23 Jan 2018 11:41
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN RUSSIAN SECURITIES PLC
ANNOUNCEMENT OF FINAL RESULTS
The Directors of JPMorgan Russian Securities plc announce the Company's resultsfor the year ended 31st October 2017
HIGHLIGHTS
- Total return on net assets 9.8% (benchmark 8.4%)
- Ordinary dividend 21.0p (2016: 14.0p)
Legal Entity Identifier: |
549300II3MHI98ZLVH37 Information disclosed in accordance with DTR 4.1. |
chairman's statement
Performance and Overview
Politics continues to dominate any conversation about Russia. What is often forgotten is that Russia is a country with a growing economy, vast resources and one that has adjusted to the difficulties arising from sanctions and lower oil prices than it was used to in the past. The country is returning to growth and the market was up by 8.4% over the year (benchmark index RTS). This is very much lower than last year when the market rose by over 50% but it is encouraging to see that growth continued. The Company's return on a net assets basis outperformed the benchmark by 1.4% returning 9.8%. The return to shareholders also outperformed the benchmark, with a rise of 13.1% giving an outperformance of the benchmark of 4.7%. The discount at which the Company's shares trade relative to its net asset value narrowed slightly to 14.5% at the year end.
As at 18th January 2018 the discount stood at 14.4%. Since the year end to 18th January 2018 the benchmark index rose 8.0% and the Company's return to shareholders rose 9.3%.
During the Company's financial year under review Russia's economy benefitted from a number of factors including the reasonably stable oil price and the Central Bank of the Russian Federation reducing interest rates. The long term outlook for dividends also continues to remain positive. Political relations between Russia and Western powers remain tense and it is difficult to predict how the relationship with the U.S. in particular will develop.
Against this background of continuing tension, the United States and European Union economic sanctions against Russia remain in force. JPMorgan Asset Management's compliance & investment functions monitor 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 18 of the Annual Report. 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
The Board holds a strategy day each year during which it reviews the Company's investment strategy and the external environment in which it operates as well as other major factors affecting the Company. The Board confirmed that the Company's objective remains that of capital growth through investment predominantly in Russia, with distribution of income dependent upon levels received. It was acknowledged that in recent years the levels of dividends paid out by Russian corporates has been at historically high levels and current forecasts estimate that this will continue. This has been reflected in the high levels of dividends that the Company has received and dividends that it has paid. However, the Board consider that the Company's investment objective remain that of providing shareholders with capital growth, rather than being an income focused investment trust, as the current high levels of dividends may not be a long term feature of the Company's investments. In addition at the strategy day we considered recent feedback from shareholders, the discount (see further details in Discount Control section below) and the Company's Sales and Marketing Strategy.
At the Company's Annual General Meeting ('AGM') in March 2017, the shareholders approved the Board's recommendation to continue as an investment trust for a further five years until 2022. If the next continuation vote in 2022 is approved, the Board has committed to making a tender offer to shareholders for up to 20% of the outstanding share capital at net asset value less costs and less a discount of 2% if, over the five years from 1st November 2016, the Company's net asset value total return in sterling terms on a cum income basis is below the total return of the benchmark in sterling terms.
During the year the Board conducted a review of the broking services provided to the Company and on 10th July 2017 announced that they had appointed Numis as its sole broker and financial adviser.
You may be aware that the Regulator has recently introduced new rules (Packaged Retail and Insurance-based Investment Products Regulation (the 'PRIIPs Regulation') that require the Investment Manager, who is deemed to be the manufacturer of the investment product, in our case this investment trust, to prepare a Key Information Document (KID) in respect of the Company. The Company is not responsible for the information contained in the KID and investors should note that the procedures for calculating the risks, costs and potential returns are prescribed by the law. The figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed.
Dividends
Revenue for the year, after taxation, was £12,543,000 (2016: £8,096,000) and the revenue return per share, calculated on the average number of shares in issue, was 23.97 pence (2016: 15.47 pence). Based upon the revenue generated by the portfolio, an interim dividend of 15.0 pence per share in respect of the year ended 31st October 2017 was paid on 27th October 2017. 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. Also in respect of the year ended 31st October 2017, the Board proposes a final dividend of 6.0 pence making a total of 21.0 pence per share for the year (2016: 14.0 pence per share). The final dividend is proposed to be paid on 9th March 2018 to ordinary shareholders on the register at the close of business on 9th February 2018, if approved by shareholders the final dividend will amount to £3,136,000 (2016: £4,187,000). 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 2018.
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. During the period the discount ranged from 11.2% to 18.9%. The buyback of shares was considered when the Company's discount was above 10% and the absolute level of the Company's discount was taken into account, together with the relative level of discount amongst peers investing in emerging markets. After regular and careful consideration during the course of the year 75,000 shares were bought back on the 4th September 2017.
Following discussion with its major shareholders the Board has agreed that, subject to market conditions, it will increase its buy back activity with a view to buying back at least 6.0% of its issued share capital per annum.
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 reappointment at the forthcoming AGM. Following the Company's annual evaluation of the Directors, the Chairman, the Board and its Committees, the Board recommends to shareholders that all Directors be reappointed. The Board has in place a detailed succession plan which it will implement over the forthcoming years.
The Company's Directors fees remained unchanged throughout the period. The last increase was effective from 1st November 2016.
Investment Manager
Oleg Biryulyov continues to be the Company's Investment Manager supported by JPMorgan Asset Management's investment management team. Sonal Tanna, who stood down as a named investment manager in the previous reporting period, has now been replaced by Habib Saikaly who will be assisting Oleg Biryulyov. The Investment Management team is part of JPMorgan Asset Management's Emerging Markets and Asia Pacific equities team (EMAP) and consists of approximately 100 investment professionals. This strength and depth is one of the advantages of having the fund managed by a major investment house such as JPMorgan Asset Management. The Board reviews the performance of the Investment Managers each year and works pro-actively with the house to improve all aspects of the running of the Trust. The Board recognise that there is a growing trend towards passive investment, whether in tracker or exchange traded funds. However, they continue to believe that active management by highly experienced investment managers, supported by a strong team, can deliver better returns for shareholders over the longer term.
Annual General Meeting
The Company's AGM will be held on Tuesday, 6th March 2018 at 12.00 noon, at The Honourable Society of the Inner Temple, Treasury Office, Inner Temple, London EC4Y 7HL. 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 price of oil is a major determining factor for the Russian economy and if the price stability continues together with a rally in the prices of other raw materials, it seems likely to have a positive economic impact on the Russian economy and stock market in 2018. The Investment Manager has maintained his consistent approach of investing in well managed companies with strong balance sheets. He continues to believe that the equity market in Russia provides a good long term investment opportunity if the right stocks are selected. However, economic sanctions against Russia remain and the political outlook is uncertain on many fronts, including the Middle-East, USA and Europe. These significant geopolitical and economic issues will continue to impact the Russian market.
There are continuing improvements in the domestic economy with a stable outlook for fiscal policy and expected growth in Russia's GDP. Thus, the outlook remains uncertain but with some potential for upside if the oil price continues to strengthen and economic and political stability are maintained.
Gill Nott
Chairman
23rd January 2018
Investment manager's report
Market Review and Performance
During the year under review, the Company's net asset value was up 9.8% on a total return basis, and the return to shareholders was 13.1% in sterling terms. This resulted in the Company outperforming its benchmark, the RTS Index, by 4.7% on a total return to shareholders basis.
Over the year the market demonstrated its usual pattern of seasonal volatility and was heavily influenced by external factors. Early expectations for improved US relations failed to come to fruition and hopes for an end to sanctions faded as US/Russian relations deteriorated.
The oil price - a major indicator of the direction of the Russian market - went through an encouraging period of normalisation during the year. OPEC played a key role in managing the balance between supply and demand, temporarily restricting supply. The oil price underwent a remarkable recovery in the second part of 2017 calendar year and, along with a recovery in the price of other commodities, provided support for a pick-up in earnings growth and a foundation for another year of strong free cash-flow generation.
The year began with short-lived euphoria related to Donald Trump's unexpected victory in the US presidential elections and expectations of an improvement in Russian - US relations. These hopes proved groundless, leading to a market correction in the second quarter of 2017. But from June onwards the oil price started to help market sentiment and reversed the market trend to positive. August also proved another strong month for Russian dividends payments, leading to further market appreciation and strong third-quarter performance. Generally, the market did not reflect earnings growth in the review year, so we saw a further contraction of the investment multiple. Dividend payouts increased and, with static or lower share prices, we had a higher dividend yield relative to the 2016 reporting period. The Russian market has the highest dividend yield among global equity markets, which partly reflects low valuations. However, with the State representing a major investor in a significant number of companies that are starting to demand higher payouts from controlled assets, we should see a further increase in dividends in 2018/2019.
Portfolio Positioning
We actively manage your portfolio and continue to build up internal research capabilities and a growing team of professional analysts with deep expertise in emerging markets and Russia/CIS markets.
Some highlights of the portfolio's activities are detailed as follows:
- During the year, our position in Luxoft was reduced and eventually exited. Its growth has been based on an aggressive merger-and-acquisition policy, which is not ideal from our point of view. As well as concentrating its revenue sources in one area, it also makes it vulnerable to any issues that affect its clients. We await another opportunity to enter this name at later stage when either its valuation or its strategy adjusts.
- We bought positions in several new companies:
• Polyus - This company, a gold producer with very high-quality assets, has undergone a significant restructuring in the last two years. We see this as a major opportunity to invest in a national - and potentially global - industry champion.
• Obuv Rossii - Built from scratch, this regional footware retailer brings new opportunity for investors to benefit from growing consumption in Russia. We see this as a long-term holding in a potential industry consolidator and national champion in Russia.
• Evraz - Similar to RusAl, Evraz represents both a deleveraging and a valuation opportunity.
• RusHydro - An electric utility with unique hydro assets, RusHydro is a restructuring and deleveraging story, as well as a valuation opportunity.
• InterRAO - This electric utility holding Company is a unique consolidator of the sector with the potential to become a 'major player', and represents a valuation opportunity.
• The Company's materials holdings are relatively high compared to history, reflecting their attractive valuations and superior dividend yield. For the first time in last 15 years, we established a position in the utility sector, as we can see that its CAPEX hump is almost over, creating a superior cash flow generation opportunity. Our position in Sberbank is the Company's largest holding, as we believe in the superior investment returns that can be generated by this industry, this management team and its unique market share. All in all, Sberbank is a classic 'blue chip' with superior return on equity, strong brand and growing barriers to entry.
• Our energy holdings are still relatively high as we continue to see a better outlook for energy prices and dividend stories there.
Last year's major stock-level detractors were:
• MTS -We do not own this stock. MTS's ongoing legal case against Rosneft has been a cause for concern. Valuations are in line with the industry and the dividend yield is unlikely to be sustainable thanks to a slowly shrinking top line. Not owning the stock last year proved to be a mistake, but it is hard to make a long-term investment case for owning it now.
• Magnit - Magnit proved the major disappointment of the year when earnings fell short of expectations, leading to a significant derating of the investment multiple. As a result, the stock is down almost 30% and, like all 'fallen angels', is a victim of market apathy. We think we will see another two quarters of lacklustre results, with a major restructuring programme taking place. However, we still see this company as a 'national champion' and it will remain a core holding for the portfolio.
• RosAgro - The cyclicality of commodity prices severely tested RosAgro's financial results last year. The share price has been moving around quite significantly, but underperformance was almost mitigated by its large dividend yield of almost 7%. We continue to believe in RosAgro's investment strategy and view it also as a 'leading stock'. The stock will continue to be a core holding for the Company.
• Yandex - In a year when more than 50% of global equity market performance came from the IT sector, the portfolio suffered from not owning this name. We did not recognise that the market would be willing to continue expanding earnings multiples for the stock with above market average earnings growth potential. However, we believe that the valuation is excessive and are sceptical about the value the market has assigned to the Taxi business. While not owning the stock has hurt performance, the valuation looks prohibitive and we will avoid it for now.
• Transneft - Transneft is not a company per se, but a Russian state-owned transport monopoly that we do not own. Its corporate and share capital structure are not ideal for minorities. The stock does not look attractive in its current form and we will avoid it at least until further changes take place.
On the positive side, we gained most from our positions in:
• Tatneft - This smaller, local oil player continues to deliver on stable production and investments in the downstream space. Less liquid shares benefited more from volatility. Higher payout ratio for dividends was applauded by the market.
• Sberbank - The Bank of Russia, with 50%+ of deposits/loans and 80%+ of profit in banking sector. It is a dynamic/innovative leader of the industry with return on equity above 20% and an attractive valuation. Sberbank represented the largest holding in the Company during the review period.
• VTB - We do not own this stock. A lack of clear strategy, poor capital allocation and inferior return on equity have been reflected in VTB's poor performance, so not owning it proved beneficial for performance.
• Polymetal - This strong junior miner, with a highly experienced and focused management team, successfully delivered on new projects and its capital allocation remain good. We like this company, which is one of the Company's smaller core holdings.
• TBC Bank - One of our investments outside Russia, this country leader in Georgia draws on a very focused and professional team. Its return on capital and valuation make it a very attractive proposition and we are happy to have it as a core holding in the portfolio. TBC Bank is an example of a company that we can now buy following the 2016 review of the Company's strategy and the limited expansion of its investment universe to the CIS countries.
Investment Management Team
Habib Saikaly was added as a named investment manager of the Company.
Habib is a country specialist within the JPMorgan Emerging Markets and Asia Pacific equities team (EMAP) and has over ten years experience in the industry. Further details are provided in the Chairman's Statement on page 5 of the Annual Report.
Post Year End
The most significant event facing Russia is the Presidential election in March 2018, although we see this as a low-risk factor as Putin is almost certain to win.
Outlook
There have been few changes in the Russian equity market outlook since our last report to you. We believe that the stabilisation of Russia's economy is now well underway and will continue to have a positive impact on Russian equities. We expect the Russian economy to deliver 2% annualised GDP growth in the next three-to-five years, with potential upside coming from stronger investments and the recovery of domestic consumption.
Oil price volatility could be lower in the next 12-18 months due to structural changes in supply of oil, as lower capex for the last three years will start to cap growth in production globally. This kind of stabilisation will help to improve the outlook for the rouble and earnings growth, particularly in US dollar and sterling terms.
In our opinion, the reduction of interest rates is a very powerful monetary policy tool. We expect to see a continuation of interest rates cuts through the next 12-18-month period, together with lower inflation within the next five years in Russia. The Russian equity market is dominated by capital-intensive industries with long-term investment projects and long payback periods. Discounted cash flows for such projects have been depressed by very high cost of capital and, in most cases, projects with more than a 10-year life span were hit hard by these calculations. We think that if the cost of capital becomes normalised, we will see adjustments to the value of these long-term projects, which could have a beneficial impact on the valuation of such companies.
We continue to see scope for reforms and hope that - slowly but surely - further liberalisation and restructuring of the Russian economy will take place. The domestic political outlook currently looks very stable in Russia. Although we would expect to see some rotation of specialists in the government and presidential administration we think that the senior leadership in the country will remain unchanged for the foreseeable future. The global political outlook would appear to be improving, although it is still fairly uncertain, with Western sanctions continuing and the conflict in Syria heightening tensions in the region.
We believe that Russian equity valuations are supportive for investors who are willing to accept the current level of country risk.
Oleg I. Biryulyov
Habib Saikaly
Investment Managers
23rd January 2018
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, the current sanctions regime and recent large falls in the price of oil and value of the Ruble have negatively impacted 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.
• Investment Under Performance 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 27. 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 52 to 57. 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 52, 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 23. The management fee payable to the Manager for the year was £2,989,000 (2016: £2,174,000) of which £nil (2016: £nil) was outstanding at the year end.
During the year £31,000 (2016: £54,000), including VAT, was payable to the Manager for the administration of savings scheme products, of which £19,000 (2016: £nil) was outstanding at the year end.
Included in note 6 on page 46 are safe custody fees amounting to £146,000 (2016: £149,000) payable to JPMorgan Chase Bank N.A. during the year of which £24,000 (2016: £28,000) 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 £27,000 (2016: £23,000) of which £nil (2016: £nil) was outstanding at the year end.
The Company also holds cash in the JPMorgan US Dollar Liquidity Fund, which is managed by JPMorgan. At the year end this was valued at £1,028,000 (2016: £4,732,000). Interest amounting to £23,000 (2016: £22,000) was receivable during the year of which £nil (2016: £nil) was outstanding at the year end.
Handling charges on dealing transactions amounting to £234,000 (2016: £204,000) were payable to JPMorgan Chase Bank N.A. during the year of which £1,000 (2016: £1,000) was outstanding at the year end.
At the year end, total cash of £253,000 (2016: £418,000) was held with JPMorgan Chase Bank, N.A.. A net amount of interest of £nil (2016: £nil) was receivable by the Company during the year from JPMorgan Chase.
Full details of Directors' remuneration and shareholdings can be found on page 31 and in note 6 on page 46.
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:
• 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 accounts 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 BoardGill NottChairman
23rd January 2018
statement of comprehensive income
for the year ended 31st October 2017
| 2017 | 2016 | ||||
| Revenue | Capital | Total | Revenue | Capital | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Gains on investments held at fair value through profit or loss | - | 17,750 | 17,750 | - | 94,420 | 94,420 |
Net foreign currency (losses)/gains | - | (42) | (42) | - | 1,166 | 1,166 |
Income from investments | 15,957 | - | 15,957 | 11,087 | - | 11,087 |
Interest receivable | 23 | - | 23 | 22 | - | 22 |
Gross return | 15,980 | 17,708 | 33,688 | 11,109 | 95,586 | 106,695 |
Management fee | (598) | (2,391) | (2,989) | (435) | (1,739) | (2,174) |
Other administrative expenses | (1,017) | - | (1,017) | (913) | - | (913) |
Net return on ordinary activities before taxation | 14,365 | 15,317 | 29,682 | 9,761 | 93,847 | 103,608 |
Taxation | (1,822) | - | (1,822) | (1,665) | 348 | (1,317) |
Net return on ordinary activities after taxation | 12,543 | 15,317 | 27,860 | 8,096 | 94,195 | 102,291 |
Return per share | 23.97p | 29.27p | 53.24p | 15.47p | 179.98p | 195.45p |
Statement of Changes in equity
for the year ended 31st October 2017
| Called up | Capital |
|
|
|
|
| share | redemption | Other | Capital | Revenue |
|
| capital | reserve | reserve | reserves1 | reserve1 | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
At 31st October 2015 | 524 | 77 | 47,204 | 136,342 | 10,493 | 194,640 |
Net return on ordinary activities | - | - | - | 94,195 | 8,096 | 102,291 |
Dividends paid in the year | - | - | - | - | (12,037) | (12,037) |
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 | - | - | - | - | (12,027) | (12,027) |
At 31st October 2017 | 523 | 78 | 46,838 | 245,854 | 7,068 | 300,361 |
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 2017
| 2017 | 2016 |
| £'000 | £'000 |
Fixed assets |
|
|
Investments held at fair value through profit or loss | 294,066 | 279,865 |
Current assets |
|
|
Debtors | 5,145 | 494 |
Cash and cash equivalents | 1,281 | 5,150 |
| 6,426 | 5,644 |
Current liabilities |
|
|
Creditors: amounts falling due within one year | (131) | (615) |
Net current assets | 6,295 | 5,029 |
Total assets less current liabilities | 300,361 | 284,894 |
Net assets | 300,361 | 284,894 |
Capital and reserves |
|
|
Called up share capital | 523 | 524 |
Capital redemption reserve | 78 | 77 |
Other reserve | 46,838 | 47,204 |
Capital reserves | 245,854 | 230,537 |
Revenue reserve | 7,068 | 6,552 |
Total shareholders' funds | 300,362 | 284,894 |
Net asset value per share | 574.7p | 544.3p |
statement of cash flows
for the year ended 31st October 2017
| 2017 | 2016 |
| £'000 | £'000 |
Net cash outflow from operations before dividends and interest | (4,030) | (1,879) |
Dividends received | 13,540 | 10,334 |
Interest received | 23 | 22 |
Overseas tax paid | (53) | (569) |
Net cash inflow from operating activities | 9,480 | 7,908 |
Purchases of investments | (101,778) | (99,177) |
Sales of investments | 100,857 | 104,127 |
Settlement of forward currency contracts | (26) | - |
Net cash (outflow)/inflow from investing activities | (947) | 4,950 |
Repurchase and cancellation of the Company's own shares | (364) | - |
Dividends paid | (12,038) | (12,037) |
Net cash outflow from financing activities | (12,402) | (12,037) |
(Decrease)/Increase in cash and cash equivalents | (3,869) | 821 |
Cash and cash equivalents at start of year | 5,150 | 4,330 |
Exchange movements | - | (1) |
Cash and cash equivalents at end of year | 1,281 | 5,150 |
(Decrease)/Increase in cash and cash equivalents | (3,869) | 821 |
Cash and cash equivalents consist of: |
|
|
Cash and short term deposits | 253 | 418 |
Cash held in JPMorgan US Dollar Liquidity Fund | 1,028 | 4,732 |
Total | 1,281 | 5,150 |
Notes to the financial statements
for the year ended 31st October 2017
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 '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 January 2017.
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 23 of the Directors' Report of the Annual Report form part of these financial statements.
The policies applied in these financial statements are consistent with those applied in the preceding year.
In the previous financial year, the Company elected not to prepare a Statement of Cash Flows, applying the exemption from disclosure available under FRS 102 Section 7.1A(c). The Company has since reviewed the application of the exemption and has resolved not to apply it this year as the inclusion of the Statement of Cash Flows supports fuller financial analysis for the benefit of all stakeholders.
2. Dividends
(a) Dividends paid and proposed
|
| 2017 | 2016 |
|
| £'000 | £'000 |
| Dividend paid |
|
|
| 2016 final dividend of 8.0p (2015: 13.0p) | 4,187 | 6,804 |
| 2016 special dividend of nil (2015: 4.0p) | - | 2,093 |
| 2017 interim dividend of 15.0p (2016: 6.0p) | 7,840 | 3,140 |
|
| 12,027 | 12,037 |
| Dividend proposed |
|
|
| 2017 final dividend of 6.0p (2016: 8.0p) | 3,136 | 4,187 |
The dividend proposed in respect of the year ended 31st October 2017 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 2018.
(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 revenue available for distribution by way of dividend is £12,543,000 (2016: £8,096,000).
|
| 2017 | 2016 |
|
| £'000 | £'000 |
| 2017 interim dividend of 15.0p (2016: 6.0p) | 7,840 | 3,140 |
| 2017 final dividend of 6.0p (2016: 8.0p) | 3,136 | 4,187 |
| Total dividends for Section 1158 purposes | 10,976 | 7,327 |
All dividends paid and proposed in the period are funded from the revenue reserve.
The revenue reserve after payment of the final dividend will amount to £3,932,000 (2016: £2,365,000)
3. Return per share
|
| 2017 | 2016 |
|
| £'000 | £'000 |
| Revenue return | 12,543 | 8,096 |
| Capital return | 15,317 | 94,195 |
| Total return | 27,860 | 102,291 |
| Weighted average number of shares in issue during the year | 52,325,194 | 52,337,112 |
| Revenue return per share | 23.97p | 15.47p |
| Capital return per share | 29.27p | 179.98p |
| Total return per share | 53.24p | 195.45p |
4. Net asset value per share
|
| 2017 | 2016 |
| Net assets (£'000) | 300,361 | 284,894 |
| Number of shares in issue | 52,262,112 | 52,337,112 |
| Net asset value per share | 574.7p | 544.3p |
5. Status of announcement
2016 Financial Information
The figures and financial information for 2016 are extracted from the Annual Report and Accounts for the year ended 31st October 2016 and do not constitute the statutory accounts for the year. The Annual Report and Accounts includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Registrar of Companies in due course.
2017 Financial Information
The figures and financial information for 2017 are extracted from the Annual Report and Accounts for the year ended 31st October 2017 and do not constitute the statutory accounts for the year. The Annual Report and Accounts includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Registrar of Companies in due course.
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
For further information please contact:
Paul Winship
For and on behalf of
JPMorgan Funds Limited, Secretary - 020 7742 4000
23rd January 2018
ENDS
Annual Report and Accounts
The Annual Report and Accounts will be posted to shareholders on or around 30 January 2017 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.