JPMorgan UK Smaller - Final Results
12/10/2023 16:15
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RNS Number : 9794P JPMorgan UK Smaller Cos IT PLC 12 October 2023
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC
(the 'Company')
FINAL RESULTS FOR THE YEAR ENDED 31ST JULY 2023
Legal Entity Identifier: 549300PXALXKUMU9JM18
Information disclosed in accordance with DTR 4.2.2
The Directors announce the Company's results for the year ended 31st July 2023
CHAIRMAN'S STATEMENT
Investment Comment & Performance
The year under review was the second year in a row that UK smaller companies
faced a challenging environment. It was a year of continuous volatility as
markets struggled with a poisonous cocktail of headwinds. Despite recovering
quickly from the October 2022 lows, induced by the policies of the short lived
Truss premiership, market conditions did not improve. Stubbornly high UK
inflation, stoked by high energy and food prices, led to rapid interest rate
rises not seen in a generation and subsequently dwindling consumer confidence
and house prices. These factors weighed heavily on UK markets and, in
particular, the more domestically facing smaller companies whose already
relatively cheap valuations became even more attractive.
The global background was also challenging. China failed to sustain its post
COVID-19 economic recovery and whilst the much predicted recession in the US
has so far failed to materialise the spectre still stalked the markets.
Geopolitical tensions increased as the Ukrainian conflict escalated and
western relations with China cooled further.
The Company performed slightly behind its benchmark but ahead of the sector
average. Over the period, the total return on net assets (with net dividends
reinvested) was -5.0% as compared to the Numis Smaller Companies plus AIM
Index (excluding investment companies) which returned -4.6%. The Company's
share price discount to NAV narrowed slightly from 11.0% on 31st July 2022 to
10.7% on 31st July 2023. As a result, the share price total return to
shareholders was -4.4%, modestly ahead of the benchmark.
Since the year-end, the discount has widened to 13.0%, as at 9th October 2023.
The return on net assets was -7.0% compared to a decrease in the benchmark of
-8.7% and the return to shareholders was -9.4%.
We are fortunate to have dedicated and experienced managers who rise to the
challenges thrown at them and, in particular, the Board would like to
acknowledge the long service provided to the company by Georgina Brittain who
has completed 25 years' service this year. The team's hard work is reflected
in the longer term performance which remains well ahead of the benchmark (see
Continuation below).
In their report, the Portfolio Managers provide a review of the Company's
performance for the period and the outlook for the remainder of the year.
Revenue and Dividends
Net revenue increased strongly for the second year in a row, growing by 9.1%
to £7,147,000 in the financial year to 31st July 2023. This partly reflected
a continued post-COVID-19 recovery but also the strong financial position of
the businesses in which the Company is invested.
The Directors are recommending a final dividend of 7.7p (2022: 6.9p) per
share, an increase of 11.6%. If approved by shareholders at the Annual
General Meeting, the dividend will be paid on 7th December 2023 to
shareholders on the register at close of business on 27th October 2023. Over
the past three and five years, which have encompassed some challenging market
conditions, the dividends paid to shareholders have increased by 40.0% and
42.6% respectively, supported by utilisation of the Revenue Reserve in 2020
and 2021.
Costs
The cost pressures faced by the Company and the broader sector have increased
in general with inflation and there have been some specific items, such as the
Auditor's fees, which have been driven up by changes in regulation. These
pressures have coincided with decreasing asset values resulting in an increase
in the ongoing charge ratio ('OCR') from 0.99% to 1.02%. This represents the
Company's total costs expressed as percentage of the Company's assets. The
Board is acutely aware of the increase in OCR and has focused on containing
costs as far as is possible. This is reflected in a reduction in other
administrative expenses. Since the year end, and effective from 1st August
2023, the Board has negotiated a reduction in the management fee. The reduced
rate is 0.65% on net assets up to £300 million and 0.55% thereafter. If
applied in the year under review, this would have reduced the OCR by
approximately 0.1%.
Gearing
The Board believes that a moderate level of gearing is an efficient way to
enhance long-term returns to shareholders, albeit at the cost of a small
increase in short-term volatility. The Board takes into consideration the cost
of borrowing when arranging facilities available to the Portfolio Managers.
The level of gearing is regularly discussed with the Portfolio Managers and is
adjusted by them, to reflect short-term considerations, within parameters set
by the Board.
To allow the Portfolio Managers to retain the flexibility to maintain gearing
up to the maximum permitted level, on 29th September 2023, the Company's £50
million borrowing facility expired and was renewed with Scotiabank for a
period of 364 days. Inevitably the cost of debt has increased with rising
interest rates though, after reviewing various options, the Board believes
that the terms agreed remain competitive.
At the year-end, £27 million (2022: £25 million) was drawn on the loan
facility with the gearing level of 9.5% (2022: 5.8%) of net assets. As at 9th
October 2023, gearing was 10.2%.
Share Repurchases and Issuance
At last year's Annual General Meeting (AGM), shareholders granted the
Directors authority to allot new shares and to repurchase the Company's
shares for cancellation or to be held in Treasury for possible re-sale. During
the financial year the Company did not repurchase or allot any shares. There
are currently 79,611,410 shares in issue, including 1,559,741 shares which are
held in Treasury and available for sale. Treasury shares will only be sold at
a premium to net asset value thus enhancing shareholder value.
As in previous years, the Board's objective is to use the repurchase and
allotment authorities to manage imbalances between the supply and demand of
the Company's shares, with the intention of reducing the volatility of the
discount or premium. The Company's broker and the Manager constantly review
the Company's rating and utilise the authority, in consultation with the
Board, in normal market conditions and when it is considered that it will be
effective and in the interests of all shareholders. During the financial year,
the Company's discount volatility was comfortably less than the sector group
average and consequently the Company did not repurchase or allot any shares.
The discount ended the year narrower than the sector average, as was the
average over the year.
The Board believes this mechanism can be helpful and therefore proposes and
recommends that powers to repurchase up to 14.99% of the Company's shares
(less shares held in Treasury) and the allotment of new shares or sale of
shares out of Treasury up to approximately 10% as at the date of the AGM be
renewed.
Board of Directors and Succession Planning
During the year, the Board, through its Nomination Committee, employed an
independent board advisory consultant to facilitate a comprehensive evaluation
of the Board, its committees, the individual Directors and the Chairman. The
evaluation comprised the annual on-line evaluation as well as the triennial
individual interview with each of the Directors and Chairman in-line with the
Company's policy. Their report confirmed the efficacy of the Board. Therefore,
in accordance with good corporate governance practice, all the Directors will
stand for reappointment at the forthcoming AGM.
As highlighted in my previous interim Chairman's statement in March this year,
I will be retiring at the 2024 AGM in-line with good corporate governance
practice. As part of succession planning, the Board will consider my
replacement. It is also the Board's intention to appoint a new Director in the
first half of 2024. The recruitment process will therefore commence in the
first quarter of 2024. The Board recognises the importance of diversity in its
various forms and has had a good gender balance for many years; it also
benefits from healthy cognitive diversity. In light of the FCA's rules on
diversity and inclusion we take seriously the importance of having ethnic
diversity and this will be a significant consideration in recruitment
together with maintaining an appropriate balance between ability,
demographic, the size of the Board and the cost to shareholders.
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 (TCFD)
The Investment Manager published its first UK TCFD Report for the Company in
respect of the year ended 31st December 2022 on 30th June 2023. The report
discloses the portfolio's climate-related risks and opportunities according to
the FCA Environmental, Social and Governance Sourcebook and the TCFD
Recommendations. The report is available on the Company's website:
https://am.jpmorgan.com/content/dam/jpm-am-aem/emea/regional/en/regulatory/esg-information/jpmorgan-uk-smaller-companies-investment-trust-plc-esg-fund-report.pdf
This is the first report under the new guidelines and disclosure requirements
and the Board will continue to monitor them as these reports evolve.
Continuation of the Company
In accordance with the Company's Articles of Association, an ordinary
resolution will be put to shareholders at the forthcoming AGM that the Company
continues in existence as an investment trust for a further three year period.
The Board continues to believe that there is a strong case for long-term
investment in UK smaller companies. The valuations are attractive in absolute
and relative terms, the outlook remains favourable despite some near term
challenges, and the Company provides access to investments in a controlled
risk environment that individual investors would find difficult to replicate
on their own. Over the three, five and ten years to 31st July 2023, the total
return from the Company's net assets was 21.7%, 19.8% and 116.2% respectively,
significantly outperforming its benchmark which returned 20.5%, 5.1% and 72.3%
over the same periods. The share price outperformance of the benchmark has
been considerably stronger (see graphs in annual report). Since the last
continuation vote, this good performance has been externally recognised by
several industry awards including Citywire winner UK smaller companies
investment trust 2021 and Investment Week winner UK smaller companies
investment company of the year 2021.
During the last 12 months, the Board, via the Management Engagement Committee,
has undertaken a detailed review of the Manager and their investment approach.
Whilst all investment styles will deliver returns that vary over time, the
Board believes that the Manager's approach continues to be appropriate for the
Company and that JPMorgan Asset Management has the appropriate resources to
continue to manage the Company successfully.
Accordingly, the Board believes that the continuation of the Company is in the
best interests of all shareholders and strongly recommends that shareholders
vote in favour of the resolution at the AGM on 23rd November 2023, as the
Directors intend to do in respect of their own holdings.
Annual General Meeting
The Company's thirty-third Annual General Meeting will be held at 60 Victoria
Embankment, London EC4Y 0JP on Thursday 23rd November 2023 at 3.00 p.m. The
Board cannot stress strongly enough the importance of all shareholders
exercising their right to vote, regardless of their size of holding, and hopes
to welcome as many shareholders as possible to the AGM.
As with previous years, you will have the opportunity to hear from the
Portfolio Managers and their presentation will be followed by a question and
answer session. 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.jpmuksmallercompanies.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 the Company's website and, if appropriate, through
an announcement on the London Stock Exchange.
Outlook
Clearly there are major geopolitical and economic headwinds facing global
markets. The US Presidential election and UK general election in 2024 will
also sharpen investors' minds. The trajectory of interest rates is likely to
be a major contributory factor to the direction of equity and bond markets
over the coming period. The Bank of England has paused its relentless base
rate increases as recent inflation numbers have shown a welcome, larger than
expected fall. Only time will tell if the level of monetary tightening has
been appropriate, as much of the increase has yet to be fully transmitted to
the UK economy and consumer. Nevertheless, in the past, UK smaller companies
have often outperformed following the peak in interest rates. In addition, the
absolute and relative valuations of UK smaller companies are particularly
attractive versus historical ratings. Admittedly this has been the case for
some time but the Portfolio Managers present their case for optimism in their
report and why they see plenty of opportunity in the coming period.
Andrew Impey
Chairman
12th October 2023
INVESTMENT MANAGER'S REPORT
Performance and Market Background
The financial year to July 2023 was a turbulent one. The atrocious war in
Ukraine raged on and geopolitical uncertainties increased. Both the US and the
UK avoided recession, surprising many economists, although the threat of a
mild recession in both regions has not completely dissipated. Inflation in
developed markets peaked, but the UK became an outlier, with stubbornly higher
inflation than in Europe or the US. Interest rates rose at an astonishingly
rapid pace and the Bank of England has now raised rates fourteen times from
the absolute low in December 2021 to 5.25%. Markets are now pricing in peak
rates of 5.5-6%, which is notably higher than forecasts one year ago.
Political stability was re-established in the UK under Prime Minister Rishi
Sunak. However, public sector strike action grew in response to the stark cost
of living increase over the year, although the more recent decline in energy
prices and the increase in nominal wages should provide some relief, as should
the very low rate of unemployment.
Against this backdrop, the Numis Smaller Companies plus AIM (ex Investment
Trusts) Index was down 4.6% for the financial year. The Company produced a
total return on net asset value of -5.0% in the period, while the share price
total return was marginally ahead of the index at -4.4%. As can be seen in the
attribution table below, once again, stock selection contributed positively to
performance during the year under review. The main detractor was an
unfavourable sector bias in the portfolio. Gearing was also a small negative
during the year.
Performance attribution
12 months to 12 months to 12 months to
31st July 2023 31st July 2022 31st July 2021
% % % % % %
Contributions to total returns
Benchmark return -4.6 -16.0 50.3
Stock selection 3.3 0.6 1.1
Sector Allocation -2.2 -5.8 12.3
Gearing/net cash -0.5 -1.6 5.6
Investment Manager's contribution 0.6 -6.8 19.0
Benchmark differentials - - -0.3
Portfolio total return -4.0 -22.8 69.0
Management fees/other expenses -1.0 -1.0 -0.9
Repurchase of shares for cancellation - - -
Other effects -1.0 -1.0 -0.9
Return on net assets(A) -5.0 -23.8 68.1
Impact of change in discount 0.6 -2.3 11.3
Return to shareholders(A) -4.4 -26.1 79.4
Source: JPMAM/Morningstar.
All figures are on a total return basis.
Performance attribution analyses how the Company achieved its recorded
performance relative to its benchmark.
(A) Alternative Performance Measure ('APM')
Portfolio
The three largest positive contributors to performance over the year were our
sizeable positions in Bank of Georgia (one of the two dominant banks in the
flourishing economy of Georgia), Ashtead Technology (sub-sea rental equipment
into the oil and gas and renewables markets) and Alpha Group International
(formerly named Alpha FX, a provider of FX management to corporates and
alternative banking solutions to financial institutions). All three continued
to grow significantly and produce strong results ahead of market expectations.
In addition, two of our smaller positions in Warpaint London (affordable
cosmetics) and Niox (a company focused on improving asthma diagnosis and
management) produced outsized returns in the year.
On the negative side, the main detractors included Serica Energy, the North
Sea gas producer, following the Government's extra tax levy on North Sea oil
and gas producers and OSB, the buy-to-let bank which, despite strong current
trading, disappointed the stockmarket with a negative update on the impact of
higher term revisionary mortgage rates on short term profitability. Not owning
Aston Martin also hurt performance on a relative basis. Two other
disappointments were Jadestone Energy and TP ICAP, both of which were sold.
The portfolio continued to evolve as we adapted to the changes in the economic
environment. New additions included XPS Pensions following significant
positive changes to pension fund dynamics and Vertu Motors on improved trading
and lowly valuation. We also bought a small position in hVIVO, the world
leader in the small but growing market of testing infectious disease vaccines
via human trials, and in Mitchells & Butler, the bar and pub company, as
the consumer outlook improved and inflationary pressures began to ease. Over
the year we also sold out of certain holdings including Wincantion and FRP
Advisory on concerns over current trading, and Liontrust Asset Management on
the proposed deal to buy GAM.
Environmental, Social, and Governance ('ESG') factors
Whilst the Company holds stocks based primarily on fundamentals, we also
consider the potential impact of ESG factors on a company's ability to deliver
shareholder value. We assess each company's strategy for dealing with these
important matters and the consequent risks arising from them. Our analysis
helps determine whether relevant ESG factors are financially material and, if
so, whether they are reflected in the valuation of the company. Such analysis
may influence not only our decision to own a stock but also, if we do, the
size of that position in the portfolio.
Company meetings continue to be an important opportunity to engage with our
portfolio companies on ESG issues. Examples of our engagement with companies
during the year and details of our voting record are set out in the ESG Report
in the Annual Report.
Outlook
The trajectory of inflation and interest rates are clearly key for the
outlook. While we had expected a mild recession in the UK in the second half
of 2023, the economy looks likely to avoid this - but UK growth prospects are
pedestrian at best. Following the encouraging inflation figures over the
summer we believe inflation has peaked in the UK, and we foresee a significant
further decline from the current levels over the course of 2023, which will
hopefully bring the UK more in line with other developed markets. Interest
rates at 5.25% have risen significantly and we believe are close to peak
levels. Consumer confidence has staged a significant recovery from its abject
lows - largely we believe due to continuing very low unemployment rates and
the wage increases that have been seen this year - although the recent spike
in mortgage rates caused a setback in what had been an upward trend.
Clearly the stockmarket is currently extremely focused on the macro economic
outlook. In this regard, the very recent historic revisions to GDP by the ONS
are a notable positive, demonstrating that the growth of the UK economy post
the pandemic has not been out of line with that of Europe. However, as always
our focus is on the companies themselves. Overall the message we are hearing
from them is a positive one. The majority of smaller companies are
successfully navigating their way through the headwinds of cost inflation,
labour inflation, labour shortages and higher interest costs. We continue to
find exciting and undervalued (and often fairly unknown) investment
opportunities, some of which we have outlined above.
History tells us that stockmarkets rally when investors believe that interest
rates are close to peak levels - and this has especially been the case for the
UK smaller companies sector. When this occurs, we believe the upside from
current lowly valuation levels could be substantial. In addition, investors
will be aware there is a significant focus by the Government on the future of
the UK equity market, and a strong desire to improve its allure. Although not
an instant fix, the change to pension investing proposed by the Mansion House
reforms this summer, with DC pension providers being strongly encouraged to
invest at least 5% of their funds in unlisted assets, should also be
beneficial for small cap companies. This is because stocks on the AIM market
are included in the definition of 'unlisted'. Additionally, M&A continues
apace, and post year end we have received a bid for our holding in Ergomed.
The current gearing level of just under 10% in the portfolio, compared to 7.3%
as at 12th October 2022, reflects our view of the compelling opportunities and
valuations currently available.
Georgina Brittain
Katen Patel
Portfolio Managers
12th October 2023
PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES
The Directors confirm that they have carried out a robust assessment of the
principal and emerging risks and uncertainties 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 them as far as practicable. The Audit Committee has
decided to hold a third meeting every year dedicated to the review of the
Company's risk matrix. The risks identified and the broad categories in which
they fall, and the ways in which they are managed or mitigated are summarised
below.
Principal risk Description Mitigating activities Movement from prior year
Strategic and Performance Risk The corporate strategy, including the investment objectives and policies, may The Board regularly reviews its strategy, and assesses, with its brokers, This risk remains high but unchanged from 2022.
not be of sufficient interest to current or prospective shareholders. Other shareholder views.
factors, such as the size of the Company and level of liquidity in its shares,
may also deter shareholder interest, resulting in the shares trading at an The Board manages these risks by diversification of the portfolio through its
increased discount to net asset value. investment restrictions and guidelines which are monitored and reported on.
The Manager provides the Directors with timely and accurate management
Poor investment performance, for example due to poor stock selection, asset information, including performance data and attribution analyses, revenue
allocation or an inappropriate level of gearing, may lead to under-performance estimates and liquidity reports. The Board monitors the implementation and
against the Company's benchmark index and peer companies, resulting in the results of the investment process with the Investment Managers, who attend
Company's shares trading on a wider discount. Board meetings, and reviews data which shows statistical measures of the
Company's risk profile. The Investment Manager employs the Company's gearing,
within a strategic range set by the Board.
Discount/ premium A disproportionate widening of the discount or narrowing of the premium In order to manage the volatility of the Company's discount the Company The risk remains high but unchanged from 2022.
relative to the Company's peers could result in loss of value for operates a share repurchase programme and the Board regularly discusses
shareholders, including as a result of lack of investor interest or reduction buyback policy and has set parameters for the Manager and the Company's broker
in market makers in the Company's shares. to follow. The Board receives regular reports and is actively involved in the
decision process. The Board receives shareholder feedback from the Company's
brokers and Manager and agrees the Company's sales and marketing plan with the
Manager. Meetings with the Chair are offered annually to the Company's largest
holders and all shareholders are encouraged to attend the AGM.
The Board regularly reviews and monitors the Company's objective and
investment policy and strategy, the investment portfolio and its performance,
the level of discount/premium to net asset value at which the shares trade and
movements in the share register.
Smaller Company Investment and Market Investing in smaller companies is inherently more risky and volatile, partly The Board discusses these risk factors at each Board meeting with the This risk remains high but unchanged from 2022.
due to a lack of liquidity in the shares, plus AIM stocks are less regulated. Investment Managers. The Investment Managers manage investment risk in
a variety of ways including the limits in relation to individual stocks and
sectors relative to the Benchmark, together with other investment restrictions
and guidelines, which are agreed with the Board. These are monitored on an
ongoing basis.
Economic Environment The outlook for longer term inflation and the interest rate cycle has The Manager takes account of macro economic/geopolitical backdrop in selecting Risk has been heightened by the current unfavourable economic conditions,
deteriorated and now presents a more serious risk to asset pricing and and taking investment decisions and reports to the Directors at each Board caused by the inflationary environment and rising interest rates.
economic performance going forward. meeting. In addition, the Board has open discussions with the Portfolio
Managers at each Board meeting including around interest rates/GDP and all
macro economic factors relative to the Company's business.
Political and Economic Changes in financial or tax legislation, changes in government policies, The Manager makes recommendations to the Board on accounting, dividend and tax This risk is unchanged but remains highlighted due to the quick succession of
financial crises, natural disasters and significant falls in the market could policies, and seeks external advice where appropriate. In addition, the Board the events which have unfolded in recent times i.e. Brexit, the ongoing
each adversely affect the Company's operation or performance. seeks to mitigate risks though portfolio diversification and limits on gearing COVID-19 pandemic and geopolitical crisis in Russia- Ukraine, adding
and conducts a regular review of the Company's control environment to ensure significant pressure on markets and economies.
Increasing risk to market stability and investment opportunities from actual the Company can continue to operate.
and potential geopolitical conflicts.
The Manager has dedicated resources to evaluate this as well as abundant
access to experts in the area. These sources are inputs into portfolio risk
management. The Manager takes into account companies with the most
geopolitical risks in selecting companies for investment. The Company
discusses global developments with the Manager and continues to monitor these
issues together with all other relevant considerations.
Investment Management Team Investment performance may suffer if the designated Portfolio Managers were to The Board considers that, though there may be short-term disruption, the risk This risk remains relatively unchanged. The Board remains comfortable with the
leave. would be mitigated by the substantial investment management resources of robustness of the succession plans within the Investment Management Team.
JPMorgan, and the use of an established investment methodology.
Accounting, Legal and Regulatory In order to qualify as an investment trust, the Company must comply with The Section 1158 qualification criteria are regularly monitored by the Manager This risk remains stable. Changes to the regulatory landscape are expected to
Section 1158 of the Income and Corporation Tax Act 2010 ('Section 1158'). and the results reported to the Board each month. The Board relies on the be ongoing.
Details of the Company's approval are given in the Annual Report. Should the services of its Company Secretary, JPMFL and its professional advisers to
Company breach Section 1158, it may lose its investment trust status and as a monitor compliance with all relevant requirements.
consequence capital gains within the Company's portfolio would be subject to
Capital Gains Tax. The Company must also comply with the provisions of The
Companies Act 2006 and, as its shares are listed on the London Stock Exchange,
the UKLA Listing Rules and Disclosure and Transparency Rules ('DTRs').
A breach of the Companies Act 2006 could result in the Company and/or the
Directors being fined or the subject of criminal proceedings. Breach of the
UKLA Listing Rules or DTRs may result in the Company's shares being suspended
from listing which in turn would breach Section 1158. The Company is also
subject to a number of other laws and regulations including AIFMD, MiFID II
and the Market Abuse Regulations.
Corporate governance risk arises if the Board fails to keep abreast of
evolving best practice.
Cyber Crime The threat of cyber attack, in all its guises, is regarded as at least as The Board has received the cyber security policies for its key third party This has remained stable during the year. To date the Manager's cyber security
important as more traditional physical threats to business continuity and service providers and JPMF has assured Directors that the Company benefits arrangements have proven robust and the Company has not been impacted by any
security. directly or indirectly from JPMorgan's Cyber Security programme. The cyber attacks threatening its operations.
information technology controls around the physical security of JPMorgan's
In addition to threatening the Company's operations, such an attack is likely data centres, security of its networks and security of its trading
to raise reputational issues which may damage the Company's share price and applications are tested by an independent third party and reported every six
reduce demand for its shares. months against the AAF Standard.
Climate change Climate change, which barely registered with investors a decade ago, has today Financial returns for long-term diversified investors should not be Climate change continues to be a critical threat facing the natural
become one of the most critical issues confronting asset managers and their jeopardised given the investment opportunities created by the world's environment and our societies.
investors. Investors can no longer ignore the impact that the world's changing transition to a low-carbon economy. The Board also considers the threat posed
climate will have on their portfolios, with the impact of climate change on by the physical impact of climate change on the operations of the Manager and
returns now inevitable. other major service providers. As extreme weather events become more common,
the resilience, business continuity planning and the location strategies of
our services providers will come under greater scrutiny.
In preparing the Company's financial statements the Directors have considered
the impact of climate change risk (see note 1(a)).
Emerging Risks
The AIC Code of Corporate Governance requires the Audit Committee to put in
place procedures to identify emerging risks. At each meeting, the Board
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, they may be entered on the Company's
risk matrix and mitigating actions considered as necessary. The Board, through
the Audit Committee, has not identified any emerging risks.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors' Report in the
Annual Report. The management fee payable to the Manager for the year was
£1,937,000 (2022: £2,492,000) of which £nil (2022: £nil) was outstanding
at the year end.
Included in administration expenses in note 6 in the Annual Report are safe
custody fees amounting to £4,000 (2022: £6,000) payable to JPMorgan Chase of
which £2,000 (2022: £1,000) was outstanding at the year end.
The Manager may carry out some of its dealing transactions through group
subsidiaries. These transactions are carried out at arm's length. The
commission payable to JPMorgan Securities Limited for the year was £nil
(2022: £nil) of which £nil (2022: £nil) was outstanding at the year end.
The Company also holds cash in the JPMorgan Sterling Liquidity Fund, which is
managed by JPMorgan. At the year end this was valued at £3.8 million (2022:
£9.4 million). Interest amounting to £151,000 (2022: £50,000) was
receivable during the year of which £nil (2022: £nil) was outstanding at the
year end.
Handling charges on dealing transactions amounting to £10,000 (2022: £9,000)
were payable to JPMorgan Chase during the year of which £3,000 (2022:
£2,000) was outstanding at the year end.
At the year end, total cash of £265,000 (2022: £294,000) was held with
JPMorgan Chase. A net amount of interest of £1,000 (2022: £nil) was
receivable by the Company during the year from JPMorgan Chase of which £nil
(2022: £nil) was outstanding at the year end.
Full details of Directors' remuneration and shareholdings can be found in the
Directors' Remuneration Report and in note 6 of the Annual Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards), comprising FRS 102
'The Financial Reporting Standard applicable in the UK and Republic of
Ireland' and applicable law). Under company law the Directors must not approve
the financial statements unless they are satisfied that, taken as a whole, the
annual report and accounts are fair balanced and understandable and provide
the information necessary, for shareholders to assess the Company's
performance, business model and strategy, and that they give a true and fair
view of the state of affairs of the Company and of the total return or loss of
the Company for that period. In preparing these financial statements, the
Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable UK Accounting Standards, comprising
FRS 102, have been followed, subject to any material departures disclosed and
explained in the financial statements;
• make judgments and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will continue in
business
and the Directors confirm that they have done so.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements and the Directors'
Remuneration Report 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 accounts are published on the www.jpmuksmallercompanies.co.uk website,
which is maintained by the Company's Manager. The maintenance and integrity of
the website maintained by the Manager is, so far as it relates to the Company,
the responsibility of the Manager. The work carried out by the auditor 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 Annual Report since it was initially presented on the
website. The Annual Report is 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 Strategic Report, a Directors' Report and a Directors'
Remuneration Report that comply with that law and those regulations.
Each of the Directors, whose names and functions are listed in Directors'
Report confirm that, to the best of their knowledge:
• the Company's financial statements, which have been prepared
in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, comprising FRS 102 'The Financial
Reporting Standard applicable in the UK and Republic of Ireland', and
applicable law), give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
• the 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 risks and uncertainties that it
faces.
The Board confirms that it is satisfied that the Annual Report and Financial
Statements taken as a whole is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company's
performance, business model and strategy.
For and on behalf of the Board
Andrew Impey
Chairman
12th October 2023
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31st July 2023
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Losses on investments held at fair value through
profit or loss - (17,843) (17,843) - (85,781) (85,781)
Net foreign currency losses - (2) (2) - (2) (2)
Income from investments 8,515 - 8,515 8,101 - 8,101
Interest receivable and similar income 152 - 152 50 - 50
Gross return/(loss) 8,667 (17,845) (9,178) 8,151 (85,783) (77,632)
Management fee (581) (1,356) (1,937) (748) (1,744) (2,492)
Other administrative expenses (559) - (559) (566) - (566)
Net return/(loss) before finance costs and taxation 7,527 (19,201) (11,674) 6,837 (87,527) (80,690)
Finance costs (344) (803) (1,147) (180) (419) (599)
Net return/(loss) before taxation 7,183 (20,004) (12,821) 6,657 (87,946) (81,289)
Taxation (36) - (36) (106) - (106)
Net return/(loss) after taxation 7,147 (20,004) (12,857) 6,551 (87,946) (81,395)
Return/(loss) per share (note 2) 9.16p (25.63)p (16.47)p 8.39p (112.68)p (104.29)p
A final dividend of 7.7p per share (2022: 6.9p per share) is proposed in
respect of the year ended 31st July 2023 amounting to
£6,010,000 (2022: £5,386,000). Further information on dividends is given in
note 10(a) 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 July 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 July 2021 3,981 25,895 2,903 308,194 5,318 346,291
Net (loss)/return - - - (87,946) 6,551 (81,395)
Dividends paid in the year (note 3) - - - - (4,449) (4,449)
At 31st July 2022 3,981 25,895 2,903 220,248 7,420 260,447
Net (loss)/return - - - (20,004) 7,147 (12,857)
Dividends paid in the year (note 3) - - - - (5,386) (5,386)
At 31st July 2023 3,981 25,895 2,903 200,244 9,181 242,204
(1) These reserves form the distributable reserves of the Company and
may be used to fund distribution of profits to investors.
STATEMENT OF FINANCIAL POSITION
At 31st July 2023
2023 2022
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 265,249 275,604
Current assets
Debtors 705 1,476
Cash and cash equivalents 4,027 9,650
4,732 11,126
Current liabilities
Creditors: amounts falling due within one year (27,777) (1,283)
Net current (liabilities)/assets (23,045) 9,843
Total assets less current liabilities 242,204 285,447
Non Current liabilities
Creditors: amounts falling due after one year - (25,000)
Net assets 242,204 260,447
Capital and reserves
Called up share capital 3,981 3,981
Share premium 25,895 25,895
Capital redemption reserve 2,903 2,903
Capital reserves 200,244 220,248
Revenue reserve 9,181 7,420
Total shareholders' funds 242,204 260,447
Net asset value per ordinary share (note 4) 310.3p 333.7p
STATEMENT OF CASH FLOWS
For the year ended 31st July 2023
2023 2022(1)
£'000 £'000
Cash flows from operating activities
Net loss before finance costs and taxation (11,674) (80,690)
Adjustment for:
Net losses on investments held at fair value through profit or loss 17,843 85,781
Net foreign currency losses 2 2
Dividend income (8,488) (7,956)
Interest income (152) (50)
Scrip dividends received as income (27) (145)
Realised loss/(gain) on foreign exchange transactions (2) 3
(Increase)/decrease in accrued income and other debtors (6) 1
Increase in accrued expenses 68 36
(2,436) (3,018)
Dividends received 8,505 7,419
Interest received 162 40
Net cash inflow from operating activities 6,231 4,441
Purchases of investments (92,884) (105,409)
Sales of investments 85,485 122,651
Settlement of foreign currency spot contracts - (4)
Net cash (outflow)/inflow from investing activities (7,399) 17,238
Dividends paid (5,386) (4,449)
Repayment of bank loans (6,000) (18,000)
Drawdown of bank loans 8,000 8,000
Interest paid (1,069) (604)
Litigation expense - (52)
Net cash outflow from financing activities (4,455) (15,105)
(Decrease)/increase in cash and cash equivalents (5,623) 6,574
Cash and cash equivalents at start of year 9,650 3,077
Exchange movements - (1)
Cash and cash equivalents at end of year 4,027 9,650
Cash and cash equivalents consist of:
Cash and short term deposits 265 294
Cash held in JPMorgan Sterling Liquidity Fund 3,762 9,356
Total 4,027 9,650
(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.
RECONCILIATION OF NET DEBT
As at As at
31st July 2022 Cash flows 31st July 2023
£'000 £'000 £'000
Cash and cash equivalents
Cash 294 (29) 265
Cash equivalents 9,356 (5,594) 3,762
9,650 (5,623) 4,027
Borrowings
Debt due within one year - (27,000) (27,000)
Debt due after one year (25,000) 25,000 -
Total (15,350) (7,623) (22,973)
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st July 2023
1. Accounting policies
Basis of accounting
The financial statements are prepared under the historical cost convention,
modified to include fixed asset investments at fair value, and in accordance
with the Companies Act 2006, United Kingdom Generally Accepted Accounting
Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard
applicable in the UK and Republic of Ireland' and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies and
Venture Capital Trusts' (the 'SORP') issued by the Association of Investment
Companies in July 2022. In preparing these financial statements the Directors
have considered the impact of climate change risk as a principal risk as set
out in the Annual Report, and have concluded that it does not have a material
impact on the value of the Company's investments. In line with FRS 102
investments are valued at fair value, which for the Company are quoted bid
prices for investments in active markets at 31st July 2023 and therefore
reflect market participants' view of climate change risk.
The financial statements have been prepared on a going concern basis. In
forming this opinion, the directors have considered the impact of heightened
market volatility since the Russian invasion of Ukraine, the persistent
inflationary environment, rising interest rates and other geopoliticall risks
on the going concern and viability of the Company. Having consulted the
Company's major shareholders through the remit of its advisers, the Directors
have a reasonable belief that the continuation vote will be supported by the
majority of shareholders at the 2023 AGM. They have considered the operational
resiliency of its key service providers, including the Manager. The Directors
have reviewed the compliance with loan covenants in assessing the going
concern and viability of the Company and other market strains. The Directors
will renew the Company's loan facility with Scotiabank for 364 days following
the Company's year-end. The Directors have reviewed income and expense
projections to 31st October 2024 and the liquidity of the investment portfolio
in making their assessment.
The accounting 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 7,147 6,551
Capital loss (20,004) (87,946)
Total loss (12,857) (81,395)
Weighted average number of shares in issue during the year 78,051,669 78,051,669
Revenue return per share 9.16p 8.39p
Capital loss per share (25.63)p (112.68)p
Total loss per share (16.47)p (104.29)p
There are no potentially dilutive shares in issue, therefore the basic total
loss per share and diluted total loss per share are the same.
3. Dividends
(a) Dividends paid and proposed
2023 2022
£'000 £'000
Dividend paid
2022 final dividend of 6.9p (2021: 5.7p) per share 5,386 4,449
Dividend proposed
2023 final dividend proposed of 7.7p (2022: 6.9p) per share 6,010 5,386
All dividends paid and proposed in the period have been and will be funded
from the revenue reserve.
The dividend proposed in respect of the year ended 31st July 2023 is subject
to shareholder approval at the forthcoming AGM. In accordance with the
accounting policy of the Company, this dividend will be reflected in the
financial statements for the year ending 31st July 2024.
(b) Dividend for the purposes of Section 1158 of the Corporation Tax Act
2010 ('Section 1158')
The requirements of Section 1158 are considered on the basis of dividends
declared in respect of the financial year, shown below. The revenue available
for distribution by way of dividend for the year is £7,147,000 (2022:
£6,551,000). The revenue reserve after payment of the final dividend will
amount to £3,171,000 (2022: £2,034,000).
2023 2022
£'000 £'000
2023 final dividend of 7.7p (2022: 6.9p) per share 6,010 5,386
4. Net asset value per share
2023 2022
Net assets (£'000) 242,204 260,447
Number of shares in issue 78,051,669 78,051,669
Net asset value per ordinary share 310.3p 333.7p
5. Status of results announcement
2022 Financial Information
The figures and financial information for 2022 are extracted from the Annual
Report and Financial Statements for the year ended 31st July 2022 and do not
constitute the statutory accounts for the year. The Annual Report and
Financial Statements has been delivered to the Registrar of Companies and
included the Report of the Independent Auditor 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
published Annual Report and Financial Statements for the year ended 31st July
2023 and do not constitute the statutory accounts for that year. The Annual
Report and Financial Statements includes the Report of the Independent
Auditors which is unqualified and does not contain a statement under either
section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report
and 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.
12th October 2023
For further information:
Lucy Dina
JPMorgan Funds Limited
0800 20 40 20 or +44 1268 44 44 70
ENDS
A copy of the 2023 Annual Report will shortly be submitted to the FCA's
National Storage Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://secureweb.jpmchase.net/readonly/https:/lnks.gd/l/eyJhbGciOiJIUzI1NiJ9.eyJidWxsZXRpbl9saW5rX2lkIjoxMDIsInVyaSI6ImJwMjpjbGljayIsImJ1bGxldGluX2lkIjoiMjAyMDA0MDUuMTk3NzA4MDEiLCJ1cmwiOiJodHRwczovL2RhdGEuZmNhLm9yZy51ay8jL25zbS9uYXRpb25hbHN0b3JhZ2VtZWNoYW5pc20ifQ.b7Q7NXHGRA8MjB_Ugl8Tv4JxhiU28TbcoNb04FTTMiY/br/77057565556-l)
The 2023 Annual Report will shortly be available on the Company's website at
www.jpmuksmallercompanies.co.uk (http://www.jpmuksmallercompanies.co.uk) where
up-to-date information on the Company, including daily NAV and share prices,
factsheets and portfolio information can also be found.
JPMORGAN FUNDS LIMITED
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. END FR NKBBKPBDDDKD