Final Results

RNS Number : 5597N

JPMorgan Russian Securities PLC

21 January 2019

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN RUSSIAN SECURITIES PLC

ANNOUNCEMENT OF FINAL RESULTS

The Directors of JPMorgan Russian Securities plc announce the Company's results

for the year ended 31st October 2018

HIGHLIGHTS

-     Total return on net assets 12.1% (benchmark 10.6%)

-     Ordinary dividend 26.0p (2017: 21.0p)

Legal Entity Identifier:

549300II3MHI98ZLVH37 Information disclosed in accordance with DTR 4.1.

CHAIRMAN'S STATEMENT

Performance and Overview

In my recent reports I have often referred to the importance of international politics in relation to the performance of your company. This year has been no different; indeed arguably relationships between the West and Russia have reached a new low. This has a serious impact on investor sentiment and therefore affects company valuations on the Russian stock market. Russia remains one of the cheapest major stock markets, globally. This is despite the fact that the Russian economy continued to grow in the reporting period, benefitting from a number of factors including growing revenues from exports of energy and materials, lower inflation and declining interest rates. In addition, many companies have strong business models and balance sheets, enabling them to continue to invest whilst paying substantial dividends. It remains to be seen whether these positive factors are maintained following the significant fall in the price of oil experienced following the end of this reporting period.

The Company's return on a net assets basis outperformed the benchmark by 1.5%, returning 12.1%. In contrast, the return to shareholders lagged the benchmark, with a rise of 6.9%. This was attributable to the significant widening of the discount at which the Company's shares trade relative to its net asset value. As at 31st October 2018 the discount was 19.0%, the widest it was during the financial year. This level is not representative of the reporting period, where the discount averaged 15.3%, and ranged from 10.7% to 19.0%. The widening discount is not unexpected given the increasing sanctions against Russia. However, this does negatively impact returns to shareholders during such episodes. Since the Company's financial year end to 14^th January 2019 the benchmark index rose 5.2% and the Company's return to shareholders rose 5.2%, and the discount stood at 15.3%.

The economic sanctions placed on Russia by the US and the European Union in 2014 continue to weigh on the Russian market. However, as referred to in the Company's announcement on the 13th April 2018, the only holding in the Company's portfolio directly impacted by the new sanctions introduced in April was United Company Rusal, a major aluminium producer. This investment represented approximately 1% of the Company's portfolio, and in compliance with the sanctions regime at the time, the position was sold. The cost to the Company of the forced disposal of Rusal was not significant to the Company's overall performance.

JPMorgan Asset Management's compliance & investment functions monitors all investments and the Company is assured by JPMorgan Asset Management that processes are in place to ensure that the Company remains compliant with the current sanctions regime. In addition, the political and economic developments and risks in the region are closely monitored. The Board carried out regular reviews of the Company's risk profile during the year and you will see details of what we judge to be the key risks set out on page 20 of the Company's Annual Report and Financial Statements. The Company's Manager maintains a diversified portfolio which adheres to the Company's investment and risk control guidelines.

Objective and Strategy of the Company

Each year the Board reviews the strategy of the company in the context of the external environment in which it operates as well as all other major factors affecting the Company. The Company's objective is to maximise total return through investment predominantly in Russia, with distribution of income dependent upon levels received. In recent years the levels of dividends paid out by Russian companies has been at historically high levels. This has been reflected in the high levels of dividends that the Company has received and dividends that it has paid out to shareholders. The Board is pleased that the Company is providing shareholders with such an attractive yield (this year it was 5.1% based on the average share price). In addition, the outlook for growth of future dividend payments from the Company's holdings looks, at this time, encouraging. In order to reflect this the Board considered it appropriate to update the Company's investment objective from capital growth to maximising total returns. The investment policies and processes remain unchanged.

Dividends

Revenue for the year, after taxation, was £15,077,000 (2017: £12,543,000) and the revenue return per share, calculated on the average number of shares in issue, was 29.58p (2017: 23.97p). Based upon the revenue generated by the portfolio, an interim dividend of 20.0p per share in respect of the year ended 31st October 2018 was paid on 26th October 2018. The Company receives the most of its dividend income well before the end of its financial year ending 31st October, and hence it considers it appropriate to distribute the large majority of its net income as an interim dividend. The Board now proposes a final dividend of 6.0p, in respect of the year ended 31st October 2018, making a total of 26.0p per share for the year (2017: 21.0p per share). The final dividend is proposed to be paid on 8th March 2019 to ordinary shareholders on the register at the close of business on 8th February 2019. If approved by shareholders, the final dividend will amount to £2,946,000 (2017: £3,136,000). The Board reviews income expectations throughout the year. Should income receipts permit, the Company will continue to make payment of an interim dividend, as well as a final dividend in 2019.

Discount Control

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. As noted in my Chairman's Statement last year, following discussion with the Company's major shareholders the Board agreed that, subject to market conditions, it would increase its buy back activity with a view to buying back at least 6.0% of its issued share capital per annum. During the course of the 12 month period 3,168,728 shares were bought back, approximately 6.1% of the Company's issued share capital at 31st October 2017. As identified in the Performance Attribution table on page 11 of the Company's Annual Report and Financial Statements, this added 1.0% to the Company's NAV return. The average discount at which these shares were bought back was 15.1% and these buybacks represented approximately 14.6% of traded market volume during the period in which they were undertaken. It is hoped that this buy back strategy will have the effect of gradually stabilising and narrowing the discount at which the Company trades. The policy was initiated in January 2018. Whilst it is disappointing that the buy back policy has not had the desired  effect of narrowing the discount this year, it is perhaps not too surprising given the difficult international political situation. The Board will seek authority to renew the Company's share issuance and buyback powers at the forthcoming AGM.

Board of Directors

In compliance with corporate governance best practice, all Directors will be standing for re-appointment at the forthcoming AGM, with the exception of George Nianias. Following the Company's annual evaluation of the Directors, the Chairman, the Board and its Committees, the Board recommends to shareholders that all Directors standing be reappointed. George joined the Company as a director in 2008 and I would like to thank him for his very  notable contribution over the years, in particular for providing invaluable insight into the Russian environment and markets. In order to maintain a consistent level of experience on the Board following George's impending retirement, an independent search consultancy was engaged to identify a suitable non-executive director with Russian experience. After consideration of a strong selection of candidates, the Board is very pleased to announce that Philippe Delpal will be appointed to the Board after the Company's Annual General Meeting on 12th March 2019. Philippe is based in Moscow and has considerable experience of the Russian market, as well as Board experience within the investment management industry. The retirement of George Nianias is part of the Board's implementation of its succession plan to ensure that the Company adheres with the requirements of the Corporate Governance Code.

The Company's Directors fees were last increased with effect from 1st November 2016. The Board has agreed that, bearing in mind the time since the last increase and the extra burden placed by new regulations and developments it was appropriate to increase directors fees effective from 1st November 2018 as follows: Board Chairman's fee increased by £1,500 (from £37,500 to £39,000), Audit Committee Chairman by £1,000 (from £30,000 to £31,000), Directors by £1,000 per annum (from £25,000 to £26,000).

Investment Manager

Oleg Biryulyov and Habib Saikaly continue to be the Company's Investment Managers. They are supported by JPMorgan Asset Management's Emerging Markets and Asia Pacific equities team (EMAP), which consists of approximately 100 investment professionals. The depth of support across all aspects of running an investment trust is a key advantages of having the fund managed by a major investment house such as JPMorgan Asset Management. The Board reviews the performance of all the services provided by the Investment Manager each year. This year we paid particular attention to how the Company is marketed. As and when the discount comes in, and if and when the Russian stock market begins to be perceived in a more favourable light,we would like the Company to be the natural choice for investors seeking diversified exposure to Russian equities. We would expect this to help to narrow the discount over time.

Annual General Meeting

The Company's AGM will be held on Tuesday, 12th March 2019 at 12.00 noon, at 60 Victoria Embankment, London EC4Y 0JP. 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 JPMF and 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 60 Victoria Embankment, London EC4Y 0JP. Alternatively you can lodge questions on the Company's website at www.jpmrussian.co.uk.

Outlook

The Investment Managers have maintained a consistent approach to investing in well managed companies with strong balance sheets. There are undoubtedly political risks to investing in Russia and heightened sensitivities to possible significant changes to sanctions, however, there are attractive investment opportunities if the right stocks are selected. The Board believes that the investment approach adopted by the Investment Managers' is the correct one for the Russian market, focusing as it does on well capitalised companies with quality of management and strong businesses. We continue to believe that market in Russia provides a good long term investment opportunity, particularly if sentiment towards Russia becomes more positive. Dividend payments from Russian companies are currently expected to remain strong, offering another positive dimension to the market, although recent significant falls in the price of oil may challenge these positive forecasts. For those investors prepared to take the risk, the long term potential on investing in Russia remains attractive given the reasonable valuations of the companies in which the Company invests.

Gill Nott

Chairman

18th January 2019

investment managers' report

Economic backdrop

The year under review challenged global equity markets and was characterised by a deterioration in investor sentiment. Volatility returned, on the back of a myriad of economic, geopolitical and market challenges. Moreover, Russia faced its own country-specific headwinds, in the shape of sanctions (and perceived risk of sanctions) which eroded the otherwise positive impact of strong and rising oil prices over the period. The substantial fall in the price of oil since the end of the period are likely to add to the challenge faced by Russia in the forthcoming period.

The trade dispute between the United States and China dominated news flow this year, with the US-introduced protectionist trade tariffs threatening to disrupt the global economy. Rises in US interest rates and oil prices in the reporting period hit many emerging economies and there was a general weakening across emerging markets currencies, whilst the US dollar strengthened. Many emerging economies have US dollar debt, so a rising dollar increases the cost of these loans. For the Russian economy, however, rising oil prices and a weaker currency in the reporting period were broadly positive, since Russia is a major oil and gas producer and its exporting energy companies trade mainly in US dollars. However, since the end of the period the price of oil has fallen substantially. The weaker rouble resulted not only from strategic moves by the Central Bank of Russia but was also a market response to the risk of further sanctions and the broader issues challenging emerging markets.

Against an unpredictable backdrop, the Russian market was a strong relative performer, rising over the period. For the year under review, the Company's net asset value rose by 12.1% on a total return basis and the return to shareholders was 6.9% in sterling terms. The Company's benchmark, the RTS Index, rose by 10.6% on a total return basis.

As always, we base our investment decisions on a proven investment process that analyses the specific characteristics of stocks in this complicated market, in order to identify strong companies. In this report, we review some of this year's leading stock stories, as well as the broader market and sectoral backdrop. We also look at what could lie ahead for Russian equities in 2019.

Market review - improving fundamentals clouded by sanctions

The year to 31st October 2018 started strongly for Russian markets, just as it did for markets globally. Russia was supported by a broadly improving global investment outlook and specifically by rising oil prices, a weaker currency and the Central Bank's cutting of interest rates, against the global trend. In February the international ratings agency Standard & Poor's upgraded Russia's sovereign rating to 'investable', a move that opened the doors to potentially increased capital inflows.

Positive momentum went into reverse in April with the US announcement of additional sanctions, designed to punish Russia for its alleged interference in US elections and the March nerve agent attack in the UK. The sanctions largely covered companies associated with oligarch Oleg Deripaska. This news hit markets extremely hard and Russia was one of the poorest performing global markets in April, dragged down further by close to double-digit losses for the rouble. Although only one of the Company's holdings was directly impacted by these additional sanctions, overall performance was shaped by the market's broader decline.

In May, Vladimir Putin was re-elected as President for another six years, as anticipated. A much-anticipated summit between Presidents Trump and Putin took place in July but there was no tangible progress to report on sanctions.

Towards the end of the period, the immediate threat of further sanctions receded, but the situation remains in flux. The strength in oil prices in the period provided support for the Russian economy and dividend payouts maintained their positive trajectory, with the Russian market continuing to have one of the highest dividend yields among global equity markets.

Looking at the year as a whole, Russia's investment landscape was overshadowed by global trade tensions and geopolitical factors. Nevertheless, we are pleased that our robust stock selection process enabled us to deliver positive returns to shareholders over the period.

Our approach to uncovering value

As the only investment trust providing pure exposure to the ongoing transformation of the Russian economy, we strive to uncover the value in Russian equities. We aim to build a balanced portfolio of stocks from across the Russian market, with a focus on companies that demonstrate the best long-term growth opportunities. To do this, we actively manage the portfolio and continue to build up internal research capabilities and a growing team of analysts with deep expertise in this complex and under-researched market.

The Company's investments are primarily in quoted Russian securities although its investment guidelines permit it to invest up to 10% of the Company's gross assets in companies that operate or are located in former Soviet Union Republics. Approximately 3.5% of the Company's portfolio is invested in former Soviet Union Republics: TBC, a Bank operating in Georgia; EPAM, an IT company based in Belarus; and Nostrum, an oil and gas company based in Kazakhstan. The inclusion of former Soviet Union Republics in the Company's investment universe provides a wider range of opportunities, but investment decisions are driven by the relative attractiveness of individual stocks rather than their location. Hence the 10% offers flexibility but is not regarded as a target.

How have specific stocks and sectors fared over the year?

In this section of our report we highlight specific stock decisions that have impacted portfolio performance (both positively and negatively) over the year. Our investment approach is very focused on the attributes of specific stocks rather than sectors, but as 50% of the portfolio is invested in the Energy sector, it is logical that we start our review with stock stories here.

A year ago, we forecast a better outlook for energy prices and dividends from the sector and this proved to be the case during the period under review. As well as rising oil prices in the reporting period, higher trading volumes and a weaker rouble also supported the sector. In the reporting period we increased our position in LUKOIL, having been impressed by its improving corporate governance. It is one of the world's largest oil and gas companies, employing over 100,000 people and accounting for more than 2% of the world's oil production. For the first nine months of 2018 LUKOIL's sales increased by 40.2% and its profits rose by 54%.

We invested in oil and gas company Surgutneftgaz which was formed from several previously state-owned companies. This is one of Russia's largest companies and we consider it a long-term opportunity given its significant US dollar cash reserves and strong balance sheet. However, within the review period, we subsequently reduced our exposure because of weakening rouble concerns.

We took profits from both Gazprom and Tatneft over the year. The latter is a smaller, local oil player with a progressive dividend policy; it remains a Top 10 holding. Gazprom is the largest supplier of natural gas to Europe and Turkey and the second largest holding in our portfolio.

Away from the Energy sector, we also have significant exposure to both Materials (17% of assets) and Financials (16%). A year ago, Russia's largest bank Sberbank was our largest holding. It is a dynamic and innovative leader of the industry and remains a core holding for us, although we took advantage of share price strength earlier in the year to take profits. Sberbank's share price volatility has reflected US sanction risk concerns, falling to a 1-year low in August. Although volatility will remain a concern in the short term, we are encouraged by the long-term investment opportunity that Sberbank offers, not to mention its solid net-interest margin performance, continuing mortgage business growth and strong deposit inflows. We continue to see it as a classic 'blue chip' stock with a strong brand and in an industry with growing barriers to entry, and are likely to use further price weakness as an opportunity to increase the position.

A stock that we don't hold is VTB, a global provider of financial services and Russia's second largest bank. This is a decision that has contributed positively to relative performance. VTB is operating under sanctions and has been the subject of negative news flow for some time. Apart from political considerations, the company has struggled in a relatively low-interest, low volatility environment; we prefer the quality and market leadership of Sberbank.

We have continued to add to our position in Tinkoff (part of TCS Group), Russia's leading provider of online retail financial services, with over 7 million customers. The company was founded in 2006 by Russian entrepreneur Oleg Tinkov. We believe the company has an able management team and is certainly a market leader in terms of its product development.

Moving on to Materials, the Company's exposure to this sector remains relatively high by historical standards and is also in comparison with the benchmark index. Our largest holding in the sector is Norilsk Nickel, a palladium and nickel mining and smelting company that we purchased late in the reporting period, a decision driven by the stock's attractive valuation and high dividend yield as well as the weakness of the rouble. As regards stock stories from other sectors, one of Russia's largest food retailers, Magnit was a core holding for the portfolio in the past. The stock was sold during the year, as the retailer's stock price fell sharply, impacted by several macro factors, such as lack of food price inflation, subdued disposable income growth and increasing competition.

It was also been a tough year for RosAgro, one of Russia's largest agricultural companies and a major producer or pork, fats and sugar. Although we continue to believe in Ros Agro's investment strategy, a combination of factors including overproduction of both sugar and grain domestically hurt its profitability - and made a negative contribution to the Company's performance this year.

We sold our holding in steel making and mining company Evraz. The company was a strong contributor to overall performance during the year but our concern over balance sheet risks dampened our conviction, so we sold our position.

Shareholders may recall our reference to Yandex in last year's report as the portfolio had suffered from not owning this Information Technology stock in a year when IT stocks had stormed ahead, and technological advances were continuing to transform business and almost every other aspect of our lives. Yandex is a leading domestic internet business that also specialises in market-leading on-demand transportation service (Yandex.Drive and Yandex.Taxi). We initiated a position at an opportune time during the year. We like this business for its innovative talent, its focus on profit (which ensures there is adequate cost control) and its ecosystem of services.

Finally, a stock that we do not own is Mobile TeleSystems (MTS), Russia's largest mobile phone operator. Despite issuing a strong set of figures early in 2018, MTS also indicated that its future revenue growth could decelerate, and its share price fell over the period. Our decision to avoid MTS is primarily driven by concerns that the Russian government could seek to increase its influence over the mobile telecommunications sector in the future.

Unsurprisingly, investor uncertainty has increased as the sanctions story has unfolded. Our portfolio has not been immune to this, but we maintain that well-managed, profitable Russian companies will overcome such pressures and outperform over time.

Whilst the short-term global political outlook looks more uncertain than it has for some time, Russia's own political outlook is stable. We expect that further liberalisation and restructuring of the Russian economy will take place, as well as continuing initiatives to enhance financial stability. Recent forecasts from the International Monetary Fund raised Russia's 2019 Gross Domestic Product growth forecast to 1.8%, whilst cutting global forecasts. Although this is still a relatively modest figure, the Russian economy should deliver annualised economic growth of around 2% over the next three-to-five years. The price of oil and exchange rate trends will continue to determine the precise direction of travel. The recent significant falls in the price of oil are likely to provide challenges to these positive forecasts.

Outlook

We continue to see fundamental support for Russia at the country and company level, with the following factors all supportive:

•      Interest rates are a powerful monetary tool and we expect them to fall further in 2019. Lower interest rates, together with lower inflation, should drive domestic consumption higher;

•      The Central Bank will aim to keep the rouble relatively weak, which is good for exports; and

•      Russian stocks are paying (and expected to continue paying) relatively high dividend yields which provides valuation support and which we expect markets will appreciate over the coming months.

Above all, we believe that Russian equities provide a long-term investment opportunity, as part of a diversified portfolio, for those investors willing to accept the current level of specific country risk. We think the market is attractively valued, with stock valuations reflecting this level of risk.

Looking ahead, stock selection - and the identification of well-managed companies with strong balance sheets - will continue to be crucial for us. We are selective about the companies we invest in and we will continue basing our investment decisions on what we consider to be relatively strong and improving fundamentals which should assert themselves as the primary drivers of future returns. This approach is a proven one that has served us well over time.

Oleg I. Biryulyov

Habib Saikaly

Investment Managers

18th January 2019

Principal Risks

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

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company and the Company's actions to manage the risks.

In the year under review the Board monitored the risks arising which included continuing sanctions against Russia which have impacted market sentiment.

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. In terms of gauging the economic and political risk of investing in Russia, it frequently appears in the higher risk categories when compared with most Western 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.

     The Board, with the assistance of the Manager, monitors the Company's activities to ensure that they remain compliant with the current sanctions regime including the specific requirements applicable to the Manager as a company subject to the laws of the United States of America and other jurisdictions that it operates in. The Board acknowledges the negative impact of sanctions on the wider market although the current sanctions regime has not prevented the Company from operating within its investment guidelines.

•   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. The widening of the discount can be seen as a disadvantage of investment trusts which could discourage investors. Although it is common for an investment trust's shares to trade at a discount, particular events can negatively impact market sentiment. 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.

For details of the Company's Continuation Vote and Tender and Discount Control arrangements, see Key Features at the front of this document.

•   Investment Underperformance 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. The Manager 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.

Possible actions that the Board may consider to address underperformance include changing the portfolio manager or selecting another manager.

•   Failure of Investment Process

A failure of process could lead to losses. The Manager mitigates this risk through internal controls and monitoring. Fraud requires immediate notification to the Board and regular reports are provided on control processes.

•   Loss of Investment Team or Investment Manager

The sudden departure of the investment manager or several members of the 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.

•   Operational and Cyber Crime

Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary or custodian's records could prevent accurate reporting and monitoring of the Company's financial position. Under the terms of its agreement, the Depositary has strict liability for the loss or misappropriation of assets held in custody. See note 20(c) for further details on the responsibilities of the Depositary. Details of how the Board monitors the services provided by JPMF 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 on page 29    of the Company's Annual Report and Financial Statements. The threat of Cyber attack is increasing and regarded as having the ability to cause equivalent disruption to the  Company's business as more traditional business continuity and security threats. The Company benefits from JPMorgan's Cyber Security Programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by independent auditors PricewaterhouseCoopers and reported every six months against the AAF standard.

•   Board Relationship with Shareholders

The risk that the Company's strategy and performance does not align with shareholders expectations is addressed by the Manager and includes the organisation of a programme of visits to major shareholders, and the provision of an extensive range of investor information including nationwide presentations by sales teams. Feedback from shareholders is received directly and via brokers which is fed back to the Board regularly.

•   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. A widening of the capital controls by the Russian Government could negatively impact the Company. The introduction of limitations on the ability of Russian companies to distribute dividends to foreign companies could materially reduce the Company's revenue and amount available for distribution to shareholders.

•   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, the Manager, and its professional advisors to monitor compliance with all relevant requirements.

•   Market and Financial

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 the Manager. 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 on pages 58 to 63 of the Company's Annual Report and Financial Statements. The Manager regularly monitors the liquidity of the portfolio including determining the market valuation of securities held, the average daily volume and number of days to liquidate a holding. As can be seen in Note 19 on page 58 of the Company's Annual Report and Financial Statements all the Company's assets are categorised as Level 1 as they have quoted prices in an active market.

Transactions with the Manager and related parties

Details of the management contract are set out in the Directors' Report on page 25 of the Company's Annual Report and Financial Statements. The management fee payable to the Manager for the year was £3,102,000 (2017: £2,989,000) of which £nil (2017: £nil) was outstanding at the year end.

During the year £25,000 (2017: £31,000), including VAT, was payable to the Manager for the administration of savings scheme products, of which £8,000 (2017: £19,000) was outstanding at the year end.

Included in note 6 on page 52 of the Company's Annual Report and Financial Statements are safe custody fees amounting to £150,000 (2017: £146,000) payable to JPMorgan Chase Bank N.A. during the year of which £24,000 (2017: £24,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £32,000 (2017: £27,000) of which £nil (2017: £nil) was outstanding at the year end.

The Company also holds cash in the JPMorgan US Dollar Liquidity Fund, which is managed by JPMF. At the year end this was valued at £332,000 (2017: £1,028,000). Interest amounting to £33,000 (2017: £23,000) was receivable during the year of which £nil (2017: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £199,000 (2017: £234,000) were payable to JPMorgan Chase Bank N.A. during the year of which £1,000 (2017: £1,000) was outstanding at the year end.

At the year end, total cash of £2,665,000 (2017: £253,000) was held with JPMorgan Chase Bank, N.A.. A net amount of interest of £4,000 (2017: £nil) was receivable by the Company during the year from JPMorgan Chase.

Full details of Directors' remuneration and shareholdings can be found on page 35 and in note 6 on page 52 of the Company's Annual Report and Financial Statements.

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) and Financial Reporting Standard (FRS) 102. Under company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the annual report and financial statements 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 addition, to provide these confirmations, and in preparing these financial statements, the Directors must be satisfied that, taken as a whole, the annual report and financial statements are fair, balanced and understandable. In order to provide these confirmations and in preparing these annual statements 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 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.

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

•   select suitable accounting policies and then apply them consistently;

•   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 true and fair 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 financial statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the strategy and business model of the Company.

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

The Board confirms it is satisfied that the annual report and financial statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the performance, business model and strategy of the Company.

The report and financial statements are published on the www.jpmrussian.co.uk website which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the 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.

For and on behalf of the Board
Gill Nott
Chairman

18th January 2019

statement of comprehensive income

for the year ended 31st October 2018

	2018			2017
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	19,505	19,505	-	17,750	17,750
Net foreign currency gains/(losses)	-	111	111	-	(42)	(42)
Income from investments	19,170	-	19,170	15,957	-	15,957
Interest receivable	37	-	37	23	-	23
Gross return	19,207	19,616	38,823	15,980	17,708	33,688
Management fee	(620)	(2,482)	(3,102)	(598)	(2,391)	(2,989)
Other administrative expenses	(1,012)	-	(1,012)	(1,017)	-	(1,017)
Net return on ordinary activities before taxation	17,575	17,134	34,709	14,365	15,317	29,682
Taxation	(2,498)	-	(2,498)	(1,822)	-	(1,822)
Net return on ordinary activities after taxation	15,077	17,134	32,211	12,543	15,317	27,860
Return per share	29.58p	33.62p	63.20p	23.97p	29.27p	53.24p

statement of changes in equity

for the year ended 31st October 2018

	Called up	Capital
	share	redemption	Other	Capital	Revenue
	capital	reserve	reserve	reserves1	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st October 2016	524	77	47,204	230,537	6,552	284,894
Repurchase and cancellation of the Company's own shares	(1)	1	(366)	-	-	(366)
Net return on ordinary activities	-	-	-	15,317	12,543	27,860
Dividends paid in the year (note 3)	-	-	-	-	(12,027)	(12,027)
At 31st October 2017	523	78	46,838	245,854	7,068	300,361
Repurchase and cancellation of the Company's own shares	(32)	32	(16,400)	-	-	(16,400)
Net return on ordinary activities	-	-	-	17,134	15,077	32,211
Dividends paid in the year (note 3)	-	-	-	-	(12,983)	(12,983)
At 31st October 2018	491	110	30,438	262,988	9,162	303,189

¹ These reserves form the distributable reserves of the Company and may be used to fund distribution of profits to investors via dividend payments.

statement of financial position

at 31st October 2018

	2018	2017
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	299,101	294,066
Current assets
Debtors	1,221	5,145
Cash and cash equivalents	2,997	1,281
	4,218	6,426
Current liabilities
Creditors: amounts falling due within one year	(130)	(131)
Net current assets	4,088	6,295
Total assets less current liabilities	303,189	300,361
Net assets	303,189	300,361
Capital and reserves
Called up share capital	491	523
Capital redemption reserve	110	78
Other reserve	30,438	46,838
Capital reserves	262,988	245,854
Revenue reserve	9,162	7,068
Total shareholders' funds	303,189	300,361
Net asset value per share	617.6p	574.7p

statement of cash flows

for the year ended 31st October 2018

	2018	2017
	£'000	£'000
Net cash outflow from operations before dividends and interest	(3,937)	(4,030)
Dividends received	16,228	13,540
Interest received	37	23
Overseas tax paid	(6)	(53)
Net cash inflow from operating activities	12,322	9,480
Purchases of investments	(86,415)	(101,778)
Sales of investments	105,236	100,857
Settlement of forward currency contracts	(60)	(26)
Net cash inflow/(outflow) from investing activities	18,761	(947)
Repurchase and cancellation of the Company's own shares	(16,402)	(364)
Dividends paid	(12,972)	(12,038)
Net cash outflow from financing activities	(29,374)	(12,402)
Increase/(decrease) in cash and cash equivalents	1,709	(3,869)
Cash and cash equivalents at start of year	1,281	5,150
Exchange movements	7	-
Cash and cash equivalents at end of year	2,997	1,281
Increase/(decrease) in cash and cash equivalents	1,709	(3,869)
Cash and cash equivalents consist of:
Cash and short term deposits	2,665	253
Cash held in JPMorgan US Dollar Liquidity Fund	332	1,028
Total	2,997	1,281

Notes to the financial statements

for the year ended 31st October 2018

1.     Accounting policies

        Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including 'the Financial Reporting Standard applicable in the UK and Republic of Ireland' ('FRS 102') 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 November 2014 and updated in February 2018.

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

The financial statements have been prepared on a going concern basis. The disclosures on going concern on page 25 of the Directors' Report in the Annual Report form part of the Company's financial statements.

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

2.     Return per share

		2018	2017
		£'000	£'000
	Revenue return	15,077	12,543
	Capital return	17,134	15,317
	Total return	32,211	27,860
	Weighted average number of shares in issue during the year	50,961,280	52,325,194
	Revenue return per share	29.58p	23.97p
	Capital return per share	33.62p	29.27p
	Total return per share	63.20p	53.24p

3.     Dividends

        Dividends paid and proposed

		2018	2017
		£'000	£'000
	Dividends paid
	2017 final dividend of 6.0p (2016: 8.0p)	3,119	4,187
	2018 interim dividend of 20.0p (2017: 15.0p)	9,864	7,840
		12,983	12,027
	Dividend proposed
	2018 final dividend of 6.0p (2017: 6.0p)	2,946	3,136

The dividend proposed in respect of the year ended 31st October 2018 is subject to shareholder approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 31st October 2019.

4.     Net asset value per share

		2018	2017
	Net assets (£'000)	303,189	300,361
	Number of shares in issue	49,093,384	52,262,112
	Net asset value per share	617.6p	574.7p

5.     Status of announcement

2017 Financial Information

The figures and financial information for 2017 are extracted from the Annual Report and Financial Statements for the year ended 31st October 2017 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Financial Statements will be delivered to the Registrar of Companies in due course.

2018 Financial Information

The figures and financial information for 2018 are extracted from the Annual Report and Financial Statements for the year ended 31st October 2018 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Financial Statements will be delivered to the Registrar of Companies in due course.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

For further information please contact:

Paul Winship

For and on behalf of

JPMorgan Funds Limited, Secretary - 020 7742 4000

18 January 2019

ENDS

Annual Report and Financial Statements

The Annual Report and Financial Statements will be posted to shareholders on or around 28 January 2019 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, 60 Victoria Embankment  London EC4Y 0JP.

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.

 

END

 

 

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