JPMorgan Japan Small JPMorgan Jap Smll - Half-year Report
01/12/2023 15:35
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RNS Number : 4522V JPMorgan Japan Small Cap G&I PLC 01 December 2023
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN JAPAN SMALL CAP GROWTH & INCOME PLC
(the 'Company')
UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
30TH SEPTEMBER 2023
Legal Entity Identifier: 549300KP3CRHPQ4RF811
Information disclosed in accordance with DTR 4.2.2
CHAIRMAN'S STATEMENT
Investment Performance
For the six months to 30th September 2023, the total return on the Company's
net asset value was -0.7% (in GBP) compared to a total return of +2.7% for the
benchmark, the MSCI Japan Small Cap Index, an underperformance of 3.4%. It is
worth noting that while performance was relatively close to benchmark in the
first three months of the period, the Company underperformed between July and
September 2023. This was in part due to a significant market rotation away
from the quality and growth stocks the Company favours, towards the
lower-quality, value-oriented stocks with unappealing growth characteristics
which dominated the benchmark.
In the first half of 2023 there was a brief flurry of interest in a handful of
tech stocks exposed to artificial intelligence-based technologies, but tech
and other growth stocks have subsequently lagged in all major markets.
Investors focused on the likelihood that global interest rates would remain
elevated for longer than previously hoped and this prospect adversely impacted
growth stocks whose valuations are based on discounted future cash flows which
decline as rates increase. Japanese growth stocks have not been immune to
this, despite relatively subdued Japanese inflation, an accommodative central
bank and clear signs of improvement in Japan's economic and market outlook.
To give some perspective to the Company's recent disappointing performance, it
is important to note that the portfolio's focus on quality and growth means it
usually differs significantly from the benchmark, and it is therefore
inevitable that performance will often vary substantially from the benchmark,
regardless of market conditions. Indeed, the Company has outperformed the
market in six of the last 10 calendar years, as reported in my Chairman's
Statement in the 2023 Annual Report. Given the Portfolio Managers' conviction
that good quality companies with strong growth prospects will perform best
over the long run, it is arguably more meaningful to assess performance over
a longer timeframe. For example, over the 10 years ended 30th September 2023,
the Company achieved an average annualised return of 6.7%, not far from the
average annualised benchmark return of 7.1%.
The Company's recent investment performance is explained in depth in the
Portfolio Managers' Report, along with details of portfolio activity over the
past six months. The Portfolio Managers also outline the reasons for their
optimism about the outlook for the Japanese market, and the themes they expect
will further drive the Company's performance over the short term and beyond.
Dividend Policy and Discount Management
The Company's dividend policy aims to pay, in the absence of unforeseen
circumstances, a regular dividend equal to 1% of the Company's NAV on the last
business day of the preceding financial quarter, being the end of March, June,
September and December. Over the year, this would approximate to 4% of the
average NAV, paid from other reserves.
For the year ended 31st March 2023, quarterly dividends paid totalled 14.2p
per share (2022: 20.3p). For the half year ended 30th September 2023, the
Board has declared two dividends, each of 3.5 pence, for the quarters ended
30th June and 30th September 2023 respectively. Two further dividends will be
declared on the first business day after 31st December 2023 and 31st March
2024. The Company currently offers a relatively attractive dividend yield of
4.7%, based on the last four dividend payments and the share price at 302p.
The discount at which the Company's shares trade relative to its net asset
value stood at 13.1% at 30th September 2023, up from the 9.8% reported at the
Company's year-end, 31st March 2023. This widening is broadly in line with the
experience of many other investment trusts over this period. The Board closely
monitors the discount and recognises that it is in shareholders' interests
that the Company's share price does not excessively differ from the underlying
NAV under normal market conditions. Taking the prolonged period of widened
discount into account, the Board decided to resume share buybacks for the
first time since March 2018. Since the end of the financial half year, it has
repurchased 86,112 shares. At the time of writing, the discount stood at
11.0%.
Gearing/Borrowing
The Portfolio Managers seek, at times, to enhance investment returns for
shareholders by borrowing money to buy more assets ('gearing'), subject to
their view on prevailing market conditions. The Company's investment policy
permits such tactical gearing within a range of 10% net cash to 25% geared.
However, the Board requires the Manager to operate in the narrower range of 5%
net cash to 15% geared in normal market conditions. The Company's gearing is
discussed regularly by the Board and the Portfolio Managers, and the gearing
level is reviewed by the Directors at each Board meeting. During the
six months to end September 2023, the Company's gearing level averaged 6% and
ranged between 4.7% and 7.4%, ending the half year at 5.6% (end March 2023:
5.6%).
The Company currently has a Yen 4.0 billion two-year revolving credit facility
with ING Bank. This facility has a maturity date of December 2024, and the
Manager will seek to renew or replace this facility, at the best available
terms, on expiry.
Outlook
There are, as ever, issues generating uncertainty for investors - the risk to
global growth posed by persistently higher interest rates as well as the
continued war in Ukraine and recent conflicts in the Middle East. However, it
is encouraging to see clear signs of improvement in the Japanese economy
following its, albeit delayed, post-pandemic re-opening. The prospect of an
end to decades of deflation is equally welcome. Japan is also undergoing
significant technological and structural changes, which should bolster growth
and productivity well into the future. The country's innovative and dynamic
small cap companies are ideally placed to thrive in this environment - they
are already leading the way in a variety of niche markets. It also seems that
investors are only just beginning to grasp the very positive impact corporate
governance reforms are likely to have on shareholder returns over the medium
to longer term.
This is a very favourable investment backdrop, and the Board is positive about
the Company's prospects. It believes that the Investment Managers' focus on
quality and growth, supported by JPMorgan's extensive, global and Tokyo-based
research resources, means that the Company is ideally placed to identify and
capitalise on the many interesting opportunities available amongst Japan's
smaller cap businesses. We therefore share the Portfolio Managers' confidence
in the Company's ability to deliver attractive levels of capital growth,
combined with a regular income, to shareholders over the long term.
Alexa Henderson
Chairman
1st December 2023
PORTFOLIO MANAGERS' REPORT
Performance and market review
Over the six months to September 2023, the Company underperformed its
benchmark, the MSCI Japan Small Cap Index (in GBP terms), by 3.4 percentage
points, delivering a return of -0.7% on a net asset value (NAV) basis (in GBP
terms), compared to the benchmark return of +2.7%.
The portfolio has a quality and growth bias and focuses on companies with
strong business models that can compound earnings growth over the long-term.
Our investment strategy looks beyond short-term market fluctuations and adopts
a long-term perspective, based on the view that excess returns take time to
accumulate, especially for smaller cap stocks.
The review period began on an optimistic note. Investors welcomed an
acceleration in efforts to improve corporate governance (discussed further
below), and rising import inflation and wage increases raised hopes of an end
to Japan's long period of deflation. The rise in Japanese equity markets was
supported by increased interest from foreign investors. The Company's
underperformance during the reporting period mainly occurred in the second
half of the period, between July and September 2023, particularly in
September, when we saw value stocks strongly outperform the growth stocks we
favour. Value stocks rose and growth stocks came under pressure due to an
increased focus on monetary policy, as the US Federal Reserve and the Bank of
England kept hiking rates and the Bank of Japan (BoJ) eased its longstanding
yield curve controls. Higher rates have an adverse impact on growth stocks, as
they reduce the discounted future cashflows on which their valuations are
based.
Spotlight on stocks and sectors
During the six months under review, both stock selection and sector allocation
had negative impacts on performance.
The stocks that contributed most positively to returns included MEC,
Mitsubishi HC Capital and Nippon Sanso.
• MEC is the global leader in the niche market for advanced
adhesion enhancer products used in printed circuit boards. Its products
improve the adhesion between the wiring materials and the insulating materials
in the semiconductor package. We anticipate that the company will enjoy
revenue growth as semiconductor miniaturisation makes further advances and
usage of this technology spreads.
• Mitsubishi HC Capital is a leasing company with a track
record of solid execution and steady long-term earnings growth. The company
was established through a merger of Mitsubishi UFJ Lease and Hitachi Capital,
and we anticipate continued synergies within the group.
• Nippon Sanso is Japan's number one supplier of industrial
gas and the fourth largest in the world. We believe that industrial gas is an
attractive industry, with high barriers of entry, increasingly consolidated
market shares, strong cashflow generation, defensiveness backed by take-or-pay
models for onsite long-term contracts, and a favourable pricing environment.
Nippon Sanso has been successfully expanding their presence both organically
and through M&A activity.
On the other hand, the largest detractors at the stock level included Square
Enix, Milbon and MISUMI.
• Square Enix develops and publishes video game software,
including long-running titles such as Dragon Quest and Final Fantasy. A
consistently rising digital download ratio is a favourable industry trend, as
digital downloads have higher profitability than packaged games thanks to
easier distribution, and we expect companies such as Square Enix which possess
strong intellectual property in the form of popular games to benefit.
Near-term earnings have, however, been disappointing, with weaker than
expected title sales. The new CEO is focusing on raising profitability to
improve the business's performance, and we will monitor execution going
forward.
• Milbon is Japan's number one manufacturer of salon exclusive
hair care products. With a strong consulting sales approach, the company has
been expanding market share at home, while also growing overseas in countries
such as China and Korea. In the near-term, rising raw material costs have
dampened profitability, but our positive assessment of Milbon's positioning,
and its scope to expand both domestically and overseas, remains unchanged.
• MISUMI is a producer and distributor of discrete automation
components. The company's offering is unique in that it manufactures
standardised factory automation components and also has an online distribution
service which sells both its own products and those of third parties. While
the long-term outlook for automation demand remains strong, near-term earnings
have been difficult, particularly due to weakness in the Chinese market.
With respect to sector allocation, the main positive contributors to
performance at the sector level were our underweight position in Equity Real
Estate Investment Trusts, which is a sector that performed poorly under a
tighter monetary policy environment. The overweight position in the materials
sector also contributed positively. The most significant detractors from
relative performance included our overweight position in software &
services and our underweight position in banks. Internet companies have
continued to struggle on profit taking after a previous period of strong
performance. However, we maintain our view that digitalisation is an area of
significant growth potential in Japan considering the still low penetration of
services such as e-commerce, digital advertising, cashless payments. We
therefore remain overweight the sector, although we have reduced the size of
the overweight, due to attractive new ideas in other sectors (see examples in
the Portfolio Positioning section). Meanwhile, banks performed strongly
following the BoJ's move to allow more flexibility in its yield curve control
policy. While any resultant increase in interest rates is likely to be
supportive for banks' earnings, it is difficult to find any legacy banks with
sustainable long-term growth opportunities or clear competitive advantages.
The only bank stock the Company owns is Rakuten Bank, which is a fast-growing
online bank with the ability to leverage the broader Rakuten group ecosystem
to acquire new business.
About our investment philosophy
The Company aims to provide shareholders with access to the innovative and
fast-growing smaller companies at the core of the Japanese economy. Our
investment approach favours quality and structural growth, and we target
companies (other than Japan's largest 200) which we believe can compound
earnings growth over the long term, supported by sustainable competitive
advantages, good management teams and judicious capital allocation. We believe
the strong and durable market positioning of such businesses will allow them
to substantially increase their intrinsic value over time. We avoid stocks
that have no clear differentiation and those that operate in industries
plagued by excess supply and structural decline. Our focus on quality and
growth means that the portfolio tends to benefit from our ability to over- and
underweight stocks relative to the benchmark, as this provides a potential
source for additional return, enhancing the Company's scope to outperform over
the long term.
Our stock selection is based on fundamental analysis, 'on-the-ground'
knowledge and extensive contact with the management teams of prospective and
current portfolio companies. The Company is managed by a team of three,
supported by over 20 Tokyo-based investment professionals. Their knowledge of
the local market provides us with significant strength in identifying
investment opportunities in small cap companies - a sector of the market which
is under-researched and overlooked by many investors.
The starting point in our bottom-up investment process is our Strategic
Classification framework, where we address the key question 'Is this a
business that we want to own?'. Through this process we assign a rating of
Premium, Quality or Standard (formerly named Trading) to each stock based on
its fundamentals, governance and the sustainability of its revenues over the
long term. We aim to have a high exposure to Premium and Quality companies,
and where possible, we invest from an early stage, to benefit fully as
companies realise their growth potential.
This patient approach is key to generating excess return over the long term,
although the portfolio's focus on quality and growth means it tends to
struggle during value rallies. Having said that, the Company does not target
'growth at any price'. We always strive to acquire shares at a reasonable
price. To this end, we use a five-year expected return framework to consider
whether a stock's price is at an attractive level. We believe it is also
important to construct a well-balanced, diversified portfolio, to minimise
exposure to unintended risks. The Company's current and prospective portfolio
holdings include a broad range of sectors, including not only IT hardware and
software, but materials, chemicals, construction, machinery and consumer goods
and services.
We believe that well-run companies, which exhibit behaviour that respects the
environment and the interests of their shareholders, customers, employees and
other stakeholders, are most likely to deliver sustainable, long-term returns.
Such environmental, social and governance ('ESG') considerations are thus
integral to our investment process and a key driver of our quest to generate
financial returns. ESG factors influence our decisions both at the portfolio
construction stage and thereafter, once companies are held in the portfolio,
when ongoing engagement with managers can be effective in encouraging them to
realise and maintain acceptable ESG standards. Our long-term holding in DTS, a
system integration services provider, is one instance where our engagement
with a company has resulted in considerable progress in its corporate
governance practices, including, in DTS's case, in greater board independence
and diversity and a better shareholder return policy.
Trends and themes
While our investment decisions are based on company-specific factors, there
are also structural, long-term trends and themes that underlie our stock
selection.
The investment themes which help shape the portfolio include:
• Changing demographics: Japan's ageing and declining
population is creating significant challenges for Japanese policymakers. The
government is committed to tackle these issues through regulatory reforms and
greater use of technology, and this is providing opportunities for innovative
smaller companies working to improve the quality of life for the elderly, for
example, by reducing the need for face-to-face medical consultations. The
telemedicine company, Medley, is an example of a portfolio holding benefiting
from such innovation.
• Improving labour productivity via digitalisation: Japan's
ageing population is also leading to a contraction in labour supply, and
digitalisation is a key part of the solution to this problem, as it raises
labour productivity. The government wants to encourage adoption of digital
technology across the economy, and to this end it has established an agency
which is focused on digitalising the operations of national and local
governments, as well as Japan's education and healthcare systems. Portfolio
holdings Rakus, a cloud services provider, and Infomart, a
business-to-business trading platform for the food industry, are examples of
holdings that benefit from this long-term trend.
• Technological innovation: While certain areas of the
Japanese economy such as financial services lag other markets in terms of
their technological sophistication, Japanese manufacturers are world class.
The country is a leading global supplier of factory automation equipment,
robots, electronics parts and materials, presenting attractive investment
opportunities for portfolio companies such as MEC and C. Uyemura that
specialise in niche technology markets.
• De-carbonisation: The Japanese government's commitment to
reduce carbon emissions to net zero by 2050 has galvanised efforts to
transition the economy to renewable energy sources and take other necessary
steps to mitigate climate change. Some smaller Japanese companies possess
unique technologies related to the production of electric vehicles, solar and
wind power and other forms of clean energy, and we continue our search for
companies such as Canadian Solar Infrastructure Fund and Hirano Tecseed, a
specialist industrial machinery supplier, that are well-positioned to benefit
from the global push towards carbon neutrality.
• Overseas growth: The Asian region is experiencing rapid
structural growth. Japanese luxury goods producers and other strong brands
such as our investments in Milbon, a supplier of exclusive hair products, and
watchmaker Seiko, are likely to continue experiencing strong demand from new
customers in China, India and other increasingly prosperous Asian countries.
• Corporate governance: Japan's corporate sector is making a
concerted effort to strengthen governance standards via enhanced shareholder
returns, the appointment of more independent, external directors to company
boards, tighter internal controls and more transparent disclosure rules. There
is, however, room for further improvement, and we engage in constructive
dialogues with portfolio companies and potential investments on this broad
theme, on the view that the market is likely to keep rewarding companies that
upgrade their governance practices.
Positioning the portfolio for future success
Despite persistent market volatility, we have continued to search for
opportunities to purchase quality, long-term compounders at attractive
valuations. LIFEDRINK, Osaka Soda and Japan Material are three names which we
have purchased during the past six months:
• LIFEDRINK is a beverage company focused on private label
products for retailers. The company has a vertically integrated business model
which allows it to offer lower prices and enjoy higher margins. We believe the
company has a healthy growth runway, as the Japanese market for private label
products is still under-developed compared to overseas markets such as US, and
the inflationary environment is ensuring strong demand, as consumers prefer
the company's lower priced items to national brands.
• Osaka Soda is a chemical company that holds the top global
position in multiple niche product categories. The company's biggest future
growth driver is silica gel, which is used in GLP-1 obesity drugs. Osaka Soda
has the largest share of the world market and profitability on this product is
very high, as the obesity drug market is growing rapidly. Osaka Soda is
currently expanding its capacity accordingly. While capex investment for
growth is likely to be the near-term priority, and the company presently has a
stable dividend policy, its balance sheet is healthy, with a net cash
position, so there is scope for future dividend increases which will enhance
shareholder returns.
• Japan Material provides after service to semiconductor
plants for various infrastructure such as gas, ultra-pure water and specialty
chemicals. Japan Material is the only company in Japan that provides a
'one-stop' maintenance service, which provides customers with savings of
approximately 30% on the cost of these services, compared to using separate
contractors. We anticipate strong demand in the mid to long-term, as there has
been a significant increase in the number of new semiconductor plants
scheduled for construction in Japan. We initiated this position in March and
have continued to add to it subsequently.
On the other hand, we sold our position in Nextage, one of Japan's top three
used car retailers. The used car retail market is highly fragmented with room
for consolidation over the long-term, and Nextage has been quickly expanding
through new store openings. However, there have been media reports of
fraudulent insurance claims by various companies within the industry,
including Nextage, so we exited the position. We also trimmed several names,
taking some profits and adjusting position sizes as valuations became less
compelling compared to before following strong performance. This includes on
Monogatari Corp, which owns restaurant franchises, Capcom, a gaming company
and C. Uyemura, a specialist chemical company supplying semiconductor
manufacturers.
Over the review period, annualised portfolio turnover was around 31%. We
maintain our bias towards quality and growth, which is evidenced by the fact
that the portfolio has a higher return on equity (ROE) and higher growth in
earnings per share (EPS) than the overall market, while continuing to be
disciplined on valuations.
Outlook and strategy
The external environment remains uncertain, with persistent concerns over
inflation and the ramifications of tight monetary policy, including the
ongoing risk of a global recession. Japan is also seeing signs of inflation,
as the rise in commodity prices, combined with a weaker yen, has imported
inflationary pressures, although inflation is still low compared to other
major markets. Some large corporates have announced notable wage hikes after
decades of stagnant wages growth, which is very encouraging for the Japan
economy, and the key question related to Japan's inflation outlook is whether
these pay increases will spread to mid- and small-sized enterprises. The Bank
of Japan made small adjustments to its ultra-easy monetary policy in December
2022 and July 2023, intended to allow rates to drift higher, and the policy
direction under the new governor will remain a focus for investors.
Another near-term support for the Japan economy, in addition to rising wages,
is the country's belated COVID reopening. Japan reopened its borders in
October 2022, and inbound tourism and hospitality services have only resumed
in recent months. The reopening of the Chinese economy is providing additional
impetus to this rebound, not only via tourism, but also for many other
consumer and industrial companies.
Over the medium to long term, the key structural support for Japan's equity
market remains the improvement in corporate governance. Improvements over the
past few years are clear, in large part thanks to the Corporate Governance
Code introduced in 2015. In addition to steps such as the rising proportion of
independent board directors, we have seen notable increases in dividend
payments and share buybacks by some companies. These measures have already
improved shareholder returns, and with many Japanese companies still awash
with cash, we expect further significant efforts to return cash to
shareholders, and increase investment returns accordingly. As a team, we
conduct over 4000 company meetings a year, on the ground in Tokyo, and we have
sensed an acceleration in corporate reform efforts this year, particularly
after the Tokyo Stock Exchange's (TSE) initiatives announced earlier this
year. These initiatives include a requirement for companies whose share price
consistently trades below 1x price to book to disclose a strategy to improve
this. We anticipate a broad-based improvement on the corporate governance
front, not only companies trading below book value, considering balance sheet
inefficiency is an issue seen across the market in Japan, and even high
quality companies with strong competitive positions have room for improvement.
All of these factors, in particular the longer-term potential for improved
shareholder returns- bode well for Japanese equities. The portfolio's exposure
to several significant, very positive, long-term structural trends should
provide further impetus to performance over the longer term.
But regardless of the economic backdrop at any point in time, we believe it is
always important to focus on good quality businesses with leading market
positions, strong cashflow generation, robust balance sheets and the potential
for structural growth. It is reassuring to us that such companies tend to have
significantly larger cash positions, and stronger balance sheets than their
peers in other developed countries. This gives them the wherewithal to weather
any unexpected short-term fluctuations in the economic or market environment.
Furthermore, average valuations of Japanese companies remain attractive
compared to most other major markets. And in sharp contrast to other developed
economies, Japan's smaller and more entrepreneurial companies are at the
forefront of innovation, ideally positioned to prosper over the long term.
Yet, the sell side coverage for such exciting small and mid-cap companies
tends to be scant. We believe this gives us a considerable competitive
advantage, as our large and dedicated team of Japan equities analysts and fund
managers, on the grounds in Tokyo, is ideally placed to discover exciting
investment opportunities amongst smaller companies, and to capitalise on the
long-term structural changes playing out in Japan.
We therefore remain confident our investment approach and portfolio
positioning will deliver positive and sustained returns to our shareholders
over the medium and long term.
Miyako Urabe
Xuming Tao
Naohiro Ozawa
Portfolio Managers
1st December 2023
INTERIM MANAGEMENT REPORT
The Company is required to make the following disclosures in its half year
report.
Principal and Emerging Risks and Uncertainties
The principal and emerging risks and uncertainties faced by the Company have
not changed and fall into the following broad categories: investment and
strategy; market; operational and cyber crime; loss of investment team or
investment managers; share price relative to NAV per share; accounting, legal
and regulatory; political and economic; global pandemics; geopolitical
instability, climate change and artificial intelligence. Information on each
of these areas is given in the Business Review within the Annual Report and
Financial Statements for the year ended 31st March 2023.
Related Parties Transactions
During the first six months of the current financial year, no transactions
with related parties have taken place which have materially affected the
financial position or the performance of the Company during the period.
Going Concern
The Directors believe, having considered the Company's investment objectives,
risk management policies, capital management policies and procedures, nature
of the portfolio and expenditure projections, that the Company has adequate
resources, an appropriate financial structure and suitable management
arrangements in place to continue in operational existence for the foreseeable
future and, more specifically, that there are no material uncertainties
pertaining to the Company that would prevent its ability to continue in such
operational existence for at least 12 months from the date of the approval of
this half yearly financial report. For these reasons, they consider that there
is reasonable evidence to continue to adopt the going concern basis in
preparing the financial statements.
Directors' Responsibilities
The Board of Directors confirms that, to the best of its knowledge:
(i) the condensed set of financial statements contained within the
half yearly financial report has been prepared in accordance with FRS 104
'Interim Financial Reporting' and gives a true and fair view of the state of
the affairs of the Company and of the assets, liabilities, financial position
and net return of the Company as at 30th September 2023, as required by the
FCA Disclosure Guidance and Transparency Rule 4.2.4R; and
(ii) the interim management report includes a fair review of the
information required by DTRs 4.2.7R and 4.2.8R of the FCA Disclosure
Guidance and Transparency Rules.
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 accounting estimates that are reasonable
and prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the
financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business;
and the Directors confirm that they have done so.
For and on behalf of the Board
Alexa Henderson
Chairman
1st December 2023
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30th September 2023
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30th September 2023 30th September 2022 31st March 2023
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Losses on investments
held at fair value through
profit or loss - (3,085) (3,085) - (19,640) (19,640) - (15,007) (15,007)
Net foreign currency gains - 1,320 1,320 - 358 358 - 619 619
Income from investments 1,750 - 1,750 1,993 - 1,993 4,736 41 4,777
Other interest receivable 3 - 3 1 - 1 3 - 3
Gross return/(loss) 1,753 (1,765) (12) 1,994 (19,282) (17,288) 4,739 (14,347) (9,608)
Management fee (910) - (910) (939) - (939) (1,856) - (1,856)
Other administrative expenses (240) - (240) (262) - (262) (472) - (472)
Net return/(loss) before finance
costs and taxation 603 (1,765) (1,162) 793 (19,282) (18,489) 2,411 (14,347) (11,936)
Finance costs (149) - (149) (107) - (107) (321) - (321)
Net return/(loss) before taxation 454 (1,765) (1,311) 686 (19,282) (18,596) 2,090 (14,347) (12,257)
Taxation (174) - (174) (227) - (227) (500) - (500)
Net return/(loss) after taxation 280 (1,765) (1,485) 459 (19,282) (18,823) 1,590 (14,347) (12,757)
Return/(loss) per share (note 3) 0.51p (3.24)p (2.73)p 0.84p (35.37)p (34.53)p 2.92p (26.32)p (23.40)p
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the period. 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
period/year and also Total Comprehensive Income.
CONDENSED STATEMENT OF CHANGES IN EQUITY
Called up Capital
share Share redemption Other Capital Revenue
capital premium reserve reserve(1,2) reserves(2) reserve(2) Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Six months ended 30th September 2023 (Unaudited)
At 31st March 2023 5,595 33,978 1,836 262,994 (99,107) (9,274) 196,022
Net (loss)/return - - - - (1,765) 280 (1,485)
Dividends paid in the period (note 4) - - - (3,870) - - (3,870)
At 30th September 2023 5,595 33,978 1,836 259,124 (100,872) (8,994) 190,667
Six months ended 30th September 2022 (Unaudited)
At 31st March 2022 5,595 33,978 1,836 270,952 (84,760) (10,864) 216,737
Net (loss)/return - - - - (19,282) 459 (18,823)
Dividends paid in the period (note 4) - - - (4,034) - - (4,034)
At 30th September 2022 5,595 33,978 1,836 266,918 (104,042) (10,405) 193,880
Year ended 31st March 2023 (Audited)
At 31st March 2022 5,595 33,978 1,836 270,952 (84,760) (10,864) 216,737
Net (loss)/return - - - - (14,347) 1,590 (12,757)
Dividends paid in the year (note 4) - - - (7,958) - - (7,958)
At 31st March 2023 5,595 33,978 1,836 262,994 (99,107) (9,274) 196,022
(1) The share premium was cancelled in the period ended 31st March
2001 and redesignated as 'other reserve'.
(2) These reserves form the distributable reserves of the Company and
may be used to fund distributions to investors.
CONDENSED STATEMENT OF FINANCIAL POSITION
At 30th September 2023
(Unaudited) (Unaudited) (Audited)
30th September 30th September 31st March
2023 2022 2023
£'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 201,275 203,091 206,931
Current assets
Debtors 2,014 1,444 3,412
Cash and cash equivalents 5,674 9,485 7,446
7,688 10,929 10,858
Creditors: amounts falling due within one year (18,296) (20,140) (21,767)
Net current liabilities/assets (10,608) (9,211) (10,909)
Total assets less current liabilities 190,667 193,880 196,022
Net assets 190,667 193,880 196,022
Capital and reserves
Called up share capital 5,595 5,595 5,595
Share premium 33,978 33,978 33,978
Capital redemption reserve 1,836 1,836 1,836
Other reserve 259,124 266,918 262,994
Capital reserves (100,872) (104,042) (99,107)
Revenue reserve (8,994) (10,405) (9,274)
Total shareholders' funds 190,667 193,880 196,022
Net asset value per share (note 5) 349.8p 355.7p 359.6p
CONDENSED STATEMENT OF CASH FLOWS
For the six months ended 30th September 2023
(Unaudited) (Unaudited) (Audited)
30th September 30th September 31st March
2023 2022(1) 2023
£'000 £'000 £'000
Cash flows from operating activities
Net loss before finance costs and taxation (1,162) (18,489) (11,936)
Adjustment for:
Net losses on investments held at fair value through profit or loss 3,085 19,640 15,007
Net foreign currency gains (1,320) (358) (619)
Dividend income (1,750) (1,993) (4,736)
Interest income (3) (1) (3)
Realised (gain)/loss on foreign exchange transactions (560) (56) 25
Decrease in accrued income and other debtors 24 3 92
Decrease/(Increase) in accrued expenses 38 (7) 15
(1,648) (1,261) (2,155)
Dividends received 2,578 2,459 4,355
Interest received 3 1 3
Overseas tax paid (174) (200) (473)
Net cash inflow from operating activities 759 999 1,730
Purchases of investments (35,705) (26,071) (46,467)
Sales of investments 37,193 33,372 55,328
Settlement of foreign currency contracts - 5 -
Net cash inflow from investing activities 1,488 7,306 8,861
Dividends paid (3,870) (4,034) (7,958)
Repayment of bank loan - (4,844) (4,844)
Interest paid (152) (113) (340)
Net cash outflow from financing activities (4,022) (8,991) (13,142)
Cash and cash equivalents at start of period/year 7,446 10,143 10,143
Exchange movements 3 28 (146)
Cash and cash equivalents at end of period/year 5,674 9,485 7,446
Decrease in cash and cash equivalents (1,775) (686) (2,551)
Cash and cash equivalents consist of:
Cash and short term deposits 5,674 9,485 7,446
Total 5,674 9,485 7,446
(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 used in
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, previously shown under operating activities, as this
relates to the loans drawndown. Other than consequential changes in
presentation of the 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 As at
31st March Exchange 30th September
2023 Cash flows movement 2023
£'000 £'000 £'000 £'000
Cash and cash equivalents
Cash 7,446 (1,775) 3 5,674
7,446 (1,775) 3 5,674
Borrowings
Debt due within one year (19,446) - 1,877 (17,569)
(19,446) - 1,877 (17,569)
Net debt (12,000) (1,775) 1,880 (11,895)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
For the six months ended 30th September 2023
1. Financial statements
The information contained within the condensed financial statements in this
half year report has not been audited or reviewed by the Company's auditors.
The figures and financial information for the year ended 31st March 2023 are
extracted from the latest published financial statements of the Company and do
not constitute statutory accounts for that year. Those financial statements
have been delivered to the Registrar of Companies, including the report of the
auditors which was unqualified and did not contain a statement under either
section 498(2) or 498(3) of the Companies Act 2006.
2. Accounting policies
The condensed financial statements have been prepared in accordance with the
Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in
the UK and Republic of Ireland' of the United Kingdom Generally Accepted
Accounting Practice ('UK GAAP') and with the Statement of Recommended
Practice 'Financial Statements of Investment Trust Companies and Venture
Capital Trusts' (the revised 'SORP') issued by the Association of Investment
Companies in July 2022.
FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting
Council ('FRC') in March 2015 has been applied in preparing this condensed set
of financial statements for the six months ended 30th September 2023.
All of the Company's operations are of a continuing nature.
The accounting policies applied to this condensed set of financial statements
are consistent with those applied in the financial statements for the year
ended 31st March 2023.
3. Return/(loss) per share
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30th September 2023 30th September 2022 31st March 2023
£'000 £'000 £'000
Return per Ordinary share is based on the following:
Revenue return 280 459 1,590
Capital loss (1,765) (19,282) (14,347)
Total loss (1,485) (18,823) (12,757)
Weighted average number of shares in issue during the
period/year (excluding Treasury shares) 54,510,339 54,510,339 54,510,339
Revenue return per share 0.51p 0.84p 2.92p
Capital loss per share (3.24)p (35.37)p (26.32)p
Total loss per share (2.73)p (34.53)p (23.40)p
4. Dividends paid
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30th September 2023 30th September 2022 31st March 2023
£'000 £'000 £'000
2023 fourth quarterly dividend of 3.6p (2022: 4.0p) 1,962 2,180 2,180
2024 first quarterly dividend of 3.5p (2023: 3.4p) 1,908 1,854 1,854
2023 second quarterly dividend of 3.6p (2022: 5.8p) - - 1,962
2023 third quarterly dividend of 3.6p (2022: 5.0p) - - 1,962
Total dividends paid 3,870 4,034 7,958
The dividend paid in the period has been funded from the other reserve.
A second quarterly dividend of 3.5p (2023: 3.6p) per share, amounting to
£1,907,199 (2023: £1,962,372) has been declared payable in respect of the
year ending 31st March 2024. It was paid on 17th November 2023 to shareholders
on the register at the close of business on 20th October 2023.
5. Net asset value per share
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30th September 2023 30th September 2022 31st March 2023
Net assets (£'000) 190,667 193,880 196,022
Number of shares in issue 54,510,339 54,510,339 54,510,339
Net asset value per share 349.8p 355.7p 359.6p
6. Fair valuation of instruments
The fair value hierarchy analysis for financial instruments held at fair value
at the period end is as follows:
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30th September 2023 30th September 2022 31st March 2023
Assets Liabilities Assets Liabilities Assets Liabilities
£'000 £'000 £'000 £'000 £'000 £'000
Level 1 201,275 - 203,091 - 206,931 -
Total value of instruments 201,275 - 203,091 - 206,931 -
JPMORGAN FUNDS LIMITED
1st December 2023
For further information, please contact:
Divya Amin
For and on behalf of
JPMorgan Funds Limited
0800 20 40 20 or +44 1268 44 44 70
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.
ENDS
A copy of the half year will be submitted to the National Storage Mechanism
and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
The half year report will also shortly be available on the Company's website
at www.jpmjapansmallercompanies.co.uk
(http://www.jpmjapansmallercompanies.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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. END IR BUBDDXXGDGXB
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