and
of another company corporate advisers based
or an ill-timed issue on information provided both
of new capital; misuse at and between Board meetings
of the investment (see above risk regarding
trust structure, for Investment Underperformance).
example inappropriate The Company states its strategy
gearing; or if the clearly in its Half-Year
Company's chosen strategy and Annual Reports and its
is no longer appropriate, website. The investment managers
may lead to a lack employ the Company's gearing
of investor demand. within a strategic range
set by the Board.
------------------------------- -------------------------------------- ---------------
Loss of Investment A sudden departure The Board seeks assurance è
Team or Investment of one or more members that the Manager takes steps
Manager of the investment to reduce the likelihood
management team could of such an event by ensuring
result in a deterioration appropriate succession planning
in investment performance. 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 A disproportionate In order to manage the Company's é
Discount widening of the discount discount, which can be volatile,
relative to the Company's the Company operates a share
peers could result repurchase programme. The
in a loss of value Board regularly discusses
for shareholders. 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 Changes in financial, The Manager makes recommendations è
Governance regulatory or tax to the Board on accounting,
legislation may adversely dividend and tax policies
affect the Company. 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 Details of the Company's The Board receives regular è
Relations compliance with Corporate reports from the Manager
Governance best practice, and the Company's broker
including information about shareholder communications,
on relations with their views and their activity.
shareholders, are In addition, the Board engages
set out in the Corporate directly with major shareholders
Governance Statement and encourages all shareholders
in the Annual Report. 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 Counterparties are subject é
faced by the Company to daily credit analysis
include market price by the Manager. In addition
risk, interest rate the Board receives reports
risk, currency risk, on the Manager's monitoring
liquidity risk and and mitigation of credit
credit risk. risks on share transactions
carried out by the Company.
Further details are disclosed
in the Annual Report.
------------------------------- -------------------------------------- ---------------
Operational risks
Cyber crime Disruption to, or Details of how the Board è
failure of, the Manager's monitors the services provided
accounting, dealing by the Manager, its associates
or payments systems and depositary and the key
or the depositary's elements designed to provide
or custodian's records effective internal control
may prevent accurate are included within the Risk
reporting and monitoring Management and Internal Control
of the Company's financial section of the Directors'
position. Report in the Annual Report--.
In addition to threatening The threat of cyber attack,
the Company's operations, in all its guises, is regarded
such an attack is as at least as important
likely to raise reputational as more traditional physical
issues which may damage threats to business continuity
the Company's share and security. The Company
price and reduce demand benefits directly or indirectly
for its shares. 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 The risk of fraud The Audit Committee receives è
operating or other control failures independently audited reports
failures or weaknesses within on the Manager's and other
or weaknesses the Manager or other service providers' internal
service providers controls, as well as a report
could result in losses from the Manager's Compliance
to the Company. 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 In order to qualify The Section 1158 qualification è
Regulatory as an investment trust, criteria are continually
the Company must comply monitored by the Manager
with Section 1158 and the results reported
of the Corporation to the Board each month.
Tax Act 2010 ('Section The Company must also comply
1158'). Details of with the provisions of the
the Company's approval Companies Act 2006 and, since
are given under 'Structure its shares are listed on
of the Company'. Were the London Stock Exchange,
the Company to breach the UKLA Listing Rules, Disclosure
Section 1158, it may Guidance and Transparency
lose investment trust Rules ('DTRs') and, as an
status and, as a consequence, Investment Trust, the Alternative
gains within the Company's Investment Fund Managers
portfolio would be Directive ('AIFMD'). A breach
subject to Capital of the Companies Act 2006
Gains Tax. 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 Board receives reports ê
the speed and extent on the business continuity
of economic damage plans of the Manager and
that can arise from other third party providers.
a pandemic. The risk The effectiveness of these
remains that new variants measures were assessed throughout
or other viruses may the course of the COVID-19
not respond to existing pandemic and the Board will
vaccines, may be more continue to monitor developments
lethal and may spread as they occur and seek to
rapidly around the learn lessons which may be
world, presenting of use in the event of future
risks to the operations pandemics.
of the Company, the
Manager and its investee
companies.
------------------------------- -------------------------------------- ---------------
ESG Risk Failure to recognise The Manager integrates ESG è
non-financial risks scoring into stock selection
in portfolio construction alongside financial measures
and stock selection and portfolio level measures
and/or to explain such as carbon intensity/CO2
our ESG approach to emissions are aggregated
current/potential and presented alongside the
investors. 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 The Manager's investment è
one of the most critical process integrates consideration
issues confronting of environmental, social
asset managers and and governance factors into
their investors. Climate decisions on which stocks
change may have a to buy, hold or sell (see
disruptive effect the ESG report). This includes
on individual investee the approach investee companies
companies and the take to recognising and mitigating
operations of the climate change risks. The
Manager and other Manager aims to influence
major service providers. 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 Description Mitigation/Control
risk
------------------------------- -------------------------------------- ---------------
Social unrest If economic growth The Board and the Portfolio
within China and consumer demand Managers understand the inherent
remain sluggish and risks associated with investing
unemployment rises in emerging markets such
in China, there is as China. While focusing
a risk disruptive on the long term, the Manager
social unrest could is mindful of these risks
occur at a local or when considering investment
national level. Such strategy and portfolio construction,
disorder could disrupt and keeps the Board regularly
the companies in which informed about any issues
our Company invests, that might impact China and
and negatively impact the portfolio.
both our manager's
operations within
China and international
sentiment towards
Chinese equities.
------------------------------- -------------------------------------- ---------------
China - US Increased anti-China The Board works with the
tensions rhetoric in the run Manager using
up to the US Presidential JPMorgan's resources to monitor
election which may developments on a continuous
heighten tensions basis. Working closely with
between the US and the Board, the Portfolio
China. 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 While it might equally The Board will work to monitor
Intelligence be deemed a force developments concerning AI
(AI) for good, there appears as its use evolves and consider
to be an increasing how it might threaten the
risk to society from Company's activities, which
the threat posed by may include a heightened
AI. Advances in computing threat to cybersecurity.
power means that AI The Board will work closely
has become a powerful with JPMF in identifying
tool that will impact these threats and, in addition,
society, with a wide monitor the strategies of
range of applications our service providers.
that include the potential
to harm.
------------------------------- -------------------------------------- ---------------
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 GBP2,468,000 (2022: GBP3,399,000).
Safe custody fees amounting to GBP51,000 (2022: GBP72,000) were
payable to JPMorgan Chase Bank N.A. during the year of which
GBP21,000 (2022: GBP17,000) 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 GBP9,000 (2022: GBP26,000).
Handling charges on dealing transactions amounting to GBP34,000
(2022: GBP52,000) were payable to JPMorgan Chase Bank N.A. during
the year of which GBP6,000 (2022: GBP6,000) 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 GBP4,000 (2022:
GBP8,085,000). Interest amounting to GBP212,000 (2022: GBP59,000)
was receivable during the year.
Fees amounting to GBP224,000 (2022: GBP434,000) were receivable
from stock lending transactions during the year. JPMorgan Investor
Services Limited commissions in respect of such transactions
amounted to GBP25,000 (2022: GBP48,000).
At the year end, total cash of GBP83,000 (2022: GBP2,865,000)
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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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) GBP6,155,000 due to an exchange gain on the loan which is
denominated in US dollars and GBP1,415,000 due to net exchange loss
on cash and cash equivalents (2022: GBP11,660,000 due to an
exchange loss on the loan which is denominated in US dollars and
GBP1,633,000 due to net exchange gains on cash and cash
equivalents).
STATEMENT OF CHANGES IN EQUITY
For the year ended 30th September 2023
Called Exercised Capital
up
share Share warrant redemption Other Capital Revenue
capital premium reserve reserve reserve(1) reserves(2) reserve(2) Total
GBP000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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)
GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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
GBP2,296,000 (2023: 3.42p per share amounting to GBP2,846,000) 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 GBP90,042,000
(2022: GBP144,556,000). 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
GBP87,746,000 (2022: GBP141,710,000).
3. Return/(loss) per share
2023 2022
GBP'000 GBP'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 (GBP'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
The 2023 Annual Report and Financial Statements will also
shortly be available on the Company's website at
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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END
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