TIDMJMI
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 YEARED 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 GBP7,147,000 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 GBP300 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 GBP50 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, GBP27 million (2022: GBP25 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 Description Mitigating activities Movement from
risk prior year
Strategic The corporate strategy, The Board regularly reviews This risk remains
and Performance including the investment its strategy, and assesses, high but unchanged
Risk objectives and policies, with its brokers, shareholder from 2022.
may not be of sufficient views.
interest to current The Board manages these risks
or prospective shareholders. by diversification of the
Other factors, such portfolio through its investment
as the size of the restrictions and guidelines
Company and level of which are monitored and reported
liquidity in its shares, on. The Manager provides the
may also deter shareholder Directors with timely and
interest, resulting accurate management information,
in the shares trading including performance data
at an increased discount and attribution analyses,
to net asset value. revenue estimates and liquidity
Poor investment performance, reports. The Board monitors
for example due to the implementation and results
poor stock selection, of the investment process
asset allocation or with the Investment Managers,
an inappropriate level who attend Board meetings,
of gearing, may lead and reviews data which shows
to under-performance statistical measures of the
against the Company's Company's risk profile. The
benchmark index and Investment Manager employs
peer companies, resulting the Company's gearing, within
in the Company's shares a strategic range set by the
trading on a wider Board.
discount.
------------------------------- ----------------------------------------- -----------------------
Discount/ A disproportionate In order to manage the volatility The risk remains
premium widening of the discount of the Company's discount high but unchanged
or narrowing of the the Company operates a share from 2022.
premium relative to repurchase programme and the
the Company's peers Board regularly discusses
could result in loss buyback policy and has set
of value for shareholders, parameters for the Manager
including as a result and the Company's broker to
of lack of investor follow. The Board receives
interest or reduction regular reports and is actively
in market makers in involved in the decision process.
the Company's shares. 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 Investing in smaller The Board discusses these This risk remains
Company companies is inherently risk factors at each Board high but unchanged
Investment more risky and volatile, meeting with the Investment from 2022.
and Market partly due to a lack Managers. The Investment Managers
of liquidity in the manage investment risk in
shares, plus AIM stocks a variety of ways including
are less regulated. 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 The outlook for longer The Manager takes account Risk has been
Environment term inflation and of macro economic/geopolitical heightened by
the interest rate cycle backdrop in selecting and the current
has deteriorated and taking investment decisions unfavourable
now presents a more and reports to the Directors economic conditions,
serious risk to asset at each Board meeting. In caused by the
pricing and economic addition, the Board has open inflationary
performance going forward. discussions with the Portfolio environment
Managers at each Board meeting and rising interest
including around interest rates.
rates/GDP and all macro economic
factors relative to the Company's
business.
------------------------------- ----------------------------------------- -----------------------
Political Changes in financial The Manager makes recommendations This risk is
and Economic or tax legislation, to the Board on accounting, unchanged but
changes in government dividend and tax policies, remains highlighted
policies, financial and seeks external advice due to the quick
crises, natural disasters where appropriate. In addition, succession of
and significant falls the Board seeks to mitigate the events which
in the market could risks though portfolio diversification have unfolded
each adversely affect and limits on gearing and in recent times
the Company's operation conducts a regular review i.e. Brexit,
or performance. of the Company's control environment the ongoing
Increasing risk to to ensure the Company can COVID-19 pandemic
market stability and continue to operate. and geopolitical
investment opportunities The Manager has dedicated crisis in Russia-
from actual and potential resources to evaluate this Ukraine, adding
geopolitical conflicts. as well as abundant access significant
to experts in the area. These pressure on
sources are inputs into portfolio markets and
risk management. The Manager economies.
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 Investment performance The Board considers that, This risk remains
Management may suffer if the designated though there may be short-term relatively unchanged.
Team Portfolio Managers disruption, the risk would The Board remains
were to leave. be mitigated by the substantial comfortable
investment management resources with the robustness
of JPMorgan, and the use of of the succession
an established investment plans within
methodology. the Investment
Management Team.
------------------------------- ----------------------------------------- -----------------------
Accounting, In order to qualify The Section 1158 qualification This risk remains
Legal and as an investment trust, criteria are regularly monitored stable. Changes
Regulatory the Company must comply by the Manager and the results to the regulatory
with Section 1158 of reported to the Board each landscape are
the Income and Corporation month. The Board relies on expected to
Tax Act 2010 ('Section the services of its Company be ongoing.
1158'). Details of Secretary, JPMFL and its professional
the Company's approval advisers to monitor compliance
are given in the Annual with all relevant requirements.
Report. Should the
Company breach Section
1158, it may lose its
investment trust status
and as a 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 The Board has received the This has remained
attack, in all its cyber security policies for stable during
guises, is regarded its key third party service the year. To
as at least as important providers and JPMF has assured date the Manager's
as more traditional Directors that the Company cyber security
physical threats to benefits directly or indirectly arrangements
business continuity from JPMorgan's Cyber Security have proven
and security. programme. The information robust and the
In addition to threatening technology controls around Company has
the Company's operations, the physical security of JPMorgan's not been impacted
such an attack is likely data centres, security of by any cyber
to raise reputational its networks and security attacks threatening
issues which may damage of its trading applications its operations.
the Company's share are tested by an independent
price and reduce demand third party and reported every
for its shares. six months against the AAF
Standard.
------------------------------- ----------------------------------------- -----------------------
Climate Climate change, which Financial returns for long-term Climate change
change barely registered with diversified investors should continues to
investors a decade not be jeopardised given the be a critical
ago, has today become investment opportunities created threat facing
one of the most critical by the world's transition the natural
issues confronting to a low-carbon economy. The environment
asset managers and Board also considers the threat and our societies.
their investors. Investors posed by the physical impact
can no longer ignore of climate change on the operations
the impact that the of the Manager and other major
world's changing climate service providers. As extreme
will have on their weather events become more
portfolios, with the common, the resilience, business
impact of climate change continuity planning and the
on returns now inevitable. 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 GBP1,937,000 (2022: GBP2,492,000) of which
GBPnil (2022: GBPnil) was outstanding at the year end.
Included in administration expenses in note 6 in the Annual
Report are safe custody fees amounting to GBP4,000 (2022: GBP6,000)
payable to JPMorgan Chase of which GBP2,000 (2022: GBP1,000) 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 GBPnil (2022: GBPnil) of which GBPnil (2022:
GBPnil) 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 GBP3.8 million (2022: GBP9.4 million). Interest amounting to
GBP151,000 (2022: GBP50,000) was receivable during the year of
which GBPnil (2022: GBPnil) was outstanding at the year end.
Handling charges on dealing transactions amounting to GBP10,000
(2022: GBP9,000) were payable to JPMorgan Chase during the year of
which GBP3,000 (2022: GBP2,000) was outstanding at the year
end.
At the year end, total cash of GBP265,000 (2022: GBP294,000) was
held with JPMorgan Chase. A net amount of interest of GBP1,000
(2022: GBPnil) was receivable by the Company during the year from
JPMorgan Chase of which GBPnil (2022: GBPnil) 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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP6,010,000 (2022: GBP5,386,000). 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 Capital
up
share Share redemption Capital Revenue
capital premium reserve reserves(1) reserve(1) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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)
GBP'000 GBP'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 Cash flows 31st July
2022 2023
GBP'000 GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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 GBP7,147,000 (2022: GBP6,551,000). The revenue reserve
after payment of the final dividend will amount to GBP3,171,000
(2022: GBP2,034,000).
2023 2022
GBP'000 GBP'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 (GBP'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
The 2023 Annual Report will shortly be available on the
Company's website at 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
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