Half Yearly Results

RNS Number : 5108E

JPMorgan Chinese Inv Tst PLC

31 May 2012

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN CHINESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

31ST MARCH 2012

Chairman's Statement

Performance

During the six months to 31st March 2012, the Company's return on net assets with net dividends reinvested increased by 13.5%. This was behind the return of the Company's benchmark, the MSCI Golden Dragon Index, which increased by 14.7% (in sterling terms). Over the same period, the Company's return to Ordinary shareholders, which included a final dividend of 1.3p, increased by 10.4%. This lower return reflects a widening of the share price discount to net asset value ('NAV') per Ordinary share from 7.6% to 10.2%.

It was a difficult time to be investing in the Greater China region over the review period. Slower domestic growth in mainland China, resulting from the marked slow down in global growth, notably in Europe, and the prospect of elections in Taiwan, led to a more uncertain investment climate. However, lower inflationary trends and a cut in the Reserve Ratio Requirement in China, in order to loosen monetary policy, resulted in a rebound not only in the price of the shares of offshore-listed companies but also in domestic A-Shares. In Taiwan, the re-election of President Ma, the establishment of a National Stabilization Fund and generally improved corporate earnings growth enhanced stock market performance. Hong Kong too benefited from an increasing belief that the Chinese economy would remain stable buoyed by the actions taken, and this led to a market rebound.

Gearing

The Company has a £20 million credit facility with Scotiabank 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 105% and 110%, ending the half year at 110% invested.

Share Issues and Repurchases in the Period

During the period, there were no share repurchases by the Company. However, the Company issued 2,405 Ordinary shares as a result of the exercise of Subscription Share Rights. Since 31st March 2012, an additional 895 Ordinary shares were issued as a result of a further Subscription share conversion. At the time of writing, the Company's issued share capital consists of 77,867,921 Ordinary shares and 12,730,487 Subscription shares.

Subscription Shares

Since the bonus issue of Subscription shares in April 2008 up to the date of this report, a total of 1,405,920 Subscription shares have been exercised into Ordinary shares raising proceeds of approximately £2,018,000. Further details on the Subscription shares, including the apportionments for capital gains tax purposes and how they may be exercised, can be found in the Half Year Report and on the Company's website at www.jpmchinese.co.uk

Board of Directors

As explained in last year's Annual Report, Nigel Melville retired from the Board as both Chairman and Director of the Company following the Annual General Meeting in 2011. The Board would like to wish Nigel well and thank him for his contribution. Subsequently I assumed the role of Chairman of the Company and Kathryn Matthews took over from me as Chairman of the Audit Committee.

On 9th February 2012, Madame Yujiang Zhao tendered her resignation from the Board due to her growing ill health. With regret, the Board accepted her resignation and thanked Madame Zhao for her service to the Company since 2005 and wished her a speedy recovery.

Given these recent changes to the Board, the Nomination Committee met to discuss succession planning and it was decided that an additional Director should be invited to join the Board as soon as possible. The Board is therefore in the process of seeking a suitable candidate.

In line with best practice and the UK Corporate Governance Code, the Board has appointed Sir Andrew Burns as Senior Independent Director. He will lead the evaluation of the performance of the Chairman and is available to shareholders if they have concerns that cannot be resolved through discussion with the Chairman.

Outlook

The prudent stock picking approach of your Investment Managers' will continue. At a macro level, a further loosening of monetary policy, we believe, should be positive for equities and the structural shift to an economy fuelled by investment and internal consumption should counter-balance the economic slowdown in Europe. Hong Kong's growth will continue to be driven as China's principal 'offshore' financial services centre and Taiwan, where manufacturing costs are now in some cases less than in the coastal provinces of mainland China, will remain a market where interesting companies may selectively be found.

Overall, strong corporate earnings, more competitive valuations enhanced by an experienced stock picking-oriented management team operating out of Hong Kong, Shanghai and Taipei, make the Greater China region an encouraging investment destination.

William Knight

Chairman                                                                                                                      31st May 2012  

Investment Managers' Report

Over the six month period ended 31st March 2012, the Company achieved a total return of +13.5% (in sterling terms), underperforming the benchmark return of +14.7% by 1.2%. The average gearing level during the period was 7.2%. Stock selection in Hong Kong (especially the Macau gaming names) yielded strong results but the Company's exposure to China A-Shares detracted value.

While global economic growth expectations are being continuously moderated, Greater China stock market valuations remain attractive. China's policy environment also appears to have reached a turning point. Consequently, we continue to be positive on these markets and have focused on bottom-up stock selections. While the recovery in China will be gradual and the consumption slowdown likely to be greater than expected, we have found reasonable value in some secular growth areas. Accordingly we have recently increased our exposure to China consumer stocks and continue to be optimistic about the prospects for Chinese property names. We have also increased the portfolio's weighting in Taiwan technology companies. That aside, the core strategies of the portfolio remain unchanged.

China Review

In the last quarter of 2011, Chinese equities witnessed a divergence in performance as offshore-listed Chinese equities (MSCI China) rose by 8.1%, while domestic A-Shares (CSI 300) posted a decline of 7.9% (both in US$). With growth slowing down, we saw some initial signs of policy easing, evidenced by a Reserve Requirement Ratio ('RRR') cut of 0.5% on 30th November 2011, which in turn led to a strong market rebound in December. After almost two years of tightening monetary policy, this was a significant change and was seen as a reaction to falling inflation as well as increasing fears that the restrictive monetary policy might add to the risk of a hard landing.

In the first quarter of 2012 both offshore-listed Chinese equities and domestic A‑Shares rose by 9.9% and 4.7% respectively, underpinned by further policy easing. The market was volatile, rising in the first two months on another RRR cut in late February and then fading on the lack of demand pick-up post the Chinese New Year as well as the generally disappointing fourth quarter 2011 results reported in March. On the macro front, inflation reached a new cycle low of 3.2% in February compared to the cycle high of 6.5% in July 2011. Capital spending growth of 21.5% for the January to February period was slightly higher than the market expectation of 20%. Real demand recovery however has been slow and below expectations.

China Outlook

We continue to believe in a soft landing scenario for China's economy despite the slower than expected pace of policy easing. Some effect of earlier policy easing did surface in March, including sharply rising cement sales, rebounding steel production and banks offering preferential mortgage rates for first time home buyers. Additionally, the equity market valuation is attractive. We believe we have seen the worst of the government-induced tightening cycle and passed the tightest liquidity period. The current weak demand and abating domestic inflation should enable the government to introduce further and stronger policy easing in the second quarter of 2012.

Hong Kong Review

Towards the end of 2011, Hong Kong equities staged a partial rebound on the back of improving global economic sentiments as well as decreasing fears of a hard landing for China's economy. Specifically, with inflation abating in China, the market anticipated further policy easing. In the Hong Kong property sector, secondary market volumes remained low while land auction results were disappointing.

MSCI Hong Kong rose 18% during the first two months of 2012. However, this rally was halted following the election of CY Leung as the SAR's next Chief Executive on account of his ostensibly more populist inclinations. Moreover, the arrest of the two co-chairmen of blue chip property developer Sun Hung Kai Properties on potential corruption charges exacerbated market concerns. However, while the market is growing more uneasy about the potential for property sector reform, property transaction volume has increased on pent-up demand and falling mortgage rates. On another front, retail sales growth disappointed, signalling a slowdown in consumption, despite continued strong growth in mainland tourist arrivals. In contrast, Macau gaming revenue growth continued to exceed expectations, although the base effect will become more challenging going forward.

Hong Kong Outlook

A slowing Chinese economy presents a near-term overhang, especially in light of increased policy uncertainty both in Hong Kong and mainland China. Given the more populist stance of the incoming administration, there might yet be more measures to rein in residential property prices. However, liquidity conditions remain supportive while the sector is trading on attractive valuations. Given global economic weakness, especially in Europe, exports are likely to disappoint. Macau gaming will see slower growth given upcoming comparisons against the higher base from last year while the pace of wealth generation in China has slowed down, although the cash generation ability of the sector remains very healthy.

Taiwan Review

The MSCI Taiwan fell by 0.4% over the last three months of 2011. Most investors took a wait-and-see approach as the race for the January 14th Presidential election remained very close, with the KMT's Ma only slightly ahead of the DPP's Tsai in various polls. The slide of the market in mid November 2011 and falling volume were arrested by the government's announcement of measures to boost the stock market in the face of the worsening economic outlook. One such measures was the launch of the NT$500 billion (US$17 billion) National Stabilization Fund ('NSF') that was activated on 20th December 2011.

Taiwanese stocks rallied along with other Greater China markets and gained 14.5% (in US$) in the first quarter of 2012. The market's response to President Ma's re-election was initially disappointing as investors were reluctant to participate ahead of a long, post-election Chinese New Year break. However, the Taiwan market played catch-up after the New Year break, driven by the KMT victories in the presidential and legislative elections, which should result in steady progress in cross-strait relations. The market was also supported by strong results from Apple and better global economic data.

Taiwan Outlook

Recently announced proposals on the introduction of a capital gains tax are likely to dampen sentiment although early opinions seem to indicate that the tax will not be too punitive and will likely target mainly high net worth investors and local corporations. On the economic front, the global economy looks to be on a mild growth track despite weak demand from Europe. With strong liquidity and corporate earnings revisions likely to turn positive, the stock market should continue its upward trend after finding a base.

Howard Wang

Emerson Yip

William Tong-

Shumin Huang-

Investment Managers                                                                                                      31st May 2012

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 have not changed and fall into the following broad categories: investment underperformance; loss of investment team; discount; market; political and economic; 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 2011.

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.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider there is sufficient evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

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

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

(ii)        the half year 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

William Knight

Chairman                                                                                                                      31st May 2012

For further information, please contact:

Lucy Dina

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 4000

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 2012

	(Unaudited) Six months ended 31st March 2012			(Unaudited) Six months ended 31st March 2011			(Audited) Year ended 30th September 2011
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss	-	14,095	14,095	-	8,648	8,648	-	(23,762)	(23,762)
Net foreign currency gains/(losses)	-	104	104	-	186	186	-	(171)	(171)
Income from investments	171	-	171	84	-	84	3,546	-	3,546
Other interest receivable and similar income	-	-	-	-	-	-	1	-	1
Gross return/(loss)	171	14,199	14,370	84	8,834	8,918	3,547	(23,933)	(20,386)
Management fee	(539)	-	(539)	(635)	-	(635)	(1,285)	-	(1,285)
Performance fee (charge)/writeback	-	-	-	-	(394)	(394)	-	346	346
Other administrative expenses	(232)	-	(232)	(264)	-	(264)	(487)	-	(487)
Net (loss)/return on ordinary activities before finance costs and taxation	(600)	14,199	13,599	(815)	8,440	7,625	1,775	(23,587)	(21,812)
Finance costs	(123)	-	(123)	(145)	-	(145)	(269)	-	(269)
Net (loss)/return on ordinary activities before taxation	(723)	14,199	13,476	(960)	8,440	7,480	1,506	(23,587)	(22,081)
Taxation	(1)	-	(1)	(8)	-	(8)	(433)	-	(433)
Net (loss)/return on ordinary activities after taxation	(724)	14,199	13,475	(968)	8,440	7,472	1,073	(23,587)	(22,514)
(Loss)/return per Ordinary share (note 4)	(0.93)p	18.24p	17.31p	(1.25)p	10.86p	9.61p	1.38p	(30.33)p	(28.95)p

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 2012	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2011	19,594	13,123	3	581	37,392	28,867	1,510	101,070
Issue of Ordinary shares on exercise of Subscription shares	-	4	-	-	-	-	-	4
Net return/(loss) on ordinary activities	-	-	-	-	-	14,199	(724)	13,475
Dividends appropriated in the period	-	-	-	-	-	-	(1,012)	(1,012)
At 31st March 2012	19,594	13,127	3	581	37,392	43,066	(226)	113,537

	Called up		Exercised	Capital
Six months ended	share	Share	warrant	redemption	Other	Capital	Revenue
31st March 2011	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2010	19,455	12,281	3	581	37,392	52,454	1,603	123,769
Shares issued	125	761	-	-	-	-	-	886
Issue of Ordinary shares on exercise of Subscription shares	10	58	-	-	-	-	-	68
Net return/(loss) on ordinary activities	-	-	-	-	-	8,440	(968)	7,472
Dividends appropriated in the period	-	-	-	-	-	-	(1,166)	(1,166)
At 31st March 2011	19,590	13,100	3	581	37,392	60,894	(531)	131,029

	Called up		Exercised	Capital
Year ended	share	Share	warrant	redemption	Other	Capital	Revenue
30th September 2011	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2010	19,455	12,281	3	581	37,392	52,454	1,603	123,769
Shares issued	125	760	-	-	-	-	-	885
Exercise of Subscription shares into Ordinary shares	(1)	1	-	-	-	-	-	-
Issue of Ordinary shares on exercise of Subscription shares	15	81	-	-	-	-	-	96
Net (loss)/return on ordinary activities	-	-	-	-	-	(23,587)	1,073	(22,514)
Dividends appropriated in the year	-	-	-	-	-	-	(1,166)	(1,166)
At 30th September 2011	19,594	13,123	3	581	37,392	28,867	1,510	101,070

Balance Sheet

at 31st March 2012

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2012	31st March 2011	30th September 2011
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss:
China	69,251	78,649	54,042
Taiwan	32,347	35,533	29,885
Hong Kong	22,756	23,693	20,487
Total investments	124,354	137,875	104,414
Current assets
Debtors	633	529	3,372
Cash and short term deposits	522	189	2,813
	1,155	718	6,185
Creditors: amounts falling due within one year	(11,972)	(7,563)	(9,529)
Financial liabilities: derivative financial instruments	-	(1)	-
Net current liabilities	(10,817)	(6,846)	(3,344)
Total assets less current liabilities	113,537	131,029	101,070
Net assets	113,537	131,029	101,070
Capital and reserves
Called up share capital	19,594	19,590	19,594
Share premium	13,127	13,100	13,123
Exercised warrant reserve	3	3	3
Capital redemption reserve	581	581	581
Other reserve	37,392	37,392	37,392
Capital reserves	43,066	60,894	28,867
Revenue reserve	(226)	(531)	1,510
Equity shareholders' funds	113,537	131,029	101,070
Net asset value per Ordinary share (note 5)	145.8p	168.3p	129.8p

Company registration number: 02853893.

Cash Flow Statement

for the six months ended 31st March 2012

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2012	31st March 2011	30th September 2011
	£'000	£'000	£'000
Net cash outflow from operating activities (note 6)	(730)	(2,095)	(312)
Net cash outflow from returns on investments and servicing of finance	(123)	(145)	(268)
Net cash (outflow)/inflow from capital expenditure and financial investment	(3,439)	1,836	382
Dividend paid	(1,012)	(1,166)	(1,166)
Net cash inflow from financing	3,162	280	2,709
(Decrease)/increase in cash for the period	(2,142)	(1,290)	1,345
Reconciliation of net cash flow to movement in net debt
Net cash movement	(2,142)	(1,290)	1,345
Loans (drawn down)/repaid in the period	(3,158)	674	(1,728)
Exchange rate movements	105	187	(171)
Movement in net debt in the period	(5,195)	(429)	(554)
Net debt at the beginning of the period	(6,174)	(5,620)	(5,620)
Net debt at the end of the period	(11,369)	(6,049)	(6,174)
Represented by:
Cash and short term deposits	522	189	2,813
Debt falling due within one year	(11,891)	(6,238)	(8,987)
Net debt at the end of the period	(11,369)	(6,049)	(6,174)

Notes to the Accounts

for the six months ended 31st March 2012

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 2011 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 2011.

3.  Dividend

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2012	31st March 2011	30th September 2011
		£'000	£'000	£'000
	Final dividend paid in respect of the year ended 30th September 2011 of 1.3p (2010: 1.5p)	1,012	1,166	1,166

     No interim dividend has been declared in respect of the six months ended 31st March 2012 (2011: nil).

4.  (Loss)/return per Ordinary share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2012	31st March 2011	30th September 2011
		£'000	£'000	£'000
	(Loss)/return per Ordinary share is based on the following:
	Revenue (loss)/return	(724)	(968)	1,073
	Capital return/(loss)	14,199	8,440	(23,587)
	Total return/(loss)	13,475	7,472	(22,514)
	Weighted average number of Ordinary shares in issue during the period	77,865,142	77,688,909	77,769,707
	Revenue (loss)/return per Ordinary share	(0.93)p	(1.25)p	1.38p
	Capital return/(loss) per Ordinary share	18.24p	10.86p	(30.33)p
	Total return/(loss) per Ordinary share	17.31p	9.61p	(28.95)p

     The Subscription shares in issue have no dilutive effect on the above losses/returns per Ordinary share, as calculated 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 2012	31st March 2011	30th September 2011
	Ordinary shareholders funds (£'000)	113,537	131,029	101,070
	Number of Ordinary shares in issue	77,867,026	77,848,498	77,864,621
	Net asset value per Ordinary share (pence)	145.8	168.3	129.8

     There is no dilution to the net asset value per Ordinary share arising from the Subscription shares in issue (six months ended 31st March 2011 and year ended 30th September 2011: no dilution).

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

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st March 2012	31st March 2011	30th September 2011
		£'000	£'000	£'000
	Net return/(loss) on ordinary activities before finance costs and taxation	13,599	7,625	(21,812)
	Less capital (return)/loss before finance costs and taxation	(14,199)	(8,440)	23,587
	Scrip dividends received as income	-	-	(364)
	Decrease/(increase) in accrued income	97	51	(43)
	Increase in other debtors	(16)	(7)	(2)
	Decrease in accrued expenses	(56)	(136)	(78)
	Overseas taxation	(14)	(30)	(442)
	Performance fee paid	(141)	(1,158)	(1,158)
	Net cash outflow from operating activities	(730)	(2,095)	(312)

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

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

ENDS

A copy of the half yearly report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.hemscott.com/nsm.do

The half yearly report will also be available on the Company's website at www.jpmchinese.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 

END

 

 

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