Last checked at 16 Dec 2022 07:00
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN ASIA GROWTH & INCOME PLC
FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2022
Legal Entity Identifier: 5493006R74BNJSJKCB17
Information disclosed in accordance with the DTR 4.1.3
The Directors of JPMorgan Asia Growth & Income plc announce the Company's results for the year ended 30th September 2022.
CHAIRMAN'S STATEMENT
Performance
An usually large number of adverse influences conspired to undermine Asian financial market sentiment in the year ended 30th September 2022. Rising price pressures, which were compounded by the war in Ukraine, and global supply chain bottlenecks, compelled the US Federal Reserve and other western central banks to hike interest rates more aggressively than previously anticipated. Higher rates and mounting fears of recession weighed on equity markets, especially growth stocks whose long-term valuations were undermined by rising rates. Asian investors faced additional concerns, most particularly the wide, and possibly long-term ramifications of China's sharp, self-inflicted slowdown and rising geo-political tensions between China and the west, in particular, over China's ambitions in relation to Taiwan and Hong Kong. Although the inflation picture has been more mixed across Asia than in the west, the region's equity markets experienced the same downward pressures as their western counterparts. As elsewhere, growth stocks, such as those in the technology and media sectors, were worse hit, especially in China.
As a result, in the year to 30th September 2022, the MSCI All Countries Asia ex Japan Index, declined 13.9% (in sterling terms). The Company's performance lagged the benchmark, declining 16.2% in NAV terms and falling 17.2% in share price terms, reflecting a further widening of the discount at which the Company's shares trade relative to NAV. The reasons for this underperformance are discussed in full in the Investment Managers' Report that follows, which also reviews the market over the past year and considers the outlook for 2023.
While disappointing, this year's underperformance needs to be judged in the context of the Company's longer-term performance track record, which remains impressive. The Company has provided shareholders with significant positive returns, and decisively outperformed its benchmark, over the long term. Its annualised return over the ten years to end September 2022 was 8.5% on an NAV basis and 8.9% in share price terms, well above the benchmark's 6.9% return on the same basis.
Dividend Policy
In the absence of unforeseen developments, the Company's dividend policy aims to pay regular, quarterly dividends, each equivalent to 1% of the Company's NAV. Payments are set based on the NAV on the last business day of each financial quarter, being the end of December, March, June and September, and are funded from a combination of revenue and capital reserves. Shareholders are reminded that dividends are based on a percentage of net assets, so the dividend paid to shareholders will reflect the Company's net assets at each quarter end. They will therefore be subject to market and performance fluctuations.
For the year ended 30th September 2022, dividends paid totalled 16.5 pence (2021: 19.3 pence). This is the second lowest level of dividend paid by the Company since the introduction of its revised dividend policy, which took effect from the beginning of the Company's financial year ended 30th September 2017. Although this is clearly disappointing for shareholders, it reflects recent market conditions and the Company's performance. In the Board's view, resetting the dividend quantum each quarter is a prudent way of delivering an income that tracks performance and does not put the Company under any undue stress.
Premium/Discount and Share Capital Management
The discount at which the Company's shares trade has widened during the review period, and although it is broadly in line with the discounts of its immediate peers, the Board has deemed it necessary to utilise the Company's buy back powers over the year, buying in a total of 1,040,725 shares (representing 1.1% of share capital) and holding them in Treasury. The Board's view is that buy back activity can help to balance the demand and supply in the Company's shares, while maintaining underlying liquidity.
Gearing
The Company has in place a multi-currency loan facility with Scotiabank. The Investment Managers utilise drawdowns from this loan facility to gear the portfolio during periods when the market is expected to rise and gearing will thus enhance performance. Over the reporting year, and at the time of writing, the Company was not geared and hence gearing did not detract from returns in a falling market.
Environmental, Social and Governance ('ESG') Issues
As detailed in the ESG Report on pages 15 to 19 of the Company's Annual Report & Financial Statements for the year ended 30th September 2022 ('2022 Annual Report'), ESG considerations are integral to the Manager's investment process and are core to its stock selection decisions. Please refer to this Report for comprehensive information on this integration.
Board Succession
The Board plans for succession to ensure it retains an appropriate balance of skills, knowledge and diversity. To this end the Board recently announced the appointments of Diana Choyleva and Kathryn Matthews to the Board with effect from 1st March and 1st June 2023 respectively.
Diana is a leading expert on China's economy and politics and is Chief Economist at Enodo Economics, an independent macroeconomic and political forecasting company. Previously she worked at Lombard Street Research, most recently as their chief economist and head of research.
Kathryn brings to the Board many years of experience in the investment company sector, including directorships of a broad range of other Asia focused investment companies. Previously, Kathryn worked for Fidelity International where she was Chief Investment Officer, Asia Pacific (ex-Japan).
Having served as a Director since 2013 and as Chairman since 2017, I will retire from the Board at the forthcoming Annual General Meeting and I will be succeeded by Sir Richard Stagg, who has served on the Board since July 2018. Dean Buckley, the Company's Audit Chairman and SID, joined the Board in 2014 and it is the current intention that he will be retiring from the Board at the Annual General Meeting in 2024.
The Manager and Costs
Through the remit of the Management Engagement Committee ('MEC') the Board has reviewed the Manager's performance and its fee arrangements with the Company. Based upon its performance record and taking all factors into account, including other services provided to the Company and its shareholders, the MEC and the Board are satisfied that JPMF should continue as the Company's Manager and that its ongoing appointment remains in the best interests of shareholders.
Continuation Vote
Pursuant to the Company's Articles of Association, the Board is required to put a triennial continuation vote to shareholders. Since the last time this requirement was enacted by the Company was in 2020, a continuation vote will be put to shareholders at the Annual General Meeting to be held on Wednesday, 15th February 2023. Given the performance returns over the medium and long term, your Board has no hesitation in recommending to shareholders that they vote in favour of the Company continuing as an investment trust for a further three-year period.
Keeping in Touch
The Board and the Investment Managers are also keen to increase dialogue with the Company's existing shareholders. Investors holding their shares through online platforms will shortly receive a letter inviting them to sign up to receive email updates from the Company. These updates will deliver regular news and views, as well as the latest performance statistics. If shareholders wish to sign up to receive these communications, please visit https://tinyurl.com/d95jkrzx or scan the QR code that can be found on page 9 of the 2022 Annual Report.
Annual General Meeting
The Company's Annual General Meeting will be held on Wednesday, 15th February 2023 at 11.00 a.m. at 60 Victoria Embankment, London EC4Y 0JP.
The Investment Managers will give a presentation to shareholders, reviewing the past year and commenting on the outlook for the current year. We look forward to seeing as many shareholders as possible at the AGM.
For shareholders wishing to follow the AGM proceedings but choosing not to attend, we will be able to welcome you through conferencing software. Details on how to register, together with access details, will be available on the Company's website: www.jpmasiagrowthandincome.co.uk, or by contacting the Company Secretary at invtrusts.cosec@jpmorgan.com
As is normal practice, all voting on the resolutions will be conducted by a poll. Shareholders viewing the meeting via conferencing software will not be able to vote on the poll and we therefore encourage all shareholders, and particularly those who cannot physically attend, to exercise their votes in advance of the meeting by completing and submitting their form of proxy.
If you have any detailed or technical questions, it would be helpful if you could raise them in advance with the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP or via the 'Ask a Question' link on the Company's website. Shareholders who are unable to attend the AGM are encouraged to use their proxy votes.
Outlook
It is difficult to recall a time when the uncertainties permeating global financial markets have been greater or more varied. Yet despite the near-term gloom, Asia's long-term growth prospects remain bright. JPMorgan Asia Growth and Income is a low-cost way for investors to gain diversified exposure to the region's best businesses, while also providing shareholders with a competitive income of approximately 4%. And with share price valuations now at historical lows in many regional markets, we share the Investment Managers' excitement about the many opportunities now available to purchase interesting, world-class companies in various sectors across Asia, at particularly attractive prices. Such acquisitions will leave the Company even better positioned to capitalise on Asia's long-term growth story, to the continued benefit of patient shareholders willing to tolerate bouts of market turbulence.
As this is my last Chairman's statement before retiring, I would like to conclude by thanking my fellow Directors and the team at JPMorgan for their support and contribution during my time on the Board and I would also like to extend my thanks to our shareholders for their ongoing support. I wish the Company's fortunes well for the future.
Bronwyn Curtis OBE
Chairman 15th December 2022
INVESTMENT MANAGERS' REPORT
Introduction
In this report we review the Company's investment performance for the 12 months to 30th September 2022. We examine the market backdrop over this period, and the factors that impacted performance. Finally, we consider the outlook for Asian equities over the coming six months and beyond.
The market environment
In the 12 months ended 30th September 2022, investor sentiment in Asian markets deteriorated significantly, causing a 13.9% decline in the MSCI AC Asia ex Japan Index in sterling terms. This sell-off was driven by a number of factors. Starting from a global perspective, the invasion of Ukraine drove up energy and commodity prices, while supply chain logjams, especially shortages of semi-conductors and other components for electronic products, worsened due to Chinese factory closures, as the country doggedly pursued its 'zero COVID' policy. These developments compounded the inflationary pressures that were already worrying investors. Markets were surprised by the willingness of central banks, led by the US Federal Reserve, to tighten monetary policy aggressively to combat these inflation pressures, and this in turn raised fears of recession. Global equity markets plunged, with the valuations of long-term growth stocks hit especially hard, while the US dollar hit multi-decade highs against other currencies.
Asian investors had additional worries, mainly related to China, where the outlook for growth has worsened over both the short and longer term. China's GDP in calendar year 2022 is forecasted to grow by only 3%, compared to 8% in 2021. The total containment of COVID-19 remains a key priority for the Communist Party leadership. In contrast to Western economies and other parts of Asia, the Chinese government seems determined to persist with this policy, even at the expense of economic growth, and it is unclear when restrictions will ease. China is also facing its first largescale residential property market correction. By some estimates this sector accounts for 25% of economic output, so any major setback will have significant implications for domestic growth. The correction was triggered by a government crackdown on borrowing within the sector, which caused a liquidity crisis among the country's largest and most geared developers, and reduced the supply of mortgages to homebuyers. New homes sales have fallen by nearly 30 % over the past year. Thirdly, US government sanctions against Chinese tech companies are disrupting the supply of components for Chinese high performance computers and products relying on cutting edge logic and memory capabilities. While these issues may prove relatively short-lived, China's longer-term growth prospects will be challenged by its worsening demographics.
Other Asian countries, most notably South Korea and Taiwan, are bracing for a decline in export demand, as higher interest rates slow global growth and tip some economies into recession. South Korea's exports recovered strongly in 2021, with gross exports growing nearly 11%, but the outlook for 2022 is for a more moderate 4.5% increase in exports. In Taiwan, Taiwan Semiconductor Manufacturing Company Ltd ('TSMC'), one of the world's leading producers of semiconductors, and the Company's largest position as at the end of September 2022, continues to demonstrate a strong competitive advantage in leading-edge chip manufacturing. TSMC's Q3 results showed sales growth of 47% year over year, driven by demand for their industry-leading chips, which account for more than 50% of revenues during the period. From a geographic perspective, sales to North American clients remain by far the largest source of income, making up 70% of sales, followed by Asia Pacific at 10% and China at 8%. However, the company did highlight weakness on the horizon by cutting capital expenditures and forecasting lower utilisation rates for chips used in personal computers and smart phones. Elsewhere in the region, the majority of South East Asian markets performed well, led by Indonesia, where growth has been particularly strong in the resources and energy sectors, as well as banking, the latter of which has benefited from strong loan demand and strong execution in online and digital banking strategies.
Although inflation concerns have risen sharply in many developed countries, the inflation picture in Asia has been more mixed. In India and South Korea, price rises are testing ten-year highs, while in China and Indonesia, inflation pressures have been limited. However, despite this varied regional picture, Asian equity markets have still been dragged down by the sell-off in Western markets, with the valuations of high growth stocks in the tech and media sectors hit hardest, as in Western markets. This has weighed particularly heavily on markets such as China and Taiwan, whose indices have a high proportion of tech and other growth stocks.
Performance
Against this mixed and challenging backdrop, the Company underperformed its Index over the period, declining by 16.2% on a net asset value ('NAV') total return basis, and by 17.2% in share price terms. We are of course disappointed by this outcome, but given the extraordinary volatility of recent market conditions, and our long-term investment horizon, we believe it is more meaningful to judge performance over longer periods. On this basis, the Company has delivered significant positive returns for shareholders in absolute terms, and outperformed the benchmark, over five and ten years. Over the ten years to the end September 2022, the Company has generated an annualised return of 8.5% in NAV terms, and 8.9% on a share price basis, compared to a benchmark return of 6.9%, measured on the same basis.
Performance attribution
30th September 2022
% | % | |
Contributions to total returns |
|
|
Benchmark return |
| -13.9% |
Stock selection | -2.3% | |
Currency effect | 0.1% | |
Gearing/(net cash) | 0.3% | |
Investment Manager contribution |
| -1.9% |
Dividends/residual |
| 0.2% |
Portfolio return |
| -15.6% |
Management fee/Other expenses | -0.7% | |
Share buy-back/issuance | 0.1% | |
Return on net assetsAPM |
| -16.2% |
Effect of movement in discount over the year |
| -1.0% |
Return to shareholdersAPM |
| -17.2% |
Source: FactSet, JPMAM and Morningstar. All figures are on a total return basis.
Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark index.
APM Alternative Performance Measure ('APM').
A glossary of terms and APMs is provided on pages 93 and 94 of the 2022 Annual Report.
Major Contributors and Detractors to Performance
One of the largest detractors from the Company's performance versus the Index over the financial year was the portfolio's underweight allocation to India, which outperformed the Asian market index by approximately 25% over the period. Our stock selection in China and Taiwan also hurt performance, due to our exposure to higher growth issuers which de-rated so sharply over this period, as discussed above. This sell-off impacted portfolio holdings across a number of sectors including healthcare (Pharmaron Beijing, WuXi Biologics), textile manufacturing (Shenzhou International), and internet conglomerates (Alibaba, Tencent).
On the positive side, the Company's large overweight allocation to financials contributed positively to returns, thanks to its holdings in bank names in Indonesia, China, and Singapore. Broadly, regional banks have performed well, driven by the economic recovery, which has been especially robust in Indonesia. In particular, Bank Central Asia has benefitted from a strong economy, higher interest rates and more company specific reasons, including its push into digital banking. This has led to a sharp decline in customer acquisition costs, with total cost to income ratios falling from previous levels of 40-45%, to 35-40%. As discussed in previous reports, we see the digitalisation of the Indonesian economy as a key driver for growth across a myriad of sectors. Within the broader financial sector, our structural underweight allocation to Chinese property was also a positive contributor, given the contraction in activity in this industry, discussed above. Despite the weak economic back drop in China, there are a selection of well-run businesses that have navigated the challenging environment extremely well. One such example is Yum China, a restaurant chain operator, which has performed well in the face of falling sales by continuing to innovate on the food delivery side and by improving in-store offerings, with the outcome that profit margins have recovered to pre-COVID levels while revenues are still 15% lower.
Portfolio activity and positioning over the past six months
While recent market volatility has been challenging for investors, it has created opportunities for us to purchase interesting businesses at compelling valuation levels. For example, the Company initiated a new position in Largan Precision, a Taiwanese manufacturer of lenses for use in smart phones and automobiles. At the time of purchase, this company's valuation was extremely attractive, and half of its market capitalisation was in net cash. Looking ahead, we believe that phone cameras will rely more heavily on the kind of high-end lenses Largan produces, so we are positive about the company's longer-term growth prospects. The Company also added to its position in Sany Heavy Industry ('Sany'), a cyclical Chinese business which is a leading manufacturer of construction machinery such as excavators, cranes and road building equipment. The company is facing weak demand conditions, but there are signs of a bottoming in year-on-year excavator sales declines, which were down 20% in the year to July 2022, compared to a decline of 60% in the previous year. Sany's valuation is also attractive.
Key outright sales used to fund these and other acquisitions included the disposal of Kakao Corp, a South Korean internet content company which offers services under several brand names. We sold the holding due to rising concerns about the management's capital allocation decisions and the risk of a widening conglomerate discount. We also secured profits by exiting several names which had performed relatively strongly versus the index. Such disposals included Meituan, a Chinese internet retailer, Delta Electronics, a Taiwanese electronics components producer, and Airports of Thailand, which benefitted from resumption of international travel.
We have not made any major changes to the portfolio at the sector level over the review period. The Company's largest overweight allocations are to financials (+4.9%), and consumer discretionary (+4.7%) and it has more modest overweight allocations to industrials (+2.8%) and information technology (+1.8%). We have also maintained underweight allocations to consumer staples (-3.0%) and materials (-2.9%), motivated by the fact that these sectors are either overvalued or profits are running well ahead of trend levels. The portfolio is also underweight energy (-2.0%), mainly due to the underweight in the Indian conglomerate Reliance and Chinese government owned energy firms, and real estate (-1.9%), reflecting our concerns around the Chinese property sector where most developers are heavily indebted and the outlook for demand in the long-term continues to deteriorate.
China's extremely poor short-term growth prospects, combined with mounting geo-political tensions related to Taiwan and Hong Kong, led us to eliminate our overweight allocation to China and Hong Kong on a combined basis. The portfolio is now neutral on these markets, and almost neutral in relation to Taiwan, as we believe valuations reflect the poor short-term outlook for these respective markets. The portfolio continues to have an underweight allocation to India given the view that this market is expensive relative to historical levels and compared to other regional markets - for instance the MSCI India index trades at 3.5x price to book (as of writing) while the average valuation for the regional index is 1.25x. As we observed in our half-yearly report, India is also especially vulnerable to higher commodity prices due to its heavy reliance on imported resources.
The portfolio's largest overweight allocations at the country level are to South Korea and Indonesia. The 3.5% overweight allocation to South Korea is motivated by several factors. Firstly, we are attracted by the fact that this market includes some of the world's most competitively positioned hardware technology companies, such as consumer electronics giant Samsung Electronics and SK Hynix, a semiconductor producer, as well as manufacturers in the electric vehicle battery supply chain, such as SK IE Technology. In addition, the valuations of these issuers are presently attractive in both absolute and relative terms, so the portfolio holds all these names. Our 3.0% Indonesian overweight allocation is driven by more top-down, macroeconomic considerations - the country's fiscal situation is improving as rising energy prices bolster government revenues. We also like the fact that the country has several well-run banks that have consistently generated high growth and solid returns.
Outlook: Low valuations provide great opportunities to invest at compelling prices
In our view, the past year's sharp share price declines mean markets across the region now mostly reflect the deterioration in the economic environment and the many uncertainties and risks ahead. This view is supported by current valuations. The MSCI AC Asia ex Japan Index is trading at a price to book ratio of 1.25x, close to the previous historical lows seen in 2008 and 2016, and looking more deeply into the Index's geographical constituents, valuations in South Korea, Hong Kong and China are also either close to or below their historical lows in price to book terms. India remains the sole market trading above its ten-year historical average valuation levels.
Despite the myriad of near-term uncertainties underpinning current low valuations in many markets, we stand by our conviction that Asian equities continue to provide attractive long-term investment opportunities. From a top-down perspective, Asian countries have large and growing economies, accounting for roughly 40% of the world's GDP. Major structural and social changes will ensure the region continues to grow rapidly, with domestic demand supported by the increasing prosperity of Asia's burgeoning middle class. Furthermore, the region is also home to many innovative and dynamic companies that are leading the world in a wide range of industries, including semiconductor manufacturing, healthcare, renewable energy, next generation automotive production and financials.
While we have already taken the chance provided by current low valuations to add new names to the portfolio at good prices, and top up existing holdings, as discussed above, there are many other exciting opportunities still available to invest in companies well-placed to benefit from Asia's positive long term growth outlook. We remain confident that our long experience, our presence on the ground in local markets and our focus on the fundamental analysis of specific stocks, will allow us to keep identifying the best investment opportunities on offer across the region, ensuring the Company's portfolio continues to provide our investors with attractive returns and outperformance over the long-term.
Ayaz Ebrahim
Robert Lloyd
Investment Managers 15th December 2022
PRINCIPAL AND EMERGING RISKS
The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. With the assistance of JPMF, the Audit Committee has drawn up a risk matrix, which identifies the key risks to the Company. The risks identified and the broad categories in which they fall, and the ways in which they are managed or mitigated are summarised below. The AIC Code of Corporate Governance requires the Audit Committee to put in place procedures to identify emerging risks. The key emerging risks identified are also summarised below.
Principal Risk | Description | Mitigating Activities |
Investment Management and Performance | ||
Underperformance | Poor implementation of the investment strategy, for example as to thematic exposure, sector allocation, stock selection, undue concentration of holdings, factor risk exposure or the degree of total portfolio risk, may lead to underperformance against the Company's benchmark index and peer companies. | The Board manages these risks by diversification of investments and 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, at least one of whom attends all Board meetings, and reviews data which show measures of the Company's risk profile. The Investment Managers employ the Company's gearing tactically, within a strategic range set by the Board. |
Discount Control Risk | Investment trust shares often trade at discounts to their underlying NAVs, although they can also trade at a premium. Discounts and premiums can fluctuate considerably leading to volatile returns for shareholders. | The Board monitors the level of both the absolute and sector relative premium/discount at which the shares trade. The Board reviews both sales and marketing activity and sector relative performance, which it believes are the primary drivers of the relative discount level. In addition, the Company has authority, when it deems appropriate, to buy back its existing shares to enhance the NAV per share for remaining shareholders and to reduce the absolute level of discount and discount volatility. |
Market and Economic Risk | Market risk arises from uncertainty about the future prices of the Company's investments, which may reflect underlying uncertainties arising from economic, social, fiscal, climate and regulatory changes. In the past few years Brexit and the ongoing COVID-19 pandemic have been major sources of uncertainty and have contributed to elevated levels of market volatility. In particular China's zero-Covid policy is impacting economic activity and squeezing supply chains, which is significantly slowing economic growth in China. Geopolitical risks have risen markedly this year with the Russian invasion of Ukraine. While direct linkages to the UK from Russia tend to be small, the impact of sanctions is significant and the rise in commodity prices has caused further disruption to supply chains which in turn is exacerbating inflationary pressure. These risks represent the potential loss the Company might suffer through holding investments in the face of negative market movements. | This risk is managed to some extent by diversification of investments and by regular communication with the Manager on matters of investment strategy and portfolio construction which will directly or indirectly include an assessment of these risks. The Board receives regular reports from the Manager regarding market outlook and gives the Investment Mangers discretion regarding acceptable levels of gearing and/or cash. Currently the Company's gearing policy is to operate within a range of 10% net cash to 20% geared. The Board considers thematic and factor risks, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Manager. The Board can, with shareholder approval, look to amend the investment policy and objectives of the Company to gain exposure to or mitigate the risks arising from geopolitical instability. |
Investment Management and Performance | ||
Loss of investment team or portfolio manager | A sudden departure of a Portfolio Manager or several members of the investment management team could result in a short term deterioration in investment performance. | The Board seeks assurance that the Manager takes steps to reduce the risk arising from 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. The Board engages with the senior management of the Manager in order to mitigate this risk. |
Operational Risks | ||
Cyber Crime | The threat of cyber attack is regarded as at least as important as more traditional physical threats to business continuity and security. In addition to threatening the Company's operations, such an attack is likely to raise reputational issues which may damage the Company's share price and reduce demand for its shares. | The Company benefits directly and/or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around physical security of JPMorgan's data centres, security of its networks and security of its trading applications, are tested by independent auditors and reported every six months against the AAF Standard. |
Regulatory Risk | ||
Regulatory Risk | The Company's business model could become non-viable as a result of new or revised rules or regulations arising from, for example, policy change or financial monitoring pressure. Regulatory risk arising from investing in China has increased significantly over the last few years. As witnessed in the education-for-profit sector, the ability of China's centralised government system to enact regulation rapidly that can quickly and adversely affect sectors or individual companies and therefore their stock market prices negatively. | The Board receives regular reports from its broker, depositary, registrar and Manager as well as its legal advisers and the Association of Investment Companies on changes to regulations which could impact the Company and its industry. The Company monitors events and relies on the Manager and its other key third party providers to manage this risk by preparing for any changes. The Company holds a diversified portfolio of stocks across a number of sectors of strategic importance to China and the Investment Managers are supported by an extensive network of Asian market specialists around the world which has the ability to understand events in China and assess the implications on sectors and companies to try and mitigate stock specific risk. |
Economic and Geopolitical | ||
Global Geopolitical Risk | Geopolitical Risk is the potential for political, socio-economic and cultural events and developments to have an adverse effect on the value of the Company's assets. The Company and its assets may be impacted by geopolitical instability, in particular concerns over global economic growth. The crisis in Ukraine has already affected energy and commodity markets and may cause further damage to the global economy. The ongoing conflict between Russia and Ukraine has heightened the possibility that tensions will spill over and intensify geo-political unrest between other countries sharing a common border. | There is little direct control of risk possible. The Company addresses these global developments in regular questioning of the Manager and will continue to monitor these issues, should they develop. The Board has the ability, with shareholder approval, to amend the policy and objectives of the Company to mitigate the risks arising from geopolitical concerns. |
Emerging Risk | ||
Environmental | ||
Policy and regulatory risk arising from climate change | Climate change, which barely registered with investors a decade ago, has today become one of the most critical issues confronting asset managers and their investors. Investors can no longer ignore the impact that the world's changing climate will have on their portfolios, with the impact of climate change on returns now inevitable. | Financial returns for long-term diversified investors should not be jeopardised given the investment opportunities created by the world's transition to a low-carbon economy. The Board is also considering the threat posed by the direct impact on climate change on the operations of the Manager and other major service providers. As extreme weather events become more common, the resiliency, business continuity planning and the location strategies of the Company's services providers will come under greater scrutiny. In particular also the Board receives ESG reports from the Manager on the portfolio and the way ESG considerations are integrated into the investment decision-making. |
Global | ||
Social dislocation & conflict | Social dislocation/civil unrest may threaten global economic growth and, consequently, companies in the portfolio. | The Manager's market strategists are available for the Board and can discuss market trends. External consultants and experts can be accessed by the Board. The Board can, with shareholder approval, look to amend the investment policy and objectives of the Company to gain exposure to or mitigate the risks arising from geopolitical instability although this is limited if it is truly global.
|
Rising competition between China and western economies | China is emerging as a challenger to the western hegemony of recent decades. This brings with it increased competition in political and military affairs alongside the development of a major trading bloc operating to different cultural, legal political and technological norms and standards. These areas of conflict may give rise to geopolitical crises that threaten the markets in which investee companies operate and fragment previously global markets into more isolated trading blocs which may limit the opportunity of investee companies to grow and thrive. | The Board has access to a range of expert resources and strategists in the UK and in the Asian region to provide long term insight and guidance on geopolitical developments. The Managers investment process incorporates non-financial measures and risks in the assessment of investee companies to allow the portfolio to adapt to changing competitive and political landscapes. |
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors' Report on page 39 of the 2022 Annual Report. The management fee payable to the Manager for the year was £2,155,000 (2021: £2,727,000) of which £nil (2021: £nil) was outstanding at the year end.
During the year £2,000 (2021: £nil), was payable to the Manager for the administration of savings scheme products, of which £nil (2021: £nil) was outstanding at the year end.
Safe custody fees amounting to £169,000 (2021: £181,000) were payable to JPMorgan Chase Bank N.A. during the year of which £42,000 (2021: £93,000) 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 £7,000 (2021: £1,000) of which £nil (2021: £nil) was outstanding at the year end.
Handling charges on dealing transactions amounting to £28,000 (2021: £24,000) were payable to JPMorgan Chase Bank N.A. during the year of which £7,000 (2021: £9,000) was outstanding at the year end.
During the year the Company held cash in the JPMorgan US Dollar Liquidity Fund, which is managed by JPMorgan. At the year end this was valued at £9,000 (2021: £964,000). Interest amounting to £10,000 (2021: £3,000) was receivable during the year of which £nil (2021: £nil) was outstanding at the year end.
Stock lending income amounting to £92,000 (2021: £48,000) were receivable by the Company during the year.
JPMAM commissions in respect of such transactions amounted to £10,000 (2021: £5,000).
At the year end, total cash of £445,000 (2021: £532,000) was held with JPMorgan Chase Bank N.A. A net amount of interest of £nil (2021: £nil) was receivable by the Company during the year of which £nil (2021: £nil) was outstanding at the year end.
Full details of Directors' remuneration and shareholdings can be found on pages 50 and 52 and in note 6 on page 70 of the 2022 Annual Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
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, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable United Kingdom Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable and prudent; 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 that they have done so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.
The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report and Directors' Remuneration Report that comply with the law and those regulations.
Each of the Directors, whose names and functions are listed in Directors' Report confirm that, to the best of their knowledge:
• the Company's financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
• the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
The Directors consider that the Annual Report & Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
For and on behalf of the Board
Bronwyn Curtis OBE
Chairman
15th December 2022
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30TH SEPTEMBER 2022
| 2022 | 2021 |
| ||||
Revenue | Capital | Total | Revenue | Capital | Total | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
(Losses)/gains on investments held at fair value | |||||||
through profit or loss | - | (75,909) | (75,909) | - | 50,965 | 50,965 | |
Net foreign currency gains/(losses) | - | 220 | 220 | - | (151) | (151) | |
Income from investments | 7,882 | - | 7,882 | 6,799 | - | 6,799 | |
Interest receivable and similar income | 102 | - | 102 | 51 | - | 51 | |
Gross return/(loss) | 7,984 | (75,689) | (67,705) | 6,850 | 50,814 | 57,664 | |
Management fee | (2,155) | - | (2,155) | (2,727) | - | (2,727) | |
Other administrative expenses | (698) | - | (698) | (697) | (90) | (787) | |
Net return/(loss) before finance costs and taxation | 5,131 | (75,689) | (70,558) | 3,426 | 50,724 | 54,150 | |
Finance costs | (43) | - | (43) | (41) | - | (41) | |
Net return/(loss) before taxation | 5,088 | (75,689) | (70,601) | 3,385 | 50,724 | 54,109 | |
Taxation | (125) | (389) | (514) | (670) | (171) | (841) | |
Net return/(loss) after taxation | 4,963 | (76,078) | (71,115) | 2,715 | 50,553 | 53,268 | |
Return/(loss) per share (note 2) | 5.09p | (77.95)p | (72.86)p | 2.84p | 52.81p | 55.65p | |
A fourth quarterly dividend of 3.7p (2021: 4.6p) per share has been declared in respect of the year ended 30th September 2022, totalling £3,569,000 (2021: £ 4,494,000). Further details are given in note 10 on page 72 of the 2022 Annual Report.
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 net return/(loss) after taxation represents the profit/(loss) for the year and also the total comprehensive income.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30TH SEPTEMBER 2022
Called up |
| Exercised | Capital |
|
|
| |
share | Share | warrant | redemption | Capital | Revenue |
| |
capital | premium | reserve | reserve | reserves1 | reserve1 | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
At 30th September 2020 | 23,762 | 31,646 | 977 | 25,121 | 315,134 | - | 396,640 |
Issue of Ordinary shares | 687 | 12,980 | - | - | - | - | 13,667 |
Issue of shares from Treasury | - | 2,079 | - | - | 2,892 | - | 4,971 |
Repurchase of shares into Treasury | - | - | - | - | (299) | - | (299) |
Net return | - | - | - | - | 50,553 | 2,715 | 53,268 |
Dividends paid in the year (note 3) | - | - | - | - | (15,332) | (2,715) | (18,047) |
At 30th September 2021 | 24,449 | 46,705 | 977 | 25,121 | 352,948 | - | 450,200 |
Repurchase of shares into Treasury | - | - | - | - | (3,534) | - | (3,534) |
Net (loss)/return | - | - | - | - | (76,078) | 4,963 | (71,115) |
Dividends paid in the year (note 3) | - | - | - | - | (12,028) | (4,963) | (16,991) |
At 30th September 2022 | 24,449 | 46,705 | 977 | 25,121 | 261,308 | - | 358,560 |
1 These reserves form the distributable reserves of the Company and may be used to fund distributions to investors.
STATEMENT OF FINANCIAL POSITION
AT 30TH SEPTEMBER 2022
2022 | 2021 | |
£'000 | £'000 | |
Fixed assets |
|
|
Investments held at fair value through profit or loss | 358,303 | 448,721 |
Current assets | ||
Derivative financial assets | 2 | - |
Debtors | 587 | 507 |
Cash and cash equivalents | 454 | 1,496 |
1,043 | 2,003 | |
Current liabilities | ||
Creditors: amounts falling due within one year | (786) | (524) |
Net current assets | 257 | 1,479 |
Total assets less current liabilities | 358,560 | 450,200 |
Net assets | 358,560 | 450,200 |
Capital and reserves |
|
|
Called up share capital | 24,449 | 24,449 |
Share premium | 46,705 | 46,705 |
Exercised warrant reserve | 977 | 977 |
Capital redemption reserve | 25,121 | 25,121 |
Capital reserves | 261,308 | 352,948 |
Total equity shareholders' funds | 358,560 | 450,200 |
Net asset value per share | 370.6p | 460.7p |
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30TH SEPTEMBER 2022
2022 | 2021 | |
£'000 | £'000 | |
Net cash outflow from operations before dividends and interest | (2,761) | (3,346) |
Dividends received | 7,007 | 6,327 |
Interest received | 10 | 3 |
Overseas taxation recovered | 272 | 23 |
Interest paid | (43) | (40) |
Net cash inflow from operating activities | 4,485 | 2,967 |
Purchases of investments | (196,879) | (166,687) |
Sales of investments | 211,835 | 160,862 |
Settlement of foreign currency trades | (4) | (111) |
Net cash inflow/(outflow) from investing activities | 14,952 | (5,936) |
Dividends paid | (16,991) | (18,047) |
Ordinary Shares issued (including from Treasury) | - | 18,638 |
Repurchase of shares into Treasury | (3,679) | - |
Net cash (outflow)/inflow from financing activities | (20,670) | 591 |
Decrease in cash and cash equivalents | (1,233) | (2,378) |
Cash and cash equivalents at start of year | 1,496 | 3,966 |
Unrealised return/(loss) on foreign currency cash and cash equivalents | 191 | (92) |
Cash and cash equivalents at end of year | 454 | 1,496 |
(Cash and cash equivalents consist of: | ||
Cash and short term deposits | 445 | 532 |
Cash held in JPMorgan US Dollar Liquidity Fund | 9 | 964 |
Total | 454 | 1,496 |
Reconciliation of net debt
As at |
| Other | As at | |
30th September |
| non-cash | 30th September | |
2021 | Cash flows | charges | 2022 | |
£'000 | £'000 | £'000 | £'000 | |
Cash and cash equivalents | ||||
Cash | 532 | (299) | 212 | 445 |
Cash equivalents | 964 | (934) | (21) | 9 |
Total | 1,496 | (1,233) | 191 | 454 |
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH SEPTEMBER 2022
1. Accounting policies
(a) Basis of accounting
The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in April 2021.
All of the Company's operations are of a continuing nature.
The financial statements have been prepared on a going concern basis. In forming this opinion, the Directors have considered any potential impact of the COVID-19 pandemic (although it is noted that any negative impact is now much reduced), the direct and indirect consequences arising from the Russian invasion of Ukraine and the geopolitical uncertainty in China on the going concern and viability of the Company. The Directors have also reviewed the compliance with debt covenants in assessing the going concern and viability of the Company. The Directors have also reviewed income and expense projections and the liquidity of the investment portfolio in making their assessment. Finally, the Board has also taken into account the fact that the Company has a continuation vote to be considered by shareholders at the Company's 2023 Annual General Meeting and the likelihood of shareholders voting in favour of continuation. Having consulted the Company's major shareholders through the remit of its advisers, the Directors have a reasonable belief that the continuation vote will be supported by the majority of shareholders. The disclosures on going concern on page 47 of the Directors' Report in the 2022 Annual Report form part of these financial statements.
The policies applied in these financial statements are consistent with those applied in the preceding year.
2. (Loss) return per share
| 2022 | 2021 |
| £'000 | £'000 |
Revenue return | 4,963 | 2,715 |
Capital (loss)/return | (76,078) | 50,553 |
Total (loss)/return | (71,115) | 53,268 |
Weighted average number of shares in issue during the year | 97,596,359 | 95,724,531 |
Revenue return per share | 5.09p | 2.84p |
Capital (loss)/return per share | (77.95)p | 52.81p |
Total (loss)/return per share | (72.86)p | 55.65p |
3. Dividends
(a) Dividends paid and declared
2022 | 2021 | |
£'000 | £'000 | |
Dividends paid | ||
2021 fourth quarterly dividend of 4.6p (2020: 4.2p) | 4,494 | 3,951 |
First quarterly dividend of 4.5p (2021: 4.8p) | 4,396 | 4,537 |
Second quarterly dividend of 4.2p (2021: 4.9p) | 4,103 | 4,690 |
Third quarterly dividend of 4.1p (2021: 5.0p) | 3,998 | 4,869 |
Total dividends paid in the period | 16,991 | 18,047 |
Dividend declared | ||
Fourth quarterly dividend declared of 3.7p (2021: 4.6p) per share | 3,569 | 4,494 |
A fourth quarterly dividend of 3.7p has been declared and was paid on 23rd November 2022 for the financial year ended 30th September 2022. The fourth quarterly dividend has not been included as a liability in the financial statements.
In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 30th September 2023.
(b) Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')
The requirements of Section 1158 are considered on the basis of the dividend proposed in respect of the financial year, shown below.
The aggregate of the distributable reserves is £252,678,000 (2021: £237,228,000).
| 2022 | 2021 |
| £'000 | £'000 |
First quarterly dividend of 4.5p (2021: 4.8p) | 4,396 | 4,537 |
Second quarterly dividend of 4.2p (2021: 4.9p) | 4,103 | 4,690 |
Third quarterly dividend of 4.1p (2021: 5.0p) | 3,998 | 4,869 |
Fourth quarterly dividend declared of 3.7p (2021: 4.6p) | 3,569 | 4,494 |
Total dividends for Section 1158 purposes | 16,066 | 18,590 |
The aggregate of the distributable reserves after the payment of the final dividend will amount to £249,110,000 (2021: £232,733,000).
4. Net asset value per share
| 2022 | 2021 |
Net assets (£'000) | 358,560 | 450,200 |
Number of shares in issue | 96,756,268 | 97,725,197 |
Net asset value per share | 370.6p | 460.7p |
5. Status of results announcement
2022 Financial Information
The figures and financial information for 2022 are extracted from the Annual Report and Financial Statements for the year ended 30th September 2022 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements for the year ended 30th September 2021 include 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 for the year ended 30th September 2022 will be delivered to the Register of Companies in due course.
2021 Financial Information
The figures and financial information for 2021 are extracted from the published Annual Report and Financial Statements for the year ended 30th September 2021 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements for the year ended 30th September 2021 has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.
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.
15th December 2022
For further information:
Alison Vincent
JPMorgan Funds Limited
020 7742 4000
ENDS
A copy of the 2021 Annual Report will shortly be submitted to the FCA's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The 2021 Annual Report will shortly be available on the Company's website at www.jpmasiagrowthandincome.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.
JPMORGAN FUNDS LIMITED