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RNS Number : 2943H JPMorgan US Smaller Co. IT 18 March 2024
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED
31ST DECEMBER 2023
Legal Entity Identifier: 549300MDD7SOXDMBN667
Information disclosed in accordance with the DTR 4.1.3
CHAIR'S STATEMENT
Performance
I have great pleasure in presenting the Annual Report of JPMorgan US Smaller
Companies Investment Trust plc ('the Company') for the year ended 31st
December 2023.
2023 was not an easy year for investors in many major markets. During the
year, US small caps faced continued volatility in the market caused by various
factors, including numerous interest rate hikes, high inflation levels,
continued supply chain constraints, fast-paced liquidity tightening and
recessionary risks. The Company's total return on net assets over the year was
+4.6% which compares unfavourably with the +10.1% return for our benchmark,
the Russell 2000 index in sterling terms. Total return to shareholders was
+4.0% for the year, with the discount at which the Company's shares traded
over the 12 month period widening marginally. While the Company's short-term
performance relative to the benchmark is obviously disappointing, the Company
has maintained its longer-term track record of absolute gains over five and
ten years, outperforming its benchmark over these periods. This reflects the
Manager's disciplined focus on long-term growth opportunities.
Full details of investment performance, changes to the portfolio and the
outlook can be found in the Investment Manager's Report in the Annual Report
and Financial Statements.
Share Issuance and Buybacks
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 ('NAV') 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.
The discount averaged 10.7% over the course of the year, ending the year at
7.9%. 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.
During the year to 31st December 2023, the Company bought back 975,473 shares
into Treasury, at an average price of 358.4p and a total cost of £3.5
million, in periods when discount levels were particularly elevated, reflected
in the weighted average discount of 12.8% at which these shares were
acquired. Since the year end, the Company has repurchased an additional
384,096 shares into Treasury. The Company did not issue any shares from
Treasury or any new ordinary shares during the year or since the year-end.
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. Share issuance will
only be at times where the share price is a premium to the NAV.
Revenue and Dividend
The impact of global concerns on the dividends received from the Company's
portfolio has remained relatively muted. As a result, the Board is delighted
to recommend a dividend of 3.0p in respect of the financial year ended 31st
December 2023 (2022: 2.5p). Subject to shareholders' approval at the Annual
General Meeting (AGM), this dividend will be paid on 17th May 2024 to
shareholders on the register at the close of business on 19th April 2024. The
ex dividend date is 18th April 2024.
Shareholders should note the Company's objective is unchanged and remains one
of capital growth. The dividend distribution amount will normally be driven by
the minimum dividend required to maintain the Company's investment trust
status. Therefore the dividend level is likely to fluctuate year on year as
the distributions will typically reflect the naturally occurring income on the
underlying portfolio.
Gearing
During the year, the Company continued to utilise its US$30 million loan
facility (with an option to draw a further US$10 million) revolving credit
facility to maintain a meaningful but modest level of gearing. The current
2-year term facility matured on 27th October 2023 at which point the Board
reviewed its borrowing requirements and decided to reduce the facility to
US$20 million (with an option to draw a further US$10 million). The existing
loan was extended (on the same terms) whilst certain points of the new
facility were discussed and agreed.
On 15th March 2024 the Board renewed the facility with Scotiabank, the new
facility being a secured 364 day facility for a reduced amount of US$20
million.
As at 31st December 2023, the Company had drawn down US$30 million (GBP 23.5
million). It closed the year with a gearing level of 1.5%. The Board believes
that the use of gearing is a key advantage of the investment trust structure
and has persistently used gearing over time within its permitted 10% cash to
15% geared range.
Our policy sees gearing levels adjusted to reflect changes in the Board's
expectations for longer-term opportunities and market risks (with input from
the Manager), rather than being used as a short-term market-timing tool.
Board Succession
In January 2024 the Board, through its Nomination Committee, carried out a
comprehensive evaluation of the Board, its Committees, the individual
Directors and the Chair. Topics discussed included the size and composition of
the Board, Board information and processes, shareholder engagement, and
training and accountability. The resulting report demonstrated the Board is
working effectively and in line with expectations.
In accordance with good corporate governance practice, all Directors will
retire at the forthcoming AGM and, being eligible, will offer themselves for
reappointment by shareholders. As I indicated in the last Half Year Report, I
will be retiring at the forthcoming Annual General Meeting ('AGM') in April
2024. It has been an honour to serve as the Chair and also to have the
opportunity to work with the investment team in New York, all the many people
at JPMorgan Asset Management who help support the Company and last, but not
least, the current Board, as well as those that have retired. The Board has
agreed that my successor as Chair of the Company should be Dr Dominic Neary.
In addition, it has been agreed by the Directors that the size of the Board be
reduced to four Directors following my retirement; we believe that this is an
appropriate number given the size of the Company, and that the Board will
continue to offer an appropriate balance of skills and diversity of
membership.
Board Diversity
The Board recognises the value and importance of diversity in the boardroom. I
am pleased to report that the Board meets the FCA Listing Rules targets on
gender diversity criteria, female representation in a senior role and ethnic
representation on the Board.
Review of services provided by the Manager
During the year, the Board, through its Management Engagement Committee,
carried out a thorough review of the investment management, secretarial and
marketing services provided to the Company by the Manager. Following this
review, the Board has concluded that the continued appointment of the Manager
on the terms agreed is in the interests of the shareholders as a whole.
The Company's ongoing charges for the financial year, as a percentage of the
average of the daily net assets during the year, were 0.93% (2022: 0.95%).
Environment, Social and Governance (ESG) considerations
The Board has continued to engage with the Manager on the integration of ESG
factors into its investment process. The Board has conducted a review during
the year to satisfy itself that the Manager has a robust process in place with
sufficient resources behind it and that ESG considerations are considered by
the Portfolio Managers at every stage of the investment decision.
The Board shares the Manager's view of the importance of financially material
ESG factors when making investments for the long term and, in particular, the
necessity of continued engagement with investee companies throughout the
duration of the investment. The Portfolio Managers' ESG 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.
Task Force on Climate-related Financial Disclosures
As a regulatory requirement, JPMorgan Asset Management (JPMAM) published its
first UK Task Force on Climate-related Financial Disclosures ('TCFD') Report
for the Company in respect of the year ended 31st December 2022 on 30th June
2023. The report discloses estimates of the Company's portfolio
climate-related risks and opportunities according to the Financial Conduct
Authority (FCA) Environmental, Social and Governance (ESG) Sourcebook and the
TCFD. The report is available on the Company's website under the ESG documents
section:
https://am.jpmorgan.com/content/dam/jpm-am-aem/emea/regional/en/regulatory/esg-information/jpm-us-smaller-companies-investment-trust-plc-tcfd-report-uk-per.pdf
The Board is aware that best practice reporting under TCFD is still evolving
with respect to metrics and input data quality, as well as the interpretation
and implications of the outputs produced, and will continue to monitor
developments, including Sustainability Disclosure Requirements ('SDR').
Annual General Meeting
We are inviting shareholders to join us in person for the Company's
sixty-seventh AGM to be held on Monday, 22nd April 2024 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
Portfolio 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.
My fellow Board members, representatives of JPMorgan and I look forward to the
opportunity to meet and speak with shareholders after the formalities of the
meeting have been concluded.
Stay Informed
The Company delivers email updates with regular news and views, as well as the
latest performance. If you have not already signed up to receive these
communications and you wish to do so, you can opt in via
https://tinyurl.com/JUSC-Sign-Up or by scanning the QR code in the front of
the Annual Report.
Outlook
We are encouraged by the outlook for the US small cap universe and the wider
US economy. Inflation is receding and whilst growth in 2024 is expected to be
muted, there are indications that there will be a soft landing for the US
economy. As noted in the Investment Manager's report, the valuation case for
US small companies remains positive and it is believed that the earnings from
the Company's holdings will grow strongly from their current levels. Whilst it
is hoped that the US will avoid a recession, uncertainties and threats do
remain within the US and across the world. These include the impact of the
outcome of the US presidential election and the potential for interest rates
to fall slower than previously anticipated. We remain confident that the
focused and disciplined process adopted by the Investment Manager will
continue to deliver attractive long term returns to shareholders.
David Ross
Chair
18th March 2024
INVESTMENT MANAGER'S REPORT
Market Review
Markets defied expectations in 2023 and rose to near-record levels despite
several headwinds. We started the year expecting that persistent inflation,
rising interest rates and geopolitical concerns would lead to a recession.
Instead, the economy was surprisingly strong, and a small group of mega cap
tech stocks led equity markets higher.
An exaggerated January effect ensured the year got off to a good start. These
gains were lost in February and March as the market witnessed the second
largest bank failure in US history, but the adverse impact of this and related
events on investor sentiment proved short-lived, and the market recovered all
its lost ground over the summer, supported in part by mounting excitement
about the potential of artificial intelligence (AI). Consumer spending
remained resilient and business spending held up better than expected despite
tighter lending standards. This was thanks mainly to increased spending on
intellectual property, as companies focused on building and integrating
artificial intelligence capabilities into their production, service and
administrative processes. The prospect of interest rate cuts drove strong
market gains in the fourth quarter. Moreover, 2024 earnings forecasts saw an
uptick towards year end as recession fears subsided.
Driven by the expectations of interest rate cuts in 2024, small caps rallied
sharply in the fourth quarter, outperforming large caps for the first time in
five quarters. However, despite this year-end surge, small caps still lagged
large caps by nearly 10 percentage points (in USD terms) over 2023 as a whole.
The S&P 500 rose 26% (in USD terms) during the year, led by a handful of
mega cap tech stocks, the so-called 'Magnificent 7'.
Performance
The Portfolio's net asset value increased by 4.6% (in GBP terms) in 2023,
although the Trust underperformed its benchmark, the Russell 2000 Index (Net),
which rose by 10.1% (in GBP terms). As mentioned above, the year was a
challenging year for small caps, especially during the first nine months.
However, the third quarter earnings of our portfolio companies, published in
late October and early November, exceeded expectations. Yet despite these
seemingly positive results, relative stock reactions were in line with the
broader market, as the macro and interest rates outlook, rather than
individual company fundamentals, drove stock movements.
Our sector allocation in industrials and stock selection in financials made
positive contributions to performance.
Within industrials, our overweight position in Simpson Manufacturing, and our
exposure to Azek, were the top contributors. Simpson Manufacturing is a market
leader in the wood connectors building product space. The company
outperformed, continuing its strong execution, and delivering robust quarterly
results thanks to revenue growth and resilient profit margins. In addition,
the long-term outlook for the US housing industry remains positive, and the
company is maintaining its efforts to drive above-market growth through
product differentiation and strategic initiatives. While we trimmed our
position on strength, we still like the stock given its leading market share,
solid free cash flow generation and experienced management team. Azek, a
manufacturer of outdoor living products, rallied after reporting solid
earnings and an impressive margin improvement. The company continued to
execute on growth and productivity initiatives, with new business wins
outpacing underlying repair and replacement demand. We retain our conviction
in the stock given the company's solid fundamental trends, however we trimmed
our position on outperformance.
At the security level, our overweight position in MACOM Technology Solutions
proved beneficial. MACOM Technology Solutions designs and manufactures
semiconductors for telecom, industrial, defence and data centre end markets.
Its share price rallied throughout the year as results aligned with
expectations and data centre revenues rose strongly. The stock also benefitted
from an increase in AI-related spending and increasing demand for high-speed
data centre products. Additionally, investor sentiment soared after the
company announced its intention to acquire Wolfspeed's radio frequency
business. We remain confident in the stock, given management's focus on
innovation, the quality of the business and its ability to deliver profitable
growth over the long term.
Stock selection was the primary driver of underperformance, with our holdings
in the consumer discretionary and healthcare sectors detracting most.
Within consumer discretionary, our exposure to Driven Brands was the largest
detractor over the year. Driven Brands, one of the largest auto services
companies in North America, underperformed due to a decline in its car wash
business, which was adversely impacted by the weaker macro environment, a
resultant decline in consumer spending and greater competition. However, we
maintain our conviction in the stock given the durability of the auto-services
end-market.
Within health care, our overweight position in Agiliti, and our exposure to
ICU Medical hurt performance. Agiliti, a medical device company,
underperformed due to weaker than expected margins driven by reduced rental
demand and cost headwinds associated with large new contracts. We remain
comfortable with our position as we believe underlying fundamentals are
healthy and the valuation is attractive. ICU Medical, a vertically integrated
manufacturer of medical equipment used in intravenous (IV) therapy
applications, plunged due to a decline in revenues and lowered guidance. The
core business performed well, however weaker performance in the Smith's
Vascular Access and IV Solutions businesses drove the underperformance.
Additionally, management made the strategic decision to reduce inventory
levels, which hurt gross margins. We are monitoring our position in the stock.
Performance Attribution
Year ended 31st December 2023
% %
Contributions to total returns
Benchmark return 10.1%
Asset Allocation 2.2%
Stock Selection* -7.2%
Investment Manager Contribution -5.0%
Portfolio total return 5.1%
Impact of cash/gearing* 0.2%
Management fee/other expenses -0.9%
Share buybacks 0.2%
Other effects -0.5%
Cum Income Net Asset Value Total Return 4.6%
Share Price Total Return 4.0%
* 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 offer
early access to innovative products and services.
We also remain focused on the quality of the portfolio, even as we initiate
new ideas outside our typical universe, which included an energy name at
compelling valuation and a cyber security software company with exceptional
profitability. We also eliminated some names where we lost conviction in their
investment cases, and we trimmed outperformers within industrials and
materials. Our largest absolute and relative portfolio weight remains in
industrials as we believe the sector offers many opportunities to find market
share leaders serving durable, profitable end markets. Our second largest
relative weight is within utilities, driven by our overweight in waste and
disposal services, a sector we favour due to resilient demand characteristics.
Our largest underweights remain in the energy and health care sectors. While
we have struggled to find high quality assets within most segments of the
energy sector, we have found some interesting opportunities within the
alternative energy and midstream areas. In healthcare, we continue to avoid
the biotechnology sector and remain focused on owning more profitable and
durable franchises within the products and services sectors.
Market Outlook
As 2024 unfolds, we are constructive on the outlook for small cap companies,
given a compelling valuation case and potential for small caps to benefit as
they have historically after similar periods of large cap concentration. In
addition, the earnings picture looks robust for small caps, with earnings
poised to grow twice as fast as large cap earnings after two consecutive years
of declines. Falling interest rates and a dovish Fed also tend to provide a
conducive environment for small cap stocks. Once investors begin to look
beyond the risk of recession and sense the potential for an improvement in
economic momentum, small caps should benefit.
We are also relatively upbeat about the macroeconomic backdrop. Easing
inflation and improved growth prospects have helped fuel optimism for a soft
landing, although growth will remain subdued by historical standards and risks
remain. However, be it the U.S. election, higher policy rates or significant
geopolitical tension, there are continuing risks that could push the economy
into recession in 2024. Any resultant volatility will not distract us from our
course. We will continue to focus on high conviction stocks and take advantage
of market dislocations to access compelling stock selection opportunities.
Don San Jose
Jon Brachle
Dan Percella
Portfolio Managers
18th March 2024
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 the Manager, the Audit Committee maintains a risk
matrix which identifies the principal risks to which the Company is exposed
and methods of mitigating against them as far as practicable. 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. At each meeting, the Board
reviews all potential risks and considers emerging risks which it defines as
potential trends, sudden events or changing risks which are characterised by a
high degree of uncertainty in terms of occurrence probability and possible
effects on the Company. As the impact of emerging risks is understood, these
risks may be entered on the Company's risk matrix and mitigating actions
considered as necessary.
In assessing the risks and how they can be mitigated, the Board has given
particular attention to those risks that might threaten the viability of the
Company.
These key and emerging risks are listed below. It should be noted that the
emergence of, or a change in, a risk can have an impact on another risk:
Movement in risk
status in year to
Principal risk Description Mitigating activities 31st December 2023
Investment Management and Performance
Under-performance Poor implementation of the investment strategy may lead to underperformance A broadly diversified portfolio of equities is managed in line with No change
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 Portfolio Managers, who participate at all Board meetings, and
reviews data which show statistical measures of the Company's risk profile.
The Portfolio 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 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 Increased
investments, which might result from economic, fiscal and regulatory change, regular communication with the Manager on matters of investment strategy and
including the risk of global economic disruption and market volatility in the portfolio construction which will directly or indirectly include an assessment
aftermath of COVID-19. of these risks.
Geopolitical risks will also affect the market and are currently heightened The Board considers asset allocation, stock selection and levels of gearing on
due to the war between Ukraine and Russia and more recently the conflict in a regular basis and has set investment restrictions and guidelines, which are
the Middle East, and ongoing tensions with China. monitored and reported on by the Manager. The Board monitors the
implementation and results of the investment process with the Manager.
Market factors such as interest rates, inflation, US presidential election and
equity market performance may impact the value of investments and the The Manager's market strategists are available for the Board and can discuss
performance of the Company. market trends. External consultants and experts can be accessed by the Board.
The Board can, with shareholder approval look to amend the investment policy
and objectives of the Company, if required, to enable investment in companies
or assets which offer more appealing risk/return characteristics in prevailing
economic conditions.
Operational Risks
Discount Control Investment trusts shares often trade at discounts to their underlying NAV; The Board monitors the share price against the absolute and sector relative Increased
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 No change
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 Portfolio Managers, or several members of the The Board seeks assurance that the Manager takes steps to reduce the No change
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.
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 No change
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.
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 No change
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 No change
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 Increased
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.
Movement in risk
status in year to
Emerging risk Description Mitigating activities 31st December 2023
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 Increased
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.
Artificial Intelligence (AI) While it might equally be deemed a force for good, there appears to be an The Board will work to monitor developments concerning AI as its use evolves Increased
increasing risk to society from the threat posed by AI. Advances in computing and consider how it might threaten the Company's activities, which may include
power means that AI has become a powerful tool that will impact society, with a heightened threat to cybersecurity. The Board will work closely with JPMF in
a wide range of applications that include the potential to harm. The adoption identifying these threats and, in addition, monitor the strategies of our
of AI can also have an adverse impact on datacentres and their use of energy service providers.
and water. This in turn has ESG implications.
Global Pandemics The outbreak and spread of COVID-19 in 2020 highlighted the speed and extent Time after time, markets have recovered, albeit over varying and sometimes No change
of economic damage that can arise from a pandemic. Should a new form of the extended time periods, and so the Board does have an expectation that the
virus or another pandemic emerge that spreads more aggressively or is more portfolio's holdings will not suffer a material long-term impact and should
virulent, it may present risks to the operations of the Company, its Manager recover. The Board receives reports on the business continuity plans of the
and other major service providers. Manager and other key service providers. The effectiveness of these measures
were assessed throughout the course of the COVID-19 pandemic and the Board
continues to monitor developments as they occur and seek to learn lessons
which may be of use in the event of future pandemics.
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 No change
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.
TRANSACTIONS WITH THE MANAGER
Details of the management contract are set out in the Directors' Report in the
Annual Report and Financial Statements. The management fee payable to the
Manager for the year was £2,003,000 (2022: £2,080,000) of which £nil (2022:
£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 £3,000 (2022:
£2,000) payable to JPMorgan Chase Bank, N.A. of which £1,000 (2022: £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 £19.2 million (2022:
£6.6 million). Income amounting to £500,000 (2022: £118,000) was receivable
during the year of which £nil (2022: £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 £7,000 (2022: £6,000)
were payable to JPMorgan Chase Bank, N.A. during the year of which £2,000
(2022: £1,000) was outstanding at the year end.
At the year end, total cash of £42,000 (2022: £3,000) was held with JPMorgan
Chase Bank, N.A. A net amount of interest of £nil (2022: £nil) was
receivable by the Company during the year from JPMorgan Chase Bank, N.A. of
which £nil (2022: £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.
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.
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, 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.
For and on behalf of the Board
David Ross
Chair
18th March 2024
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31st December 2023
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at fair value
through profit or loss - 10,889 10,889 - (22,082) (22,082)
Net foreign currency gains/(losses) - 825 825 - (2,513) (2,513)
Income from investments 3,865 381 4,246 3,218 - 3,218
Interest receivable 500 - 500 118 - 118
Gross return/(loss) 4,365 12,095 16,460 3,336 (24,595) (21,259)
Management fee (401) (1,602) (2,003) (416) (1,664) (2,080)
Other administrative expenses (520) - (520) (547) - (547)
Net return/(loss) before finance costs and taxation 3,444 10,493 13,937 2,373 (26,259) (23,886)
Finance costs (304) (1,218) (1,522) (135) (539) (674)
Net return/(loss) before taxation 3,140 9,275 12,415 2,238 (26,798) (24,560)
Taxation (573) (57) (630) (466) - (466)
Net return/(loss) after taxation 2,567 9,218 11,785 1,772 (26,798) (25,026)
Return/(loss) per share 3.98p 14.30p 18.28p 2.72p (41.21)p (38.49)p
Dividend declared in respect of the financial year ended 31st December 2023
total 3.0p (2022: 2.5p) per share amounting to £1,913,000 (2022:
£1,615,000). Further information on dividends is given in note 10 in the
Annual Report.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
The 'Total' column of this statement is the profit and loss account of the
Company and the 'Revenue' and 'Capital' columns represent supplementary
information prepared under guidance issued by the Association of Investment
Companies.
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 2023
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 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
Repurchase of shares into Treasury - - - (3,502) - (3,502)
Net return - - - 9,218 2,567 11,785
Dividend paid in the year - - - - (1,615) (1,615)
At 31st December 2023 1,638 45,758 1,851 226,987 3,491 279,725
(1) Part of 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 2023
2023 2022
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 283,986 291,723
Current assets
Debtors 308 405
Cash and cash equivalents 19,237 6,652
19,545 7,057
Current liabilities
Creditors: amounts falling due within one year (23,806) (25,723)
Net current liabilities (4,261) (18,666)
Total assets less current liabilities 279,725 273,057
Net assets 279,725 273,057
Capital and reserves
Called up share capital 1,638 1,638
Share premium 45,758 45,758
Capital redemption reserve 1,851 1,851
Capital reserves 226,987 221,271
Revenue reserve 3,491 2,539
Total shareholders' funds 279,725 273,057
Net asset value per share (note 4) 438.6p 421.7p
STATEMENT OF CASH FLOWS
For the year ended 31st December 2023
2023 2022(1)
£'000 £'000
Cash flows from operating activities
Net return/(loss) before finance costs and taxation 13,937 (23,886)
Adjustment for:
Net (gains)/losses on investments held at fair value through profit or (10,889) 22,082
loss
Net foreign currency (gains)/losses (825) 2,513
Dividend income (4,246) (3,218)
Interest income (500) (118)
Realised gains on foreign exchange transactions (1) -
Realised exchange losses on liquidity fund (344) -
Decrease/(increase) in accrued income and other debtors 10 (20)
Increase in accrued expenses 77 18
Net cash outflow from operations before dividends and interest (2,781) (2,629)
Dividends received 3,469 2,726
Interest received 447 93
Overseas withholding tax recovered 116 42
Net cash inflow from operating activities 1,251 232
Purchases of investments (70,750) (76,428)
Sales of investments 89,062 83,743
Net cash inflow from investing activities 18,312 7,315
Equity dividends paid (1,615) (1,626)
Shares issued - 331
Shares reissued from Treasury - 584
Repurchase of shares into Treasury (3,502) (2,941)
Block listing fees - (48)
Loan interest paid (1,625) (530)
Net cash outflow from financing activities (6,742) (4,230)
Increase in cash and cash equivalents 12,821 3,317
Cash and cash equivalents at start of year 6,652 3,057
Exchange movements (236) 278
Cash and cash equivalents at end of year 19,237 6,652
Cash and cash equivalents consist of:
Cash and short term deposits 42 3
Cash held in JPMorgan US Dollar Liquidity Fund 19,195 6,649
Total 19,237 6,652
(1) The presentation of the Cash Flow Statement, as permitted under
FRS 102, has been changed so as to present the reconciliation of 'net
return/(loss)
before finance costs and taxation' to 'net cash inflow from operating
activities' on the face of the Cash Flow Statement. Previously, this was shown
by
way of note. Interest paid has also been reclassified to financing activities
as this relates to the bank loans. Previously this was shown under operating
activities. Other than changes in presentation of certain cash flow items,
there is no change to the cash flows as presented in previous periods.
Analysis of change in net debt
As at Other non-cash As at
31st December 2022 Cash flows charges 31st December 2023
£'000 £'000 £'000 £'000
Cash and cash equivalents
Cash 3 39 - 42
Cash held in JPMorgan US Dollar Liquidity Fund 6,649 12,546 - 19,195
6,652 12,585 - 19,237
Borrowings
Debt due within one year (24,940) - 1,407 (23,533)
(24,940) - 1,407 (23,533)
Net debt (18,288) 12,585 1,407 (4,296)
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
(a) General information and 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 between Ukraine and Russia and more recently the conflict in
the Middle East, 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
2023 2022
£'000 £'000
Revenue return 2,567 1,772
Capital return/(loss 9,218 (26,798)
Total return/(loss) 11,785 (25,026)
Weighted average number of shares, excluding Treasury shares, in issue during
the year 64,460,117 65,029,256
Revenue return per share 3.98p 2.72p
Capital return/(loss) per share 14.30p (41.21)p
Total return/(loss) per share 18.28p (38.49)p
3. Dividends
(a) Dividends paid and declared
2023 2022
£'000 £'000
Dividends paid
2022 final dividend of 2.5p (2021: 2.5p) paid to shareholders in May 2023 1,615 1,626
Total dividends paid in the year 1,615 1,626
All dividends paid and declared in the period have been funded from the
Revenue Reserve.
The dividend proposed in respect of the year ended 31st December 2022 amounted
to £1,616,000. However, the amount paid amounted to £1,615,000 due to shares
repurchased after the balance sheet date but prior to the record date.
The final dividend has been declared in respect of the year ended 31st
December 2023. In accordance with the accounting policy of the Company, this
dividend will be reflected in the accounts for the year ending 31st December
2024.
(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, shown below. The revenue available
for distribution by way of dividend for the year is £2,567,000 (2022:
£1,772,000).
2023 2022
£'000 £'000
2023 final dividend of 3.0p (2022: 2.5p) paid to shareholders in May 2024 1,913 1,616
4. Net asset value per share
2023 2022
Net assets (£'000) 279,725 273,057
Number of shares in issue 63,770,149 64,745,622
Net asset value per share 438.6p 421.7p
5. Status of results announcement
2022 Financial Information
The figures and financial information for 2022 are extracted from the
published Annual Report and Financial Statements for the year ended 31st
December 2022 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.
2023 Financial Information
The figures and financial information for 2023 are extracted from the Annual
Report and Financial Statements for the year ended 31st December 2023 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.
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