REG - JPMorganUS Small Cos - Annual Financial Report
20/03/2023 16:45
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230320:nRST5719Ta&default-theme=true
RNS Number : 5719T JPMorgan US Smaller Co. IT 20 March 2023
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED
31ST DECEMBER 2022
Legal Entity Identifier: 549300MDD7SOXDMBN667
Information disclosed in accordance with the DTR 4.1.3
CHAIRMAN'S STATEMENT
Performance
I am delighted to present the Annual Report of JPMorgan US Smaller Companies
Investment Trust plc ('the Company') for the year ended 31st December 2022.
Having navigated the challenges of the COVID-19 pandemic, the Company was
faced with further market global headwinds from heightened tensions between
the US and China and the Russian invasion of Ukraine. During the year, the US
equity market grappled with numerous interest rate hikes, high inflation
levels, continued supply chain constraints, fast-paced tightening liquidity
and recessionary risks. However, the Investment Managers continued with their
disciplined approach to investing and it is pleasing to report that the
Company's NAV outperformed the benchmark for the 12 months to 31st December
2022.
Despite the extreme volatility in the market, the Company's total return on
net assets over the year was -8.2% which compares favourably with the -10.6%
return for our benchmark, the Russell 2000 index in sterling terms. Return to
shareholders was -15.7% for the year. An explanation as to why the return to
shareholders is worse than the total return on net assets is given below.
Full details of investment performance, changes to the portfolio and the
outlook can be found in the Investment Managers' report in the Annual Report
and Financial Statements.
Discount and Premium
As has been said in the past, the Board aims to align the Company's share
price movements to changes in its net asset value and monitors the discount or
premium at which the shares trade on a daily basis with the assistance of its
broker and Manager. However, a number of factors make it difficult to align
share price and net asset value movements including the often volatile prices
of US smaller companies investments and the additional volatility introduced
by owning assets denominated in dollars whilst having a share price and net
asset value reported in sterling.
Over the course of the year, the discount averaged 8.5%. Having begun the year
trading at a premium of 1.1% to NAV, the Company's shares quickly moved to a
discount in January 2022 and ended the year at a discount of 7.3% to NAV. The
movement of the shares from a premium to discount is what led the total return
to shareholders to fall behind the total return on net assets.
Share Issuance and Buybacks
To help with the management of the discount, we have in place the authority to
repurchase up to 14.99% of the Company's issued share capital and we will be
seeking renewal of this authority at the AGM. The Company's move from premium
to discount is reflected in its share issuance and buyback behaviour over the
year.
In January 2022 the Company issued 125,000 shares from Treasury and 75,000 new
ordinary shares. In the subsequent months, the Company bought back 760,643
shares into Treasury in periods when discount levels were particularly
elevated, reflected in the weighted average discount of 8.2% at which these
shares were acquired. Since the year end, the Company has repurchased 109,821
shares into Treasury.
The Company's share buyback policy continues to have three major objectives;
to buy back shares with the aim of enhancing the NAV for ongoing shareholders,
to minimise discount volatility and ultimately to ensure that the shares do
not trade at an excessive discount for a prolonged period of time. Of course,
our ability to achieve these outcomes will depend on prevailing market
conditions and the behaviour and risk appetites of investors.
The Company will also look to issue shares to enhance shareholders' NAV and to
avoid the formation of an excessive premium which may not be in the best
interests of incoming and continuing shareholders alike.
Revenue and Dividend
The impact of the global concerns on the dividends received from the Company's
portfolio has remained relatively muted and the Board is therefore delighted
to recommend a dividend of 2.5p in respect of the financial year ended 31st
December 2022 (2021: 2.5p). Subject to shareholders' approval at the Annual
General Meeting (AGM), this dividend will be paid on 19th May 2023 to
shareholders on the register at the close of business on 21st April 2023.
Shareholders should note the Company's objective is unchanged and remains one
of capital growth and our dividend policy will therefore reflect the naturally
occurring income on the underlying portfolio.
Gearing
During the year, the Company continued to utilise its revolving credit
facility to maintain a meaningful but modest level of gearing. The Board
renewed its USD30 million loan facility, with an option to draw a further
USD10 million, in October 2021 for a 2-year term. The current facility matures
on 27th October 2023 at which point the Board will review its borrowing
requirements.
As at 31st December 2022, the Company had drawn down USD30 million (GBP 24.9
million). It closed the year with a gearing level of 6.8% having averaged
approximately 6.9% throughout the year. The Board believes that the use of
gearing is a key advantage of the investment trust structure and looks to
maintain a consistent level of gearing within its permitted 10% cash to 15%
geared range.
Our policy sees gearing levels adjusted to reflect changes in the Manager's
perception of longer-term opportunities and market risks rather than being
used as a short-term market-timing tool.
Environment, Social and Governance (ESG) considerations
We provide a full description of how ESG is integrated into the investment
management process later in this report. The Board shares the Investment
Managers' view of the importance of ESG factors when making investments for
the long term and of the necessity of continued engagement with investee
companies throughout the duration of the investment. The Investment Managers'
report describes the developments in the ESG process that have taken place
during the year together with examples of how these are implemented in
practice. Further information on the Manager's ESG process and engagement is
set out in the ESG Report section within the Annual Report.
Board Succession
In January 2023 the Board, through its Nomination Committee, carried out a
comprehensive evaluation of the Board, its committees, the individual
Directors and the Chairman. Topics discussed included the size and composition
of the Board, Board information and processes, shareholder engagement, and
training and accountability. The report confirmed the efficacy of the Board.
During the year, as part of its succession planning the Board appointed Mandy
Donald as a Director in January 2022 to succeed Julia Le Blan as Chairman of
the Audit Committee following Julia's retirement in April 2022. The Board
continues to monitor succession planning.
In accordance with the UK Corporate Governance Code, Mandy Donald, Christopher
Metcalfe, Dominic Neary, Shefaly Yogendra and myself will retire at the
forthcoming AGM and, being eligible, will offer ourselves for reappointment by
shareholders.
Annual General Meeting
We are inviting shareholders to join us in person for the Company's
sixty-sixth AGM to be held on Monday, 24th April 2023 at 2.30 p.m. at 60
Victoria Embankment, London EC4Y 0JP. The Board hopes to welcome as many
shareholders as possible.
As with previous years, you will have the opportunity to hear from the
Investment Managers. Their presentation will be followed by a question and
answer session. There will also be refreshments afterwards, when shareholders
will be able to meet members of the Board. Shareholders wishing to follow the
AGM proceedings but choosing not to attend will be able to view them live and
ask questions through conferencing software. Details on how to register
together with access details can be found on the Company's website:
www.jpmussmallercompanies.co.uk, or by contacting the Company Secretary at
invtrusts.cosec@jpmorgan.com.
In accordance with normal practice, all voting on the resolutions will be
conducted on a poll. Due to technological reasons, 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 attend
physically, to submit their proxy votes in advance of the meeting, so that
they are registered and recorded at the AGM. Proxy votes can be lodged in
advance of the AGM either by post or electronically: detailed instructions are
included in the Notes to the Notice of Annual General Meeting in the Annual
Report. In addition, shareholders are encouraged to send any questions ahead
of the AGM to the Board via the Company Secretary at the email address above.
We will endeavour to answer relevant questions at the meeting or via the
website depending on arrangements in place at the time.
If there are any changes to the above AGM arrangements, the Company will
update shareholders through its website and, as appropriate, through an
announcement on the London Stock Exchange.
Outlook
2022 was a difficult year with a number of headwinds and, while some still
remain, there are reasons to be optimistic as 2023 unfolds. As the Investment
Managers note in their report, we see small cap valuations at historic lows
despite an improving earnings picture. Inflation, although remaining high, is
now in retreat and we may be nearing the end of material interest rate
increases. However, there are likely to be setbacks, as evidenced by recent
issues in the banking sector. In addition, the potential for recession has
not gone away and the Board and the Manager continue to communicate regularly
and monitor the associated risks.
Whatever challenges 2023 throws our way, we remain confident that the
Investment Managers' disciplined approach to investment will continue to
identify high quality businesses that will deliver good long term returns.
David Ross
Chairman
20th March 2023
INVESTMENT MANAGERS' REPORT
Market Review
2022 was a difficult year for market participants, to say the least. Equities
marched steadily higher throughout 2021, driving valuations to elevated levels
exiting the year. As the calendar turned, optimism gave way to pessimism as
macro conditions deteriorated on the back of persistent inflation, a hawkish
Fed and geopolitical concerns, all of which increased the risk of recession.
After three years of strength, equity markets were whiplashed with a volatile
year, beginning with a Fed that no longer considered inflation to be
transitory and vowed to tame it with increasingly aggressive rate hikes.
Compounding inflationary concerns was the war in Ukraine, which drove oil and
gas prices higher and placed further pressure on the Fed to act. As risk of
recession increased, and investors re-priced assets on the back of higher
interest rates, developed equity markets saw the worst first half performance
in over two decades. Over the course of the year, the Fed hiked rates by a
cumulative 425 basis points after entering the year with a view that 75 basis
points would be sufficient. As a result of unsnarling supply chains and
aggressive Fed actions, US CPI peaked in June 2022 at 9.1% and trended down to
7.1% by November, providing some hope for a 'soft' economic landing in the US.
Throughout 2022, Corporate America battled high interest rates, contraction in
manufacturing and dampened consumer sentiment. As a result, earnings forecasts
for 2023 witnessed sharp cuts towards the end of the year.
Large cap stocks as represented by the S&P 500 Index outperformed the
small cap Russell 2000 Index, as they returned -18.1% (in US dollar terms) vs.
-20.4%, respectively. Value outperformed Growth by a massive margin, as the
Russell 3000 Value Index returned -8.0% and the Russell 3000 Growth Index
returned -29.0%.
Performance
The Portfolio's net asset value decreased by 8.2% in 2022. The Company
outperformed its benchmark, the Russell 2000 Index (Net), which fell by 10.6%
in sterling terms in the face of a challenging year and steep market decline.
Stock selection was the primary driver of outperformance.
With regard to relative performance, our stock selection in the consumer
discretionary and industrials sectors contributed the most.
Within industrials, our position in WillScot Mobile Mini, and our exposure to
WEX, were among the top contributors. WillScot Mobile Mini, one of the largest
providers of modular office space and portable storage, reported strong
quarterly earnings results and provided a favourable outlook for FY23 as it
continues to execute on robust demand. Strong pricing and volumes aided the
company's performance. We continue to like the business and think that the
company is well positioned to weather any potential macroeconomic slowdown.
WEX, a payment processing and technology solutions provider also reported
strong quarterly results that demonstrated solid revenue upside and benefitted
from re-opening trends as fleet and travel volumes rebounded. Moreover, WEX's
fleet segment benefitted from rising fuel prices, acting as an inflation
hedge, which has been a positive in this macro environment. We remain
comfortable with our position in the company.
Among individual names, our exposure to Encompass Health, one of the largest
Inpatient Rehab Facilities (IRF) within the health care sector, aided
performance. Shares soared despite inflationary and higher cost pressures
which led to a lower guidance for profitability. The optimism around
non-cyclical revenue growth, coupled with growth in beds/facilities and solid
pricing boosted the stock's performance. We think that investors have been
willing to look past near term transitory margin headwinds mostly related to
new facility opening and labor costs, as topline momentum should continue into
2023 and margins start to move off the bottom. We continue to like the name
and view its valuation as attractive.
The contributions to relative performance of your portfolio's sector
positioning were all positive, with the exception of the continuing
underweight in energy. The energy sector rose due to a rally in oil prices
during the year and continued to rise despite oil prices remaining
range-bound. Rumours of an end to the Covid-Zero policy in China boosted hopes
for an oil demand recovery in Asia. Energy remains an underweight for us, but
we continue to assess the long-term sustainability of capital allocation
discipline in the space and search for new ideas that will both benefit from
secular trends and fit our quality-oriented investment philosophy.
Among individual names, our exposure to Syneos Health, a biopharmaceutical
solutions organisation, was the largest detractor for the year. Low
reimbursable expenses and foreign exchange headwinds impacted the company's
earnings results. Moreover, weak performance of its clinical business segment
was one of the main drivers of underperformance. We continue to hold a
position in the company due to its attractive valuation and long-term
potential.
Our exposure to Hayward, a manufacturer of pool equipment and associated
automation systems, within the industrials sector proved lackluster. Along
with many other COVID beneficiaries, the stock underperformed as demand trends
normalised and excess channel inventory needed to be addressed. We maintain
our conviction in the company as its valuation looks attractive on
a longer-term basis.
Performance Attribution
Year ended 31st December 2022
% %
Contributions to total returns
Benchmark return -10.6%
Asset Allocation -1.3%
Stock Selection* 6.2%
Investment Manager Contribution 4.9%
Portfolio total return -5.7%
Impact of cash/gearing* -1.6%
Management fee/other expenses -1.0%
Share issuance 0.1%
Other effects -2.5%
Cum Income Net Asset Value Total Return -8.2%
Share Price Total Return -15.7%
* Includes impact of FX movement on USD loan
Source: Wilshire, 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.
Portfolio Positioning
With regard to our portfolio positioning, we continue to focus on finding
companies with durable franchises, good management teams and stable earnings
that trade at a discount to their intrinsic value. We continue to believe that
smaller companies are worth investing in for long term investors as they
include innovative companies that serve market niches and thereby can be a way
to get in early on innovation.
We have been trimming cyclical outperformers and expensive defensives and
COVID winners as the strength in the market during the last quarter of 2022,
and our outperformance, provided an opportunity to take some profits. We
continue to add to high quality growth names in a measured fashion and added
to most beaten down cyclicals, given the strength of the franchises and
depressed valuations. We also modestly added to software names within the
technology sector. Our largest absolute and relative weight remains in
industrials, followed by financials.
On the other hand, our largest underweights remain in the energy and health
care sectors. While we have struggled to find high quality assets within the
traditional energy sector, we believe there are more interesting opportunities
within the alternative energy space.
Market Outlook
We remain optimistic about small caps as we begin 2023 given the constructive
backdrop and valuation. The last decade has been challenging for small caps
when compared to large caps, and 2022 was no exception. However, small cap
valuations are at historic lows akin to those witnessed during the
Technology-media-telecoms bubble of the late 1990s/early 2000s or the Great
Financial Crisis in 2008-2009. Forward looking performance coming out of those
periods was very favourable for small caps for several years. The promising
backdrop for small caps also includes an improving earnings picture in the
face of high, but declining inflation coupled with higher rates.
While the economy teeters on the edge of recession, we remain balanced and
continue to monitor incremental risks that could represent headwinds for U.S.
equities. Through the volatility, we continue to focus on high conviction
stocks and take advantage of market dislocations for compelling stock
selection opportunities.
Don San Jose
Jon Brachle
Dan Percella
Investment Managers
20th March 2023
PRINCIPAL AND EMERGING RISKS
The Directors confirm that they have carried out a robust assessment of the
principal and emerging 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. These are reviewed and noted by the
Board and the Board undertakes further work and engages with the Manager where
necessary. 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 may lead to underperformance A broadly diversified portfolio of equities is managed in line with
against the Company's benchmark index and peer companies. Board-approved investment restrictions and guidelines. Investments are
monitored and reported on by the Manager who provides the Board with regular
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 participate at all Board meetings, and
reviews data which show statistical measures of the Company's risk profile.
The Investment Managers employ the Company's gearing within a strategic range
set by the Board. In addition to regular Board reviews of investment strategy,
the Board holds a separate meeting devoted to strategy each year.
Market and Economic Risk Market risk arises from uncertainty about the future prices of the company's This risk is managed to some extent by diversification of investments and by
investments, which might result from economic, fiscal and regulatory change, regular communication with the Manager on matters of investment strategy and
including the continuing impact of COVID-19 and possibly further variants and portfolio construction which will directly or indirectly include an assessment
will weigh on recovery as economies try to emerge from the pandemic. of these risks.
At present market risk is heightened due to various risks mentioned in the The Board considers asset allocation, stock selection and levels of gearing on
Chairman and Managers' reports, for example, fear of sustained inflation, a regular basis and has set investment restrictions and guidelines, which are
interest rate rises and continuing supply chain issues. The mid-term elections monitored and reported on by the Manager. The Board monitors the
may also cause some increased volatility. implementation and results of the investment process with the Manager.
Geopolitical risks will also affect the market and are currently heightened
due to the war in Ukraine and tensions with China. The war in Ukraine has
caused volatility in the market and increased energy costs and is likely to
continue to disrupt global markets for some time.
Discount Control Risk Investment trusts shares often trade at discounts to their underlying NAV; The Board monitors the share price against the absolute and sector relative
they can also trade at a premium. Discounts and premiums can fluctuate premium/discount levels. The Board reviews sales and marketing activity and
considerably leading to volatile returns for shareholders. sector relative performance, which it believes are the primary drivers of the
relative premium/discount level. The Company has authority to buy back its
existing shares or issue new shares to enhance the NAV per share for remaining
shareholders when deemed appropriate.
Shareholder Demand Certain buyers within the sector will only consider investing into an The Board reviews sales and marketing activity and it also receives regular
investment trust where its AUM is over a certain level; the Company's AUM feedback via the Manager's sales team from both existing and prospective
currently stands below these levels. shareholders.
Loss of Investment Team or Portfolio Manager A sudden departure of the Investment Managers, or several members of the The Board seeks assurance that the Manager takes steps to reduce the
investment management team could result in a short term deterioration in likelihood of such an event by ensuring appropriate succession planning and
investment performance. 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
Outsourcing Disruption to, or failure of, the Manager's accounting, dealing or payments Details of how the Board monitors the services provided by JPM and its
systems or the Registrar, Depositary or Custodian's records may prevent associates and the key elements designed to provide effective risk management
accurate reporting and monitoring of the Company's financial position or a and internal control are included within the Risk Management and Internal
misappropriation of assets. Controls section of the Corporate Governance Statement in the Annual Report.
The Manager has a comprehensive business continuity plan which facilitates
continued operation of the business in the event of a service disruption
(including disruption resulting from a pandemic). Directors have received
evidence that the Manager and its key third party service providers have
business continuity plans in place and that these are regularly tested. The
response to the restrictions imposed during the COVID-19 pandemic gives
assurance that the controls are in place and that the Manager and the service
providers are working as expected.
Cyber Crime The threat of cyber attack, in all guises, is regarded as at least as The Company benefits directly and/or indirectly from all elements of
important as more traditional physical threats to business continuity and JPMorgan's Cyber Security programme. The information technology controls
security. 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.
The Company and the Manager have evidence from the major service providers
that they have procedures in place to maintain the best practices in the fight
against cybercrime and to ensure business resiliency.
Corporate Governance
Statutory and Regulatory Compliance Failure to comply with relevant statute law or regulation may have an impact The Board relies on the services of its Company Secretary, the Manager and its
on the Company both in terms of fines and in terms of its ability to continue professional advisers to ensure compliance with the Companies Act 2006, the
to operate. UKLA Listing Rules, DTRs, MAR and AIFMD. Details of the Company's compliance
with Corporate Governance best practice, are set out in the Corporate
Also, the Company's business model could become non-viable as a result of new Governance Statement in the Annual Report.
or revised rules or regulations arising from, for example, policy change or
political impact. 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 key
third party providers to manage this risk by preparing for any changes.
Environmental
Climate Change Climate change has become one of the most critical issues confronting The Board receives ESG reports from the Manager on the portfolio and the way
companies and their investors. Climate change can have a significant impact on ESG considerations are integrated into the investment decision-making, so as
the business models, sustainability and even viability of individual to mitigate risk at the level of stock selection and portfolio construction.
companies, whole sectors and even asset classes. 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.
Emerging risk Description Mitigating activities
Political and Economic Political issues and changes in financial or tax legislation in the UK or the The Manager monitors events and makes recommendations to the Board on
US may lead to changes to the operating model of the Company and/or reduce the accounting, dividend and tax policies and the Board seeks external advice
appeal of the Company to shareholders. where appropriate.
Global Pandemics The outbreak and spread of COVID-19 has highlighted the speed and extent of Time after time, markets have recovered, albeit over varying and sometimes
economic damage that can arise from a pandemic. Should a new form of the virus extended time periods, and so the Board does have an expectation that the
or another pandemic emerge that spreads more aggressively or is more virulent, portfolio's holdings will not suffer a material long-term impact and should
it may present risks to the operations of the Company, its Manager and other recover. The Board receives reports on the business continuity plans of the
major service providers. Manager and other key service providers. The effectiveness of these measures
have been assessed throughout the course of the COVID-19 pandemic and the
Board will continue to monitor developments as they occur and seek to learn
lessons which may be of use in the event of future pandemics. Should the virus
become more virulent than is currently the case, it may present risks to the
operations of the Company, its Manager and other major service providers.
Should efforts to control a pandemic prove ineffectual or meet with
substantial levels of public opposition, there is the risk of social disorder
arising at a local, national or international level. Even limited or localised
societal breakdown may threaten both the ability of the Company to operate,
the ability of investors to transact in the Company's securities and
ultimately the ability of the Company to pursue its investment objective and
purpose.
Market Risk Inappropriate Government/Central banks fiscal or monetary responses to the The Manager's market strategists are available for the Board and can discuss
debt burden arising from the COVID-19 stimulus packages combined with market trends. External consultants and experts can be accessed by the Board.
inflation, the potential of stagflation, economies threatened by recession and The Board can, with shareholder approval look to amend the investment policy
the unknown consequences of the war in Ukraine could lead to material adverse and objectives of the Company, if required, to enable investment in companies
movements in asset prices. These factors, in the long term, could also render or assets which offer more appealing risk/return characteristics in prevailing
the Company'-s objectives and policies unachievable. economic conditions.
Ongoing shareholder demand Competing investment vehicles (e.g. ETFs) or new investment technologies may The Manager has a dedicated investment trust sales team that works closely
render the Company's shares unappealing to shareholders. with the Company's broker as well as current and prospective shareholders.
Regular meetings are held with shareholders to try to ensure continued
demand/interest. Both the Manager and the broker submit a sales activity
report to each Board meeting and are available to discuss any issues
throughout the year.
In addition, the Manager's marketing team has focused on marketing more
effectively to retail shareholders which represent a vast majority of the
Company's shareholder base.
LONG TERM VIABILITY
The Company is an investment trust with an objective of achieving capital
growth from investing in US smaller companies. The Company enjoys the benefit
of the closed ended structure and is therefore better able to withstand market
movements since it is not subject to forced liquidation of investments due to
sudden or large redemptions by shareholders.
The Board notes by way of context that the Company has invested through many
difficult economic and market cycles since its incorporation in 1955. The
Board is cognisant of the unusually high levels of political, economic and
market uncertainty being experienced at the current time and its potential
impact on the prospects of many of the Company's portfolio holdings. This
includes the continuing war in Ukraine and the political tensions between the
US and China. Notwithstanding this crisis, given the factors stated below, the
Board expects the Company to continue for the foreseeable future and has
conducted its assessment for a period of five years.
In conducting its assessment of the long term viability of the Company, the
Board has taken account of the Company's current financial position, its debt
level and debt covenants, the liquidity of its holdings as well as the
principal and emerging risks that it faces, the investment capabilities of the
Manager, the Manager's historic longer term investment performance and the
current outlook for the US economy and its equity markets.
The Board has further considered the mitigation measures which key service
providers, including the Manager, have in place to maintain operational
resilience.
In addition to the above, the Company has carried out stress testing of a
number of scenarios where the Company might be put under significant stress
due to market volatility. This included modelling the impact of substantial
market falls and testing portfolio liquidity under stress. The results
demonstrated the impact on the Company's NAV, its expenses, its debt levels
and the covenants attached to that debt as well as the Company's ability to
meet its liabilities. In even the most stressed scenario, the Company was
shown to have sufficient cash, or to be able to liquidate a sufficient
portion of its listed holdings, in order to meet its liabilities as they fall
due. See notes 13 and 14 in the Annual Report and Financial Statements.
In determining the appropriate period of assessment the Directors had regard
to their view that, given the Company's objective of achieving capital growth,
shareholders should consider the Company as a long term investment
proposition. This is consistent with advice provided by independent financial
advisers and wealth managers, that investors should consider investing in
equities for a minimum of five years. The Directors also take account of the
inherent uncertainties of equity markets and the existence of a continuation
vote every five years. As a result of all these deliberations, the Directors
consider five years to be an appropriate time horizon to assess the Company's
viability.
The Directors confirm that they have a reasonable expectation that the Company
will be able to continue in operation, subject to shareholders voting in
favour of continuation at the AGM in 2025, and meet its liabilities as they
fall due over the next five years until 31st December 2027. This reasonable
expectation is subject to there being no significant adverse change to the
regulatory or taxation environment for investment trusts; and subject to there
being no sustained adverse investment performance by the current or any
successive Investment Managers, that may result in the Company not being able
to maintain a supportive shareholder base.
TRANSACTIONS WITH THE MANAGER
Details of the management contract are set out in the Directors' Report in the
Annual Report. The management fee payable to the Manager for the year was
£2,080,000 (2021: £2,341,000) of which £nil (2021: £nil) was outstanding
at the year end.
Included in administration expenses in note 6 in the Annual Report and
Financial Statements are safe custody fees amounting to £2,000 (2021:
£3,000) payable to JPMorgan Chase Bank, N.A. of which £1,000 (2021: £1,000)
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 £6.6 million (2021:
£3.0 million). Income amounting to £118,000 (2021: £5,000) was receivable
during the year of which £nil (2021: £nil) was outstanding at the year end.
The JPMorgan US Dollar Liquidity Fund does not charge a fee and the Company
does not invest in any other investment fund managed or advised by JPMorgan.
Handling charges on dealing transactions amounting to £6,000 (2021: £6,000)
were payable to JPMorgan Chase Bank, N.A. during the year of which £1,000
(2021: £1,000) was outstanding at the year end.
At the year end, total cash of £3,000 (2021: £27,000) was held with JPMorgan
Chase Bank, N.A. A net amount of interest of £nil (2021: £25,000) was
receivable by the Company during the year from JPMorgan Chase Bank, N.A of
which £nil (2020: £nil) was outstanding at the year end.
TRANSACTIONS WITH RELATED PARTIES
Full details of Directors' remuneration and shareholdings can be found in the
Directors' Remuneration Report and in note 6 of the Annual Report and
Financial Statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare the Annual Report and Financial
Statements for each financial year. Under that law, the Directors have elected
to prepare the financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting Standards,
comprising Financial Reporting Standard 102, the Financial Reporting Standard
applicable in the UK and Republic of Ireland (FRS 102) and applicable law).
Under Company law the Directors must not approve the Financial Statements
unless they are satisfied that taken as a whole, the Annual Report and
Financial Statements are fair, balanced and understandable, provide the
information necessary for shareholders to assess the Company's position and
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 net return or loss of
the Company for that period. In order to provide these confirmations, and in
preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• state whether applicable UK Accounting Standards, comprising
FRS 102, have been followed, subject to any material departures disclosed and
explained in the financial statements;
• prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will continue in
business; and
• notify the Company's shareholders in writing about the use,
if any, of disclosure exemptions in FRS 102 in the preparation of the
financial statements
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 to
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 Directors' Report and Directors' Remuneration Report that comply
with that law and those regulations.
Each of the Directors, whose names and functions are listed in the Board of
Directors section in the Annual Report, confirm 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 Strategic 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 and emerging risks and
uncertainties that it faces.
The Board confirms that 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 Company's position
and performance, business model and strategy.
The Board also confirms that it is satisfied that the Strategic Report and
Directors' Report include a fair review of the development and performance of
the business, and the Company, together with a description of the principal
risks and uncertainties that it faces.
The Financial Statements are published on the www.jpmussmallercompanies.co.uk
website, which is maintained by the 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 Auditor accepts no responsibility for any changes that
have occurred to the accounts since they were initially presented to the
website. The accounts are prepared in accordance with UK legislation, which
may differ from legislation in other jurisdictions.
For and on behalf of the Board
David Ross
Chairman
20th March 2023
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31st December 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 - (22,082) (22,082) - 44,039 44,039
Net foreign currency losses on cash and loans - (2,513) (2,513) - (284) (284)
Income from investments 3,218 - 3,218 3,236 - 3,236
Interest receivable 118 - 118 30 - 30
Gross return/(loss) 3,336 (24,595) (21,259) 3,266 43,755 47,021
Management fee (416) (1,664) (2,080) (468) (1,873) (2,341)
Other administrative expenses (547) - (547) (422) - (422)
Net return/(loss) before finance costs and taxation 2,373 (26,259) (23,886) 2,376 41,882 44,258
Finance costs (135) (539) (674) (51) (201) (252)
Net return/(loss) before taxation 2,238 (26,798) (24,560) 2,325 41,681 44,006
Taxation (466) - (466) (477) - (477)
Net return/(loss) after taxation 1,772 (26,798) (25,026) 1,848 41,681 43,529
Return/(loss) per share (note 2) 2.72p (41.21)p (38.49)p 2.87p 64.81p 67.68p
Dividend declared in respect of the financial year ended 31st December 2022
total 2.5p (2021: 2.5p) per share amounting to £1,616,000 (2021:
£1,626,000). Further information on dividends is given in note 3.
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.
Net return/(loss) after taxation represents the profit/(loss) for the year and
also Total Comprehensive Income.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31st December 2022
Called up Capital
share Share redemption Capital Revenue
capital premium reserve reserves(1) reserve(1) Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31st December 2020 1,499 21,970 1,851 209,377 2,142 236,839
Issue of new Ordinary shares 137 23,354 - - - 23,491
Shares reissued from Treasury - 43 - 417 - 460
Repurchase of shares into Treasury - - - (939) - (939)
Net return for the year - - - 41,681 1,848 43,529
Dividends paid in the year - - - - (1,597) (1,597)
At 31st December 2021 1,636 45,367 1,851 250,536 2,393 301,783
Issue of new Ordinary shares 2 329 - - - 331
Shares reissued from Treasury - 62 - 522 - 584
Repurchase of shares into Treasury - - - (2,941) - (2,941)
Block listing fees - - - (48) - (48)
Net (loss)/return for the year - - - (26,798) 1,772 (25,026)
Dividends paid in the year - - - - (1,626) (1,626)
At 31st December 2022 1,638 45,758 1,851 221,271 2,539 273,057
(1) These reserves form the distributable reserves of the Company and
may be used to fund distributions to shareholders.
STATEMENT OF FINANCIAL POSITION
As at 31st December 2022
2022 2021
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 291,723 322,123
Current assets
Debtors 405 559
Cash and cash equivalents 6,652 3,057
7,057 3,616
Creditors: amounts falling due within one year (25,723) (1,807)
Net current (liabilities)/assets (18,666) 1,809
Total assets less current liabilities 273,057 323,932
Creditors: amounts falling due after more than one year - (22,149)
Net assets 273,057 301,783
Capital and reserves
Called up share capital 1,638 1,636
Share premium 45,758 45,367
Capital redemption reserve 1,851 1,851
Capital reserves 221,271 250,536
Revenue reserve 2,539 2,393
Total shareholders' funds 273,057 301,783
Net asset value per share (note 4) 421.7p 462.1p
STATEMENT OF CASH FLOWS
For the year ended 31st December 2022
2022 2021
£'000 £'000
Net cash outflow from operations before dividends and interest (2,629) (2,710)
Dividends received 2,726 2,694
Interest received 93 30
Overseas tax recovered 42 50
Interest paid (530) (240)
Net cash (outflow) from operating activities (298) (176)
Purchases of investments (76,428) (105,707)
Sales of investments 83,743 77,565
Settlement of foreign currency contracts - 5
Net cash inflow/(outflow) from investing activities 7,315 (28,137)
Dividends paid (1,626) (1,597)
Issue of Ordinary shares 331 23,891
Shares reissued from Treasury 584 460
Repurchase of shares into Treasury (2,941) (939)
Drawdown of bank loan - 3,531
Block listing fees (48) -
Net cash (outflow)/inflow from financing activities (3,700) 25,346
Increase/(decrease) in cash and cash equivalents 3,317 (2,967)
Cash and cash equivalents at start of year 3,057 5,985
Exchange movements 278 39
Cash and cash equivalents at end of year 6,652 3,057
Cash and cash equivalents consist of:
Cash and short term deposits 3 27
Cash held in JPMorgan US Dollar Liquidity Fund 6,649 3,030
Total 6,652 3,057
RECONCILIATION OF NET DEBT
As at Other non-cash As at
31st December 2021 Cash flows charges 31st December 2022
£'000 £'000 £'000 £'000
Cash and cash equivalents
Cash 27 (429) 405 3
Cash equivalents 3,030 3,746 (127) 6,649
3,057 3,317 278 6,652
Borrowings
Debt due within one year - - (24,940) (24,940)
Debt due after more than one year (22,149) - 22,149 -
(22,149) - (2,791) (24,940)
Total (19,092) 3,317 (2,513) (18,288)
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st December 2022
1. Accounting policies
Basis of accounting
The financial statements are prepared under the historical cost convention,
modified to include fixed asset investments at fair value, and in accordance
with the Companies Act 2006, United Kingdom Generally Accepted Accounting
Practice (UK GAAP), including 'the Financial Reporting Standard applicable in
the UK and Republic of Ireland' (FRS 102) and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies and
Venture Capital Trusts' (the 'SORP') issued by the Association of Investment
Companies in July 2022.
All of the Company's operations are of a continuing nature.
The Directors believe that having considered the Company's investment
objective, risk management policies, capital management policies and
procedures, the nature of the portfolio and expenditure projections, the
Company has adequate resources, an appropriate financial structure and
suitable management arrangements in place to continue in operational existence
for a period of at least 12 months from the date of approval of these
financial statements. In particular, the Board has considered the ongoing
impact of the war in Ukraine and the tensions between the USA and China and
believes that this will have a limited financial impact on the Company's
operational resources and existence. For these reasons, the Directors consider
it appropriate to adopt the going concern basis of accounting in preparing the
Company's financial statements. They have not identified any material
uncertainties to the Company's ability to continue as a going concern.
The policies applied in these financial statements are consistent with those
applied in the preceding year.
2. Return/(loss) per share
2022 2021
£'000 £'000
Revenue return 1,772 1,848
Capital (loss)/return (26,798) 41,681
Total (loss)/return (25,026) 43,529
Weighted average number of shares, excluding Treasury shares, in issue during
the year 65,029,256 64,314,208
Revenue return per share 2.72p 2.87p
Capital (loss)/return per share (41.21)p 64.81p
Total (loss)/return per share (38.49)p 67.68p
3. Dividends
(a) Dividends paid and declared
2022 2021
£'000 £'000
Dividends paid
2021 final dividend of 2.5p (2020: 2.5p) paid to shareholders in May 2022 1,626 1,597
Dividend declared
2022 Final dividend proposed of 2.5p (2021: 2.5p) declared 1,616 1,633
All dividends paid and declared in the year have been funded from the
underlying earnings in the financial year. The dividend declared in respect of
the year ended 31st December 2021 amounted to £1,633,000. However, the amount
paid amounted to £1,626,000 due to shares issued after the balance sheet but
prior to the share register record date.
The final dividend has been declared in respect of the year ended 31st
December 2022. In accordance with the accounting policy of the Company, this
dividend will be reflected in the accounts for the year ending 31st December
2023.
(b) Dividends 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 dividends
declared in respect of the financial year as shown below. The revenue
available for distribution by way of dividend for the year is £1,772,000
(2021: £1,848,000).
2022 2021
£'000 £'000
2022 final dividend of 2.5p (2021: 2.5p) declared 1,616 1,633
4. Net asset value per share
2022 2021
Net assets (£'000) 273,057 301,783
Number of shares in issue 64,745,622 65,306,265
Net asset value per share 421.7p 462.1p
5. Status of results announcement
2021 Financial Information
The figures and financial information for 2021 are extracted from the
published Annual Report and Financial Statements for the year ended 31st
December 2021 and do not constitute the statutory accounts for the year. The
Annual Report and Financial Statements have 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.
2022 Financial Information
The figures and financial information for 2022 are extracted from the Annual
Report and Financial Statements for the year ended 31st December 2022 and do
not constitute the statutory accounts for that year. The Annual Report and
Financial Statements 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 will be delivered to the Register 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:
Lucy Dina
For and on behalf of JPMorgan Funds Limited,
Company Secretary
020 7742 4000
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
JPMORGAN FUNDS LIMITED
ENDS
A copy of the annual report will be submitted to the FCA's National Storage
Mechanism and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Annual Report will shortly be available on the Company's website at
www.jpmussmallercompanies.co.uk (http://www.jpmussmallercompanies.co.uk) where
up-to-date information on the Company, including daily NAV and share prices,
factsheets and portfolio information can also be found.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR FLFFRVAIIFIVRecent news on JPmorgan US Smaller Companies Investment Trust
See all newsREG - JPMorgan Inv. Trusts - Net Asset Value(s)
AnnouncementREG - JPMorganUS Small Cos - Net Asset Value(s)
AnnouncementREG - JPMorgan Inv. Trusts - Net Asset Value(s)
AnnouncementREG - JPMorganUS Small Cos - Net Asset Value(s)
AnnouncementREG - JPMorgan Inv. Trusts - Net Asset Value(s)
Announcement