Annual Financial Results 2013

RNS Number : 3937Z

JPMorgan Russian Securities PLC

05 February 2014

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN RUSSIAN SECURITIES PLC

ANNOUNCEMENT OF FINAL RESULTS FOR THE YEAR ENDED 31ST OCTOBER 2013

The Directors of JPMorgan Russian Securities plc announce the Company's results
for the year ended 31st October 2013

JPMorgan Russian Securities was launched in 2002 and is the only UK investment trust investing purely in listed Russian companies. It has been managed since launch by Oleg Biryulyov, who is based at J.P. Morgan Asset Management's London office, but spends a significant proportion of his time in Moscow.

The trust aims to achieve capital growth for its investors, and is benchmarked against the MSCI Russia Capped 10/40 Index, one of a set of capped indices used in markets that are otherwise dominated by a handful of very large stocks.

Highlights of the results are as follows:

-       Net asset value total return of 13.7% for the year, almost double the benchmark MSCI Russia Capped 10/40 Index total return of 7.1%.

-       Share price total return of 12.5%, driven by a slightly widening discount to net asset value during a period when emerging markets in aggregate were out of favour.

-       The Board has proposed a dividend of 15.30p a share to be paid in March. During 2013 the Russian stockmarket was the highest dividend yielding market in the emerging markets universe.

-       The biggest contributor to outperformance during the year was sector allocation, in particular the manager's decision to be significantly underweight the utilities sector.

-       At the portfolio level, the trust is positioned to benefit from expected investment in infrastructure, consolidation in the banking sector, and stronger consumer demand driven by real wage growth.

Chairman's Statement

Emerging markets continued to lag the developed world during the year under review. Although the Russian market made an attempt to depart from the performance trend of other emerging markets with a rally that commenced in January, it did not last long, and, following a sell-off in mid April, Russia was back in line with its peers by June. Against this background, the Company's benchmark, the MCSI Russian 10/40 Equity Indices Index, returned 7.1% over the year. I am pleased to report that both the Company's return to shareholders and the net asset value total return outperformed the benchmark index by a significant margin, returning 12.5% and 13.7% respectively. Given the continued volatility in the Russian market, it is gratifying to see that the investment manager's investment decisions continue to make a positive contribution and have led to this degree of outperformance. As implied by the lower increase in the return to shareholders compared to the Company's NAV, the discount at which the Company's shares trade relative to the net asset value widened slightly over the period. At year end the discount to NAV was 11.3% compared with 10.3% the previous year.

The Company's risk control measures have been in place for two years and have helped to reduce the volatility of the Company's returns versus its benchmark. Although the risk profile of the Company is now lower the investment managers took advantage of the divergence in performance between different sectors and single stocks to generate additional NAV return of 6.6 percentage points against the benchmark. We now have a two year track record showing that these investment guidelines are a sensible risk mitigation approach and will continue to allow the investment management team to outperform the benchmark while operating with a high degree of conviction.

Revised Reporting Requirements

There have been a number of changes in reporting requirements for companies with financial years beginning on or after 1st October 2012. Shareholders will note in particular the addition of a Strategic Report and changes to the structure and voting in respect of the Directors' Remuneration Report.

The Strategic Report is designed to replace and enhance reporting previously included in the Business Review section of the Directors' Report. Its purpose is to inform shareholders and help them assess how the Directors have performed their duty to promote the success of the Company during the year under review. There have also been consequential changes in the contents of the remainder of the Report.

Change in Accounting Policy, Revenue and Earnings

Historically, the Company has allocated indirect expenses wholly to the revenue account. As I highlighted in my half-year statement the Board took the decision earlier in the year to allocate to the capital account 80% of management fees and finance costs to reflect the Board's expectation that the majority of long-term returns from investing in the Company will be derived from capital gains rather than income. This change took retrospective effect from 1st November 2012. Although this change has no impact on the Company's cash flows, a consequence is that earnings per share have increased. Along with this increase and the significant improvement in the payment of dividends by Russian companies over the last two years, the Board is pleased to confirm that it will be able to provide an income distribution to shareholders this year, subject to approval by shareholders as detailed below.

Dividends

Revenue for the year, after taxation, was £9,657,000 and the revenue return per share, calculated on the average number of shares in issue, was 18.14 pence. Historically, the Company has been prohibited from paying a dividend as a deficit existed on the revenue reserve. However, following recent regulatory changes, the Company is now required to distribute its net income. In order to maintain its investment trust status, and based upon the revenue generated by the portfolio this year, the Board proposes a dividend of 15.30 pence, to be paid on 14th March 2014 to ordinary shareholders on the register at the close of business on 14th February 2014. If approved by shareholders, this distribution will amount to a total of £8,058,000, of which £7,511,000 will be distributed from revenue reserves and a further £547,000 will be distributed from capital profits. To permit the Company to utilise its capital profits for dividend distributions, the Company is required to adopt new articles of association at the forthcoming Annual General Meeting and I draw shareholders' attention to Resolution 13 and the information on page 23 of the Company's 2013 Annual Report.

Shareholders should note that although the Company is taking powers to permit the distribution of capital profits as dividends, this is solely to ensure that the Company is able to comply with the income retention tests detailed in Section 1158 of The Corporation Tax Act 2010, whereby it must not retain more than 15% of its total income. The requirement to distribute from capital profits has come about due to an unintended clash of recent regulation arising from company and tax law. The budget in 2013 confirmed the Government's intention to pass secondary legislation to amend this anomaly; however, such legislation is currently not in place.

The Company's objective remains that of capital growth and the payment of dividends to investors, although welcomed by the Board, will in turn depend on Russian companies making sustained dividend distributions to their shareholders. The Board reviews income expectations throughout the year and early estimates suggest a possible decrease in the portfolio's earnings for the 2014 financial year compared with 2013.

Discount Control

During the year the Company repurchased 1,160,000 shares for cancellation at an average discount to net asset value of 12.1%. The Board's objective remains to use the share repurchase authority to assist in managing any imbalance between supply and demand for the Company's shares, thereby reducing the volatility of the discount. The Board operates a policy under which the Company intends, subject to market conditions, to buy shares at discounts above 8% to achieve this. Over the course of the reporting year and given the continued volatility in the Russian market, the Board has, on occasion, refrained from implementing share buybacks when the discount has widened beyond 8%, as there has been no certainty that such actions would assist in stabilising the discount. The Board continues to monitor discount movements. The Board will only repurchase shares at a discount to their prevailing net asset value, and issue shares when they trade at a premium to their net asset value, so as not to prejudice existing shareholders. The Board will seek authority to renew the Company's share issuance and buyback powers at the forthcoming Annual General Meeting.

Board of Directors

In compliance with corporate governance best practice, all Directors will be standing for re-election at the forthcoming Annual General Meeting. Further to the Company's annual evaluation of the Directors, the Chairman, the Board and its Committees, the Board recommends to shareholders that all Directors be re-elected.

Investment Manager

The Board has reviewed the investment management, company secretarial and marketing services provided to the Company by JPMorgan Asset Management (UK) Limited ('JPMAM'). This annual review included their performance record, management processes, investment style, resources and risk control mechanisms. The Board was satisfied with the results of the review and therefore in the opinion of the Directors, the continuing appointment of JPMAM for the provision of these services, on the terms agreed, is in the best interests of shareholders as a whole.

Vitaly Kazakov, part of the investment management team for your company, has recently advised JPMAM of his decision to stand down as joint investment manager to pursue other interests. Vitaly has been part of the team since 2006 and the Board would like to thank him for his services to the Company over the years. We wish him well for the future. Oleg Biryulyov, who is fully supported by JPMAM's emerging markets team, continues in his position as lead manager. The Company will be confirming the appointment of an additional named investment manager in the coming months.

AIFM Directive

The AIFMD is a European Union Directive which creates a European wide framework for the regulation of managers of all 'alternative investment funds', including investment trusts. The Directive's declared aim is to provide additional protection for investors. The AIFMD came into force in the UK on 22nd July, 2013 with a transition period of one year. For investment trusts, which are already able to demonstrate higher levels of governance and transparency than open-ended funds, the Directive would appear unlikely to introduce greater protection for shareholders, but the Company is obliged to comply with its standards by 22nd July 2014. Compliance with the AIFMD will have an impact on some of the Company's operations, as well as the contractual arrangements between the Company and its Manager. The Company will enter into arrangements with an affiliate of JPMAM to act as its 'Alternative Investment Fund Manager', at no additional cost to the Company. The overall impact of complying with the AIFMD will be a change to the Company's contractual arrangements and increased administrative requirements at a minimal additional cost. The Company is proposing to make amendments to its articles of association in response to the AIFMD Regulations coming into force and I again draw shareholders' attention to Resolution 13.  The principal changes proposed are purely administrative and are set out on page 23 of the Company's 2013 Annual Report.

Annual General Meeting and General Meeting

The Company's Annual General Meeting will be held on Wednesday, 5th March 2014 at 12.00 noon, at Holborn Bars, 138-142 Holborn, London EC1N 2NQ. In addition to the formal part of the meeting, there will be a presentation from Oleg Biryulyov, who will be available to answer questions on the portfolio and performance. There will also be an opportunity to meet the Board, the investment manager and representatives of JPMAM. I look forward to seeing as many of you as possible at this meeting. Shareholders are asked to submit in writing any detailed or technical questions that they wish to raise at the AGM in advance to the Company Secretary at Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ. Alternatively you can lodge questions on the Company's website at www.jpmrussian.co.uk.

Outlook

Our investment manager believes that the Russian economy will remain sluggish in 2014 with little growth in internal investment expected. The much needed economic reforms I referred to in last year's statement are being introduced at a slow pace and so the market expects 2014 to be a year of gradual transition for the Russian economy and equity market. Nonetheless, the Russian market remains cheap relative to other emerging markets (at the end of January 2014 the forward P/E for the Russian market was 2.9x compared with 9.3x for all emerging markets). Dividend yields remain attractive relative to history and to bond markets. In this environment, our investment manager believes there are good opportunities to invest in mid and small cap opportunities with high growth potential at attractive entry points that should benefit long-term investors.

Lysander Tennant

Chairman

5th February 2014

Investment Manager's Report

Market Review

2013 was a classic recovery year for both the Company and the Russian equity market, with the MSCI Russian 10/40 Equities Index returning 7.1%. Given the volatile nature of the Russian market we would classify this as a moderate increase. However, for the second year in a row, developed markets, and in particular the USA, significantly outperformed all major global emerging markets (GEM), including the Russian indices. In terms of performance in the Russian market, sector diversity was significant and the variance in stock returns was large enough to make a difference for active fund managers, as demonstrated by our strong NAV performance during the period.

It is pleasing to report that the Russian market became the highest yielding dividend market amongst the GEM universe in 2013. With a yield of close to 4%, the Company has received approximately £13 million of dividends. The investment multiple offered at the end of January by the market is 2.9x P/E based on 2014 consensus estimates from Bloomberg for the unconstrained MSCI Russian Index. This rating looks relatively attractive against its historical median of 7.3x over the last seven years and the equivalent ratings for the MSCI GEM Index of 9.3x and 13x respectively. We believe that the Russian market may experience the benefits of a positive re-rating, particularly taking into account the level of dividend yield. An update on the portfolio's dividend expectations for 2014 will be provided in my half-year report.

Performance

Overall we are satisfied that we have delivered a strong NAV return for shareholders this year compared with the benchmark. The Company's NAV returned 13.7%, representing a healthy outperformance against the Company's benchmark which returned 7.1%.

The biggest contributor to performance came from our underweight position in the Utilities sector. News on a tariff freeze pushed share prices down significantly during the year and not owning Inter Rao UES and Federal Grid Co was very beneficial for relative returns. I continue to be very cautious on the sector. 

In terms of specific stocks, the two main contributors to performance over the period were Uralkali and Sistema. We sold Uralkali before its dramatic sell-off. We hold stocks which comply with our strict corporate governance checklist. Once Uralkali fell foul of our criteria, we sold the position and thus avoided a major shareholder conflict and subsequent sell-off. Sistema was a pure valuation call and by increasing the active position in this holding we were able to take advantage of market mispricing.

The major disappointment of last year was not investing in NASDAQ related stocks. We did not invest in stocks such as QIWI (a payment terminals operator); YANDEX (the Russian alternative to Google) and Mail.ru (the Russian alternative to Facebook - a social network and mail portal). We regret not participating in these stocks, however, we were not prepared to pay the premium for NASDAQ valuations. We continue to search for attractive opportunities in this sector. One recent new investment in the portfolio from the information technology sector is IBS Group (IT developer and integrator).

The Economy

Of late, the economy in Russia has been going through a general slowdown and it is likely to continue on this track in the near future. The GDP growth trend is likely to be 1.3% p.a. for the next two to three years, subject to the stability of oil prices. We believe there are two major factors which could enhance the growth rate for Russia: the implementation of much needed reforms and the acceleration of fixed capital formation. The list of reforms required is steadily growing year on year as progress on their debate, development and implementation remains stagnant. Ultimately the country needs to invest further in the upgrade of its infrastructure (roads, housing, railways, ports, airports, industrial sites and utilities). Investments in fixed capital formation need to accelerate to 30+% of GDP p.a. from the current level of less than 20%. To put these figures into perspective, China's fixed capital formation investment currently runs at 40+% of GDP p.a.

Key Market Issues and Portfolio Positioning

In this section, I will cover the key issues in the Russian market and how the portfolio is currently positioned or is likely to be positioned to benefit from anticipated market movements. Although infrastructure upgrades in Russia are slow, the infrastructure story remains strong and we are exposed to it via holdings in the portfolio in Mostotrest (the largest private construction Company in Russia), Etalon (a leading housing developer) and Global Ports (a private port operator). We continue to look for additional stocks within this sector. There are also steps towards deregulation of the construction sector and the approval process for land zoning and housing planning. These are welcome developments, which are captured via the infrastructure companies named above.

There are delays in the privatisation agenda, partially because the state does not want to sell assets at a discount to their fair value in the current negative climate for such deals. The state also wants to implement a new dividend policy of stricter compliance to higher limits for payout ratios as well as implementing restructuring programmes to improve the value of these assets before any sale. One privatisation deal that did take place was in relation to a diamond company called Alrosa. The Company did not take part in the transaction due to its relatively high valuation. It was a good deal for the seller, the Russian state. Delays with other privatisation transactions had a negative impact on the expansion of the equity market, although improvements in dividend policy are a very welcome trend for the valuation of already listed state controlled companies such as Gazprom. During the year there were several initial public offerings, including QIWI, LUXOFT and Megafone. Such offerings indicating a gradual broadening of the market.

We see positive progress on the monetary policy front as the Central Bank of Russia (CBR) continues to make steady progress in the areas of combating inflation expectations, increasing flexibility of exchange rate convertibility and adding consistency and structure in banking supervision and regulation. It is encouraging that the new chairman of the CBR has a clear agenda for her term at the helm. Consolidation of the Russian banking sector is very positive for the profitability and growth of key players, such as Sberbank of Russia, which is one of the key holdings in the Company. There is also an attempt to upgrade and revamp the Federal Securities Market Commission, which will become part of the CBR. As a result the CBR will have greater control over market infrastructure and the regulation and supervision of market participants. There is a road map for the introduction of a single depositary for equity trading as well as the consolidation and the upgrade of trading rules and regulation for exchanges. All these steps will improve trading volumes and transparency and general activity on the local securities market. We have exposure to this theme via our position in MICEX - Moscow International Currency Exchange.

Real income growth is likely to stay above the GDP growth trend due to the very tight labour market in Russia. This has implications for us within the consumer demand sector, such as the retailers. The portfolio's positions in Magnit, DIXY and O'Key continue to do well and have accordingly remained in the portfolio. The consumer trend will also affect food producers such as Cherkizovo & Rosagro, as import substitution and food sector consolidation remains a long term story for investors in Russia. The portfolio has exposure to the growth of car ownership in Russia through the position in Sollers, an assembler of foreign brand cars. Sollers' major partner, Ford, strongly believes that Russia could become a major European car market within the next 10 years.

We are concerned that the Russian government will continue to use energy tariff regulation as a tool for the micro management and subsidisation of social policies. As such we are very skeptical about investment returns available for minority shareholders in the utilities sector and so we currently avoid those companies in our portfolio.

In the case of reforms, we as investors, focus on areas which can directly impact equity markets. An adjustment was made to the long-term policies regarding pension reform, which was of particular interest over the review period. This reduces the outlook for the potential growth of a second pillar system. We are disappointed with the fact that the state has in effect temporarily 'nationalised' the balances of individual pension saving accounts. This will limit the participation of pension funds in equity markets and the growth of independent pension funds.

Outlook

We believe that drastic reforms are off the agenda unless the economic situation starts to deteriorate beyond repair. This is foreseeable with the current macro background and current commodity prices. At the same time, slow evolutionary adjustments may be the path selected by Mr Putin and his circle for the near future. Social expenses and tariff regulation will be used by the state as a prime tool to support the President's approval ratings. It is a negative for budget discipline and the utilities sector but positive for the consumption story. As a result, there is little change for our investment outlook.

The Ruble is an oil based currency, so it is likely to be the wild card in our calculations. The inflation differential with the UK is likely to be 3-4% (5-6% inflation in Russia vs. 2-3% in UK), so we would expect that the Ruble would normally depreciate against the British pound by a similar amount, however it was not always the case historically. Therefore, we would prefer to use the oil price as the main guide and anticipate that the CBR will try to extend a period of currency adjustments in any direction, although it is more likely to provide grounds for slow downward currency adjustment in line with the inflation differentiation. Overall the above exercise suggests that we might see a 10+% potential return from the Russian market over the medium term.

We expect slow improvements within the economic environment globally, so slow growth is likely to stay with us for some time, and the low cost of capital will not increase drastically overnight. However, the normalisation process is gathering momentum across all major economies. The Russian market continues to be driven by global commodity and risk trade dimensions, although the local story of dividends and earnings growth will start to play a bigger role.

Management team

Finally, Vitaly Kazakov, who has assisted with the management of the Company's portfolio since 2006, has recently left JPMAM to pursue other employment opportunities. An announcement will be made by the Company concerning his replacement in due course. In the meantime and as is always the case, I am supported by JPMAM's emerging markets team, which has continued to be strengthened this year in terms of our internal in-house research capabilities. Accordingly my direct support team now consists of six dedicated sector analysts covering Banking, Metals & Mining, Energy, Telecoms, Industrials and Consumer Staples. I would like to thank Vitaly for his support over the years and wish him well for the future.

Conclusion

The Russian market offers good relative and absolute value for the equity investor. Investing in this market is never an easy ride as Russia is still a classic emerging market with weak institutions, a small and not very powerful or deep domestic investor base, controversial corporate governance practices and ongoing high volatility. However, as long as the risk return balance is in favour of the investor, one should seriously consider this as an addition to global equity portfolios. A long term approach can help smooth the extremes of the market volatility. Looking off the beaten track for investment opportunities and non-consensual names is the prime strategy for a closed-ended structure such as this Company, and with our disciplined investment approach it should deliver compelling positive returns over the long term.

Oleg I. Biryulyov

Investment Manager

5th February 2014

Strategic Report

Principal Risks

With the assistance of the Manager the Board has drawn up a risk matrix, which identifies the key risks to the Company. These key risks fall broadly under the following categories:

•     Investing in Russia: Investors should note that there are significant risks inherent in investing in Russian securities not typically associated with investing in securities of companies in more developed countries. The value of Russian securities, and therefore the net asset value of the Company, may be affected by uncertainties such as economic, political or diplomatic developments, social and religious instability, taxation and interest rates, currency repatriation restrictions, crime and corruption and developments in the law or regulations in Russia and, in particular, the risks of expropriation, nationalisation and confiscation of assets and changes in legislation relating to the level of foreign ownership.

•     Share Price Discount to Net Asset Value ('NAV') per Share: If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount. Although it is common for an investment trust's shares to trade at a discount, the Board monitors the Company's discount level and seeks, where deemed prudent, to address imbalances in the supply and demand of the Company's shares through a programme of share buybacks.

•     Investment and Strategy: An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to underperformance against the Company's benchmark index and peer companies. The Board manages these risks by diversification of investments through its investment restrictions and guidelines, which are monitored and reported on by the Manager. JPMAM provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. 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.

•     Loss of Investment Team or Investment Manager: The sudden departure of the investment manager or several members of wider investment management team could result in a short term 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.

•     Change of Corporate Control of the Manager: The Board holds regular meetings with senior representatives of JPMAM in order to obtain assurance that the Manager continues to demonstrate a high degree of commitment to its investment trusts business through the provision of significant resources.

•     Market: The Company's assets consist of listed securities and it is therefore exposed to movements in the prices of individual securities and the market generally. The Board considers asset allocation and stock selection on a regular basis and has set investment restrictions and guidelines, which are monitored and reported on by JPMAM.

•     Regulatory and Legal: Breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties, or a qualified audit report. Loss of investment trust status could lead to the Company being subject to tax on capital gains. The Directors seek to comply with all relevant regulation and legislation and rely on the services of its Company Secretary, JPMAM, and its professional advisors to monitor compliance with all relevant requirements.

•     Operational: Disruption to, or failure of, JPMAM's accounting, dealing or payments systems or the custodian's records could prevent accurate reporting and monitoring of the Company's financial position. Details of how the Board monitors the services provided by JPMAM and its associates and the key elements designed to provide effective internal control are included within the Internal Control section of the Corporate Governance report in the Company's 2013 Annual Report.

•     Going concern: Pursuant to the Sharman Report, Boards are now advised to consider going concern as a potential risk, whether or not there is an apparent issue arising in relation thereto. Going concern is considered rigorously on an ongoing basis and the Board's statement on going concern is detailed in the Company's 2013 Annual Report.

•     Financial: The financial risks faced by the Company include market price risk, interest rate risk, foreign currency risk, liquidity risk and credit risk. Further details are disclosed in note 20 in the Company's 2013 Annual Report.

•     Political and Economic: Changes in financial 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. In addition, the Company is subject to administrative risks, such as the imposition of restrictions on the free movement of capital.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report and financial statements, and the Directors' Remuneration Report 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 prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards 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 accounts provide the information necessary for shareholders to assess the Company's performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In order to provide these confirmations, and in preparing these financial statements, the Directors must be satisfied that, taken as a whole, the annual report and accounts are fair, balanced and understandable and provide the information necessary for shareholders to assess the performance, business model and strategy of the Company; and the Directors are required to:

•     select suitable accounting policies and then apply them consistently;

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

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business

and the Directors confirm they have done so. The Board confirms it is satisfied that the annual report and accounts taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the performance, business model and strategy of the Company.

The Directors are responsible for keeping proper 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.

Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.

The accounts are published on the www.jpmrussian.co.uk website, which is maintained by the Company's Manager, JPMorgan Asset Management (UK) Limited ('JPMAM'). The maintenance and integrity of the website maintained by JPMAM is, so far as it relates to the Company, the responsibility of JPMAM. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditors accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. The financial statements are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed in the Directors' Report, confirms that, to the best of their knowledge:

•     the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards) and applicable law, give a fair, balanced and understandable view of the assets, liabilities, financial position and return or loss of the Company; and

•     The Directors confirm that, taken as a whole, the annual report and accounts are fair, balanced and understandable and provide the information necessary for shareholders to assess the strategy and business model of the Company.

For and on behalf of the Board

Lysander Tennant

Chairman

5th February 2014

Income Statement

for the year ended 31st October 2013

	2013			2012
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss	-	33,247	33,247	-	(7,969)	(7,969)
Net foreign currency losses	-	(145)	(145)	-	(417)	(417)
Income from investments	12,901	-	12,901	8,581	-	8,581
Other interest receivable and similar income	1	-	1	8	-	8
Gross return	12,902	33,102	46,004	8,589	(8,386)	203
Management fee	(753)	(3,014)	(3,767)	(3,715)	-	(3,715)
Other administrative expenses	(849)	-	(849)	(978)	-	(978)
Net return/(loss) on ordinary activities before finance costs and taxation	11,300	30,088	41,388	3,896	(8,386)	(4,490)
Finance costs	-	(1)	(1)	(5)	-	(5)
Net return/(loss) on ordinary activities before taxation	11,300	30,087	41,387	3,891	(8,386)	(4,495)
Taxation	(1,643)	-	(1,643)	(1,137)	-	(1,137)
Net return/(loss) on ordinary activities after taxation	9,657	30,087	39,744	2,754	(8,386)	(5,632)
Return/(loss) per share (note 2)	18.14p	56.52p	74.66p	5.03p	(15.32)p	(10.29)p

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. 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		Capital
	share	Other	redemption	Capital	Revenue
	capital	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st October 2011	551	48,482	50	266,924	(4,900)	311,107
Repurchase of the Company's own shares for cancellation	(13)	-	13	(6,640)	-	(6,640)
Net (loss)/return on ordinary activities	-	-	-	(8,386)	2,754	(5,632)
At 31st October 2012	538	48,482	63	251,898	(2,146)	298,835
Repurchase of the Company's own shares for cancellation	(11)	-	11	(6,176)	-	(6,176)
Net return on ordinary activities	-	-	-	30,087	9,657	39,744
At 31st October 2013	527	48,482	74	275,809	7,511	332,403

Balance Sheet

at 31st October 2013

	2013	2012
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	327,200	297,614
Investment in liquidity fund held at fair value through profit or loss	4,015	2,172
Total investment portfolio	331,215	299,786
Current assets
Debtors	1,939	1,013
Cash and short term deposits	3,627	4,217
	5,566	5,230
Creditors: amounts falling due within one year	(4,378)	(6,181)
Net current assets/(liabilities)	1,188	(951)
Total assets less current assets/(liabilities)	332,403	298,835
Net assets	332,403	298,835
Capital and reserves
Called up share capital	527	538
Other reserve	48,482	48,482
Capital redemption reserve	74	63
Capital reserves	275,809	251,898
Revenue reserve	7,511	(2,146)
Total equity shareholders' funds	332,403	298,835
Net asset value per share (note 3)	631.1p	555.2p

Company registration number: 4567378.

Cash Flow Statement

for the year ended 31st October 2013

	2013	2012
	£'000	£'000
Net cash inflow from operating activities	5,117	2,730
Returns on investments and servicing of finance
Interest paid	(1)	(5)
Capital expenditure and financial investment
Purchases of investments	(156,670)	(177,769)
Sales of investments	159,030	184,693
Other capital charges	(188)	(372)
Net cash inflow from capital expenditure and financial investment	2,172	6,552
Net cash inflow before financing	7,288	9,277
Financing
Repurchase of the Company's own shares for cancellation	(7,733)	(4,745)
Net cash outflow from financing	(7,733)	(4,745)
(Decrease)/increase in cash for the year	(445)	4,532

Notes to the Accounts

for the year ended 31st October 2013

1.    Accounting policies

Basis of accounting

The accounts are prepared in accordance with the Companies Act 2006, 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' (the 'SORP') issued by the Association of Investment Companies in January 2009. All of the Company's operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments at fair value.

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

2.   Return/(loss) per share

The revenue return per share is based on the revenue return attributable to the ordinary shares of £9,657,000 (2012: £2,754,000) and on the weighted average number of shares in issue during the year of 53,232,345 (2012: 54,744,578).

The capital return per share is based on the capital return attributable to the ordinary shares of £30,087,000 (2012: £8,386,000 loss) and on the weighted average number of shares in issue during the year of 53,232,345 (2012: 54,744,578).

The total return per share is based on the total return attributable to the ordinary shares of £39,744,000 (2012: £5,632,000 loss) and on the weighted average number of shares in issue during the year of 53,232,345 (2012: 54,744,578).

3.   Net asset value per share

The net asset value per share is based on the net assets attributable to the ordinary shareholders of £332,403,000 (2012: £298,835,000) and on the 52,667,112 (2012: 53,827,112) shares in issue at the year end.

4.   Dividend

The final dividend proposed in respect of the year ended 31st October 2013 is subject to approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the accounts for the year ending 31st October 2014.

5.   Status of announcement

2012 Financial Information

The figures and financial information for 2012 are extracted from the Annual Report and Accounts for the year ended 31st October 2012 and do not constitute the statutory accounts for the year. The Annual Report and Accounts 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 Accounts will be delivered to the Registrar of Companies in due course.

2013 Financial Information

The figures and financial information for 2013 are extracted from the Annual Report and Accounts for the year ended 31st October 2013 and do not constitute the statutory accounts for the year. The Annual Report and Accounts 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 Accounts 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.

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

ENDS

Annual Report and Accounts

The Annual Report and Accounts will be posted to shareholders on or around 12th February 2014 and will shortly be available on the Company's website (www.jpmrussian.co.uk ) or in hard copy format from the Company's Registered Office, Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ.

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

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

For further information please contact:

Alison Vincent

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary - 020 7742 4000

5th February 2014

 

END

 

 

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