LONDON STOCK EXCHANGE
ANNOUNCEMENT
JPMORGAN US SMALLER
COMPANIES INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR
ENDED
31ST DECEMBER 2023
Legal Entity Identifier:
549300MDD7SOXDMBN667
Information disclosed in accordance with the DTR
4.1.3
CHAIR'S
STATEMENT
Performance
I have great pleasure in presenting
the Annual Report of JPMorgan US Smaller Companies Investment Trust
plc ('the Company') for the year ended 31st December
2023.
2023 was not an easy year for
investors in many major markets. During the year, US small caps
faced continued volatility in the market caused by various factors,
including numerous interest rate hikes, high inflation levels,
continued supply chain constraints, fast-paced liquidity tightening
and recessionary risks. The Company's total return on net assets
over the year was +4.6% which compares unfavourably with the +10.1%
return for our benchmark, the Russell 2000 index in sterling
terms. Total return to shareholders was +4.0% for the
year, with the discount at which the
Company's shares traded over the 12 month period widening
marginally. While the Company's short-term
performance relative to the benchmark is obviously disappointing,
the Company has maintained its longer-term track record of absolute
gains over five and ten years, outperforming its benchmark over
these periods. This reflects the Manager's disciplined focus on
long-term growth opportunities.
Full details of investment
performance, changes to the portfolio and the outlook can be found
in the Investment Manager's Report in the Annual Report and
Financial Statements.
Share Issuance and Buybacks
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 ('NAV') 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.
The discount averaged 10.7% over the
course of the year, ending the year at 7.9%. 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.
During the year to 31st December
2023, the Company bought back 975,473 shares into Treasury, at an
average price of 358.4p and a total cost of £3.5 million, in
periods when discount levels were particularly elevated, reflected
in the weighted average discount of 12.8% at which these
shares were acquired. Since the year end, the Company has
repurchased an additional 384,096 shares into Treasury. The Company
did not issue any shares from Treasury or any new ordinary shares
during the year or since the year-end.
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. Share issuance will
only be at times where the share price is a premium to
the NAV.
Revenue and Dividend
The impact of global concerns on the
dividends received from the Company's portfolio has remained
relatively muted. As a result, the Board is delighted to recommend
a dividend of 3.0p in respect of the financial year ended 31st
December 2023 (2022: 2.5p). Subject to shareholders' approval at
the Annual General Meeting (AGM), this dividend will be paid on
17th May 2024 to shareholders on the register at the close of
business on 19th April 2024. The ex dividend date is
18th April 2024.
Shareholders should note the
Company's objective is unchanged and remains one of capital growth.
The dividend distribution amount will normally be driven by the
minimum dividend required to maintain the Company's investment
trust status. Therefore the dividend level is likely to fluctuate
year on year as the distributions will typically reflect the
naturally occurring income on the underlying portfolio.
Gearing
During the year, the Company
continued to utilise its US$30 million loan facility (with an
option to draw a further US$10 million) revolving credit facility
to maintain a meaningful but modest level of gearing. The current
2-year term facility matured on 27th October 2023 at which point
the Board reviewed its borrowing requirements and decided to reduce
the facility to US$20 million (with an option to draw a further
US$10 million). The existing loan was extended (on the same terms)
whilst certain points of the new facility were discussed and
agreed.
On 15th March 2024 the Board renewed
the facility with Scotiabank, the new facility being a secured 364
day facility for a reduced amount of US$20 million.
As at 31st December 2023, the
Company had drawn down US$30 million (GBP 23.5 million). It closed
the year with a gearing level of 1.5%. The Board believes that the
use of gearing is a key advantage of the investment trust structure
and has persistently used gearing over time within its permitted
10% cash to 15% geared range.
Our policy sees gearing levels
adjusted to reflect changes in the Board's expectations for
longer-term opportunities and market risks (with input from the
Manager), rather than being used as a short-term market-timing
tool.
Board Succession
In January 2024 the Board, through
its Nomination Committee, carried out a comprehensive evaluation of
the Board, its Committees, the individual Directors and the Chair.
Topics discussed included the size and composition of the Board,
Board information and processes, shareholder engagement, and
training and accountability. The resulting report demonstrated the
Board is working effectively and in line with
expectations.
In accordance with good corporate
governance practice, all Directors will retire at the forthcoming
AGM and, being eligible, will offer themselves for reappointment by
shareholders. As I indicated in the last Half Year Report, I will
be retiring at the forthcoming Annual General Meeting ('AGM') in
April 2024. It has been an honour to serve as the Chair and also to
have the opportunity to work with the investment team in New York,
all the many people at JPMorgan Asset Management who help support
the Company and last, but not least, the current Board, as well as
those that have retired. The Board has agreed that my successor as
Chair of the Company should be Dr Dominic Neary. In addition, it
has been agreed by the Directors that the size of the Board be
reduced to four Directors following my retirement; we believe that
this is an appropriate number given the size of the Company, and
that the Board will continue to offer an appropriate balance of
skills and diversity of membership.
Board Diversity
The Board recognises the value and
importance of diversity in the boardroom. I am pleased to report
that the Board meets the FCA Listing Rules targets on gender
diversity criteria, female representation in a senior role and
ethnic representation on the Board.
Review of services provided by the Manager
During the year, the Board, through
its Management Engagement Committee, carried out a thorough review
of the investment management, secretarial and marketing services
provided to the Company by the Manager. Following this review, the
Board has concluded that the continued appointment of the Manager
on the terms agreed is in the interests of the shareholders as a
whole.
The Company's ongoing charges for
the financial year, as a percentage of the average of the daily net
assets during the year, were 0.93% (2022: 0.95%).
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
As a regulatory requirement,
JPMorgan Asset Management (JPMAM) published its first UK Task Force
on Climate-related Financial Disclosures ('TCFD') Report for the
Company in respect of the year ended 31st December 2022 on 30th
June 2023. The report discloses estimates of the Company's
portfolio climate-related risks and opportunities according to the
Financial Conduct Authority (FCA) Environmental, Social and
Governance (ESG) Sourcebook and the TCFD. The report is available
on the Company's website under the ESG documents section:
https://am.jpmorgan.com/content/dam/jpm-am-aem/emea/regional/en/regulatory/esg-information/jpm-us-smaller-companies-investment-trust-plc-tcfd-report-uk-per.pdf
The Board is aware that best
practice reporting under TCFD is still evolving with respect to
metrics and input data quality, as well as the interpretation and
implications of the outputs produced, and will continue to monitor
developments, including Sustainability Disclosure Requirements
('SDR').
Annual General Meeting
We are inviting shareholders to join
us in person for the Company's sixty-seventh AGM to be held on
Monday, 22nd April 2024 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 Portfolio 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.
My fellow Board members,
representatives of JPMorgan and I look forward to the opportunity
to meet and speak with shareholders after the formalities of the
meeting have been concluded.
Stay Informed
The Company delivers email updates
with regular news and views, as well as the latest performance. If
you have not already signed up to receive these communications and
you wish to do so, you can opt in via
https://tinyurl.com/JUSC-Sign-Up or by scanning the QR code in the
front of the Annual Report.
Outlook
We are encouraged by the outlook for
the US small cap universe and the wider US economy. Inflation is
receding and whilst growth in 2024 is expected to be muted, there
are indications that there will be a soft landing for the US
economy. As noted in the Investment Manager's report, the valuation
case for US small companies remains positive and it is believed
that the earnings from the Company's holdings will grow strongly
from their current levels. Whilst it is hoped that the US will
avoid a recession, uncertainties and threats do remain within the
US and across the world. These include the impact of the outcome of
the US presidential election and the potential for interest rates
to fall slower than previously anticipated. We remain confident
that the focused and disciplined process adopted by the Investment
Manager will continue to deliver attractive long term returns to
shareholders.
David Ross
Chair
18th March 2024
INVESTMENT MANAGER'S
REPORT
Market Review
Markets defied expectations in 2023
and rose to near-record levels despite several headwinds. We
started the year expecting that persistent inflation, rising
interest rates and geopolitical concerns would lead to a recession.
Instead, the economy was surprisingly strong, and a small group of
mega cap tech stocks led equity markets higher.
An exaggerated January effect
ensured the year got off to a good start. These gains were lost in
February and March as the market witnessed the second largest bank
failure in US history, but the adverse impact of this and related
events on investor sentiment proved short-lived, and the market
recovered all its lost ground over the summer, supported in part by
mounting excitement about the potential of artificial intelligence
(AI). Consumer spending remained resilient and business spending
held up better than expected despite tighter lending standards.
This was thanks mainly to increased spending on intellectual
property, as companies focused on building and integrating
artificial intelligence capabilities into their production, service
and administrative processes. The prospect of interest rate cuts
drove strong market gains in the fourth quarter. Moreover, 2024
earnings forecasts saw an uptick towards year end as recession
fears subsided.
Driven by the expectations of
interest rate cuts in 2024, small caps rallied sharply in the
fourth quarter, outperforming large caps for the first time in five
quarters. However, despite this year-end surge, small caps still
lagged large caps by nearly 10 percentage points (in USD terms)
over 2023 as a whole. The S&P 500 rose 26% (in USD terms)
during the year, led by a handful of mega cap tech stocks, the
so-called 'Magnificent 7'.
Performance
The Portfolio's net asset value
increased by 4.6% (in GBP terms) in 2023, although the Trust
underperformed its benchmark, the Russell 2000 Index (Net), which
rose by 10.1% (in GBP terms). As mentioned above, the year was
a challenging year for small caps, especially during the first
nine months. However, the third quarter earnings of our
portfolio companies, published in late October and early November,
exceeded expectations. Yet despite these seemingly positive
results, relative stock reactions were in line with the broader
market, as the macro and interest rates outlook, rather than
individual company fundamentals, drove stock movements.
Our sector allocation in industrials
and stock selection in financials made positive contributions to
performance.
Within industrials, our overweight
position in Simpson
Manufacturing, and our exposure to Azek, were the top contributors.
Simpson Manufacturing is a market leader in the wood connectors
building product space. The company outperformed, continuing its
strong execution, and delivering robust quarterly results thanks to
revenue growth and resilient profit margins. In addition, the
long-term outlook for the US housing industry remains positive, and
the company is maintaining its efforts to drive above-market growth
through product differentiation and strategic initiatives. While we
trimmed our position on strength, we still like the stock given its
leading market share, solid free cash flow generation and
experienced management team. Azek, a manufacturer of outdoor living
products, rallied after reporting solid earnings and an impressive
margin improvement. The company continued to execute on growth and
productivity initiatives, with new business wins outpacing
underlying repair and replacement demand. We retain our conviction
in the stock given the company's solid fundamental trends, however
we trimmed our position on outperformance.
At the security level, our
overweight position in MACOM
Technology Solutions proved beneficial. MACOM Technology
Solutions designs and manufactures semiconductors for telecom,
industrial, defence and data centre end markets. Its share price
rallied throughout the year as results aligned with expectations
and data centre revenues rose strongly. The stock also benefitted
from an increase in AI-related spending and increasing demand for
high-speed data centre products. Additionally, investor sentiment
soared after the company announced its intention to acquire
Wolfspeed's radio frequency business. We remain confident in the
stock, given management's focus on innovation, the quality of the
business and its ability to deliver profitable growth over the long
term.
Stock selection was the primary
driver of underperformance, with our holdings in the consumer
discretionary and healthcare sectors detracting most.
Within consumer discretionary, our
exposure to Driven Brands
was the largest detractor over the year. Driven Brands, one of the
largest auto services companies in North America, underperformed
due to a decline in its car wash business, which was adversely
impacted by the weaker macro environment, a resultant decline in
consumer spending and greater competition. However, we maintain our
conviction in the stock given the durability of the auto-services
end-market.
Within health care, our overweight
position in Agiliti, and
our exposure to ICU Medical
hurt performance. Agiliti, a medical device company, underperformed
due to weaker than expected margins driven by reduced rental demand
and cost headwinds associated with large new contracts. We remain
comfortable with our position as we believe underlying fundamentals
are healthy and the valuation is attractive. ICU Medical, a
vertically integrated manufacturer of medical equipment used in
intravenous (IV) therapy applications, plunged due to a decline in
revenues and lowered guidance. The core business performed well,
however weaker performance in the Smith's Vascular Access and IV
Solutions businesses drove the underperformance. Additionally,
management made the strategic decision to reduce inventory levels,
which hurt gross margins. We are monitoring our position in the
stock.
Performance Attribution
Year ended 31st December
2023
|
%
|
%
|
Contributions to total returns
|
|
|
Benchmark return
|
|
10.1%
|
Asset Allocation
|
2.2%
|
|
Stock Selection*
|
-7.2%
|
|
Investment Manager Contribution
|
|
-5.0%
|
Portfolio total return
|
|
5.1%
|
Impact of cash/gearing*
|
0.2%
|
|
Management fee/other
expenses
|
-0.9%
|
|
Share buybacks
|
0.2%
|
|
Other effects
|
|
-0.5%
|
Cum
Income Net Asset Value Total Return
|
|
4.6%
|
Share Price Total Return
|
|
4.0%
|
* 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 offer early access to innovative products and
services.
We also remain focused on the
quality of the portfolio, even as we initiate new ideas outside our
typical universe, which included an energy name at compelling
valuation and a cyber security software company with exceptional
profitability. We also eliminated some names where we lost
conviction in their investment cases, and we trimmed outperformers
within industrials and materials. Our largest absolute and relative
portfolio weight remains in industrials as we believe the sector
offers many opportunities to find market share leaders serving
durable, profitable end markets. Our second largest relative
weight is within utilities, driven by our overweight in waste and
disposal services, a sector we favour due to resilient demand
characteristics.
Our largest underweights remain in
the energy and health care sectors. While we have struggled to find
high quality assets within most segments of the energy sector, we
have found some interesting opportunities within the alternative
energy and midstream areas. In healthcare, we continue to avoid the
biotechnology sector and remain focused on owning more profitable
and durable franchises within the products and services
sectors.
Market Outlook
As 2024 unfolds, we are constructive
on the outlook for small cap companies, given a compelling
valuation case and potential for small caps to benefit as they have
historically after similar periods of large cap concentration. In
addition, the earnings picture looks robust for small caps, with
earnings poised to grow twice as fast as large cap earnings after
two consecutive years of declines. Falling interest rates and a
dovish Fed also tend to provide a conducive environment for small
cap stocks. Once investors begin to look beyond the risk of
recession and sense the potential for an improvement in economic
momentum, small caps should benefit.
We are also relatively upbeat about
the macroeconomic backdrop. Easing inflation and improved growth
prospects have helped fuel optimism for a soft landing, although
growth will remain subdued by historical standards and risks
remain. However, be it the U.S. election, higher policy rates or
significant geopolitical tension, there are continuing risks that
could push the economy into recession in 2024. Any resultant
volatility will not distract us from our course. We will continue
to focus on high conviction stocks and take advantage of market
dislocations to access compelling stock selection
opportunities.
Don
San Jose
Jon
Brachle
Dan
Percella
Portfolio Managers
18th March 2024
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 the Manager,
the Audit Committee maintains a risk matrix which identifies the
principal risks to which the Company is exposed and methods of
mitigating against them as far as practicable. 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. At each meeting, the Board reviews all potential
risks and 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, these risks may be entered on the Company's risk matrix
and mitigating actions considered as necessary.
In assessing the risks and how they
can be mitigated, the Board has given particular attention to those
risks that might threaten the viability of the Company.
These key and emerging risks are
listed below. It should be noted that the emergence of, or a change
in, a risk can have an impact on another risk:
|
|
|
Movement in risk
|
|
|
|
status in year to
|
Principal risk
|
Description
|
Mitigating activities
|
31st December 2023
|
Investment Management and Performance
|
Under-performance
|
Poor implementation of the
investment strategy may lead to underperformance against the
Company's benchmark index and peer companies.
|
A broadly diversified portfolio of
equities is managed in line with Board-approved investment
restrictions and guidelines. Investments 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
Portfolio Managers, who participate at all Board meetings, and
reviews data which show statistical measures of the Company's risk
profile. The Portfolio 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.
|
No change
|
Market and Economic
|
Market risk arises from uncertainty
about the future prices of the company's investments, which might
result from economic, fiscal and regulatory change, including the
risk of global economic disruption and market volatility in the
aftermath of COVID-19.
Geopolitical risks will also affect
the market and are currently heightened due to the war between
Ukraine and Russia and more recently the conflict in the Middle
East, and ongoing tensions with China.
Market factors such as interest
rates, inflation, US presidential election and equity market
performance may impact the value of investments and the performance
of the Company.
|
This risk is managed to some extent
by diversification of investments and by regular communication with
the Manager on matters of investment strategy and portfolio
construction which will directly or indirectly include an
assessment of these risks.
The Board considers asset
allocation, stock selection and levels of gearing on a regular
basis and has set investment restrictions and guidelines, which are
monitored and reported on by the Manager. The Board monitors the
implementation and results of the investment process with the
Manager.
The Manager's market strategists are
available for the Board and can discuss market trends. External
consultants and experts can be accessed by the Board. The Board
can, with shareholder approval look to amend the investment policy
and objectives of the Company, if required, to enable investment in
companies or assets which offer more appealing risk/return
characteristics in prevailing economic conditions.
|
Increased
|
Operational Risks
|
Discount Control
|
Investment trusts shares often trade
at discounts to their underlying NAV; they can also trade at a
premium. Discounts and premiums can fluctuate considerably leading
to volatile returns for shareholders.
|
The Board monitors the share price
against the absolute and sector relative premium/discount levels.
The Board reviews sales and marketing activity and sector relative
performance, which it believes are the primary 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.
|
Increased
|
Shareholder Demand
|
Certain buyers within the sector
will only consider investing into an investment trust where its AUM
is over a certain level; the Company's AUM currently stands below
these levels.
|
The Board reviews sales and
marketing activity and it also receives regular feedback via the
Manager's sales team from both existing and prospective
shareholders.
|
No change
|
Loss of Investment Team or Portfolio
Manager
|
A sudden departure of the Portfolio
Managers, or several members of the investment management team
could result in a short term deterioration in investment
performance.
|
The Board seeks assurance that the
Manager takes steps to reduce the likelihood of such an event by
ensuring appropriate succession planning and the adoption of a
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.
|
No change
|
Outsourcing
|
Disruption to, or failure of, the
Manager's accounting, dealing or payments systems or the Registrar,
Depositary or Custodian's records may prevent accurate reporting
and monitoring of the Company's financial position or a
misappropriation of assets.
|
Details of how the Board monitors
the services provided by JPM and its associates and the key
elements designed to provide effective risk management and internal
control are included within the Risk Management and Internal
Controls section of the Corporate Governance Statement 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.
|
No change
|
Cyber Crime
|
The threat of cyber attack, in all
guises, is regarded as at least as important as more traditional
physical threats to business continuity and security.
|
The Company benefits directly and/or
indirectly from all elements of JPMorgan's Cyber Security
programme. The information technology controls around physical
security of JPMorgan's 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.
|
No change
|
Corporate Governance
|
Statutory and Regulatory
Compliance
|
Failure to comply with relevant
statute law or regulation may have an impact on the Company both in
terms of fines and in terms of its ability to continue to
operate.
Also, the Company's business model
could become non-viable as a result of new or revised rules or
regulations arising from, for example, policy change or political
impact.
|
The Board relies on the services of
its Company Secretary, the Manager and its professional advisers to
ensure compliance with the Companies Act 2006, the UKLA Listing
Rules, DTRs, MAR and AIFMD. Details of the Company's compliance
with Corporate Governance best practice, are set out in the
Corporate Governance Statement in the Annual Report.
The Board receives regular reports
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.
|
No change
|
Environmental
|
Climate Change
|
Climate change has become one of the
most critical issues confronting companies and their investors.
Climate change can have a significant impact on the business
models, sustainability and even viability of individual companies,
whole sectors and even asset classes.
|
The Board receives ESG reports from
the Manager on the portfolio and the way ESG considerations are
integrated into the investment decision-making, so as to mitigate
risk at the level of stock selection and portfolio construction.
As extreme weather events become more common, the resiliency,
business continuity planning and the location strategies of the
Company's services providers will come under greater
scrutiny.
|
Increased
|
|
|
|
Movement in risk
|
|
|
|
status in year to
|
Emerging risk
|
Description
|
Mitigating activities
|
31st December 2023
|
Political and Economic
|
Political issues and changes in
financial or tax legislation in the UK or the US may lead to
changes to the operating model of the Company and/or reduce the
appeal of the Company to shareholders.
|
The Manager monitors events and
makes recommendations to the Board on accounting, dividend and tax
policies and the Board seeks external advice where
appropriate.
|
Increased
|
Artificial Intelligence
(AI)
|
While it might equally be deemed
a force for good, there appears to be an increasing risk to
society from the threat posed by AI. Advances in computing power
means that AI has become a powerful tool that will impact society,
with a wide range of applications that include the potential to
harm. The adoption of AI can also have an adverse impact on
datacentres and their use of energy and water. This in turn has ESG
implications.
|
The Board will work to monitor
developments concerning AI as its use evolves and consider how it
might threaten the Company's activities, which may include a
heightened threat to cybersecurity. The Board will work closely
with JPMF in identifying these threats and, in addition, monitor
the strategies of our service providers.
|
Increased
|
Global Pandemics
|
The outbreak and spread of COVID-19
in 2020 highlighted the speed and extent of economic damage that
can arise from a pandemic. Should a new form of the virus or
another pandemic emerge that spreads more aggressively or is more
virulent, it may present risks to the operations of the Company,
its Manager and other major service providers.
|
Time after
time, markets have recovered, albeit over varying and sometimes
extended time periods, and so the Board does have an expectation
that the portfolio's holdings will not suffer a material long-term
impact and should recover. The Board receives reports on the
business continuity plans of the Manager and other key service
providers. The effectiveness of these measures were assessed
throughout the course of the COVID-19 pandemic and the Board
continues to monitor developments as they occur and seek to learn
lessons which may be of use in the event of future
pandemics.
|
No change
|
Ongoing shareholder
demand
|
Competing investment vehicles (e.g.
ETFs) or new investment technologies may render the Company's
shares unappealing to shareholders.
|
The Manager has a dedicated
investment trust sales team that works closely with the Company's
broker as well as current and prospective 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.
|
No change
|
TRANSACTIONS WITH THE
MANAGER
Details of the management contract
are set out in the Directors' Report in the Annual Report and
Financial Statements. The management fee payable to the Manager for
the year was £2,003,000 (2022: £2,080,000) of which £nil (2022:
£nil) 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 £3,000 (2022: £2,000) payable to JPMorgan
Chase Bank, N.A. of which £1,000 (2022: £1,000) 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 £19.2 million (2022: £6.6 million).
Income amounting to £500,000 (2022: £118,000) was receivable during
the year of which £nil (2022: £nil) 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 £7,000 (2022: £6,000) were payable to
JPMorgan Chase Bank, N.A. during the year of which £2,000 (2022:
£1,000) was outstanding at the year end.
At the year end, total cash of
£42,000 (2022: £3,000) was held with JPMorgan Chase Bank, N.A. A
net amount of interest of £nil (2022: £nil) was receivable by the
Company during the year from JPMorgan Chase Bank, N.A. of which
£nil (2022: £nil) 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.
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.
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, 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.
For and on behalf of the
Board
David Ross
Chair
18th March 2024
STATEMENT OF COMPREHENSIVE
INCOME
For
the year ended 31st December 2023
|
2023
|
2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Gains/(losses) on investments held at
fair value
|
|
|
|
|
|
|
through profit or loss
|
-
|
10,889
|
10,889
|
-
|
(22,082)
|
(22,082)
|
Net foreign currency
gains/(losses)
|
-
|
825
|
825
|
-
|
(2,513)
|
(2,513)
|
Income from investments
|
3,865
|
381
|
4,246
|
3,218
|
-
|
3,218
|
Interest receivable
|
500
|
-
|
500
|
118
|
-
|
118
|
Gross return/(loss)
|
4,365
|
12,095
|
16,460
|
3,336
|
(24,595)
|
(21,259)
|
Management fee
|
(401)
|
(1,602)
|
(2,003)
|
(416)
|
(1,664)
|
(2,080)
|
Other administrative
expenses
|
(520)
|
-
|
(520)
|
(547)
|
-
|
(547)
|
Net
return/(loss) before finance costs and taxation
|
3,444
|
10,493
|
13,937
|
2,373
|
(26,259)
|
(23,886)
|
Finance costs
|
(304)
|
(1,218)
|
(1,522)
|
(135)
|
(539)
|
(674)
|
Net
return/(loss) before taxation
|
3,140
|
9,275
|
12,415
|
2,238
|
(26,798)
|
(24,560)
|
Taxation
|
(573)
|
(57)
|
(630)
|
(466)
|
-
|
(466)
|
Net
return/(loss) after taxation
|
2,567
|
9,218
|
11,785
|
1,772
|
(26,798)
|
(25,026)
|
Return/(loss) per share
|
3.98p
|
14.30p
|
18.28p
|
2.72p
|
(41.21)p
|
(38.49)p
|
Dividend declared in respect of the
financial year ended 31st December 2023 total 3.0p (2022: 2.5p) per
share amounting to £1,913,000 (2022: £1,615,000).
Further information on dividends is given in note
10 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 December 2023
|
Called up
|
|
Capital
|
|
|
|
|
share
|
Share
|
redemption
|
Capital
|
Revenue
|
|
|
capital
|
premium
|
reserve
|
reserves1
|
reserve1
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
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
|
Repurchase of shares into
Treasury
|
-
|
-
|
-
|
(3,502)
|
-
|
(3,502)
|
Net return
|
-
|
-
|
-
|
9,218
|
2,567
|
11,785
|
Dividend paid in the year
|
-
|
-
|
-
|
-
|
(1,615)
|
(1,615)
|
At
31st December 2023
|
1,638
|
45,758
|
1,851
|
226,987
|
3,491
|
279,725
|
1 Part of 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 2023
|
2023
|
2022
|
|
£'000
|
£'000
|
Fixed assets
|
|
|
Investments held at fair value through profit or
loss
|
283,986
|
291,723
|
Current assets
|
|
|
Debtors
|
308
|
405
|
Cash and cash equivalents
|
19,237
|
6,652
|
|
19,545
|
7,057
|
Current liabilities
|
|
|
Creditors: amounts falling due
within one year
|
(23,806)
|
(25,723)
|
Net
current liabilities
|
(4,261)
|
(18,666)
|
Total assets less current liabilities
|
279,725
|
273,057
|
Net
assets
|
279,725
|
273,057
|
Capital and reserves
|
|
|
Called up share capital
|
1,638
|
1,638
|
Share premium
|
45,758
|
45,758
|
Capital redemption reserve
|
1,851
|
1,851
|
Capital reserves
|
226,987
|
221,271
|
Revenue reserve
|
3,491
|
2,539
|
Total shareholders' funds
|
279,725
|
273,057
|
Net
asset value per share (note 4)
|
438.6p
|
421.7p
|
STATEMENT OF CASH
FLOWS
For
the year ended 31st December 2023
|
2023
|
20221
|
|
£'000
|
£'000
|
Cash
flows from operating activities
|
|
|
Net return/(loss) before finance
costs and taxation
|
13,937
|
(23,886)
|
Adjustment for:
|
|
|
Net (gains)/losses on investments
held at fair value through profit or loss
|
(10,889)
|
22,082
|
Net foreign currency
(gains)/losses
|
(825)
|
2,513
|
Dividend income
|
(4,246)
|
(3,218)
|
Interest income
|
(500)
|
(118)
|
Realised gains on foreign exchange
transactions
|
(1)
|
-
|
Realised exchange losses on liquidity
fund
|
(344)
|
-
|
Decrease/(increase) in accrued income
and other debtors
|
10
|
(20)
|
Increase in accrued
expenses
|
77
|
18
|
Net
cash outflow from operations before dividends and
interest
|
(2,781)
|
(2,629)
|
Dividends received
|
3,469
|
2,726
|
Interest received
|
447
|
93
|
Overseas withholding tax
recovered
|
116
|
42
|
Net
cash inflow from operating activities
|
1,251
|
232
|
Purchases of investments
|
(70,750)
|
(76,428)
|
Sales of investments
|
89,062
|
83,743
|
Net
cash inflow from investing activities
|
18,312
|
7,315
|
Equity dividends paid
|
(1,615)
|
(1,626)
|
Shares issued
|
-
|
331
|
Shares reissued from
Treasury
|
-
|
584
|
Repurchase of shares into
Treasury
|
(3,502)
|
(2,941)
|
Block listing fees
|
-
|
(48)
|
Loan interest paid
|
(1,625)
|
(530)
|
Net
cash outflow from financing activities
|
(6,742)
|
(4,230)
|
Increase in cash and cash equivalents
|
12,821
|
3,317
|
Cash and cash equivalents at start of
year
|
6,652
|
3,057
|
Exchange movements
|
(236)
|
278
|
Cash
and cash equivalents at end of year
|
19,237
|
6,652
|
Cash
and cash equivalents consist of:
|
|
|
Cash and short term
deposits
|
42
|
3
|
Cash held in JPMorgan US Dollar
Liquidity Fund
|
19,195
|
6,649
|
Total
|
19,237
|
6,652
|
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. Interest paid has also
been reclassified to financing activities as this relates to the
bank loans. Previously this was shown under operating activities.
Other than changes in presentation of certain cash flow items,
there is no change to the cash flows as presented in previous
periods.
Analysis of change in net
debt
|
As at
|
|
Other
non-cash
|
As at
|
|
31st December
2022
|
Cash flows
|
charges
|
31st December
2023
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Cash
and cash equivalents
|
|
|
|
|
Cash
|
3
|
39
|
-
|
42
|
Cash held in JPMorgan US Dollar
Liquidity Fund
|
6,649
|
12,546
|
-
|
19,195
|
|
6,652
|
12,585
|
-
|
19,237
|
Borrowings
|
|
|
|
|
Debt due within one year
|
(24,940)
|
-
|
1,407
|
(23,533)
|
|
(24,940)
|
-
|
1,407
|
(23,533)
|
Net
debt
|
(18,288)
|
12,585
|
1,407
|
(4,296)
|
NOTES TO THE FINANCIAL
STATEMENTS
1. Accounting policies
(a) General information and 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 between Ukraine and
Russia and more recently the conflict in the Middle East, 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
|
2023
|
2022
|
|
£'000
|
£'000
|
Revenue return
|
2,567
|
1,772
|
Capital return/(loss
|
9,218
|
(26,798)
|
Total return/(loss)
|
11,785
|
(25,026)
|
Weighted average number of shares,
excluding Treasury shares, in issue during
|
|
|
the year
|
64,460,117
|
65,029,256
|
Revenue return per share
|
3.98p
|
2.72p
|
Capital return/(loss) per
share
|
14.30p
|
(41.21)p
|
Total return/(loss) per share
|
18.28p
|
(38.49)p
|
3. Dividends
(a) Dividends paid and
declared
|
2023
|
2022
|
|
£'000
|
£'000
|
Dividends paid
|
|
|
2022 final dividend of 2.5p (2021:
2.5p) paid to shareholders in May 2023
|
1,615
|
1,626
|
Total dividends paid in the year
|
1,615
|
1,626
|
All dividends paid and declared in
the period have been funded from the Revenue Reserve.
The dividend proposed in respect of
the year ended 31st December 2022 amounted to £1,616,000. However,
the amount paid amounted to £1,615,000 due to shares repurchased
after the balance sheet date but prior to the record
date.
The final dividend has been declared
in respect of the year ended 31st December 2023. In accordance with
the accounting policy of the Company, this dividend will be
reflected in the accounts for the year ending 31st December
2024.
(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, shown below. The revenue available for distribution
by way of dividend for the year is £2,567,000 (2022:
£1,772,000).
|
2023
|
2022
|
|
£'000
|
£'000
|
2023 final dividend of 3.0p (2022:
2.5p) paid to shareholders in May 2024
|
1,913
|
1,616
|
4. Net asset value per
share
|
2023
|
2022
|
Net assets (£'000)
|
279,725
|
273,057
|
Number of shares in issue
|
63,770,149
|
64,745,622
|
Net
asset value per share
|
438.6p
|
421.7p
|
5. Status of results
announcement
2022 Financial
Information
The figures and financial information
for 2022 are extracted from the published Annual Report and
Financial Statements for the year ended 31st December 2022 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.
2023
Financial Information
The figures and financial information
for 2023 are extracted from the Annual Report and Financial
Statements for the year ended 31st December 2023 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.