TIDMJUSC
RNS Number : 5719T
JPMorgan US Smaller Co. IT
20 March 2023
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEARED
31ST DECEMBER 2022
Legal Entity Identifier : 549300MDD7SOXDMBN667
Information disclosed in accordance with the DTR 4.1.3
CHAIRMAN'S STATEMENT
Performance
I am delighted to present the Annual Report of JPMorgan US
Smaller Companies Investment Trust plc ('the Company') for the year
ended 31st December 2022.
Having navigated the challenges of the COVID-19 pandemic, the
Company was faced with further market global headwinds from
heightened tensions between the US and China and the Russian
invasion of Ukraine. During the year, the US equity market grappled
with numerous interest rate hikes, high inflation levels, continued
supply chain constraints, fast-paced tightening liquidity and
recessionary risks. However, the Investment Managers continued with
their disciplined approach to investing and it is pleasing to
report that the Company's NAV outperformed the benchmark for the 12
months to 31st December 2022.
Despite the extreme volatility in the market, the Company's
total return on net assets over the year was -8.2% which compares
favourably with the -10.6% return for our benchmark, the Russell
2000 index in sterling terms. Return to shareholders was -15.7% for
the year. An explanation as to why the return to shareholders is
worse than the total return on net assets is given below.
Full details of investment performance, changes to the portfolio
and the outlook can be found in the Investment Managers' report in
the Annual Report and Financial Statements.
Discount and Premium
As has been said in the past, the Board aims to align the
Company's share price movements to changes in its net asset value
and monitors the discount or premium at which the shares trade on a
daily basis with the assistance of its broker and Manager. However,
a number of factors make it difficult to align share price and net
asset value movements including the often volatile prices of US
smaller companies investments and the additional volatility
introduced by owning assets denominated in dollars whilst having a
share price and net asset value reported in sterling.
Over the course of the year, the discount averaged 8.5%. Having
begun the year trading at a premium of 1.1% to NAV, the Company's
shares quickly moved to a discount in January 2022 and ended the
year at a discount of 7.3% to NAV. The movement of the shares from
a premium to discount is what led the total return to shareholders
to fall behind the total return on net assets.
Share Issuance and Buybacks
To help with the management of the discount, we have in place
the authority to repurchase up to 14.99% of the Company's issued
share capital and we will be seeking renewal of this authority at
the AGM. The Company's move from premium to discount is reflected
in its share issuance and buyback behaviour over the year.
In January 2022 the Company issued 125,000 shares from Treasury
and 75,000 new ordinary shares. In the subsequent months, the
Company bought back 760,643 shares into Treasury in periods when
discount levels were particularly elevated, reflected in the
weighted average discount of 8.2% at which these shares were
acquired. Since the year end, the Company has repurchased 109,821
shares into Treasury.
The Company's share buyback policy continues to have three major
objectives; to buy back shares with the aim of enhancing the NAV
for ongoing shareholders, to minimise discount volatility and
ultimately to ensure that the shares do not trade at an excessive
discount for a prolonged period of time. Of course, our ability to
achieve these outcomes will depend on prevailing market conditions
and the behaviour and risk appetites of investors.
The Company will also look to issue shares to enhance
shareholders' NAV and to avoid the formation of an excessive
premium which may not be in the best interests of incoming and
continuing shareholders alike.
Revenue and Dividend
The impact of the global concerns on the dividends received from
the Company's portfolio has remained relatively muted and the Board
is therefore delighted to recommend a dividend of 2.5p in respect
of the financial year ended 31st December 2022 (2021: 2.5p).
Subject to shareholders' approval at the Annual General Meeting
(AGM), this dividend will be paid on 19th May 2023 to shareholders
on the register at the close of business on 21st April 2023.
Shareholders should note the Company's objective is unchanged
and remains one of capital growth and our dividend policy will
therefore reflect the naturally occurring income on the underlying
portfolio.
Gearing
During the year, the Company continued to utilise its revolving
credit facility to maintain a meaningful but modest level of
gearing. The Board renewed its USD30 million loan facility, with an
option to draw a further USD10 million, in October 2021 for a
2-year term. The current facility matures on 27th October 2023 at
which point the Board will review its borrowing requirements.
As at 31st December 2022, the Company had drawn down USD30
million (GBP 24.9 million). It closed the year with a gearing level
of 6.8% having averaged approximately 6.9% throughout the year. The
Board believes that the use of gearing is a key advantage of the
investment trust structure and looks to maintain a consistent level
of gearing within its permitted 10% cash to 15% geared range.
Our policy sees gearing levels adjusted to reflect changes in
the Manager's perception of longer-term opportunities and market
risks rather than being used as a short-term market-timing
tool.
Environment, Social and Governance (ESG) considerations
We provide a full description of how ESG is integrated into the
investment management process later in this report. The Board
shares the Investment Managers' view of the importance of ESG
factors when making investments for the long term and of the
necessity of continued engagement with investee companies
throughout the duration of the investment. The Investment Managers'
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. Further information on the Manager's ESG
process and engagement is set out in the ESG Report section within
the Annual Report.
Board Succession
In January 2023 the Board, through its Nomination Committee,
carried out a comprehensive evaluation of the Board, its
committees, the individual Directors and the Chairman. Topics
discussed included the size and composition of the Board, Board
information and processes, shareholder engagement, and training and
accountability. The report confirmed the efficacy of the Board.
During the year, as part of its succession planning the Board
appointed Mandy Donald as a Director in January 2022 to succeed
Julia Le Blan as Chairman of the Audit Committee following Julia's
retirement in April 2022. The Board continues to monitor succession
planning.
In accordance with the UK Corporate Governance Code, Mandy
Donald, Christopher Metcalfe, Dominic Neary, Shefaly Yogendra and
myself will retire at the forthcoming AGM and, being eligible, will
offer ourselves for reappointment by shareholders.
Annual General Meeting
We are inviting shareholders to join us in person for the
Company's sixty-sixth AGM to be held on Monday, 24th April 2023 at
2.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP. The Board
hopes to welcome as many shareholders as possible.
As with previous years, you will have the opportunity to hear
from the Investment Managers. Their presentation will be followed
by a question and answer session. There will also be refreshments
afterwards, when shareholders will be able to meet members of the
Board. Shareholders wishing to follow the AGM proceedings but
choosing not to attend will be able to view them live and ask
questions through conferencing software. Details on how to register
together with access details can be found on the Company's website:
www.jpmussmallercompanies.co.uk, or by contacting the Company
Secretary at invtrusts.cosec@jpmorgan.com.
In accordance with normal practice, all voting on the
resolutions will be conducted on a poll. Due to technological
reasons, shareholders viewing the meeting via conferencing software
will not be able to vote on the poll and we therefore encourage all
shareholders, and particularly those who cannot attend physically,
to submit their proxy votes in advance of the meeting, so that they
are registered and recorded at the AGM. Proxy votes can be lodged
in advance of the AGM either by post or electronically: detailed
instructions are included in the Notes to the Notice of Annual
General Meeting in the Annual Report. In addition, shareholders are
encouraged to send any questions ahead of the AGM to the Board via
the Company Secretary at the email address above. We will endeavour
to answer relevant questions at the meeting or via the website
depending on arrangements in place at the time.
If there are any changes to the above AGM arrangements, the
Company will update shareholders through its website and, as
appropriate, through an announcement on the London Stock
Exchange.
Outlook
2022 was a difficult year with a number of headwinds and, while
some still remain, there are reasons to be optimistic as 2023
unfolds. As the Investment Managers note in their report, we see
small cap valuations at historic lows despite an improving earnings
picture. Inflation, although remaining high, is now in retreat and
we may be nearing the end of material interest rate increases.
However, there are likely to be setbacks, as evidenced by recent
issues in the banking sector. In addition, the potential for
recession has not gone away and the Board and the Manager continue
to communicate regularly and monitor the associated risks.
Whatever challenges 2023 throws our way, we remain confident
that the Investment Managers' disciplined approach to investment
will continue to identify high quality businesses that will deliver
good long term returns.
David Ross
Chairman 20th March 2023
INVESTMENT MANAGERS' REPORT
Market Review
2022 was a difficult year for market participants, to say the
least. Equities marched steadily higher throughout 2021, driving
valuations to elevated levels exiting the year. As the calendar
turned, optimism gave way to pessimism as macro conditions
deteriorated on the back of persistent inflation, a hawkish Fed and
geopolitical concerns, all of which increased the risk of
recession.
After three years of strength, equity markets were whiplashed
with a volatile year, beginning with a Fed that no longer
considered inflation to be transitory and vowed to tame it with
increasingly aggressive rate hikes. Compounding inflationary
concerns was the war in Ukraine, which drove oil and gas prices
higher and placed further pressure on the Fed to act. As risk of
recession increased, and investors re-priced assets on the back of
higher interest rates, developed equity markets saw the worst first
half performance in over two decades. Over the course of the year,
the Fed hiked rates by a cumulative 425 basis points after entering
the year with a view that 75 basis points would be sufficient. As a
result of unsnarling supply chains and aggressive Fed actions, US
CPI peaked in June 2022 at 9.1% and trended down to 7.1% by
November, providing some hope for a 'soft' economic landing in the
US. Throughout 2022, Corporate America battled high interest rates,
contraction in manufacturing and dampened consumer sentiment. As a
result, earnings forecasts for 2023 witnessed sharp cuts towards
the end of the year.
Large cap stocks as represented by the S&P 500 Index
outperformed the small cap Russell 2000 Index, as they returned
-18.1% (in US dollar terms) vs. -20.4%, respectively. Value
outperformed Growth by a massive margin, as the Russell 3000 Value
Index returned -8.0% and the Russell 3000 Growth Index returned
-29.0%.
Performance
The Portfolio's net asset value decreased by 8.2% in 2022. The
Company outperformed its benchmark, the Russell 2000 Index (Net),
which fell by 10.6% in sterling terms in the face of a challenging
year and steep market decline. Stock selection was the primary
driver of outperformance.
With regard to relative performance, our stock selection in the
consumer discretionary and industrials sectors contributed the
most.
Within industrials, our position in WillScot Mobile Mini, and
our exposure to WEX, were among the top contributors. WillScot
Mobile Mini, one of the largest providers of modular office space
and portable storage, reported strong quarterly earnings results
and provided a favourable outlook for FY23 as it continues to
execute on robust demand. Strong pricing and volumes aided the
company's performance. We continue to like the business and think
that the company is well positioned to weather any potential
macroeconomic slowdown. WEX, a payment processing and technology
solutions provider also reported strong quarterly results that
demonstrated solid revenue upside and benefitted from re-opening
trends as fleet and travel volumes rebounded. Moreover, WEX's fleet
segment benefitted from rising fuel prices, acting as an inflation
hedge, which has been a positive in this macro environment. We
remain comfortable with our position in the company.
Among individual names, our exposure to Encompass Health, one of
the largest Inpatient Rehab Facilities (IRF) within the health care
sector, aided performance. Shares soared despite inflationary and
higher cost pressures which led to a lower guidance for
profitability. The optimism around non-cyclical revenue growth,
coupled with growth in beds/facilities and solid pricing boosted
the stock's performance. We think that investors have been willing
to look past near term transitory margin headwinds mostly related
to new facility opening and labor costs, as topline momentum should
continue into 2023 and margins start to move off the bottom. We
continue to like the name and view its valuation as attractive.
The contributions to relative performance of your portfolio's
sector positioning were all positive, with the exception of the
continuing underweight in energy. The energy sector rose due to a
rally in oil prices during the year and continued to rise despite
oil prices remaining range-bound. Rumours of an end to the
Covid-Zero policy in China boosted hopes for an oil demand recovery
in Asia. Energy remains an underweight for us, but we continue to
assess the long-term sustainability of capital allocation
discipline in the space and search for new ideas that will both
benefit from secular trends and fit our quality-oriented investment
philosophy.
Among individual names, our exposure to Syneos Health, a
biopharmaceutical solutions organisation, was the largest detractor
for the year. Low reimbursable expenses and foreign exchange
headwinds impacted the company's earnings results. Moreover, weak
performance of its clinical business segment was one of the main
drivers of underperformance. We continue to hold a position in the
company due to its attractive valuation and long-term
potential.
Our exposure to Hayward, a manufacturer of pool equipment and
associated automation systems, within the industrials sector proved
lackluster. Along with many other COVID beneficiaries, the stock
underperformed as demand trends normalised and excess channel
inventory needed to be addressed. We maintain our conviction in the
company as its valuation looks attractive on a longer-term
basis.
Performance Attribution
Year ended 31st December 2022
% %
Contributions to total returns
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Benchmark return -10.6%
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Asset Allocation -1.3%
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Stock Selection* 6.2%
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Investment Manager Contribution 4.9%
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Portfolio total return -5.7%
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Impact of cash/gearing* -1.6%
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Management fee/other expenses -1.0%
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Share issuance 0.1%
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Other effects -2.5%
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Cum Income Net Asset Value Total Return -8.2%
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Share Price Total Return -15.7%
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* Includes impact of FX movement on USD loan
Source: Wilshire, JPMAM and Morningstar. All figures are on a
total return basis.
Performance attribution analyses how the Company achieved its
recorded performance relative to its benchmark index.
Portfolio Positioning
With regard to our portfolio positioning, we continue to focus
on finding companies with durable franchises, good management teams
and stable earnings that trade at a discount to their intrinsic
value. We continue to believe that smaller companies are worth
investing in for long term investors as they include innovative
companies that serve market niches and thereby can be a way to get
in early on innovation.
We have been trimming cyclical outperformers and expensive
defensives and COVID winners as the strength in the market during
the last quarter of 2022, and our outperformance, provided an
opportunity to take some profits. We continue to add to high
quality growth names in a measured fashion and added to most beaten
down cyclicals, given the strength of the franchises and depressed
valuations. We also modestly added to software names within the
technology sector. Our largest absolute and relative weight remains
in industrials, followed by financials.
On the other hand, our largest underweights remain in the energy
and health care sectors. While we have struggled to find high
quality assets within the traditional energy sector, we believe
there are more interesting opportunities within the alternative
energy space.
Market Outlook
We remain optimistic about small caps as we begin 2023 given the
constructive backdrop and valuation. The last decade has been
challenging for small caps when compared to large caps, and 2022
was no exception. However, small cap valuations are at historic
lows akin to those witnessed during the Technology-media-telecoms
bubble of the late 1990s/early 2000s or the Great Financial Crisis
in 2008-2009. Forward looking performance coming out of those
periods was very favourable for small caps for several years. The
promising backdrop for small caps also includes an improving
earnings picture in the face of high, but declining inflation
coupled with higher rates.
While the economy teeters on the edge of recession, we remain
balanced and continue to monitor incremental risks that could
represent headwinds for U.S. equities. Through the volatility, we
continue to focus on high conviction stocks and take advantage of
market dislocations for compelling stock selection
opportunities.
Don San Jose
Jon Brachle
Dan Percella
Investment Managers 20th March 2023
PRINCIPAL AND EMERGING RISKS
The Directors confirm that they have carried out a robust
assessment of the principal and emerging risks facing the Company,
including those that would threaten its business model, future
performance, solvency or liquidity. With the assistance of JPMF,
the Audit Committee has drawn up a risk matrix, which identifies
the key risks to the Company. These are reviewed and noted by the
Board and the Board undertakes further work and engages with the
Manager where necessary. The risks identified and the broad
categories in which they fall, and the ways in which they are
managed or mitigated are summarised below. The AIC Code of
Corporate Governance requires the Audit Committee to put in place
procedures to identify emerging risks. The key emerging risks
identified are also summarised below.
Principal risk Description Mitigating activities
Investment Management and Performance
Underperformance Poor implementation of the A broadly diversified portfolio
investment strategy may lead of equities is managed in line
to underperformance against with Board-approved investment
the Company's benchmark index restrictions and guidelines. Investments
and peer companies. are monitored and reported on by
the Manager who provides the Board
with regular information, including
performance data and attribution
analyses, revenue estimates, liquidity
reports and shareholder analyses.
The Board monitors the implementation
and results of the investment process
with the Investment Managers, who
participate at all Board meetings,
and reviews data which show statistical
measures of the Company's risk
profile. The Investment Managers
employ the Company's gearing within
a strategic range set by the Board.
In addition to regular Board reviews
of investment strategy, the Board
holds a separate meeting devoted
to strategy each year.
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Market and Market risk arises from uncertainty This risk is managed to some extent
Economic Risk about the future prices of by diversification of investments
the company's investments, and by regular communication with
which might result from economic, the Manager on matters of investment
fiscal and regulatory change, strategy and portfolio construction
including the continuing impact which will directly or indirectly
of COVID-19 and possibly further include an assessment of these
variants and will weigh on risks.
recovery as economies try The Board considers asset allocation,
to emerge from the pandemic. stock selection and levels of gearing
At present market risk is on a regular basis and has set
heightened due to various investment restrictions and guidelines,
risks mentioned in the Chairman which are monitored and reported
and Managers' reports, for on by the Manager. The Board monitors
example, fear of sustained the implementation and results
inflation, interest rate rises of the investment process with
and continuing supply chain the Manager.
issues. The mid-term elections
may also cause some increased
volatility.
Geopolitical risks will also
affect the market and are
currently heightened due to
the war in Ukraine and tensions
with China. The war in Ukraine
has caused volatility in the
market and increased energy
costs and is likely to continue
to disrupt global markets
for some time.
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Discount Control Investment trusts shares often The Board monitors the share price
Risk trade at discounts to their against the absolute and sector
underlying NAV; they can also relative premium/discount levels.
trade at a premium. Discounts The Board reviews sales and marketing
and premiums can fluctuate activity and sector relative performance,
considerably leading to volatile which it believes are the primary
returns for shareholders. drivers of the relative premium/discount
level. The Company has authority
to buy back its existing shares
or issue new shares to enhance
the NAV per share for remaining
shareholders when deemed appropriate.
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Shareholder Certain buyers within the The Board reviews sales and marketing
Demand sector will only consider activity and it also receives regular
investing into an investment feedback via the Manager's sales
trust where its AUM is over team from both existing and prospective
a certain level; the Company's shareholders.
AUM currently stands below
these levels.
------------------------------------------ --------------------------------------------
Loss of Investment A sudden departure of the The Board seeks assurance that
Team or Portfolio Investment Managers, or several the Manager takes steps to reduce
Manager members of the investment the likelihood of such an event
management team could result by ensuring appropriate succession
in a short term deterioration planning and the adoption of a
in investment performance. team-based approach, as well as
special efforts to retain key personnel.
The Board engages with the senior
management of the Manager in order
to mitigate this risk.
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Operational Risks
Outsourcing Disruption to, or failure Details of how the Board monitors
of, the Manager's accounting, the services provided by JPM and
dealing or payments systems its associates and the key elements
or the Registrar, Depositary designed to provide effective risk
or Custodian's records may management and internal control
prevent accurate reporting are included within the Risk Management
and monitoring of the Company's and Internal Controls section of
financial position or a misappropriation the Corporate Governance Statement
of assets. in the Annual Report.
The Manager has a comprehensive
business continuity plan which
facilitates continued operation
of the business in the event of
a service disruption (including
disruption resulting from a pandemic).
Directors have received evidence
that the Manager and its key third
party service providers have business
continuity plans in place and that
these are regularly tested. The
response to the restrictions imposed
during the COVID-19 pandemic gives
assurance that the controls are
in place and that the Manager and
the service providers are working
as expected.
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Cyber Crime The threat of cyber attack, The Company benefits directly and/or
in all guises, is regarded indirectly from all elements of
as at least as important as JPMorgan's Cyber Security programme.
more traditional physical The information technology controls
threats to business continuity around physical security of JPMorgan's
and security. data centres, security of its networks
and security of its trading applications,
are tested by independent auditors
and reported every six months against
the AAF Standard.
The Company and the Manager have
evidence from the major service
providers that they have procedures
in place to maintain the best practices
in the fight against cybercrime
and to ensure business resiliency.
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Corporate Governance
Statutory and Failure to comply with relevant The Board relies on the services
Regulatory statute law or regulation of its Company Secretary, the Manager
Compliance may have an impact on the and its professional advisers to
Company both in terms of fines ensure compliance with the Companies
and in terms of its ability Act 2006, the UKLA Listing Rules,
to continue to operate. DTRs, MAR and AIFMD. Details of
Also, the Company's business the Company's compliance with Corporate
model could become non-viable Governance best practice, are set
as a result of new or revised out in the Corporate Governance
rules or regulations arising Statement in the Annual Report.
from, for example, policy The Board receives regular reports
change or political impact. from its broker, depositary, registrar
and Manager as well as its legal
advisers and the Association of
Investment Companies on changes
to regulations which could impact
the Company and its industry. The
Company monitors events and relies
on the Manager and its key third
party providers to manage this
risk by preparing for any changes.
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Environmental
Climate Change Climate change has become The Board receives ESG reports
one of the most critical issues from the Manager on the portfolio
confronting companies and and the way ESG considerations
their investors. Climate change are integrated into the investment
can have a significant impact decision-making, so as to mitigate
on the business models, sustainability risk at the level of stock selection
and even viability of individual and portfolio construction. As
companies, whole sectors and extreme weather events become more
even asset classes. common, the resiliency, business
continuity planning and the location
strategies of the Company's services
providers will come under greater
scrutiny.
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Emerging risk Description Mitigating activities
------------------------------------------ --------------------------------------------
Political and Political issues and changes The Manager monitors events and
Economic in financial or tax legislation makes recommendations to the Board
in the UK or the US may lead on accounting, dividend and tax
to changes to the operating policies and the Board seeks external
model of the Company and/or advice where appropriate.
reduce the appeal of the Company
to shareholders.
------------------------------------------ --------------------------------------------
Global Pandemics The outbreak and spread of Time after time, markets have recovered,
COVID-19 has highlighted the albeit over varying and sometimes
speed and extent of economic extended time periods, and so the
damage that can arise from Board does have an expectation
a pandemic. Should a new form that the portfolio's holdings will
of the virus or another pandemic not suffer a material long-term
emerge that spreads more aggressively impact and should recover. The
or is more virulent, it may Board receives reports on the business
present risks to the operations continuity plans of the Manager
of the Company, its Manager and other key service providers.
and other major service providers. The effectiveness of these measures
have been assessed throughout the
course of the COVID-19 pandemic
and the Board will continue to
monitor developments as they occur
and seek to learn lessons which
may be of use in the event of future
pandemics. Should the virus become
more virulent than is currently
the case, it may present risks
to the operations of the Company,
its Manager and other major service
providers.
Should efforts to control a pandemic
prove ineffectual or meet with
substantial levels of public opposition,
there is the risk of social disorder
arising at a local, national or
international level. Even limited
or localised societal breakdown
may threaten both the ability of
the Company to operate, the ability
of investors to transact in the
Company's securities and ultimately
the ability of the Company to pursue
its investment objective and purpose.
------------------------------------------ --------------------------------------------
Market Risk Inappropriate Government/Central The Manager's market strategists
banks fiscal or monetary responses are available for the Board and
to the debt burden arising can discuss market trends. External
from the COVID-19 stimulus consultants and experts can be
packages combined with inflation, accessed by the Board. The Board
the potential of stagflation, can, with shareholder approval
economies threatened by recession look to amend the investment policy
and the unknown consequences and objectives of the Company,
of the war in Ukraine could if required, to enable investment
lead to material adverse movements in companies or assets which offer
in asset prices. These factors, more appealing risk/return characteristics
in the long term, could also in prevailing economic conditions.
render the Company'-s objectives
and policies unachievable.
------------------------------------------ --------------------------------------------
Ongoing shareholder Competing investment vehicles The Manager has a dedicated investment
demand (e.g. ETFs) or new investment trust sales team that works closely
technologies may render the with the Company's broker as well
Company's shares unappealing as current and prospective shareholders.
to shareholders. Regular meetings are held with
shareholders to try to ensure continued
demand/interest. Both the Manager
and the broker submit a sales activity
report to each Board meeting and
are available to discuss any issues
throughout the year.
In addition, the Manager's marketing
team has focused on marketing more
effectively to retail shareholders
which represent a vast majority
of the Company's shareholder base.
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LONG TERM VIABILITY
The Company is an investment trust with an objective of
achieving capital growth from investing in US smaller companies.
The Company enjoys the benefit of the closed ended structure and is
therefore better able to withstand market movements since it is not
subject to forced liquidation of investments due to sudden or large
redemptions by shareholders.
The Board notes by way of context that the Company has invested
through many difficult economic and market cycles since its
incorporation in 1955. The Board is cognisant of the unusually high
levels of political, economic and market uncertainty being
experienced at the current time and its potential impact on the
prospects of many of the Company's portfolio holdings. This
includes the continuing war in Ukraine and the political tensions
between the US and China. Notwithstanding this crisis, given the
factors stated below, the Board expects the Company to continue for
the foreseeable future and has conducted its assessment for a
period of five years.
In conducting its assessment of the long term viability of the
Company, the Board has taken account of the Company's current
financial position, its debt level and debt covenants, the
liquidity of its holdings as well as the principal and emerging
risks that it faces, the investment capabilities of the Manager,
the Manager's historic longer term investment performance and the
current outlook for the US economy and its equity markets.
The Board has further considered the mitigation measures which
key service providers, including the Manager, have in place to
maintain operational resilience.
In addition to the above, the Company has carried out stress
testing of a number of scenarios where the Company might be put
under significant stress due to market volatility. This included
modelling the impact of substantial market falls and testing
portfolio liquidity under stress. The results demonstrated the
impact on the Company's NAV, its expenses, its debt levels and the
covenants attached to that debt as well as the Company's ability to
meet its liabilities. In even the most stressed scenario, the
Company was shown to have sufficient cash, or to be able to
liquidate a sufficient portion of its listed holdings, in order to
meet its liabilities as they fall due. See notes 13 and 14 in the
Annual Report and Financial Statements.
In determining the appropriate period of assessment the
Directors had regard to their view that, given the Company's
objective of achieving capital growth, shareholders should consider
the Company as a long term investment proposition. This is
consistent with advice provided by independent financial advisers
and wealth managers, that investors should consider investing in
equities for a minimum of five years. The Directors also take
account of the inherent uncertainties of equity markets and the
existence of a continuation vote every five years. As a result of
all these deliberations, the Directors consider five years to be an
appropriate time horizon to assess the Company's viability.
The Directors confirm that they have a reasonable expectation
that the Company will be able to continue in operation, subject to
shareholders voting in favour of continuation at the AGM in 2025,
and meet its liabilities as they fall due over the next five years
until 31st December 2027. This reasonable expectation is subject to
there being no significant adverse change to the regulatory or
taxation environment for investment trusts; and subject to there
being no sustained adverse investment performance by the current or
any successive Investment Managers, that may result in the Company
not being able to maintain a supportive shareholder base.
TRANSACTIONS WITH THE MANAGER
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 GBP2,080,000 (2021: GBP2,341,000) of which
GBPnil (2021: GBPnil) was outstanding at the year end.
Included in administration expenses in note 6 in the Annual
Report and Financial Statements are safe custody fees amounting to
GBP2,000 (2021: GBP3,000) payable to JPMorgan Chase Bank, N.A. of
which GBP1,000 (2021: GBP1,000) was outstanding at the year
end.
The Company also holds cash in the JPMorgan US Dollar Liquidity
Fund, which is managed by JPMorgan. At the year end this was valued
at GBP6.6 million (2021: GBP3.0 million). Income amounting to
GBP118,000 (2021: GBP5,000) was receivable during the year of which
GBPnil (2021: GBPnil) was outstanding at the year end. The JPMorgan
US Dollar Liquidity Fund does not charge a fee and the Company does
not invest in any other investment fund managed or advised by
JPMorgan.
Handling charges on dealing transactions amounting to GBP6,000
(2021: GBP6,000) were payable to JPMorgan Chase Bank, N.A. during
the year of which GBP1,000 (2021: GBP1,000) was outstanding at the
year end.
At the year end, total cash of GBP3,000 (2021: GBP27,000) was
held with JPMorgan Chase Bank, N.A. A net amount of interest of
GBPnil (2021: GBP25,000) was receivable by the Company during the
year from JPMorgan Chase Bank, N.A of which GBPnil (2020: GBPnil)
was outstanding at the year end.
TRANSACTIONS WITH RELATED PARTIES
Full details of Directors' remuneration and shareholdings can be
found in the Directors' Remuneration Report and in note 6 of the
Annual Report and Financial Statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare the Annual Report
and Financial Statements for each financial year. Under that law,
the Directors have elected to prepare the financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising Financial
Reporting Standard 102, the Financial Reporting Standard applicable
in the UK and Republic of Ireland (FRS 102) and applicable law).
Under Company law the Directors must not approve the Financial
Statements unless they are satisfied that taken as a whole, the
Annual Report and Financial Statements are fair, balanced and
understandable, provide the information necessary for shareholders
to assess the Company's position and performance, business model
and strategy and that they give a true and fair view of the state
of affairs of the Company and of the net return or loss of the
Company for that period. In order to provide these confirmations,
and in preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards, comprising
FRS 102, have been followed, subject to any material departures
disclosed and explained in the financial statements;
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
-- notify the Company's shareholders in writing about the use,
if any, of disclosure exemptions in FRS 102 in the preparation of
the financial statements
and the Directors confirm that they have done so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Under applicable law and regulations the Directors are also
responsible for preparing a Directors' Report and Directors'
Remuneration Report that comply with that law and those
regulations.
Each of the Directors, whose names and functions are listed in
the Board of Directors section in the Annual Report, confirm that,
to the best of their knowledge:
-- the financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law),
give a true and fair view of the assets, liabilities, financial
position and return or loss of the Company; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal and emerging
risks and uncertainties that it faces.
The Board confirms that it is satisfied that the Annual Report
and Financial Statements taken as a whole are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy.
The Board also confirms that it is satisfied that the Strategic
Report and Directors' Report include a fair review of the
development and performance of the business, and the Company,
together with a description of the principal risks and
uncertainties that it faces.
The Financial Statements are published on the
www.jpmussmallercompanies.co.uk website, which is maintained by the
Manager. The maintenance and integrity of the website maintained by
the Manager is, so far as it relates to the Company, the
responsibility of the Manager. The work carried out by the Auditors
does not involve consideration of the maintenance and integrity of
this website and, accordingly, the Auditor accepts no
responsibility for any changes that have occurred to the accounts
since they were initially presented to the website. The accounts
are prepared in accordance with UK legislation, which may differ
from legislation in other jurisdictions.
For and on behalf of the Board
David Ross
Chairman
20th March 2023
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31st December 2022
2022 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- ---------- ---------- -------- --------- ---------
(Losses)/gains on investments
held at fair value
through profit or loss - (22,082) (22,082) - 44,039 44,039
Net foreign currency losses
on cash and loans - (2,513) (2,513) - (284) (284)
Income from investments 3,218 - 3,218 3,236 - 3,236
Interest receivable 118 - 118 30 - 30
---------------------------------- -------- ---------- ---------- -------- --------- ---------
Gross return/(loss) 3,336 (24,595) (21,259) 3,266 43,755 47,021
Management fee (416) (1,664) (2,080) (468) (1,873) (2,341)
Other administrative expenses (547) - (547) (422) - (422)
---------------------------------- -------- ---------- ---------- -------- --------- ---------
Net return/(loss) before
finance costs and taxation 2,373 (26,259) (23,886) 2,376 41,882 44,258
Finance costs (135) (539) (674) (51) (201) (252)
---------------------------------- -------- ---------- ---------- -------- --------- ---------
Net return/(loss) before
taxation 2,238 (26,798) (24,560) 2,325 41,681 44,006
---------------------------------- -------- ---------- ---------- -------- --------- ---------
Taxation (466) - (466) (477) - (477)
---------------------------------- -------- ---------- ---------- -------- --------- ---------
Net return/(loss) after taxation 1,772 (26,798) (25,026) 1,848 41,681 43,529
---------------------------------- -------- ---------- ---------- -------- --------- ---------
Return/(loss) per share (note
2) 2.72p (41.21)p (38.49)p 2.87p 64.81p 67.68p
---------------------------------- -------- ---------- ---------- -------- --------- ---------
Dividend declared in respect of the financial year ended 31st
December 2022 total 2.5p (2021: 2.5p) per share amounting to
GBP1,616,000 (2021: GBP1,626,000). Further information on dividends
is given in note 3.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
in the year.
The 'Total' column of this statement is the profit and loss
account of the Company and the 'Revenue' and 'Capital' columns
represent supplementary information prepared under guidance issued
by the Association of Investment Companies.
Net return/(loss) after taxation represents the profit/(loss)
for the year and also Total Comprehensive Income.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31st December 2022
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 December 2020 1,499 21,970 1,851 209,377 2,142 236,839
Issue of new Ordinary shares 137 23,354 - - - 23,491
Shares reissued from Treasury - 43 - 417 - 460
Repurchase of shares into
Treasury - - - (939) - (939)
Net return for the year - - - 41,681 1,848 43,529
Dividends paid in the year - - - - (1,597) (1,597)
------------------------------- -------- -------- ----------- ------------ ----------- ----------
At 31st December 2021 1,636 45,367 1,851 250,536 2,393 301,783
Issue of new Ordinary shares 2 329 - - - 331
Shares reissued from Treasury - 62 - 522 - 584
Repurchase of shares into
Treasury - - - (2,941) - (2,941)
Block listing fees - - - (48) - (48)
Net (loss)/return for the
year - - - (26,798) 1,772 (25,026)
Dividends paid in the year - - - - (1,626) (1,626)
------------------------------- -------- -------- ----------- ------------ ----------- ----------
At 31st December 2022 1,638 45,758 1,851 221,271 2,539 273,057
------------------------------- -------- -------- ----------- ------------ ----------- ----------
(1) These reserves form the distributable reserves of the
Company and may be used to fund distributions to shareholders.
STATEMENT OF FINANCIAL POSITION
As at 31st December 2022
2022 2021
GBP'000 GBP'000
------------------------------------------------------- ---------- ---------
Fixed assets
Investments held at fair value through profit or loss 291,723 322,123
------------------------------------------------------- ---------- ---------
Current assets
Debtors 405 559
Cash and cash equivalents 6,652 3,057
------------------------------------------------------- ---------- ---------
7,057 3,616
Creditors: amounts falling due within one year (25,723) (1,807)
------------------------------------------------------- ---------- ---------
Net current (liabilities)/assets (18,666) 1,809
------------------------------------------------------- ---------- ---------
Total assets less current liabilities 273,057 323,932
Creditors: amounts falling due after more than one
year - (22,149)
------------------------------------------------------- ---------- ---------
Net assets 273,057 301,783
------------------------------------------------------- ---------- ---------
Capital and reserves
Called up share capital 1,638 1,636
Share premium 45,758 45,367
Capital redemption reserve 1,851 1,851
Capital reserves 221,271 250,536
Revenue reserve 2,539 2,393
------------------------------------------------------- ---------- ---------
Total shareholders' funds 273,057 301,783
------------------------------------------------------- ---------- ---------
Net asset value per share (note 4) 421.7p 462.1p
------------------------------------------------------- ---------- ---------
STATEMENT OF CASH FLOWS
For the year ended 31st December 2022
2022 2021
GBP'000 GBP'000
------------------------------------------------------- ---------- ----------
Net cash outflow from operations before dividends and
interest (2,629) (2,710)
Dividends received 2,726 2,694
Interest received 93 30
Overseas tax recovered 42 50
Interest paid (530) (240)
------------------------------------------------------- ---------- ----------
Net cash (outflow) from operating activities (298) (176)
------------------------------------------------------- ---------- ----------
Purchases of investments (76,428) (105,707)
Sales of investments 83,743 77,565
Settlement of foreign currency contracts - 5
------------------------------------------------------- ---------- ----------
Net cash inflow/(outflow) from investing activities 7,315 (28,137)
------------------------------------------------------- ---------- ----------
Dividends paid (1,626) (1,597)
Issue of Ordinary shares 331 23,891
Shares reissued from Treasury 584 460
Repurchase of shares into Treasury (2,941) (939)
Drawdown of bank loan - 3,531
Block listing fees (48) -
------------------------------------------------------- ---------- ----------
Net cash (outflow)/inflow from financing activities (3,700) 25,346
------------------------------------------------------- ---------- ----------
Increase/(decrease) in cash and cash equivalents 3,317 (2,967)
------------------------------------------------------- ---------- ----------
Cash and cash equivalents at start of year 3,057 5,985
Exchange movements 278 39
------------------------------------------------------- ---------- ----------
Cash and cash equivalents at end of year 6,652 3,057
------------------------------------------------------- ---------- ----------
Cash and cash equivalents consist of:
Cash and short term deposits 3 27
Cash held in JPMorgan US Dollar Liquidity Fund 6,649 3,030
------------------------------------------------------- ---------- ----------
Total 6,652 3,057
------------------------------------------------------- ---------- ----------
RECONCILIATION OF NET DEBT
As at Other non-cash As at
31st December Cash charges 31st December
2021 flows 2022
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------------- -------- --------------- --------------
Cash and cash equivalents
Cash 27 (429) 405 3
Cash equivalents 3,030 3,746 (127) 6,649
------------------------------ -------------- -------- --------------- --------------
3,057 3,317 278 6,652
Borrowings
Debt due within one year - - (24,940) (24,940)
Debt due after more than one
year (22,149) - 22,149 -
------------------------------ -------------- -------- --------------- --------------
(22,149) - (2,791) (24,940)
------------------------------ -------------- -------- --------------- --------------
Total (19,092) 3,317 (2,513) (18,288)
------------------------------ -------------- -------- --------------- --------------
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st December 2022
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
'the Financial Reporting Standard applicable in the UK and Republic
of Ireland' (FRS 102) and with the Statement of Recommended
Practice 'Financial Statements of Investment Trust Companies and
Venture Capital Trusts' (the 'SORP') issued by the Association of
Investment Companies in July 2022.
All of the Company's operations are of a continuing nature.
The Directors believe that having considered the Company's
investment objective, risk management policies, capital management
policies and procedures, the nature of the portfolio and
expenditure projections, the Company has adequate resources, an
appropriate financial structure and suitable management
arrangements in place to continue in operational existence for a
period of at least 12 months from the date of approval of these
financial statements. In particular, the Board has considered the
ongoing impact of the war in Ukraine and the tensions between the
USA and China and believes that this will have a limited financial
impact on the Company's operational resources and existence. For
these reasons, the Directors consider it appropriate to adopt the
going concern basis of accounting in preparing the Company's
financial statements. They have not identified any material
uncertainties to the Company's ability to continue as a going
concern.
The policies applied in these financial statements are
consistent with those applied in the preceding year.
2. Return/(loss) per share
2022 2021
GBP'000 GBP'000
------------------------------------------------------- ----------- -----------
Revenue return 1,772 1,848
Capital (loss)/return (26,798) 41,681
------------------------------------------------------- ----------- -----------
Total (loss)/return (25,026) 43,529
------------------------------------------------------- ----------- -----------
Weighted average number of shares, excluding Treasury
shares, in issue during
the year 65,029,256 64,314,208
Revenue return per share 2.72p 2.87p
Capital (loss)/return per share (41.21)p 64.81p
------------------------------------------------------- ----------- -----------
Total (loss)/return per share (38.49)p 67.68p
------------------------------------------------------- ----------- -----------
3. Dividends
(a) Dividends paid and declared
2022 2021
GBP'000 GBP'000
--------------------------------------------------------------- -------- --------
Dividends paid
2021 final dividend of 2.5p (2020: 2.5p) paid to shareholders
in May 2022 1,626 1,597
--------------------------------------------------------------- -------- --------
Dividend declared
2022 Final dividend proposed of 2.5p (2021: 2.5p) declared 1,616 1,633
--------------------------------------------------------------- -------- --------
All dividends paid and declared in the year have been funded
from the underlying earnings in the financial year. The dividend
declared in respect of the year ended 31st December 2021 amounted
to GBP1,633,000. However, the amount paid amounted to GBP1,626,000
due to shares issued after the balance sheet but prior to the share
register record date.
The final dividend has been declared in respect of the year
ended 31st December 2022. In accordance with the accounting policy
of the Company, this dividend will be reflected in the accounts for
the year ending 31st December 2023.
(b) Dividends for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')
The requirements of Section 1158 are considered on the basis of
dividends declared in respect of the financial year as shown below.
The revenue available for distribution by way of dividend for the
year is GBP1,772,000 (2021: GBP1,848,000).
2022 2021
GBP'000 GBP'000
--------------------------------------------------- -------- --------
2022 final dividend of 2.5p (2021: 2.5p) declared 1,616 1,633
--------------------------------------------------- -------- --------
4. Net asset value per share
2022 2021
--------------------------- ----------- -----------
Net assets (GBP'000) 273,057 301,783
Number of shares in issue 64,745,622 65,306,265
--------------------------- ----------- -----------
Net asset value per share 421.7p 462.1p
--------------------------- ----------- -----------
5. Status of results announcement
2021 Financial Information
The figures and financial information for 2021 are extracted
from the published Annual Report and Financial Statements for the
year ended 31st December 2021 and do not constitute the statutory
accounts for the year. The Annual Report and Financial Statements
have been delivered to the Registrar of Companies and included the
Report of the Independent Auditors which was unqualified and did
not contain a statement under either section 498(2) or section
498(3) of the Companies Act 2006.
2022 Financial Information
The figures and financial information for 2022 are extracted
from the Annual Report and Financial Statements for the year ended
31st December 2022 and do not constitute the statutory accounts for
that year. The Annual Report and Financial Statements include the
Report of the Independent Auditors which is unqualified and does
not contain a statement under either section 498(2) or section
498(3) of the Companies Act 2006. The Annual Report and Financial
Statements will be delivered to the Register of Companies in due
course.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
For further information, please contact:
Lucy Dina
For and on behalf of JPMorgan Funds Limited,
Company Secretary
020 7742 4000
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
JPMORGAN FUNDS LIMITED
ENDS
A copy of the annual report will be submitted to the FCA's
National Storage Mechanism and will shortly be available for
inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Annual Report will shortly be available on the Company's
website at www.jpmussmallercompanies.co.uk where up-to-date
information on the Company, including daily NAV and share prices,
factsheets and portfolio information can also be found.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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END
FR FLFFRVAIIFIV
(END) Dow Jones Newswires
March 20, 2023 12:35 ET (16:35 GMT)
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