Final Results

RNS Number : 1340I

JPMorgan China Growth & Income PLC

09 December 2020

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINA GROWTH & INCOME PLC

FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2020

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 2020.

chairman's statement

I am pleased to be able to present the Annual Report of JPMorgan China Growth and Income plc ('the Company') for the year ended 30th September 2020.

It has been an extraordinary year for the Company which, as an investor in China, has been at the heart of much of the turmoil and volatility in the financial markets caused by the continuing trade dispute between China and the US and the global COVID-19 health pandemic.

Despite this, the Company achieved exceptional returns for the year to 30th September with a 66.1% total return on net assets with dividends reinvested and an 82.6% return to shareholders. This compares to the return of 27.3% for our benchmark index, MSCI China.

Through the first quarter of our financial year the volatility in markets was dominated by the China/US trade dispute and hardly had a stage one agreement been reached than we were into the COVID-19 pandemic crisis in China. China's approach to controlling the spread of the virus has been quite different to the approach in the US and Europe such that by the third quarter of 2020 the spread of the virus in China was substantially under control, internal travel has recommenced, and economic growth has picked up. All these positive factors have been reflected in China's financial markets.

Investment Approach and Performance

As a long-term investor we have stayed consistent to our investment approach of seeking capital growth from bottom up stock selection and top down sector allocation. The disciplines in the investment process combined with our conviction about the structural growth opportunities in healthcare, technology and automation and consumption have driven the significant outperformance of the portfolio. Underpinning the investment management process is the breadth and depth of the team of investment analysts who, although unable to visit companies in China, have maintained close contact with the companies and their management teams. Details of how their exceptional performance has been achieved are given in the Investment Managers' Report.

Environment, Social and Governance ('ESG') engagement

Last year we described how ESG considerations were being integrated into the investment philosophy of the Manager and this has been further developed during the year. Sustainable investing has always been at the centre of the team's investment philosophy and ESG considerations are core to how the team selects stocks in emerging markets companies. In more recent years, the integration of ESG considerations have become formalised in the investment process. There is an ever increasing focus on ESG and sustainable investing and this Annual Report includes a separate report which provides much more comprehensive information on these issues and how they have been developed and integrated into the Manager's investment process.

Corporate Governance

The AIC Code of Corporate Governance for investment companies was revised and reissued in 2019, following on from the revision of the FRC UK Corporate Governance Code in 2018. As a result, this Annual Report reflects the new disclosure requirements including new statements on the Company's purpose, strategy and values. There is also a statement on how the Directors have carried out their duty to promote the success of the Company, in accordance with the Companies Act.

Revenue and Dividends

Revenue for the year, after taxation, was £2,146,000 (2019: £1,788,000). The revenue return per share calculated on the average number of shares in issue was 2.95 pence (2019: 2.46 pence).

From 1st April 2019 we agreed a reduced investment management fee paid to the manager of 0.9% of net assets and the effect of this reduced fee combined with the growth in net assets over the year has resulted in the ongoing charges for the financial year falling by 20% to 1.00% (2019: 1.26%)

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 revised dividend policy. This new policy aims to pay, in the absence of unforeseen circumstances, a target annual dividend of 4% of the Company's NAV on the last business day of the preceding financial year. This will be paid by way of four equal interim dividends on the first business day in March, June, September, and December. Any shortfall on the dividend income received from the underlying investments of the portfolio will be paid out of the capital growth of the portfolio. Our first quarterly dividend payment of 3.7p per share was made to members on the share register on 1st March 2020 and, following the rebasing of the NAV at 30th September 2020, our first quarterly dividend payment of 2021 of 5.7p per share has been paid to members on the share register on 30th October 2020.

The Company's name was also changed to reflect the change to the dividend policy.

Gearing

In April 2020, the Company extended its £40 million (with an option to increase to £50 million) loan facility with Scotiabank for 3 months and then renewed the facility with Scotiabank for a further 364 day period, increasing the amount of the facility to £50 million (with an option to increase to £60 million). The current facility matures on 15th July 2021 at which point the Board will consider another gearing facility.

During the year the Company's gearing ranged from 9% to 15% (based on month end data) and, at the time of writing, was 10.9% At the time of the arrangement, the facility allowed the Investment Managers the flexibility to manage the gearing facility within a range set by the Board of 10% net cash to 20% geared.

Share Issues and Repurchases

The Directors have authority to issue new Ordinary shares for cash and to repurchase shares in the market for cancellation or to hold in Treasury. The Company will reissue shares held in Treasury only at a premium to NAV. The Board believes that its policy of share repurchase has helped to reduce the discount volatility and the policy for share issuance will enable us to do the same for a premium. We are therefore seeking approval from shareholders to renew the share issuance and repurchase authorities at the AGM.

During the year, the Company did not issue any new Ordinary shares or repurchase shares into Treasury.

Since the year end, however, the Company's share price has continued to strengthen and moved from a discount to a premium to NAV in early November. We have taken the opportunity with this strength in the share price to issue shares from Treasury and as at the date of this report we have reissued 1,290,000 shares. The issue proceeds are available for investment.

Board of Directors

In July 2020, 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.

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

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

In order to aid succession planning and possibly increasing the size of the Board, a resolution will be put to shareholders at the forthcoming AGM to increase the maximum aggregate Directors' fees payable in any one year to £250,000.

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.

Operations of the Company's Key Service Providers under COVID-19

Since the on-set of the global pandemic and throughout, the Board is pleased to report that the Manager and the Company's other service providers have been able to adjust their business models to accommodate working from home requirements. The Board has been closely monitoring all service arrangements and has received assurances that the Company's operations, including the management of the portfolio, have continued as normal with no reduction in the level of service provided nor any issues being identified.

Our ability as a board to meet with the investment managers and analysts in Hong Kong, Taiwan and Shanghai and to visit some of the portfolio companies has also been curtailed by the pandemic. However, we have been able to hold virtual meetings with the investment team and the local control functions through the year.

Annual General Meeting

The Company will be holding its AGM at 60 Victoria Embankment, London EC4Y 0JP on 1st February 2021 at 11.30 a.m. Please note that in view of the current restrictions regarding the COVID-19 pandemic and the continuing imposition of social distancing measures and prohibitions on large public gatherings by the UK Government, the Board has reluctantly decided to proceed with the Company's forthcoming AGM by limiting attendance in person to only Directors or their proxies and representatives from JPMorgan. With a quorum in place the formal business will be able to proceed. Shareholders will not be allowed to attend the AGM and entry will be refused in line with the prevailing protocol. In light of the changed format, the Board strongly encourages all shareholders to exercise their votes in respect of the meeting in advance, by completing and returning their proxy forms. Sadly, this means there will be no investor presentation by the investment team which I know has been well received by members attending the meeting in previous years. Instead, a presentation from the Investment Managers, which would have been delivered at the AGM, will be available for shareholders to view on the Company's website approximately one week in advance of the AGM.

In addition, shareholders are encouraged to raise any questions in advance of the AGM via the 'Ask the Question' link found under the 'Contact Us' section on the Company's website www.jpmchinagrowthandincome.co.uk or by email at [e-mail] Any questions received will be replied to via the Company Secretary.

In the event that the situation changes the Company will update shareholders through an announcement to the London Stock Exchange and on the Company's website.

Outlook

The renewed interest to invest in China, when combined with our investment performance and the differentiation that our new dividend policy brings, has benefited our share price both during the year and since. These have driven the share price from a significant discount of 11.1% at the start of the year to a premium today. While the significant movement from discount to premium may prove a one-off event, it does give us the opportunity to grow the Company and the growth in the NAV provides us with the balance sheet strength to support our new dividend policy.

The performance of the Company's net asset value in 2020 has been exceptional in such a challenging year for the Chinese and global economies. The conviction the investment team has in the structural growth story in China, and the discipline to remain focused on it, has been key to the growth this year. The structural growth story remains a long term trend and we believe that the resources of the investment team will enable them to continue to find interesting investment opportunities and to outperform the market and competitor funds.

John Misselbrook

Chairman   9th December 2020

INVESTMENT MANAGERS' REPORT

Setting the scene: overcoming challenges

The macro backdrop for the Company's financial year to 30th September 2020 was one of disruption and extreme uncertainty. In addition to ongoing, seesaw US-China trade negotiations and a volatile oil price and supply shock, the outbreak of the COVID-19 pandemic and its subsequent economic impact put everything else in the shade, dominating global headlines ever since the news first broke in early 2020.

At the beginning of the Company's financial year, in October 2019, nobody had heard of the coronavirus and investor sentiment was buoyant, despite a sluggish global economy and the ongoing saga of protracted trade wrangles. In fact, both onshore and offshore China equities were in robust form. However, the arrival of COVID-19 in early 2020 changed everything, a human tragedy that triggered a sudden economic shock, exacerbated by lockdowns and containment measures taken by the Chinese government, as well as various travel restrictions imposed by other countries.

The pandemic shook the global economy, and China was the first territory to be hit, with sentiment nosediving as industry shut down and commercial activity almost ground to a halt in the first quarter of 2020. China's Gross Domestic Product (GDP) shrank by 6.8% over this three-month period, the first quarterly fall in more than four decades. However, the Chinese economy displayed resilience and was one of the first markets to bounce back, with GDP rising by 3.2% in the subsequent April to June quarter and then by a further 4.9% from July to September. As a result, most of the ground lost at the start of the year was soon recovered. The Chinese government's strong, decisive and seemingly successful COVID containment measures - coupled with its proactive economic policies - played a part in this speedy turnaround. Global demand for Chinese-manufactured medical equipment and increasing digitalisation of Chinese businesses, many of which thrived under the 'working from home' regime, also helped drive this impressively quick economic recovery.

By the end of the Company's reporting period, China found itself in much better shape. Chinese equities had bounced back, as investors shrugged off concerns over the global resurgence in COVID-19 cases and the failure to resolve the protracted trade dispute between the world's two economic powerhouses. The increasingly positive mood was driven by evidence of economic recovery, better-than-expected interim corporate earnings and a weakening US dollar. The International Monetary Fund predicted that China would be the only major global economy to deliver economic growth in 2020. Compared with many other economies where the infection curve has yet to flatten, or where a 'second wave' of infections has begun to unfold, China's lockdown and containment strategy seems to be a textbook example of how best to handle a pandemic, certainly in terms of its outcome so far.

Against this unique backdrop, the Company's long-held focus on higher quality businesses in sectors where we see structural growth opportunities, namely technology and automation, healthcare, and consumption, delivered significant outperformance. Over the year to 30th September 2020, the Company's return on net assets was an emphatic +66.1%, significantly outperforming its benchmark, the MSCI China Index, which rose by +27.3% (on a total return, net basis, in sterling terms). The value of the Company's shares (including dividends) rose by +82.6% over the period.

The Company can use borrowing to gear the portfolio within the range of 10% net cash to 20% geared in normal market conditions. Gearing averaged 10% over the review period and contributed positively to returns.

Spotlight on stocks and sectors

Although the period under review was dominated by human and economic challenges, the second half of the financial year saw increasing market optimism. This was supported by Chinese companies' 2020 first half results, which were broadly better than expected, particularly for those resilient businesses that were beneficiaries of COVID-19, such as consumer-facing companies and several leading domestic names. Many delivered material market share gains. Pleasingly, the Company's impressive performance over the year was driven not by a handful of stand-out stocks but by stock selection across all sectors. In this section, we highlight some of the stock and sector stories that most impacted portfolio performance.

Our stock selection in Information Technology and Healthcare contributed the most, with both sectors benefitting from structural trends that accelerated as a result of COVID-19.

Within Healthcare , a broad number of holdings made significant contributions. These included Wuxi Biologics and Venus Medtech , as well as one of our more recent portfolio acquisitions, Chongqing Zhifei , which researches and produces vaccines. All three companies delivered solid results and positive industry growth, especially in areas like research & development services, medical devices, and vaccine development.

In Information Technology , industry-leading enterprise management software company Kingdee and Glodon (China's largest construction management software vendor) both did well, thanks to the rapid digital transformation of the Chinese market and, specifically, positive development in cloud transformation across corporate China. Kingdee 's performance was further boosted by the stock's inclusion in the Hang Seng Technology Index. On the hardware side, electronic component manufacturer Luxshare Precision continued its strong run, boosted by its recent acquisition of a Chinese iPhone production factory and strong Apple sales, while LONGi Green Energy rose on strong solar energy installations and accelerated capacity expansion.

Our stock picks in the Consumer Discretionary and Consumer Staples sectors also contributed positively, as consumption gradually recovered from short-term COVID-related disruption. E-commerce platform Pinduoduo and the world's third largest small household appliances manufacturer JS Global were among the top contributors, with solid results. Pinduoduo continued to gain market share in the e-commerce space with strong active buyer growth whilst improving its monetisation capabilities. Meanwhile, JS Global (which counts Shark vacuum cleaners amongst its brands) did well on strong overseas revenue growth.

Despite the pressure on banks across the world, stock selection in Financials was another key source of strength. Our overweight position in Ping An Bank as well as not owning state-owned banks like China Construction Bank , and Industrial and Commercial Bank of China (ICBC) helped performance. The latter entities underperformed on concerns about their state obligations and governmental control over their earnings growth. We are content to remain on the side lines in relation to these large, index-heavy, stated-owned entities as we feel further challenges may await them and believe that they could continue to underperform privately owned equivalents.

Although the portfolio's performance was outstanding over the year, our underweight positions in some of the market's leading outperformers detracted. For example, e-commerce platform Alibaba may be our largest holding, but we are underweight relative to our benchmark so its share price rally had a negative impact on relative returns. Not owning online retailer JD.com and internet company Xiaomi also hurt performance as both names rallied along with the broader sector. Meanwhile, two stocks that we do own - Huawei product vendor Sunny Optical and Montage Technology - underperformed due to recent escalations in Huawei-related tensions, including the prospect of tightening US restrictions. Property developers, China Overseas Land & Investment and Country Garden , also underperformed due to tighter regulation on industry leverage which caps leading players' future growth potential.

Looking ahead

The Chinese government is continuing to promote coordinated pro-growth policies, while deepening reform measures in order to deal with the cyclical (domestic) headwinds and structural (external) challenges. The magnitude of such supportive policies will be dependent on how the world ultimately deals with the pandemic and the eventual outcome of the ongoing China-U.S. trade negotiations. The latter seemed to have been superseded in importance by the clearest indications yet that the US is seeking to limit China's access to the latest cutting edge technologies, so as to slow the country's ability to catch, or even surpass, US dominance.

China's importance in the world continues to grow and its economy is likely to continue growing faster than its global peers. The economic transformation and evolving role of the country as a global economic superpower is well underway with recent challenges unlikely to derail progress in any material manner. Moreover, given the recent fiscal and monetary measures (such as VAT reductions, waiving toll fees, liquidity injections and interest rate cuts) we believe that the market outlook remains broadly positive.

Our bottom-up stock selection continues to focus on companies benefitting from the transition of China to a consumer-driven economy, particularly reflecting the structural growth opportunities in the Consumer, Technology and Healthcare sectors. Our desire to invest in 'New China' (and the broad shape of the portfolio) is unaffected by short-term political and economic worries. We have taken advantage of the pullback in recent months, to add to high quality names whose valuations have become more attractive.

Our key holdings remain largely unchanged. In the consumer sector our preferred exposures include e-commerce companies Alibaba, Tencent, Meituan Dianping and Pinduoduo , along with A-share listed Foshan Haitian , one of the largest soy sauce manufacturers in the country. In Healthcare , notable positions include Wuxi Biologics , oncology company Jiangsu Hengrui Medicine, Venus Medtech and leading global provider of medical devices and solutions, Shenzhen Mindray . Meanwhile in the Technology sector, we have software orientated Kingdee and Glodon , as well as integrated circuit (IC) design company Montage Technology as our preferred names.

Given the strong performance of growth companies and onshore Chinese equities, we have remained disciplined and rotated away from some strong performers into stocks offering more attractive valuation opportunities.

In Technology , we increased our exposure to the enterprise software, data centre and cloud-related sectors. Kingsoft and Montage were the key additions, and we exited iFlytek and Beijing Shiji due to the uncertain outlook arising from ongoing US-China tensions.

Within Consumer , we initiated new positions in electric vehicle (EV)-related businesses, namely Xpeng, Yunnan Energy New Material and China's leading battery maker Contemporary Amperex Technology (CATL ), as we are increasingly positive on the outlook for the industry on the back of increasing consumer demand and Chinese companies' growing global competitiveness in this space. EV manufacturer Xpeng is a domestic start-up that has been identified as a potential competitor for Tesla, whilst Yunnan and CATL are clear local leaders in their respective supply chain verticals, and both are gaining global market share.

In Food and Beverages , we initiated positions in restaurant chains Haidilao and Jiumaojiu , and frozen food brand Fujian Anjoy Foods , with an expectation that they should benefit from further industry consolidation and consumption upgrade trends.

Healthcare has understandably been a sector in the spotlight this year and here we increased our exposure to medical devices, diagnostics, and vaccines. We initiated positions in Shenzhen Mindray , Amoy Diagnostics , Guangzhou Kingmed , and Hualan Biological Engineering . We believe the COVID-19 pandemic will accelerate some of the existing structural trends within the sector, such as increasing penetration of medical diagnostic services and vaccination, which should benefit these names in the long term.

Finally, in Financials , we invested in Hong Kong Exchange and Clearing , which benefits from the increasing linkage between the onshore and offshore capital markets in China and we believe is one of the best stock exchanges across Emerging Markets.

ESG engagement over the year

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

Outside of our materiality work, another typical engagement is to follow up with companies where third-party research has identified potentially concerning issues. As much as we do detailed work on every business entity we cover, we recognise the possibility that specialist sustainability houses and Non-Governmental Organisations (NGOs) may spot an issue that we have missed. During the review period, a research report by the Australian Strategic Policy Institute was brought to our attention in which a company in our universe, BOE Technologies , was alleged to use forced labour in its supply chain. Our analyst engaged with the company who responded by sharing an audit report that the company had commissioned from the independent Responsible Business Alliance which gave their supply chain a clean bill of health. We have not taken specific action following this interaction, but it is an area where we will look to deepen our knowledge over time.

With regards to proxy voting, recently we voted in favour of the election of Maggie Wu, the Chief Financial Officer of Alibaba , to its board of directors. This went against the recommendation of ISS who argued that shareholders should vote against her election on the basis that it would further tip the balance of the board against independent directors. There were three reasons we chose to vote in favour. Firstly we have long argued the Alibaba board lacks female representation, with only 1 female board member historically, and so voting against adding a woman to the board felt counterproductive. Secondly our analyst, Penny Tu, has a positive view on how Maggie Wu has performed during her tenure as CFO, especially the greater discipline she has brought to capital allocation in the business. Finally, we spoke to the company and communicated our desire to see more independent directors added to the board over time. Although we voted in favour of management's suggested candidate on this occasion, we would hope to see more progress over time.

Alongside this direct engagement, we endeavour to vote at all of the meetings called by companies in which the portfolio invests. A summary of key voting statistics and activity undertaken in respect of stocks in the Company's portfolio for the 12 months to 30th September 2020 is detailed below. On behalf of the Company, J.P.Morgan voted at all of the annual general meetings and extraordinary meetings held during the year by its portfolio companies.

JPMorgan China Growth & Income plc: Voting at shareholder meetings over the year to 30th September 2020

				Against/
				Abstain
	For	Against	Abstain	Total	Total Items	% Against
Routine Business	354	3	0	3	357	0.84
Director Related	360	28	0	28	388	7.22
Capitalisation	194	45	0	45	239	18.82
Reorganisation and Mergers	132	14	0	14	146	9.59
Non-salary compensation	35	28	0	28	63	12.70
SH-Routine/Business	32	0	0	0	32	0.00
SH-Directors Related	20	0	0	0	20	0.00
SH-Corporate Governance	1	0	0	0	1	0.00
TOTAL	1,128	118	0	118	1,246	49.17

Outlook - moderately slowing but higher quality growth likely

Globally, the continued spread of COVID-19 means that the outlook is likely to remain challenging for the immediate future. Yet we take some comfort from the Chinese government's strong containment measures and proactive economic policies which have clearly defined the country's bounce-back from the coronavirus shock: corporate revenues, supply chains and investment markets have all recovered decisively.

Looking ahead, we expect the Chinese government's countercyclical policies to continue to be measured and appropriate, both in terms of size and scope, targeting the real economy without significantly increasing leverage risks for the financial system. This points to moderately slowing but likely higher-quality macroeconomic growth. Valuation wise, our internal data suggests that we are around long-term average levels. We acknowledge that volatility and external shocks (such as trade and politics) may hinder a broader-based cyclical recovery in the short-term but we are reassured that interest in the domestic market from foreign investors has remained strong, on the back of the opening up of the onshore equity markets. Given this macro backdrop, we remain broadly optimistic on the outlook for China equities.

Our strong research capabilities and our presence 'on the ground' in mainland China is a significant advantage for us, as we look to identify innovative, promising businesses that have potential to become global champions and benefit from the growth in the domestic Chinese market. We adopt a patient, long-term approach to investing as we believe this offers the Company's shareholders the best likelihood of benefitting from China's economic transformation and China's evolving role as a global economic powerhouse. There will always be short-term uncertainties that threaten to derail performance but the long term case for China remains robust: its economy has continued to grow in this most demanding of years, a unique position amongst global developed and emerging market peers.

Above all, and despite the fluid global situation, we still believe that investing in Chinese equities can deliver positive and sustained returns over the long term.

Howard Wang

Rebecca Jiang

Shumin Huang

Investment Managers   9th December 2020

PRINCIPAL AND EMERGING RISKS

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

The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The ways in which the risks are managed or mitigated are summarised below:

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

• Geopolitical

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

• Investment Underperformance

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

• Strategy and Business Management

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

• Loss of Investment Team or Investment Manager

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

• Share Price Discount

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

• Governance

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

• Legal and Regulatory

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

• Corporate Governance and Shareholder Relations

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

• Operational Risk and Cybercrime

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

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

• Financial

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

• Global Pandemics

The recent emergence and spread of coronavirus (COVID-19) has raised the risk of global pandemics, in whatever form a pandemic takes. COVID-19 poses a significant risk to the Company's portfolio. At the date of this report, the virus has contributed to significant volatility in trading recently. However, the detrimental impact on the Chinese economy and financial markets has been less than other markets. The Chinese government's strong, decisive and seemingly successful COVID containment measures - coupled with its proactive economic policies - played a part in this.

The global reach and disruption to markets of this pandemic is unprecedented, so there are no direct comparatives from history to learn from. However, seismic events and situations in the past have also been the catalyst for violent market contractions. Time after time, markets have recovered, albeit over varying and sometimes extended time periods. Since the on-set of the pandemic and throughout, the Manager and the Company's other service providers have been able to adjust their business models to accommodate working from home requirements. The Board has been closely monitoring all service arrangements and has received assurances that its service providers have continued as normal with no reduction in the level of service provided nor any issues being identified to date. Should the virus become more virulent than is currently the case, it may present risks to the operations of the Company, its Manager and other major service providers.

Should efforts to control a pandemic prove ineffectual or meet with substantial levels of public opposition, there is the risk of social disorder arising at a local, national or international level. Even limited or localised societal breakdown may threaten both the ability of the Company to operate, the ability of investors to transact in the Company's securities and ultimately the ability of the Company to pursue its investment objective and purpose.

• Climate Change

Climate change, which barely registered with investors a decade ago, has today become one of the most critical issues confronting asset managers and their investors.

Investors can no longer ignore the impact that the world's changing climate will have on their portfolios, with the impact of climate change on returns now inevitable. Financial returns for long term diversified investors should not be jeopardised given the investment opportunities created by the world's transition to a low-carbon economy. The Board is also considering the threat posed by the direct impact on climate change on the operations of the Manager and other major service providers. As extreme weather events become more common, the resiliency, business continuity planning and the location strategies of our services providers will come under greater scrutiny.

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors' Report in the Annual Report and Financial Statements. The management fee payable to the Manager for the year was £2,733,000 (2019: £2,301,000) of which £nil (2019: £nil) was outstanding at the year end.

Safe custody fees amounting to £65,000 (2019: £46,000) were payable to JPMorgan Chase Bank N.A. during the year of which £14,000 (2019: £8,000) 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 £15,000 (2019: £20,000) of which £nil (2019: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £55,000 (2019: £25,000) were payable to JPMorgan Chase Bank N.A. during the year of which £7,000 (2019: £nil) was outstanding at the year end.

The Company also held cash in the JPMorgan US Dollar Liquidity Fund, which is managed by JPMorgan. At the year end this was valued at £nil (2019: £nil). Interest amounting to £18,000 (2019: £90,000) was receivable during the year of which £nil (2019: £nil) was outstanding at the year end.

Fees amounting to £202,000 (2019: £378,000) were receivable from stock lending transactions during the year. JPMorgan Investor Services Limited commissions in respect of such transactions amounted to £22,000 (2019: £56,000).

At the year end, total cash of £343,000 (2019: £3,134,000) was held with JPMorgan Chase Bank, N.A.. A net amount of interest of £nil (2019: £1,000) was receivable by the Company during the year of which £nil (2019: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found in the Directors' Remuneration Report and in note 6 of the Annual Report and Financial Statements.

Statement of Directors' Responsibilities

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

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

• select suitable accounting policies and then apply them consistently;

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

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

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

and the Directors confirm that they have done so.

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

The accounts are published on the www.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 Directors' Report confirm that, to the best of their knowledge:

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

• the Directors' Report and the Strategic Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that 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 performance, business model and strategy.

For and on behalf of the Board

John Misselbrook

Chairman

9th December 2020

FINANCIAL STATEMENTS

statement of comprehensive income

for the year ended 30th September 2020

	2020			2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair
value through profit or loss	-	164,024	164,024	-	36,566	36,566
Net foreign currency gains/(losses) 1	-	1,492	1,492	-	(1,128)	(1,128)
Income from investments	3,401	-	3,401	2,836	-	2,836
Interest receivable and similar income	220	-	220	469	-	469
Gross return	3,621	165,516	169,137	3,305	35,438	38,743
Management fee	(683)	(2,050)	(2,733)	(575)	(1,726)	(2,301)
Other administrative expenses	(438)	-	(438)	(507)	-	(507)
Net return before finance costs
and taxation	2,500	163,466	165,966	2,223	33,712	35,935
Finance costs	(188)	(564)	(752)	(268)	(804)	(1,072)
Net return before taxation	2,312	162,902	165,214	1,955	32,908	34,863
Taxation charges	(166)	-	(166)	(167)	-	(167)
Net return after taxation	2,146	162,902	165,048	1,788	32,908	34,696
Return per share (note 2)	2.95p	224.06p	227.01p	2.46p	45.26p	47.72p

¹ £1,430,000 due to an exchange gain on the loan which is denominated in US dollars. £62,000 due to net exchange gains on cash and cash equivalents (2019: (£1,345,000) due to an exchange loss on the loan which is denominated in US dollars. £217,000 due to net exchange gains on cash and cash equivalents).

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

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

statement of changes in equity

for the year ended 30th September 2020

	Called up		Exercised	Capital
	share	Share	warrant	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve	reserve1,2	reserves2	reserve2	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2018	19,481	13,321	3	581	37,392	146,151	4,033	220,962
Net return	-	-	-	-	-	32,908	1,788	34,696
Dividend paid in the year (note 3)	-	-	-	-	-	-	(2,545)	(2,545)
At 30th September 2019	19,481	13,321	3	581	37,392	179,059	3,276	253,113
Net return	-	-	-	-	-	162,902	2,146	165,048
Dividend paid in the year (note 3)	-	-	-	-	-	(1,776)	(5,422)	(7,198)
At 30th September 2020	19,481	13,321	3	581	37,392	340,185	-	410,963

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

as at 30th September 2020

	2020	2019
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	454,645	278,020
Current assets
Debtors	819	363
Cash and cash equivalents	343	3,134
	1,162	3,497
Current liabilities
Creditors: amounts falling due within one year	(44,844)	(28,404)
Net current liabilities	(43,682)	(24,907)
Total assets less current liabilities	410,963	253,113
Net assets	410,963	253,113
Capital and reserves
Called up share capital	19,481	19,481
Share premium	13,321	13,321
Exercised warrant reserve	3	3
Capital redemption reserve	581	581
Other reserve	37,392	37,392
Capital reserves	340,185	179,059
Revenue reserve	-	3,276
Total shareholders' funds	410,963	253,113
Net asset value per share (note 4)	565.3p	348.1p

statement of cash flows

for the year ended 30th September 2020

	2020	2019
	£'000	£'000
Net cash outflow from operations before dividends and interest1	(2,885)	(2,184)
Dividends received	3,248	2,695
Interest received	18	100
Overseas tax recovered	1	-
Interest paid	(700)	(1,127)
Net cash outflow from operating activities	(318)	(516)
Purchases of investments	(174,168)	(101,831)
Sales of investments	161,070	121,821
Settlement of foreign currency contracts	33	(54)
Net cash (outflow)/inflow from investing activities	(13,065)	19,936
Dividends paid	(7,198)	(2,545)
Repayment of bank loans	(67)	(25,058)
Drawdown of bank loans	17,895	4,121
Net cash inflow/(outflow) from financing activities	10,630	(23,482)
Decrease in cash and cash equivalents	(2,753)	(4,062)
Cash and cash equivalents at start of year	3,134	7,174
Unrealised (losses)/gains on foreign currency cash and cash equivalents1	(38)	22
Cash and cash equivalents at end of year	343	3,134
Decrease in cash and cash equivalents	(2,753)	(4,062)
Cash and cash equivalents consist of:
Cash at bank	343	3,134
	343	3,134

¹ The unrealised exchange losses on the JPMorgan US Dollar Liquidity Fund in the comparative column have been moved from the initial 'Net cash outflow from operations' total to be disclosed separately as the 'unrealised losses on foreign currency cash and cash equivalents.

Notes to the financial statements

for the year ended 30th September 2020

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 October 2019.

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 any potential impact of COVID-19 pandemic on the going concern and viability of the Company. They have considered the potential impact of COVID-19 and the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience particularly in light of COVID-19. The Directors have reviewed income and expense projections and the liquidity of the investment portfolio in making their assessment.

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

2.  Return per share

	2020	2019
	£'000	£'000
Revenue return	2,146	1,788
Capital return	162,902	32,908
Total return	165,048	34,696
Weighted average number of shares in issue during the year	72,703,188	72,703,188
Revenue return per share	2.95p	2.46p
Capital return per share	224.06p	45.26p
Total return per share	227.01p	47.72p

3.  Dividends

(a) Dividends paid and proposed

	2020	2019
	£'000	£'000
Dividends paid
2019 final dividend of 2.5p (2018: 3.5p) per share	1,818	2,545
2020 first quarterly interim dividend of 3.7p (2019: nil)	2,690	-
2020 second quarterly interim dividend of 3.7p (2019: nil)	2,690	-
Total dividends paid in the period	7,198	2,545
Dividends proposed
2019 final dividend of 2.5p per share	-	1,818
2021 first quarterly interim dividend of 5.7p per share	4,144	-

The first quarterly interim dividend has been declared in respect of the year ended 30th September 2021. In accordance with the accounting policy of the Company, this dividend will be reflected in the Financial Statements for the year ending 30th September 2021.

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

The requirements of Section 1158 are considered on the basis of the dividend proposed in respect of the financial year, shown below.

The aggregate of the distributable reserves is £377,577,000 (2019: Revenue reserve £3,276,000. 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 revised dividend policy). Please see the Chairman's Statement in the Annual Report and Financial Statements for further details.

	2020	2019
	£'000	£'000
2019 final dividend of 2.5p per share	-	1,818
2020 first quarterly interim dividend of 3.7p (2019: nil)	2,690	-
2020 second quarterly interim dividend of 3.7p (2019: nil)	2,690	-
	5,380	1,818

The aggregate of the distributable reserves after the payment of the first quarterly dividend will amount to £373,433,000 (2019: Revenue reserve £1,458,000. At the time only the revenue reserve was distributable). Please see the Chairman's Statement in the Annual Report and Financial Statements for further details.

4.  Net asset value per share

	2020	2019
Net assets (£'000)	410,963	253,113
Number of shares in issue	72,703,188	72,703,188
Net asset value per share	565.3p	348.1p

5.  Status of results announcement

  2019 Financial Information

The figures and financial information for 2019 are extracted from the Annual Report and Financial Statements for the year ended 30th September 2019 and do not constitute the statutory accounts for that year.  The Annual Report and Financial Statements 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.

  2020 Financial Information

The figures and financial information for 2020 are extracted from the Annual Report and Financial Statements for the year ended 30th September 2020 and do not constitute the statutory accounts for that year.  The Annual Report and Financial Statements includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and 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.

9th December 2020

For further information:

Lucy Dina,

JPMorgan Funds Limited

ENDS

A copy of the 2020 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 annual report 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

 

END

 

 

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