Half Year Results

RNS Number : 7285M

JPMorgan Chinese Inv Tst PLC

28 May 2010

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

31ST MARCH 2010

CHAIRMAN'S STATEMENT

Performance

The recovery of the Greater China markets continued in the six months to 31st March 2010, although concerns over potential monetary tightening measures in China and sovereign debt markets in Europe constrained the upward trend towards the end of the period. It is pleasing to report that, during this period, the Company's undiluted total return on net assets (or portfolio return) increased by 13.6%. This compares favourably to the return of the Company's benchmark, the MSCI Golden Dragon Index (in sterling terms), which increased by 12.0%. The diluted NAV return, which assumes that all of the Subscription shares in issue were exercised at 143 pence per share, increased by 12.4%. Over the same period, the Company's Ordinary share price rose by 10.0%.

Subscription Shares

On 16th April 2008, the Company issued Subscription shares as a bonus issue to the Ordinary shareholders on the basis of one Subscription share for every five Ordinary shares held. Each Subscription share confers the right (but not the obligation) to subscribe for one Ordinary share, at pre-determined prices, on 15th May each year from 2009 to 2013, whereupon the rights under the subscription shares will lapse. On 15th May 2010 applications were received to convert 1,258,499 Subscription shares into Ordinary shares, amounting to £1.8m of additional capital raised in the Company. The resulting new Ordinary shares were allotted today.

In accordance with the current Subscription Share Rights, the next opportunity to exercise Subscription shares will be on 15th May 2011 at 168 pence per share. Further details of the Subscription Share Rights can be found on the Company's website at www.jpmchinese.co.uk.

Change of Terms to Subscription Share Rights & New Articles of Association

Following detailed discussions between the Board and its advisors, the Board proposes to seek Subscription shareholder approval at a Class Meeting to be held on Monday 28th June 2010, to change the terms of the Subscription Share Rights in order to increase the frequency of Subscription share exercise opportunities. On the basis that Subscription shareholders approve the variation of Subscription Share Rights, a special resolution will be put to Ordinary Shareholders at a General Meeting, to be held shortly after the Class Meeting, to adopt new articles of association to reflect the revised Subscription Share Rights.

The Board is further proposing that the Company adopt new articles of association at the General Meeting to reflect the changes in company law brought about by the Companies Act 2006, which came into effect on 1st October 2009, and changes made to the Companies Act 2006 in August 2009 (designed principally to implement the EU Shareholder Rights Directive in the UK), as well as some minor technical or clarifying changes.

Full details of the proposed changes, together with notice of the Class Meeting and General Meeting, are provided within the Shareholder Circular, to be circulated with the Half Year Report & Accounts.

Gearing

The Company has an £8 million credit facility with Lloyds TSB Bank which gives the Investment Managers the ability to gear tactically. The Board has given the Investment Managers the flexibility to gear the portfolio up to 115% invested. During the period the level of gearing has ranged between 103% and 105%, ending the half year at 104%.

Share Issues and Repurchases

During the period, the Company issued 2,904,000 Ordinary shares out of Treasury for a total consideration of £4,200,000 at a weighted average premium to NAV of 2.96%. In addition, the Company issued 500,000 new Ordinary shares for a total consideration of £737,000. The Company did not repurchase any shares during the period and has not issued or repurchased any shares since the period end and up to the time of writing, other than new Ordinary shares issued as a result of the exercise of Subscription Share Rights. At the time of writing, the Company's issued share capital consists of 77,299,960 Ordinary shares and 12,798,448 Subscription shares.

Outlook

The success of the Chinese government's announced stimulus measures in 2009 has quickly become the cause for concern in 2010, as fears over policy tightening have led to doubts over the recovery of Greater China markets. In addition, concerns over sovereign debt markets in Europe, particularly following the recent eurozone-IMF bailout of the Greek government, have led to a further cooling in the markets globally. Whilst these concerns are likely to dampen investor sentiment over the short to mid term, the Board remains confident in the longer term growth opportunities in the Greater China markets, particularly as strong fundamentals, inexpensive valuations and earnings upgrades all point towards a continuing economic recovery.

Nigel Melville

Chairman

28th May 2010

INVESTMENT MANAGERS' REPORT

During the six months ended 31st March 2010, the Company achieved an undiluted total return on net assets of 13.6%, outperforming the benchmark return of 12.0%. The outperformance can be attributed to stock selection in all three Greater China markets. Stock selection was strongest in Taiwan, followed by Hong Kong and China. The portfolio's overweight position in China also contributed to positive returns but cash holdings detracted from performance.

China

Market performance

The MSCI China Index rose nearly 10% (in local currency terms) alongside the global markets in the fourth quarter of 2009, shrugging off concerns caused by the proposed rescheduling of a December bond payment by the quasi-sovereign Dubai World and those about capital raisings by Chinese banks. Apprehension surrounding the suspension/normalisation of selective stimulus measures for the property sector remained minimal. Initial public offering activities were buoyant despite mixed results on first day performance, reflecting plenty of liquidity and a return of risk appetite. China's economic data continued to improve through November 2009, nonetheless, with moderate signs of export recovery.

During the first quarter of 2010, Chinese equities reversed their course and fell by 1.6% (in local currency terms) quarter on quarter in a period of volatile trading, as jitters about the solvency of the Greek government dominated global financial news headlines, while investors became concerned about China's potential tightening measures. At the National People's Congress ('NPC'), the government reaffirmed its "pro-growth" stance with a focus on the "structure re-balancing" to curb redundant investments and stimulate domestic consumption. The overhang of the banking sector eased after guidance of capital-raising plans was issued together with measures to control loans to local government related projects.

Market Outlook

In China, government policies have turned from a key positive catalyst in 2009, to a key negative influence on markets in 2010. Longer term, we believe the policy to re-balance China's economic growth towards consumption remains unchanged while fixed asset investment growth could peak in the first half of 2010 given the government's increasing prudence on new investment projects. Liquidity conditions remain supportive and a recovery is still in motion. The prudent cycle management by the authorities resulting in the relative underperformance of Chinese equities would seem to be overdone.

Hong Kong

Market performance

After a strong start to the fourth quarter of 2009, the market retreated owing to concerns over tightening monetary policy in China and a strengthening U.S. dollar. There was also a brief pullback owing to the news surrounding Dubai World that proved to be temporary. Furthermore, the Hong Kong Monetary Authority proposed measures aimed at slowing down sharply rising property prices. However, the overall positive liquidity situation continued to prevail over any administrative measures or specific company developments. While the GDP figures for the third quarter of 2009 came in lower than expected, due to weakness in merchandise trade, there were continuing signs of a domestic rebound in the real economy.

In the first quarter of 2010, Hong Kong equities continued on a downward slide, weighed down by continuing concerns over incremental tightening in China and a strengthening U.S. dollar, as well as the sovereign crisis in Greece. Property counters in particular were hit by liquidity related concerns. However, the market bottomed in early February before rising to recoup most of the losses on the back of rising global risk appetite, helped by positive news-flow regarding measures to support Greece. Land auctions were coming in above expectations and continued strength in the physical property market provided further support during the quarter.

Market Outlook

While the liquidity situation overall remains supportive of Hong Kong equities, we are mindful that incremental tightening and a deteriorating sovereign crisis in Europe would adversely affect this picture. Given the overhang of stimulus withdrawal in mainland China, there will be a greater focus on earnings momentum. Hong Kong equities should benefit from the strength in the underlying economy, especially as moderate inflationary pressures would further stimulate the asset markets and domestic consumption.

Taiwan

Market performance

After a slow start, the Taiwanese Taiex Index moved up in the last two months of the fourth quarter of 2009 to close at a year-high of 8188 index points. This was as a result of major merger and acquisition announcements within the technology sector, strong IT demand and improved cross-strait relations with China. Technology stocks outperformed in the fourth quarter of 2009, especially the opto-electronic (TFT/LED) and components sectors. End demand for technology stocks held up well in the second half of 2009 with robust sales for the holiday seasons in the US and China.

After outperforming China and Hong Kong by a wide margin in the second half of 2009, the Taiwanese market was under profit taking pressure in the first quarter of 2010 amid the delay of the ECFA (Economic Cooperation Framework Agreement), contagion from sovereign debt defaults and China's potential rate hike. Technology stocks in general underperformed, while commodity sectors (e.g. plastic and glass) continued to outperform on better supply discipline as well as strong demand from China.

Market Outlook

In Taiwan, the market could be constrained by concerns about potential overbooking and inventory levels in the second half of 2010. The first quarter results season will be key as the market shifts to company specific momentum. Company guidance will be a very important driver for the market together with a view that global recovery remains intact.

We remain optimistic about Greater China markets, despite the increased volatility, and will be selectively accumulating positions at the right opportunity.

Howard Wang

Emerson Yip

William Tong

Shumin Huang

Investment Managers

28th May 2010

Interim Management Report

The Company is required to make the following disclosures in its Half Year Report.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into nine broad categories: investment underperformance; loss of investment team; discount; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th September 2009.

Related Party Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)    the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half-Yearly Financial Reports'; and

(ii)   the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

For and on behalf of the Board

Nigel Melville

Chairman

28th May 2010

For further information, please contact:

Christopher Legg

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 6000

Please note that up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can be found at www.jpmchinese.co.uk

Income Statement

for the six months ended 31st March 2010

	(Unaudited) Six months ended 31st March 2010			(Unaudited) Six months ended 31st March 2009			(Audited) Year ended 30th September 2009
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	13,808	13,808	-	4,995	4,995	-	30,065	30,065
Net foreign currency (losses)/gains	-	(414)	(414)	-	364	364	-	166	166
Income from investments	177	-	177	499	-	499	2,445	-	2,445
Other interest receivable and similar income	-	-	-	26	-	26	26	-	26
Gross return	177	13,394	13,571	525	5,359	5,884	2,471	30,231	32,702
Management fee	(527)	-	(527)	(324)	-	(324)	(741)	-	(741)
VAT recoverable	-	-	-	3	16	19	-	-	-
Performance fee	-	(77)	(77)	-	(135)	(135)	-	(324)	(324)
Other administrative expenses	(248)	-	(248)	(209)	-	(209)	(426)	-	(426)
Net (loss)/return on ordinary activities before finance costs and taxation	(598)	13,317	12,719	(5)	5,240	5,235	1,304	29,907	31,211
Finance costs	(64)	-	(64)	(15)	-	(15)	(35)	-	(35)
Net (loss)/return on ordinary activities before taxation	(662)	13,317	12,655	(20)	5,240	5,220	1,269	29,907	31,176
Taxation	-	-	-	(39)	-	(39)	(175)	-	(175)
Net (loss)/return on ordinary activities after taxation	(662)	13,317	12,655	(59)	5,240	5,181	1,094	29,907	31,001
(Loss)/return per Ordinary share - undiluted (note 4)	(0.88)p	17.76p	16.88p	(0.08)p	7.38p	7.30p	1.53p	41.88p	43.41p
(Loss)/return per Ordinary share - diluted (note 4)	(0.88)p	17.78p	16.90p	(0.08)p	7.38p	7.30p	1.53p	41.88p	43.41p

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

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. The Total column represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL'). For this reason a STRGL has not been presented.

Reconciliation of Movements in Shareholders' Funds

	Called up		Exercised	Capital
Six months ended	share	Share	warrant	redemption	Other	Capital	Revenue
31st March 2010	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2009	19,026	8,989	3	581	34,363	35,870	1,542	100,374
Shares issued	125	612	-	-	-	-	-	737
Re-issue of Ordinary shares from Treasury	-	1,196	-	-	3,004	-	-	4,200
Net return/(loss) on ordinary activities	-	-	-	-	-	13,317	(662)	12,655
Dividends appropriated in the period	-	-	-	-	-	-	(1,120)	(1,120)
At 31st March 2010	19,151	10,797	3	581	37,367	49,187	(240)	116,846
	Called up		Exercised	Capital
Six months ended	share	Share	warrant	redemption	Other	Capital	Revenue
31st March 2009	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2008	19,007	8,571	3	581	32,507	5,963	803	67,435
Re-issue of Ordinary shares from Treasury	-	268	-	-	113	-	-	381
Net return/(loss) on ordinary activities	-	-	-	-	-	5,240	(59)	5,181
Dividends appropriated in the period	-	-	-	-	-	-	(355)	(355)
At 31st March 2009	19,007	8,839	3	581	32,620	11,203	389	72,642
	Called up		Exercised	Capital
Year ended	share	Share	warrant	redemption	Other	Capital	Revenue
30th September 2009	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2008	19,007	8,571	3	581	32,507	5,963	803	67,435
Re-issue of Ordinary shares from Treasury	-	333	-	-	1,856	-	-	2,189
Exercise of Subscription shares into Ordinary shares	(1)	1	-	-	-	-	-	-
Issue of Ordinary shares on exercise of Subscription shares	20	84	-	-	-	-	-	104
Net return on ordinary activities	-	-	-	-	-	29,907	1,094	31,001
Dividends appropriated in the year	-	-	-	-	-	-	(355)	(355)
At 30th September 2009	19,026	8,989	3	581	34,363	35,870	1,542	100,374

Balance Sheet

at 31st March 2010

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2010	31st March 2009	30th September 2009
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss:
China	69,390	40,001	53,643
Taiwan	32,838	19,505	29,602
Hong Kong	20,996	14,051	20,935
Total investments	123,224	73,557	104,180
Current assets
Debtors	766	520	643
Cash and short term deposits	940	1,161	947
	1,706	1,681	1,590
Creditors: amounts falling due within one year	(7,616)	(1,067)	(3,861)
Net current (liabilities)/assets	(5,910)	614	(2,271)
Total assets less current liabilities	117,314	74,171	101,909
Provisions for liabilities and charges
Performance fee	(468)	(1,529)	(1,535)
Total net assets	116,846	72,642	100,374
Capital and reserves
Called up share capital	19,151	19,007	19,026
Share premium	10,797	8,839	8,989
Exercised warrant reserve	3	3	3
Capital redemption reserve	581	581	581
Other reserve	37,367	32,620	34,363
Capital reserves	49,187	11,203	35,870
Revenue reserve	(240)	389	1,542
Shareholders' funds	116,846	72,642	100,374
Net asset value per Ordinary share - undiluted (note 5)	153.7p	102.1p	138.2p
Net asset value per Ordinary share - diluted (note 5)	152.0p	102.1p	138.2p

Cash Flow Statement

for the six months ended 31st March 2010

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2010	31st March 2009	30th September 2009
	£'000	£'000	£'000
Net cash (outflow)/inflow from operating activities (note 6)	(1,489)	(1,064)	45
Net cash outflow from returns on investments and servicing of finance	(65)	(15)	(35)
Net cash outflow from capital expenditure and financial investment	(4,776)	(1,628)	(6,208)
Dividend paid	(1,120)	(355)	(355)
Net cash inflow from financing	7,487	381	3,822
Increase/(decrease) in cash for the period	37	(2,681)	(2,731)
Reconciliation of net cash flow to movement in net funds
Net cash movement	37	(2,681)	(2,731)
Loans drawn down in the period	(2,550)	-	(1,529)
Exchange rate movements	(414)	364	166
Movement in net debt/funds in the period	(2,927)	(2,317)	(4,094)
Net (debt)/funds at the beginning of the period	(616)	3,478	3,478
Net (debt)/funds at the end of the period	(3,543)	1,161	(616)
Represented by:
Cash and short term deposits	940	1,161	947
Debt falling due within one year	(4,483)	-	(1,563)
Net (debt)/funds at the end of the period	(3,543)	1,161	(616)

Notes to the Accounts

for the six months ended 31st March 2010

1.       Financial statements

          The information contained within the Financial Statements in this half year report has not been audited or reviewed by the Company's auditors.

          The figures and financial information for the year ended 30th September 2009 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.       Accounting policies

          The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009.

          All of the Company's operations are of a continuing nature.

          The accounting policies applied to these half year accounts are consistent with those applied in the accounts for the year ended 30th September 2009.

3.       Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2010	31st March 2009	30th September 2009
	£'000	£'000	£'000
Final dividend paid in respect of the year ended 30th September 2009 of 1.5p (2008: 0.5p)	1,120	355	355

          No interim dividend has been declared in respect of the six months ended 31st March 2010 (2009: nil).

4.       (Loss)/return per Ordinary share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2010	31st March 2009	30th September 2009
	£'000	£'000	£'000
(Loss)/return per Ordinary share is based on the following:
Revenue (loss)/return	(662)	(59)	1,094
Capital return	13,317	5,240	29,907
Total return	12,655	5,181	31,001
Weighted average number of Ordinary shares in issue during the period used for the purpose of the undiluted calculation	75,001,307	71,021,463	71,418,199
Weighted average number of Ordinary shares in issue during the period used for the purpose of the diluted calculation	74,902,315	71,021,463	71,418,199
Undiluted
Revenue (loss)/return per Ordinary share	(0.88)p	(0.08)p	1.53p
Capital return per Ordinary share	17.76p	7.38p	41.88p
Total return per Ordinary share	16.88p	7.30p	43.41p
Diluted
Revenue (loss)/return per Ordinary share	(0.88)p	(0.08)p	1.53p
Capital return per Ordinary share	17.78p	7.38p	41.88p
Total return per Ordinary share	16.90p	7.30p	43.41p

          The diluted (loss)/return per Ordinary share represents the (loss)/return on ordinary activities after taxation divided by the weighted average number of Ordinary shares in issue during the period as adjusted in accordance with the requirements of Financial Reporting Standard 22: 'Earnings per share'.

5.       Net asset value per Ordinary share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2010	31st March 2009	30th September 2009
Undiluted
Ordinary shareholders funds (£'000)	116,846	72,642	100,374
Number of Ordinary shares in issue	76,041,461	71,133,001	72,637,461
Net asset value per Ordinary share (pence)	153.7	102.1	138.2
Diluted
Ordinary shareholders funds assuming exercise of Subscription shares (£'000)	136,948	72,642	100,374
Number of potential Ordinary shares in issue	90,098,408	71,133,001	72,637,461
Net asset value per Ordinary share (pence)	152.0	102.1	138.2

          The diluted net asset value per Ordinary share assumes that all outstanding Subscription shares were converted into Ordinary shares at the period end.

6.       Reconciliation of net return on ordinary activities before finance costs and taxation to net cash (outflow) / inflow from operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2010	31st March 2009	30th September 2009
	£'000	£'000	£'000
Net return on ordinary activities before finance costs and taxation	12,719	5,235	31,211
Add back capital return before finance costs and taxation	(13,317)	(5,240)	(29,907)
Scrip dividends received as income	(12)	(66)	(176)
Decrease in accrued income	3	34	23
(Increase)/decrease in other debtors	(12)	36	47
(Decrease)/increase in accrued expenses	(28)	(44)	3
Overseas taxation	-	(38)	(175)
VAT recoverable included in capital	-	16	16
Performance fee paid	(842)	(997)	(997)
Net cash (outflow)/inflow from operating activities	(1,489)	(1,064)	45

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

www.jpmchinese.co.uk

 

END

 

 

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