JPMorgan UK Sml Cap - Final Results
11/10/2024 15:02
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RNS Number : 9354H JPMorgan UK Small Cap Grwth&Inc PLC 11 October 2024
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN UK SMALL CAP GROWTH & INCOME PLC
FINAL RESULTS FOR THE YEAR ENDED 31ST JULY 2024
Legal Entity Identifier: 549300PXALXKUMU9JM18
Information disclosed in accordance with the DTR 4.1.3
JPMorgan UK Small Cap Growth & Income plc ('JUGI' or the 'Company')
reports its annual results for the year to 31st July 2024.
Highlights:
· NAV total return of +28.4% compared with benchmark* return of
+13.2%. Share price return to shareholders of +43.3%.
· For the five years ended 31st July 2024, NAV total return of
+62.2% compared with +24.5% for the Benchmark. Share price return to
shareholders of +88.2%.
· Intention to pay total dividend of 15.04 pence per share for the
financial year ending 31st July 2025 as a result of the introduction of an
enhanced dividend policy, equivalent to a 49.5% increase on the previous
year. (2024: 10.06p).
· Reduction in ongoing charges from 1.02% to 0.71%.
*Benchmark: Numis Smaller Companies plus AIM index (excluding Investment
Companies).
Key Developments:
· Combination with JPMorgan Mid Cap Investment Trust plc
(JMF): Successfully completed on 27th February 2024, resulting in the
acquisition of approximately £192.8 million of net assets from JMF and the
issuance of 59,529,867 new ordinary shares.
· Enhanced Dividend Policy: Introduced following completion of the
Combination, the intention to pay an annual dividend equivalent to 4% of the
Company's NAV as at the previous year end, with dividends now paid quarterly.
This does not change the Company's investment objective of achieving capital
growth from the portfolio.
The Chairman of JUGI, Andrew Impey, commented:
"It has been a momentous year for your Company. Following two challenging
years, performance has been notably strong, endorsing the long-term,
high-quality approach of your Portfolio Managers. The successful Combination
with JPMorgan Mid Cap Investment Trust plc has brought considerable benefits
including a significant reduction in the ongoing charges ratio and greater
liquidity (both resulting from economies of scale) and an enhanced dividend."
"Whilst macroeconomic data and geopolitics will probably continue to dominate
headlines, your Portfolio Managers will continue to follow their strategy of
buying well financed companies with good management, a favourable market
position and with an attractive valuation. The opportunity set is extensive,
the pipeline of new ideas is exciting and your Board and Portfolio Managers
retain a high level of conviction in their distinctive investment process."
JUGI's Portfolio Managers, Georgina Brittain and Katen Patel, commented:
"Our focus on high-quality companies with superior returns on equity and
generally strong market positions and high margins should continue to aid the
performance of your Company. We find it hard to over-emphasise the value we
are still finding in the smaller end of the market. The prevailing gearing
level of close to 10% reflects our view of the compelling opportunities
currently available."
Enquiries:
JPMorgan UK Small Cap Growth & Income plc
Press enquiries through Lansons PR
E-mail: consultancy@lansons.com
Investor Relations
Nick Allen-Perry, JPMorgan Funds Limited
E-mail: nick.w.allen-perry@jpmorgan.com
Tel: 02071348616
CHAIRMAN'S STATEMENT
Investment Comment & Performance
It has been a momentous year for the Company. Following two challenging years,
performance has been notably strong, endorsing the long-term, high-quality
approach of the Portfolio Managers. The successful Combination with JPMorgan
Mid Cap Investment Trust plc ('JMF', the 'Transaction') has brought
considerable benefits including a significant reduction in the ongoing charges
ratio and greater liquidity (both resulting from economies of scale) and an
enhanced dividend. Further details of the expected benefits of the Transaction
can be found in the Annual Report. We are grateful to the Shareholders of both
companies for their support and also to JPMorgan who made a significant
financial contribution to the Transaction costs via a six-month fee waiver
and, going forwards, a reduction in the management fee.
Over the period, global financial markets have focused on macro-economic data
and its potential to influence central bank interest rate policy. Investors
have continued to absorb a steady decline in the number of interest rate cuts
expected for the US, UK and Europe this year as central banks have stuck to
their data-dependent philosophy in the context of slower than expected
reductions in inflation. Nevertheless, the UK domestic market backdrop has
been more favourable as inflation has abated, interest rates have begun to
fall and political uncertainty has been removed following the Election. This
has encouraged investors to focus on the attractive valuations of many UK
stocks and, in particular, small and mid-sized companies.
Against this background, I am pleased to report that over the reporting period
ended 31st July 2024, the Company strongly outperformed its benchmark. The
Company's total return on net assets (with net dividends reinvested) was
+28.4% as compared to the Numis Smaller Companies plus AIM Index (excluding
investment companies) which returned +13.2%. The Company's share price
discount to NAV narrowed from 10.7% on 31st July 2023 to 1.1% on 31st July
2024 with a notable narrowing post the Transaction. As a result, the share
price total return to Shareholders over the period was +43.3%.
Since the year-end, the discount has widened to 4.8%, as at 9th October 2024.
The return on net assets was -8.0% compared to a decrease in the benchmark of
-4.2% and the return to Shareholders was -11.4%. While disappointing, this
timeframe represents too short a period over which to judge prospects.
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. As
ever, the Board is grateful to them for their diligence and skill.
Revenue and Dividends
Net revenue increased strongly for the third year in a row, growing from
£7,147,000 to £10,720,000 in the financial year to 31st July 2024, being
substantially enhanced in the five months following the Transaction.
At the Company's Annual General Meeting ('AGM') in November 2023, Shareholders
approved a final dividend of 7.7p per share which was paid on 7th December
2023.
As stated in the Company's circular for the Transaction, which completed on
28th February 2024, the Board paid a pre-completion dividend of 3.6p per share
to the then existing Shareholders on 27th February 2024.
Following completion of the Transaction, the Company paid a second interim
dividend of 6.46p to Shareholders on 1st July 2024 which was equivalent to 2%
of the unaudited NAV of the enlarged Company as at the date of Admission (28th
February 2024).
Furthermore, the Company introduced an enhanced dividend policy, targeting a
4% yield on the NAV per annum, calculated on the basis of 4% of unaudited NAV
as at 31st July each year, being the end of the preceding financial year of
the Company. As a result, the progression of the dividend will now be driven
by the prior year end NAV rather than the income earned over the year. Any
shortfall in annual net income to meet the 4% target will be met from
distributable reserves. It is important to note that there will be no impact
on the Company's existing investment approach. Under the enhanced dividend
policy, the Company will move from paying a final annual dividend to four
equal quarterly interim dividends, to be announced in August, November,
February and May and expected to be paid in October, January, April and July
each year. Accordingly, in line with the Company's new distribution policy, a
first quarterly interim dividend of 3.76 pence per share for the year ending
31st July 2025 was paid to Shareholders on 1st October 2024.
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 (with an option to increase the facility up to £60
million) was extended and then renewed in March 2024 with Scotiabank for a
period of 364 days. The new facility includes an accordion option to increase
the amount drawn to £90 million. More information on the Company's borrowing
facilities can be found in the Annual Report. 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, £55 million was drawn on the loan facility representing a
gearing level of 8.7% (2023: 9.5%) of net assets. As at 9th October 2024,
gearing was 7.9%.
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 use the authority to allot any shares but
bought 150,000 shares into Treasury. Prior to the Transaction, there were
79,611,410 shares in issue, including 1,709,741 shares held in Treasury.
Following the issue of shares in connection with the Transaction, there are
139,141,277 shares in issue, including 1,709,741 shares which are held in
Treasury and available for re-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 of and demand
for 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. The Board believes these
mechanisms 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 to allot new shares or re-sell shares out of Treasury up to approximately
10% as at the date of the AGM be renewed.
Board of Directors and Succession Planning
Following completion of the Transaction, three of the previous Directors of
JMF, being Lisa Gordon, Richard Gubbins and Hannah Philp, were appointed as
non-executive Directors of the Company. Therefore, the Board currently
consists of seven Directors, comprising the four Directors from the existing
Board and three Directors from the board of JMF. As indicated in my interim
Chairman's statement, I will be retiring at the forthcoming AGM, having
completed nine years as a non-executive Director and nearly five years as
Chairman. It has been an honour to serve as the Chairman and also to have the
opportunity to work with the Board, the investment team and others at JPMorgan
Asset Management who help support the Company. Richard Gubbins will also be
retiring from the Board at the AGM and we are grateful for his contribution to
the combination process.
Alice Ryder, in her role as Senior Independent Director, led the review to
find my successor and I am delighted to confirm that Katrina Hart will be
taking over from me following the AGM. Following Richard's and my retirement,
the Board will consist of five non-executive Directors, all with less than
nine years' tenure, providing the Company with relevant and complementary
skills. I am confident that I leave the Company in good health and in strong
hands.
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 an external on-line evaluation and the report confirmed
the efficacy of the Board.
In accordance with the Financial Conduct Authority's ('FCA') policy on
diversity, the Board complies with the gender recommendation and has had a
good gender balance for many years. It is committed to increasing diversity
and inclusion over time.
Annual General Meeting
The Company's thirty-fourth Annual General Meeting will be held at 60 Victoria
Embankment, London EC4Y 0JP on Wednesday 27th November 2024 at 10.00 a.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.jpmorganuksmallcapgrowthandincomeplc.com, 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. For 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.
Stay in Touch
The Board likes to ensure Shareholders have regular information about the
Company's progress. Please consider signing up for our email updates featuring
news and views, as well as the latest performance of the portfolio. You can
opt in via the QR Code in the front of the Annual Report or via the following
link tinyurl.com/JUGI-Subscribe.
Outlook
Encouragingly, inflation is moderating on both sides of the Atlantic, however,
monetary policy lags are notoriously difficult to forecast and they may be
beginning to bite. Concern that the Federal Reserve had been too slow to cut
interest rates contributed to a short but sharp market correction in early
August. Whilst this was a short lived reaction, it is perhaps indicative that
investors remain particularly sensitive to central bank policy and, by
association, critical data releases. Subsequently, the Federal Reserve Board
reduced rates by a larger than expected 0.5%, following previous cuts by the
Bank of England and the European Central Bank, and the US equity market has
now made new all-time highs. Most commentators expect to see global GDP growth
move back towards trend levels after the volatility of recent years which, if
true, will be welcomed by investors. GDP forecasts for 2024 have been revised
down in the near term for the US but expectations for the UK and Europe are
improving, albeit still below the US and anaemic in real terms. Politics looms
large as the US election approaches, European politics remains in the
spotlight and we will soon learn the actual economic plans of the new UK
Chancellor of the Exchequer. Once the outcome is known, investors should
welcome the greater degree of certainty.
Whilst macroeconomic data and geopolitics will probably continue to dominate
headlines, the Portfolio Managers will continue to follow their strategy of
buying well financed companies with good management, a favourable market
position and with an attractive valuation. The opportunity set is extensive,
the pipeline of new ideas is exciting and the Board and Portfolio Managers
retain a high level of conviction in their distinctive investment process.
Andrew Impey
Chairman
11th October 2024
INVESTMENT MANAGER'S REPORT
Performance and Market Background
The financial year to 31st July 2024 proved to be another turbulent one as
geopolitical risks continued to escalate. The appalling war in Ukraine raged
on, followed last Autumn by the atrocities in the Middle East and rising
tension in that region. The United States continued to be the growth engine of
the developed world. However, while the UK economy suffered a short and mild
recession in the last two quarters of 2023, it has bounced back in 2024,
proving to be the fastest growing economy in the G7. Political stability has
been re-established in the UK following the July General Election when Labour
was voted into power. Post our year end, after 14 consecutive rate rises, the
Bank of England cut interest rates by 25 basis points to 5% as inflation
cooled noticeably towards the target rate of 2%.
Against this backdrop, the Numis Smaller Companies plus AIM (ex Investment
Trusts) Index produced a strong return of +13.2% for the financial year. It
should be noted that almost all of this positive performance was in the
Company's second half. The Company outperformed strongly and produced a total
return on net asset value of +28.4% in the period, while the share price total
return was +43.3%, as the share price discount to net asset value reduced
considerably post the Company's Combination with JPMorgan Mid Cap Investment
Trust plc at the end of February 2024.
Performance attribution (%)
12 months to 12 months to 12 months to
31st July 2024 31st July 2023 31st July 2022
Contributions to total returns
Benchmark return 13.2 -4.6 -16.0
Stock selection 17.3 3.3 0.6
Sector allocation -2.1 -2.2 -5.8
Gearing/net cash 0.6 -0.5 -1.6
Investment Manager's contribution 15.8 0.6 -6.8
Portfolio total return 29.0 -4.0 -22.8
Management fees/other expenses -0.6 -1.0 -1.0
Issue of new shares and repurchase
of shares - - -
Other effects -0.6 -1.0 -1.0
Return on net assets(A) 28.4 -5.0 -23.8
Impact of change in discount 14.9 0.6 -2.3
Return to shareholders(A) 43.3 -4.4 -26.1
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
In February 2024 the Company successfully completed the Combination with
JPMorgan Mid Cap Investment Trust plc and was renamed JPMorgan UK Small Cap
Growth & Income plc. In addition to the significant number of common
holdings that were already owned in both portfolios, we transferred eight new
names into the enlarged Company, as well as the proceeds from the disposals we
made in JPMorgan Mid Cap Investment Trust prior to the Combination. New names
included Bellway (a leading UK housebuilder), Shaftesbury Capital (central
London focused REIT), Serco (global outsourcing service provider) and Virgin
Money (a challenger bank), which subsequently received a bid from Nationwide.
Following the Combination, we swiftly deployed the proceeds to align the
combined portfolio with our strategy. We are now utilising the enlarged
gearing facilities that were introduced post the Combination. Our smaller
company strategy remains unchanged, but as investors you will now also benefit
from reduced fees and an enhanced dividend policy, in addition to the other
benefits of greater scale, such as improved liquidity, and lower costs as a
percentage of assets.
Of the three largest positive contributors to performance over the year, two
were also notable contributors to last year's performance. These were our
sizeable positions in Ashtead Technology (subsea rental equipment into the oil
and gas and renewables markets) and Bank of Georgia (one of the two dominant
banks in the flourishing economy of Georgia). The third key contributor was
Warpaint London (affordable cosmetics). All three companies have a substantial
growth runway ahead of them, and continued to grow significantly and produce
strong results ahead of market expectations. In addition, a number of our
smaller positions produced outsized returns in the year. These included Keller
(the world's largest geotechnical specialist contractor), XPS Pensions
(pensions consultant and administrator) and the housebuilder Redrow. On the
negative side, the main detractors were our holdings in Serica, Indivior and
Watches of Switzerland. We exited the latter two positions but maintained a
reduced holding in Serica, a North Sea oil & gas company, on valuation
grounds.
In addition to the changes made during the Combination outlined above, the
portfolio continued to evolve as we adapted to changes in the economic
environment. New additions included Ascential, the events business, and the
retailer Currys as the consumer outlook improved and inflationary pressures
began to ease. We also bought a new position in Marston's, the pub company, to
increase further our exposure to the domestic consumer, after its significant
disposal of its brewing joint venture had removed concerns over the balance
sheet. During the year we also sold out of certain holdings including Big
Technologies and CAB Payments on concerns about current trading.
Environmental, Social, and Governance ('ESG') factors
Whilst the Company holds stocks based primarily on fundamentals, we also
consider the potential impact of financially material 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
In our interim report six months ago, we suggested that the outlook for the UK
economy was much less gloomy than the prevailing narrative suggested.
Excluding the UK's debt position, the economic data over recent months has
been more encouraging. The Bank of England's GDP forecasts have recently been
raised again and now expect 0.9% growth in 2024 and 1.75% for 2025. Inflation
is now close to target. The recent interest rate cut is hopefully the first of
many, as the current level is proving very restrictive. Unemployment remains
low, business confidence is high, and the August Composite PMI (Purchasing
Manager Indices) rose to an expansionary 53.8. The Gfk consumer data that we
follow closely is also on a notable upward trend. In summary, UK wages are
rising and UK balance sheets are strong. Household demand and confidence are
key drivers for the UK economy and the smaller companies universe is the
optimal way to benefit from domestic exposure.
Geopolitical risks aside, what are the key risks to this positive picture? Sir
Keir Starmer has warned of a 'painful' Budget in October. Potential economic
and market impacts from the Budget include changes to the capital gains tax
regime, a reduction in pension savings from changes to pension tax relief, and
a removal of the AIM market's tax reliefs. Other areas to monitor are proposed
labour market reforms and their potential impact on companies, the economy and
business confidence.
Our focus on high quality companies with superior returns on equity and
generally strong market positions and high margins should continue to aid the
performance of the Company. In addition, takeovers remain notable in their
number and underline the value opportunity that remains firmly on offer in the
UK market. In recent months the portfolio has benefitted from take-overs or
approaches for several of our holdings - Redrow, Ascential, IQGeo, Virgin
Money, Alpha FMC and Equals. We find it hard to over-emphasise the value we
are still finding in the smaller end of the market. The prevailing gearing
level of close to 10% reflects our view of the compelling opportunities
currently available.
Georgina Brittain
Katen Patel
Portfolio Managers
11th October 2024
PRINCIPAL AND EMERGING RISKS
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. During the year under
review, the Audit Committee 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, The risk has reduced with the Company's increased size following completion of
not be of sufficient interest to current or prospective shareholders. Other shareholder views. the Combination with JMF and the significant improvement in performance during
factors, such as the size of the Company and level of liquidity in its shares,
the year under review.
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. ä
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 Portfolio 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, and the Board evaluates corporate
opportunities to gain scale and other benefits.
Discount/ premium A disproportionate widening of the discount or narrowing of the premium In order to manage the volatility of the share price relative to NAV, the The risk remains high but has reduced with the improvement in the Company's
relative to the Company's peers could result in loss of value for Company has Shareholder authority to repurchase and issue shares. The Board performance and the increasing investor interest in UK small cap companies.
shareholders, including as a result of lack of investor interest or reduction regularly discusses buyback policy and has set parameters for the Manager and
in market makers in the Company's shares. the Company's broker to follow. The Board receives regular reports and is ä
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 Chairman 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 2023.
due to a lack of liquidity in the shares, plus AIM stocks are less regulated. Portfolio Managers. The Portfolio Managers manage investment risk in
a variety of ways including the limits in relation to individual stocks and â
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 can present The Manager takes account of the macro economic/geopolitical backdrop in This risk remains high due to relatively high interest rates; however, it is
a risk to asset pricing and economic performance. selecting and taking investment decisions and reports to the Directors at each lower than last year following an interest rate cut by the Bank of England.
Board meeting. In addition, the Board has open discussions with the Portfolio The UK inflation rate has also fallen closer to the Bank of England's target
Managers at each Board meeting including around interest rates/GDP and all rate of 2%.
macro economic factors relative to the Company's business.
ä
Political and Economic Financial crisis, a significant fall in markets, natural disasters, The Board discusses global developments with the Manager and will continue to The risk has increased due to the escalation of geopolitical events in the
significant political/regulatory change, a new pandemic or increasing risk to monitor these issues together with all other relevant considerations. The Middle East and Ukraine, as well as the succession of events that unfolded
market stability and investment opportunities from actual and potential Manager has dedicated resources to evaluate these risks, as well as access to such as BREXIT and the COVID-19 pandemic, adding significant pressure on
geopolitical conflicts could each adversely affect the Company's operation or experts where required, to assist in portfolio risk management. Neither the markets and economies.
performance. Manager nor the Board have control over events; however, mitigation of the
risks is sought through portfolio diversification, limits on gearing etc. In ã
addition the Board undertakes a regular review of the control environment to
ensure the Company can continue to operate in the event Business Continuity
Plans are implemented.
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 unchanged. The Board remains comfortable with the robustness
leave. would be mitigated by the substantial investment management resources of of the succession plans within the Investment Management Team.
JPMorgan, and the use of an established investment methodology.
â
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. â
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 receives the cyber security policies for its key third party service This has remained stable during the year. To date the Manager's cyber security
important as more traditional physical threats to business continuity and providers and assurance from JPMF that the Company benefits directly or arrangements have proven robust and the Company has not been impacted by any
security. indirectly from JPMorgan's Cyber Security programme. The information cyber attacks threatening its operations.
technology controls around the physical security of JPMorgan's data centres,
In addition to threatening the Company's operations, such an attack is likely security of its networks and security of its trading applications are tested â
to raise reputational issues which may damage the Company's share price and by an independent third party and reported every six months against the AAF
reduce demand for its shares. 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. by the physical impact of climate change on the operations of the Manager and â
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
£1,631,000 (2023: £1,937,000) of which £nil (2023: £nil) was outstanding
at the year end.
Included in administration expenses in note 6 in the Annual Report are safe
custody fees amounting to £6,000 (2023: £4,000) payable to JPMorgan Chase of
which £3,000 (2023: £2,000) was outstanding at the year end.
The Company also holds cash in JPMorgan GBP Liquidity Fund, which is managed
by JPMorgan. At the year end this was valued at £8.3 million (2023: £3.8
million). Interest income amounting to £314,000 (2023: £151,000) was
receivable during the year of which £nil (2023: £nil) was outstanding at the
year end.
Handling charges on dealing transactions amounting to £13,000 (2023:
£10,000) were payable to JPMorgan Chase during the year of which £5,000
(2023: £3,000) was outstanding at the year end.
At the year end, total cash of £257,000 (2023: £265,000) was held with
JPMorgan Chase. A net amount of interest of £4,000 (2023: £1,000) was
receivable by the Company during the year from JPMorgan Chase of which £nil
(2023: £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 in 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 Accounting Standards,
comprising Financial Reporting Standard 102 the 'Financial Reporting Standard
Applicable in the UK and Republic of Ireland' (FRS 102). Under company law the
Directors must not approve the financial statements unless they are satisfied
that, taken as a whole, the annual report and 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.jpmorganuksmallcapgrowthandincomeplc.com
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 the Directors'
Report confirm that, to the best of their knowledge:
• the financial statements, which have been prepared in accordance with
applicable law and United Kingdom Accounting Standards, comprising Financial
Reporting Standard 102 the 'Financial Reporting Standard Applicable in the UK
and Republic of Ireland' (FRS 102), give a true and fair view of the assets,
liabilities, financial position and return or loss of the Company; and
• the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal 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
11th October 2024
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31st July 2024
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at fair value
through profit or loss - 88,070 88,070 - (17,843) (17,843)
Net foreign currency gains/(losses) - 4 4 - (2) (2)
Income from investments 12,225 3,903 16,128 8,515 - 8,515
Interest receivable and similar income 318 - 318 152 - 152
Gross return/(loss) 12,543 91,977 104,520 8,667 (17,845) (9,178)
Management fee (490) (1,141) (1,631) (581) (1,356) (1,937)
Other administrative expenses (537) - (537) (559) - (559)
Net return/(loss) before finance costs and taxation 11,516 90,836 102,352 7,527 (19,201) (11,674)
Finance costs (796) (1,858) (2,654) (344) (803) (1,147)
Net return/(loss) before taxation 10,720 88,978 99,698 7,183 (20,004) (12,821)
Taxation - - - (36) - (36)
Net return/(loss) after taxation 10,720 88,978 99,698 7,147 (20,004) (12,857)
Return/(loss) per share (note 3) 10.39p 86.26p 96.65p 9.16p (25.63)p (16.47)p
Since the Company moved to paying quarterly dividends, a final dividend is no
longer payable (2023: 7.7p per share) in respect of the year ended 31st July
2024. 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. During the period, the Company acquired the assets of JPMorgan Mid
Cap Investment Trust plc (JMF) following the Combination. No other 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 the Total Comprehensive income.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31st July 2024
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 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 2) - - - - (5,386) (5,386)
At 31st July 2023 3,981 25,895 2,903 200,244 9,181 242,204
Repurchase of Ordinary shares into Treasury - - - (369) - (369)
Issue of Ordinary shares in respect of the
Combination with JMF 2,976 190,497 - - - 193,473
Costs in relation to issue of Ordinary shares - (242) - - - (242)
Net return - - - 88,978 10,720 99,698
Dividends paid in the year (note 2) - - - - (17,692) (17,692)
At 31st July 2024 6,957 216,150 2,903 288,853 2,209 517,072
(1) These reserves form the distributable reserves of the Company and may be
used to fund distribution of profits to investors. See note 15 in the Annual
Report for more details on distributable reserves.
STATEMENT OF FINANCIAL POSITION
At 31st July 2024
2024 2023
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 561,947 265,249
Current assets
Debtors 4,332 705
Cash and cash equivalents 8,513 4,027
12,845 4,732
Current liabilities
Creditors: amounts falling due within one year (57,720) (27,777)
Net current liabilities (44,875) (23,045)
Total assets less current liabilities 517,072 242,204
Net assets 517,072 242,204
Capital and reserves
Called up share capital 6,957 3,981
Share premium 216,150 25,895
Capital redemption reserve 2,903 2,903
Capital reserves 288,853 200,244
Revenue reserve 2,209 9,181
Total shareholders' funds 517,072 242,204
Net asset value per ordinary share (note 4) 376.2p 310.3p
STATEMENT OF CASH FLOWS
For the year ended 31st July 2024
2024 2023
£'000 £'000
Cash flows from operating activities
Net return/(loss) before finance costs and taxation 102,352 (11,674)
Adjustment for:
Net (gains)/losses on investments held at fair value through profit or (88,070) 17,843
loss
Dividend income (16,128) (8,488)
Interest income (318) (152)
Scrip dividends received as income - (27)
Increase in accrued income and other debtors (6) (6)
(Decrease)/increase in accrued expenses (12) 68
Net cash from operations before dividends, interest and tax (2,182) (2,436)
Dividends received 15,544 8,505
Interest received 318 162
Overseas withholding tax recovered 93 -
Net cash inflow from operating activities 13,773 6,231
Purchases of investments (157,705) (92,884)
Sales of investments 113,317 85,485
Cost in relation to acquisition of assets (1,026) -
Net cash outflow from investing activities (45,414) (7,399)
Dividends paid (note 2) (17,692) (5,386)
Net cash acquired following the Combination with JMF 28,730 -
Costs in relation to issue of Ordinary shares (242) -
Repurchase of Ordinary shares into Treasury (369) -
Repayment of bank loans (5,000) (6,000)
Drawdown of bank loans 33,000 8,000
Interest paid (2,300) (1,069)
Net cash inflow/(outflow) from financing activities 36,127 (4,455)
Increase/(decrease) in cash and cash equivalents 4,486 (5,623)
Cash and cash equivalents at start of year 4,027 9,650
Exchange movements - -
Cash and cash equivalents at end of year 8,513 4,027
Cash and cash equivalents consist of:
Cash and short term deposits 257 265
Cash held in JPMorgan GBP Liquidity Fund 8,256 3,762
Total 8,513 4,027
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st July 2024
1. Accounting policies
(a) Basis of accounting
The financial statements are prepared under the historical cost convention,
modified to include fixed asset investments at fair value, and in accordance
with the Companies Act 2006, United Kingdom Generally Accepted Accounting
Practice ('UK GAAP'), including 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 2024 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 escalating
conflict in the Middle East, the persistent inflationary environment, high
interest rates and other geopolitical risks on the going concern and viability
of the Company. They have considered the operational resiliency of its key
service providers, including the Manager. The Directors have also reviewed the
Company's compliance with debt covenants in assessing the going concern and
viability of the Company. The Directors have reviewed income and expense
projections to 31st October 2025 and the liquidity of the investment portfolio
in making their assessment and they believe that the Company has adequate
financial resources to continue its operational existence for the foreseeable
future, and for the period to 31st October 2025, which is at least 12 months
from the date the financial statements are authorised for issue. Further
details of Directors' considerations regarding this are given in the
Chairman's Statement, Investment Manager's Report, Going Concern Statement,
Viability Statement and Principal Risks Statement within this Annual Report.
The policies applied in these financial statements are consistent with those
applied in the preceding year.
(b) Issue of Shares Pursuant to a Scheme of Reconstruction of JPMorgan
Mid Cap Investment Trust plc (JMF) with the Company (the 'Combination')
On 27th February 2024, the Company issued new Ordinary shares to shareholders
of JMF in consideration for the receipt by the Company of assets pursuant to
the Combination with JMF (see the Annual Report for more information). The
Directors have considered the substance of the assets and activities of JMF,
determining whether these represent the acquisition of a business. The
acquisition is not judged to be an acquisition of a business, and therefore
has not been treated as a business Combination. Rather, the cost to acquire
the assets and liabilities of JMF has been allocated between the acquired
identifiable assets and liabilities based on their relative fair values on the
acquisition date without attributing any amount to goodwill or to deferred
taxes. Investments, cash and other assets were transferred from JMF. All
assets were acquired at their fair value. The value of the assets received, in
exchange for shares issued by the Company, have been recognised in share
capital and share premium, as shown in the Statement of Changes in Equity.
Direct costs in respect of the shares issued have been recognised in share
premium, whereas other professional costs in relation to the Combination have
been recognised as transaction costs included within gains and losses on
investments held at fair value through profit or loss.
2. Dividends
(a) Dividends paid and proposed
2024 2023
Pence £'000 Pence £'000
Dividends paid
Final dividend for prior year 7.70 6,010 6.90 5,386
Pre-completion dividend (i) 3.60 2,804 - -
Interim dividend (ii) 6.46 8,878 - -
Total dividends paid in the year 17.76 17,692 6.90 5,386
Dividend proposed
Final dividend proposed (iii) n/a n/a 7.70 6,010
All dividends paid and declared in the period have been funded from the
Revenue Reserve.
(i) As disclosed in the Prospectus dated 23rd January 2024, in
respect of the Issue of Scheme Shares pursuant to a scheme of reconstruction
of JPMorgan Mid Cap Investment Trust plc ('the Combination'), the Company paid
a pre-completion dividend of 3.60 pence per share to Shareholders on 27th
February 2024.
(ii) Following the successful completion of the Combination and in
lieu of any other interim or final dividend for the financial year of the
Company ended 31st July 2024, the Company paid an interim dividend of 6.46p,
based on 2% of the unaudited NAV of the enlarged Company as at the date of
Admission (28th February 2024).
(iii) The Company has introduced an enhanced dividend policy, targeting
a 4% yield on the NAV per annum, calculated on the basis of 4% of NAV as at
31st July each year, being the end of the preceding financial year of the
Company. Under the enhanced dividend policy, the Company has transitioned from
paying a single annual dividend to distributing four equal quarterly interim
dividends. These dividends will be announced in August, November, February and
May and are expected to be paid in October, January, April and July each year.
Consequently, no final dividend will be paid for the year ended 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 £10,720,000 (2023:
£7,147,000).
2024 2023
Pence £'000 Pence £'000
Pre-completion dividend 3.60 2,804 - -
Interim dividend(1) 6.46 8,878 - -
Final dividend(1) n/a n/a 7.70 6,010
Total 10.06 11,682 7.70 6,010
(1) The interim dividend paid for 2024 is in lieu of any other interim
dividend for the financial year. Following the transition to four equal
quarterly interim dividends, no final dividend will be distributed for the
year ended 31st July 2024 and in subsequent years.
3. Return/(loss) per share
2024 2023
£'000 £'000
Revenue return 10,720 7,147
Capital return/(loss) 88,978 (20,004)
Total return/(loss) 99,698 (12,857)
Weighted average number of shares in issue during the year 103,151,749 78,051,669
Revenue return per share 10.39p 9.16p
Capital return/(loss) per share 86.26p (25.63)p
Total return/(loss) per share 96.65p (16.47)p
4. Net asset value per share
2024 2023
Net assets (£'000) 517,072 242,204
Number of shares in issue 137,431,536 78,051,669
Net asset value per ordinary share 376.2p 310.3p
5. Status of results announcement
2024 Financial Information
The figures and financial information for 2024 are extracted from the Annual
Report and Financial Statements for the year ended 31st July 2024 and do not
constitute the statutory accounts for that year. The Annual Report and
Financial Statements include the Report of the Independent Auditor which is
unqualified and does not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006. The Annual Report and Accounts will
be delivered to the Registrar of Companies in due course.
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 the year. The Annual
Report and Financial Statements have 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.
11th October 2024
For further information, please contact:
Lucy Dina
For and on behalf of
JPMorgan Funds Limited
Telephone: 0800 20 40 20
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
JPMORGAN FUNDS LIMITED
ENDS
A copy of the 2024 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://data.fca.org.uk/#/nsm/nationalstoragemechanism)
The 2024 Annual Report will shortly be available on the Company's website at
www.jpmorganuksmallcapgrowthandincomeplc.com, where up-to-date information on
the Company, including daily NAV and share prices, factsheets and portfolio in
formation can also be found.
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