Half-year Report

JPMorgan Japan Small Cap G&I PLC

01 December 2023

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPAN SMALL CAP GROWTH & INCOME PLC

(the 'Company')

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
30TH SEPTEMBER 2023

Legal Entity Identifier: 549300KP3CRHPQ4RF811

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Investment Performance

For the six months to 30th September 2023, the total return on the Company's net asset value was -0.7% (in GBP) compared to a total return of +2.7% for the benchmark, the MSCI Japan Small Cap Index, an underperformance of 3.4%. It is worth noting that while performance was relatively close to benchmark in the first three months of the period, the Company underperformed between July and September 2023. This was in part due to a significant market rotation away from the quality and growth stocks the Company favours, towards the lower-quality, value-oriented stocks with unappealing growth characteristics which dominated the benchmark.

In the first half of 2023 there was a brief flurry of interest in a handful of tech stocks exposed to artificial intelligence-based technologies, but tech and other growth stocks have subsequently lagged in all major markets. Investors focused on the likelihood that global interest rates would remain elevated for longer than previously hoped and this prospect adversely impacted growth stocks whose valuations are based on discounted future cash flows which decline as rates increase. Japanese growth stocks have not been immune to this, despite relatively subdued Japanese inflation, an accommodative central bank and clear signs of improvement in Japan's economic and market outlook.

To give some perspective to the Company's recent disappointing performance, it is important to note that the portfolio's focus on quality and growth means it usually differs significantly from the benchmark, and it is therefore inevitable that performance will often vary substantially from the benchmark, regardless of market conditions. Indeed, the Company has outperformed the market in six of the last 10 calendar years, as reported in my Chairman's Statement in the 2023 Annual Report. Given the Portfolio Managers' conviction that good quality companies with strong growth prospects will perform best over the long run, it is arguably more meaningful to assess performance over a longer timeframe. For example, over the 10 years ended 30th September 2023, the Company achieved an average annualised return of 6.7%, not far from the average annualised benchmark return of 7.1%.

The Company's recent investment performance is explained in depth in the Portfolio Managers' Report, along with details of portfolio activity over the past six months. The Portfolio Managers also outline the reasons for their optimism about the outlook for the Japanese market, and the themes they expect will further drive the Company's performance over the short term and beyond.

Dividend Policy and Discount Management

The Company's dividend policy aims to pay, in the absence of unforeseen circumstances, a regular dividend equal to 1% of the Company's NAV on the last business day of the preceding financial quarter, being the end of March, June, September and December. Over the year, this would approximate to 4% of the average NAV, paid from other reserves.

For the year ended 31st March 2023, quarterly dividends paid totalled 14.2p per share (2022: 20.3p). For the half year ended 30th September 2023, the Board has declared two dividends, each of 3.5 pence, for the quarters ended 30th June and 30th September 2023 respectively. Two further dividends will be declared on the first business day after 31st December 2023 and 31st March 2024. The Company currently offers a relatively attractive dividend yield of 4.7%, based on the last four dividend payments and the share price at 302p.

The discount at which the Company's shares trade relative to its net asset value stood at 13.1% at 30th September 2023, up from the 9.8% reported at the Company's year-end, 31st March 2023. This widening is broadly in line with the experience of many other investment trusts over this period. The Board closely monitors the discount and recognises that it is in shareholders' interests that the Company's share price does not excessively differ from the underlying NAV under normal market conditions. Taking the prolonged period of widened discount into account, the Board decided to resume share buybacks for the first time since March 2018. Since the end of the financial half year, it has repurchased 86,112 shares. At the time of writing, the discount stood at 11.0%.

Gearing/Borrowing

The Portfolio Managers seek, at times, to enhance investment returns for shareholders by borrowing money to buy more assets ('gearing'), subject to their view on prevailing market conditions. The Company's investment policy permits such tactical gearing within a range of 10% net cash to 25% geared. However, the Board requires the Manager to operate in the narrower range of 5% net cash to 15% geared in normal market conditions. The Company's gearing is discussed regularly by the Board and the Portfolio Managers, and the gearing level is reviewed by the Directors at each Board meeting. During the six months to end September 2023, the Company's gearing level averaged 6% and ranged between 4.7% and 7.4%, ending the half year at 5.6% (end March 2023: 5.6%).

The Company currently has a Yen 4.0 billion two-year revolving credit facility with ING Bank. This facility has a maturity date of December 2024, and the Manager will seek to renew or replace this facility, at the best available terms, on expiry.

Outlook

There are, as ever, issues generating uncertainty for investors - the risk to global growth posed by persistently higher interest rates as well as the continued war in Ukraine and recent conflicts in the Middle East. However, it is encouraging to see clear signs of improvement in the Japanese economy following its, albeit delayed, post-pandemic re-opening. The prospect of an end to decades of deflation is equally welcome. Japan is also undergoing significant technological and structural changes, which should bolster growth and productivity well into the future. The country's innovative and dynamic small cap companies are ideally placed to thrive in this environment - they are already leading the way in a variety of niche markets. It also seems that investors are only just beginning to grasp the very positive impact corporate governance reforms are likely to have on shareholder returns over the medium to longer term.

This is a very favourable investment backdrop, and the Board is positive about the Company's prospects. It believes that the Investment Managers' focus on quality and growth, supported by JPMorgan's extensive, global and Tokyo-based research resources, means that the Company is ideally placed to identify and capitalise on the many interesting opportunities available amongst Japan's smaller cap businesses. We therefore share the Portfolio Managers' confidence in the Company's ability to deliver attractive levels of capital growth, combined with a regular income, to shareholders over the long term.

Alexa Henderson

Chairman                                                                                                                                1st December 2023

PORTFOLIO MANAGERS' REPORT

Performance and market review

Over the six months to September 2023, the Company underperformed its benchmark, the MSCI Japan Small Cap Index (in GBP terms), by 3.4 percentage points, delivering a return of -0.7% on a net asset value (NAV) basis (in GBP terms), compared to the benchmark return of +2.7%.

The portfolio has a quality and growth bias and focuses on companies with strong business models that can compound earnings growth over the long-term. Our investment strategy looks beyond short-term market fluctuations and adopts a long-term perspective, based on the view that excess returns take time to accumulate, especially for smaller cap stocks.

The review period began on an optimistic note. Investors welcomed an acceleration in efforts to improve corporate governance (discussed further below), and rising import inflation and wage increases raised hopes of an end to Japan's long period of deflation. The rise in Japanese equity markets was supported by increased interest from foreign investors. The Company's underperformance during the reporting period mainly occurred in the second half of the period, between July and September 2023, particularly in September, when we saw value stocks strongly outperform the growth stocks we favour. Value stocks rose and growth stocks came under pressure due to an increased focus on monetary policy, as the US Federal Reserve and the Bank of England kept hiking rates and the Bank of Japan (BoJ) eased its longstanding yield curve controls. Higher rates have an adverse impact on growth stocks, as they reduce the discounted future cashflows on which their valuations are based.

Spotlight on stocks and sectors

During the six months under review, both stock selection and sector allocation had negative impacts on performance.

The stocks that contributed most positively to returns included MEC, Mitsubishi HC Capital and Nippon Sanso.

•        MEC is the global leader in the niche market for advanced adhesion enhancer products used in printed circuit boards. Its products improve the adhesion between the wiring materials and the insulating materials in the semiconductor package. We anticipate that the company will enjoy revenue growth as semiconductor miniaturisation makes further advances and usage of this technology spreads.

•        Mitsubishi HC Capital is a leasing company with a track record of solid execution and steady long-term earnings growth. The company was established through a merger of Mitsubishi UFJ Lease and Hitachi Capital, and we anticipate continued synergies within the group.

•        Nippon Sanso is Japan's number one supplier of industrial gas and the fourth largest in the world. We believe that industrial gas is an attractive industry, with high barriers of entry, increasingly consolidated market shares, strong cashflow generation, defensiveness backed by take-or-pay models for onsite long-term contracts, and a favourable pricing environment. Nippon Sanso has been successfully expanding their presence both organically and through M&A activity.

On the other hand, the largest detractors at the stock level included Square Enix, Milbon and MISUMI.

•        Square Enix develops and publishes video game software, including long-running titles such as Dragon Quest and Final Fantasy. A consistently rising digital download ratio is a favourable industry trend, as digital downloads have higher profitability than packaged games thanks to easier distribution, and we expect companies such as Square Enix which possess strong intellectual property in the form of popular games to benefit. Near-term earnings have, however, been disappointing, with weaker than expected title sales. The new CEO is focusing on raising profitability to improve the business's performance, and we will monitor execution going forward.

•        Milbon is Japan's number one manufacturer of salon exclusive hair care products. With a strong consulting sales approach, the company has been expanding market share at home, while also growing overseas in countries such as China and Korea. In the near-term, rising raw material costs have dampened profitability, but our positive assessment of Milbon's positioning, and its scope to expand both domestically and overseas, remains unchanged.

•        MISUMI is a producer and distributor of discrete automation components. The company's offering is unique in that it manufactures standardised factory automation components and also has an online distribution service which sells both its own products and those of third parties. While the long-term outlook for automation demand remains strong, near-term earnings have been difficult, particularly due to weakness in the Chinese market.

With respect to sector allocation, the main positive contributors to performance at the sector level were our underweight position in Equity Real Estate Investment Trusts, which is a sector that performed poorly under a tighter monetary policy environment. The overweight position in the materials sector also contributed positively. The most significant detractors from relative performance included our overweight position in software & services and our underweight position in banks. Internet companies have continued to struggle on profit taking after a previous period of strong performance. However, we maintain our view that digitalisation is an area of significant growth potential in Japan considering the still low penetration of services such as e-commerce, digital advertising, cashless payments. We therefore remain overweight the sector, although we have reduced the size of the overweight, due to attractive new ideas in other sectors (see examples in the Portfolio Positioning section). Meanwhile, banks performed strongly following the BoJ's move to allow more flexibility in its yield curve control policy. While any resultant increase in interest rates is likely to be supportive for banks' earnings, it is difficult to find any legacy banks with sustainable long-term growth opportunities or clear competitive advantages. The only bank stock the Company owns is Rakuten Bank, which is a fast-growing online bank with the ability to leverage the broader Rakuten group ecosystem to acquire new business.

About our investment philosophy

The Company aims to provide shareholders with access to the innovative and fast-growing smaller companies at the core of the Japanese economy. Our investment approach favours quality and structural growth, and we target companies (other than Japan's largest 200) which we believe can compound earnings growth over the long term, supported by sustainable competitive advantages, good management teams and judicious capital allocation. We believe the strong and durable market positioning of such businesses will allow them to substantially increase their intrinsic value over time. We avoid stocks that have no clear differentiation and those that operate in industries plagued by excess supply and structural decline. Our focus on quality and growth means that the portfolio tends to benefit from our ability to over- and underweight stocks relative to the benchmark, as this provides a potential source for additional return, enhancing the Company's scope to outperform over the long term.

Our stock selection is based on fundamental analysis, 'on-the-ground' knowledge and extensive contact with the management teams of prospective and current portfolio companies. The Company is managed by a team of three, supported by over 20 Tokyo-based investment professionals. Their knowledge of the local market provides us with significant strength in identifying investment opportunities in small cap companies - a sector of the market which is under-researched and overlooked by many investors.

The starting point in our bottom-up investment process is our Strategic Classification framework, where we address the key question 'Is this a business that we want to own?'. Through this process we assign a rating of Premium, Quality or Standard (formerly named Trading) to each stock based on its fundamentals, governance and the sustainability of its revenues over the long term. We aim to have a high exposure to Premium and Quality companies, and where possible, we invest from an early stage, to benefit fully as companies realise their growth potential.

This patient approach is key to generating excess return over the long term, although the portfolio's focus on quality and growth means it tends to struggle during value rallies. Having said that, the Company does not target 'growth at any price'. We always strive to acquire shares at a reasonable price. To this end, we use a five-year expected return framework to consider whether a stock's price is at an attractive level. We believe it is also important to construct a well-balanced, diversified portfolio, to minimise exposure to unintended risks. The Company's current and prospective portfolio holdings include a broad range of sectors, including not only IT hardware and software, but materials, chemicals, construction, machinery and consumer goods and services.

We believe that well-run companies, which exhibit behaviour that respects the environment and the interests of their shareholders, customers, employees and other stakeholders, are most likely to deliver sustainable, long-term returns. Such environmental, social and governance ('ESG') considerations are thus integral to our investment process and a key driver of our quest to generate financial returns. ESG factors influence our decisions both at the portfolio construction stage and thereafter, once companies are held in the portfolio, when ongoing engagement with managers can be effective in encouraging them to realise and maintain acceptable ESG standards. Our long-term holding in DTS, a system integration services provider, is one instance where our engagement with a company has resulted in considerable progress in its corporate governance practices, including, in DTS's case, in greater board independence and diversity and a better shareholder return policy.

Trends and themes

While our investment decisions are based on company-specific factors, there are also structural, long-term trends and themes that underlie our stock selection.

The investment themes which help shape the portfolio include:

•        Changing demographics: Japan's ageing and declining population is creating significant challenges for Japanese policymakers. The government is committed to tackle these issues through regulatory reforms and greater use of technology, and this is providing opportunities for innovative smaller companies working to improve the quality of life for the elderly, for example, by reducing the need for face-to-face medical consultations. The telemedicine company, Medley, is an example of a portfolio holding benefiting from such innovation.

•        Improving labour productivity via digitalisation: Japan's ageing population is also leading to a contraction in labour supply, and digitalisation is a key part of the solution to this problem, as it raises labour productivity. The government wants to encourage adoption of digital technology across the economy, and to this end it has established an agency which is focused on digitalising the operations of national and local governments, as well as Japan's education and healthcare systems. Portfolio holdings Rakus, a cloud services provider, and Infomart, a business-to-business trading platform for the food industry, are examples of holdings that benefit from this long-term trend.

•        Technological innovation: While certain areas of the Japanese economy such as financial services lag other markets in terms of their technological sophistication, Japanese manufacturers are world class. The country is a leading global supplier of factory automation equipment, robots, electronics parts and materials, presenting attractive investment opportunities for portfolio companies such as MEC and C. Uyemura that specialise in niche technology markets.

•        De-carbonisation: The Japanese government's commitment to reduce carbon emissions to net zero by 2050 has galvanised efforts to transition the economy to renewable energy sources and take other necessary steps to mitigate climate change. Some smaller Japanese companies possess unique technologies related to the production of electric vehicles, solar and wind power and other forms of clean energy, and we continue our search for companies such as Canadian Solar Infrastructure Fund and Hirano Tecseed, a specialist industrial machinery supplier, that are well-positioned to benefit from the global push towards carbon neutrality.

•        Overseas growth: The Asian region is experiencing rapid structural growth. Japanese luxury goods producers and other strong brands such as our investments in Milbon, a supplier of exclusive hair products, and watchmaker Seiko, are likely to continue experiencing strong demand from new customers in China, India and other increasingly prosperous Asian countries.

•        Corporate governance: Japan's corporate sector is making a concerted effort to strengthen governance standards via enhanced shareholder returns, the appointment of more independent, external directors to company boards, tighter internal controls and more transparent disclosure rules. There is, however, room for further improvement, and we engage in constructive dialogues with portfolio companies and potential investments on this broad theme, on the view that the market is likely to keep rewarding companies that upgrade their governance practices.

Positioning the portfolio for future success

Despite persistent market volatility, we have continued to search for opportunities to purchase quality, long-term compounders at attractive valuations. LIFEDRINK, Osaka Soda and Japan Material are three names which we have purchased during the past six months:

•        LIFEDRINK is a beverage company focused on private label products for retailers. The company has a vertically integrated business model which allows it to offer lower prices and enjoy higher margins. We believe the company has a healthy growth runway, as the Japanese market for private label products is still under-developed compared to overseas markets such as US, and the inflationary environment is ensuring strong demand, as consumers prefer the company's lower priced items to national brands.

•        Osaka Soda is a chemical company that holds the top global position in multiple niche product categories. The company's biggest future growth driver is silica gel, which is used in GLP-1 obesity drugs. Osaka Soda has the largest share of the world market and profitability on this product is very high, as the obesity drug market is growing rapidly. Osaka Soda is currently expanding its capacity accordingly. While capex investment for growth is likely to be the near-term priority, and the company presently has a stable dividend policy, its balance sheet is healthy, with a net cash position, so there is scope for future dividend increases which will enhance shareholder returns.

•        Japan Material provides after service to semiconductor plants for various infrastructure such as gas, ultra-pure water and specialty chemicals. Japan Material is the only company in Japan that provides a 'one-stop' maintenance service, which provides customers with savings of approximately 30% on the cost of these services, compared to using separate contractors. We anticipate strong demand in the mid to long-term, as there has been a significant increase in the number of new semiconductor plants scheduled for construction in Japan. We initiated this position in March and have continued to add to it subsequently.

On the other hand, we sold our position in Nextage, one of Japan's top three used car retailers. The used car retail market is highly fragmented with room for consolidation over the long-term, and Nextage has been quickly expanding through new store openings. However, there have been media reports of fraudulent insurance claims by various companies within the industry, including Nextage, so we exited the position. We also trimmed several names, taking some profits and adjusting position sizes as valuations became less compelling compared to before following strong performance. This includes on Monogatari Corp, which owns restaurant franchises, Capcom, a gaming company and C. Uyemura, a specialist chemical company supplying semiconductor manufacturers.

Over the review period, annualised portfolio turnover was around 31%. We maintain our bias towards quality and growth, which is evidenced by the fact that the portfolio has a higher return on equity (ROE) and higher growth in earnings per share (EPS) than the overall market, while continuing to be disciplined on valuations.

Outlook and strategy

The external environment remains uncertain, with persistent concerns over inflation and the ramifications of tight monetary policy, including the ongoing risk of a global recession. Japan is also seeing signs of inflation, as the rise in commodity prices, combined with a weaker yen, has imported inflationary pressures, although inflation is still low compared to other major markets. Some large corporates have announced notable wage hikes after decades of stagnant wages growth, which is very encouraging for the Japan economy, and the key question related to Japan's inflation outlook is whether these pay increases will spread to mid- and small-sized enterprises. The Bank of Japan made small adjustments to its ultra-easy monetary policy in December 2022 and July 2023, intended to allow rates to drift higher, and the policy direction under the new governor will remain a focus for investors.

Another near-term support for the Japan economy, in addition to rising wages, is the country's belated COVID reopening. Japan reopened its borders in October 2022, and inbound tourism and hospitality services have only resumed in recent months. The reopening of the Chinese economy is providing additional impetus to this rebound, not only via tourism, but also for many other consumer and industrial companies.

Over the medium to long term, the key structural support for Japan's equity market remains the improvement in corporate governance. Improvements over the past few years are clear, in large part thanks to the Corporate Governance Code introduced in 2015. In addition to steps such as the rising proportion of independent board directors, we have seen notable increases in dividend payments and share buybacks by some companies. These measures have already improved shareholder returns, and with many Japanese companies still awash with cash, we expect further significant efforts to return cash to shareholders, and increase investment returns accordingly. As a team, we conduct over 4000 company meetings a year, on the ground in Tokyo, and we have sensed an acceleration in corporate reform efforts this year, particularly after the Tokyo Stock Exchange's (TSE) initiatives announced earlier this year. These initiatives include a requirement for companies whose share price consistently trades below 1x price to book to disclose a strategy to improve this. We anticipate a broad-based improvement on the corporate governance front, not only companies trading below book value, considering balance sheet inefficiency is an issue seen across the market in Japan, and even high quality companies with strong competitive positions have room for improvement.

All of these factors, in particular the longer-term potential for improved shareholder returns- bode well for Japanese equities. The portfolio's exposure to several significant, very positive, long-term structural trends should provide further impetus to performance over the longer term.

But regardless of the economic backdrop at any point in time, we believe it is always important to focus on good quality businesses with leading market positions, strong cashflow generation, robust balance sheets and the potential for structural growth. It is reassuring to us that such companies tend to have significantly larger cash positions, and stronger balance sheets than their peers in other developed countries. This gives them the wherewithal to weather any unexpected short-term fluctuations in the economic or market environment.

Furthermore, average valuations of Japanese companies remain attractive compared to most other major markets. And in sharp contrast to other developed economies, Japan's smaller and more entrepreneurial companies are at the forefront of innovation, ideally positioned to prosper over the long term. Yet, the sell side coverage for such exciting small and mid-cap companies tends to be scant. We believe this gives us a considerable competitive advantage, as our large and dedicated team of Japan equities analysts and fund managers, on the grounds in Tokyo, is ideally placed to discover exciting investment opportunities amongst smaller companies, and to capitalise on the long-term structural changes playing out in Japan.

We therefore remain confident our investment approach and portfolio positioning will deliver positive and sustained returns to our shareholders over the medium and long term.

Miyako Urabe

Xuming Tao

Naohiro Ozawa

Portfolio Managers                                                                                                                1st December 2023

INTERIM MANAGEMENT REPORT

The Company is required to make the following disclosures in its half year report.

Principal and Emerging Risks and Uncertainties

The principal and emerging risks and uncertainties faced by the Company have not changed and fall into the following broad categories: investment and strategy; market; operational and cyber crime; loss of investment team or investment managers; share price relative to NAV per share; accounting, legal and regulatory; political and economic; global pandemics; geopolitical instability, climate change and artificial intelligence. Information on each of these areas is given in the Business Review within the Annual Report and Financial Statements for the year ended 31st March 2023.

Related Parties Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least 12 months from the date of the approval of this half yearly financial report. For these reasons, they consider that there is reasonable evidence to continue to adopt the going concern basis in preparing the financial statements.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)      the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with FRS 104 'Interim Financial Reporting' and gives a true and fair view of the state of the affairs of the Company and of the assets, liabilities, financial position and net return of the Company as at 30th September 2023, as required by the FCA Disclosure Guidance and Transparency Rule 4.2.4R; and

(ii)     the interim management report includes a fair review of the information required by DTRs 4.2.7R and 4.2.8R of the FCA  Disclosure Guidance and Transparency Rules.

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 accounting estimates that are reasonable and prudent;

•        state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•        prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board

Alexa Henderson

Chairman                                                                                                                                1st December 2023

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30th September 2023

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	30th September 2023			30th September 2022			31st March 2023
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments
held at fair value through
profit or loss	-	(3,085)	(3,085)	-	(19,640)	(19,640)	-	(15,007)	(15,007)
Net foreign currency gains	-	1,320	1,320	-	358	358	-	619	619
Income from investments	1,750	-	1,750	1,993	-	1,993	4,736	41	4,777
Other interest receivable	3	-	3	1	-	1	3	-	3
Gross return/(loss)	1,753	(1,765)	(12)	1,994	(19,282)	(17,288)	4,739	(14,347)	(9,608)
Management fee	(910)	-	(910)	(939)	-	(939)	(1,856)	-	(1,856)
Other administrative expenses	(240)	-	(240)	(262)	-	(262)	(472)	-	(472)
Net return/(loss) before finance
costs and taxation	603	(1,765)	(1,162)	793	(19,282)	(18,489)	2,411	(14,347)	(11,936)
Finance costs	(149)	-	(149)	(107)	-	(107)	(321)	-	(321)
Net return/(loss) before taxation	454	(1,765)	(1,311)	686	(19,282)	(18,596)	2,090	(14,347)	(12,257)
Taxation	(174)	-	(174)	(227)	-	(227)	(500)	-	(500)
Net return/(loss) after taxation	280	(1,765)	(1,485)	459	(19,282)	(18,823)	1,590	(14,347)	(12,757)
Return/(loss) per share (note 3)	0.51p	(3.24)p	(2.73)p	0.84p	(35.37)p	(34.53)p	2.92p	(26.32)p	(23.40)p

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. 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 period/year and also Total Comprehensive Income.

CONDENSED STATEMENT OF CHANGES IN EQUITY

	Called up		Capital
	share	Share	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve1,2	reserves2	reserve2	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 30th September 2023 (Unaudited)
At 31st March 2023	5,595	33,978	1,836	262,994	(99,107)	(9,274)	196,022
Net (loss)/return	-	-	-	-	(1,765)	280	(1,485)
Dividends paid in the period (note 4)	-	-	-	(3,870)	-	-	(3,870)
At 30th September 2023	5,595	33,978	1,836	259,124	(100,872)	(8,994)	190,667
Six months ended 30th September 2022 (Unaudited)
At 31st March 2022	5,595	33,978	1,836	270,952	(84,760)	(10,864)	216,737
Net (loss)/return	-	-	-	-	(19,282)	459	(18,823)
Dividends paid in the period (note 4)	-	-	-	(4,034)	-	-	(4,034)
At 30th September 2022	5,595	33,978	1,836	266,918	(104,042)	(10,405)	193,880
Year ended 31st March 2023 (Audited)
At 31st March 2022	5,595	33,978	1,836	270,952	(84,760)	(10,864)	216,737
Net (loss)/return	-	-	-	-	(14,347)	1,590	(12,757)
Dividends paid in the year (note 4)	-	-	-	(7,958)	-	-	(7,958)
At 31st March 2023	5,595	33,978	1,836	262,994	(99,107)	(9,274)	196,022

¹     The share premium was cancelled in the period ended 31st March 2001 and redesignated as 'other reserve'.

²     These reserves form the distributable reserves of the Company and may be used to fund distributions to investors.

CONDENSED STATEMENT OF FINANCIAL POSITION

At 30th September 2023

	(Unaudited)	(Unaudited)	(Audited)
	30th September	30th September	31st March
	2023	2022	2023
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	201,275	203,091	206,931
Current assets
Debtors	2,014	1,444	3,412
Cash and cash equivalents	5,674	9,485	7,446
	7,688	10,929	10,858
Creditors: amounts falling due within one year	(18,296)	(20,140)	(21,767)
Net current liabilities/assets	(10,608)	(9,211)	(10,909)
Total assets less current liabilities	190,667	193,880	196,022
Net assets	190,667	193,880	196,022
Capital and reserves
Called up share capital	5,595	5,595	5,595
Share premium	33,978	33,978	33,978
Capital redemption reserve	1,836	1,836	1,836
Other reserve	259,124	266,918	262,994
Capital reserves	(100,872)	(104,042)	(99,107)
Revenue reserve	(8,994)	(10,405)	(9,274)
Total shareholders' funds	190,667	193,880	196,022
Net asset value per share (note 5)	349.8p	355.7p	359.6p

CONDENSED STATEMENT OF CASH FLOWS

For the six months ended 30th September 2023

	(Unaudited)	(Unaudited)	(Audited)
	30th September	30th September	31st March
	2023	20221	2023
	£'000	£'000	£'000
Cash flows from operating activities
Net loss before finance costs and taxation	(1,162)	(18,489)	(11,936)
Adjustment for:
Net losses on investments held at fair value through profit or loss	3,085	19,640	15,007
Net foreign currency gains	(1,320)	(358)	(619)
Dividend income	(1,750)	(1,993)	(4,736)
Interest income	(3)	(1)	(3)
Realised (gain)/loss on foreign exchange transactions	(560)	(56)	25
Decrease in accrued income and other debtors	24	3	92
Decrease/(Increase) in accrued expenses	38	(7)	15
	(1,648)	(1,261)	(2,155)
Dividends received	2,578	2,459	4,355
Interest received	3	1	3
Overseas tax paid	(174)	(200)	(473)
Net cash inflow from operating activities	759	999	1,730
Purchases of investments	(35,705)	(26,071)	(46,467)
Sales of investments	37,193	33,372	55,328
Settlement of foreign currency contracts	-	5	-
Net cash inflow from investing activities	1,488	7,306	8,861
Dividends paid	(3,870)	(4,034)	(7,958)
Repayment of bank loan	-	(4,844)	(4,844)
Interest paid	(152)	(113)	(340)
Net cash outflow from financing activities	(4,022)	(8,991)	(13,142)
Cash and cash equivalents at start of period/year	7,446	10,143	10,143
Exchange movements	3	28	(146)
Cash and cash equivalents at end of period/year	5,674	9,485	7,446
Decrease in cash and cash equivalents	(1,775)	(686)	(2,551)
Cash and cash equivalents consist of:
Cash and short term deposits	5,674	9,485	7,446
Total	5,674	9,485	7,446

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 used in 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, previously shown under operating activities, as this relates to the loans drawndown. Other than consequential changes in presentation of the 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			As at
	31st March		Exchange	30th September
	2023	Cash flows	movement	2023
	£'000	£'000	£'000	£'000
Cash and cash equivalents
Cash	7,446	(1,775)	3	5,674
	7,446	(1,775)	3	5,674
Borrowings
Debt due within one year	(19,446)	-	1,877	(17,569)
	(19,446)	-	1,877	(17,569)
Net debt	(12,000)	(1,775)	1,880	(11,895)

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the six months ended 30th September 2023

1.  Financial statements

The information contained within the condensed financial statements in this half year report has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended 31st March 2023 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies, including the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.  Accounting policies

The condensed financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the revised 'SORP') issued by the Association of Investment Companies in July 2022.

FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 30th September 2023.

All of the Company's operations are of a continuing nature.

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 31st March 2023.

3.  Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2023	30th September 2022	31st March 2023
	£'000	£'000	£'000
Return per Ordinary share is based on the following:
Revenue return	280	459	1,590
Capital loss	(1,765)	(19,282)	(14,347)
Total loss	(1,485)	(18,823)	(12,757)
Weighted average number of shares in issue during the
period/year (excluding Treasury shares)	54,510,339	54,510,339	54,510,339
Revenue return per share	0.51p	0.84p	2.92p
Capital loss per share	(3.24)p	(35.37)p	(26.32)p
Total loss per share	(2.73)p	(34.53)p	(23.40)p

4.  Dividends paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2023	30th September 2022	31st March 2023
	£'000	£'000	£'000
2023 fourth quarterly dividend of 3.6p (2022: 4.0p)	1,962	2,180	2,180
2024 first quarterly dividend of 3.5p (2023: 3.4p)	1,908	1,854	1,854
2023 second quarterly dividend of 3.6p (2022: 5.8p)	-	-	1,962
2023 third quarterly dividend of 3.6p (2022: 5.0p)	-	-	1,962
Total dividends paid	3,870	4,034	7,958

The dividend paid in the period has been funded from the other reserve.

A second quarterly dividend of 3.5p (2023: 3.6p) per share, amounting to £1,907,199 (2023: £1,962,372) has been declared payable in respect of the year ending 31st March 2024. It was paid on 17th November 2023 to shareholders on the register at the close of business on 20th October 2023.

5. Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2023	30th September 2022	31st March 2023
Net assets (£'000)	190,667	193,880	196,022
Number of shares in issue	54,510,339	54,510,339	54,510,339
Net asset value per share	349.8p	355.7p	359.6p

6.  Fair valuation of instruments

The fair value hierarchy analysis for financial instruments held at fair value at the period end is as follows:

	(Unaudited)		(Unaudited)		(Audited)
	Six months ended		Six months ended		Year ended
	30th September 2023		30th September 2022		31st March 2023
	Assets	Liabilities	Assets	Liabilities	Assets	Liabilities
	£'000	£'000	£'000	£'000	£'000	£'000
Level 1	201,275	-	203,091	-	206,931	-
Total value of instruments	201,275	-	203,091	-	206,931	-

JPMORGAN FUNDS LIMITED

1st December 2023

For further information, please contact:

Divya Amin

For and on behalf of

JPMorgan Funds Limited

0800 20 40 20 or [phone]

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.

ENDS

A copy of the half year will be submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The half year report will also shortly be available on the Company's website at www.jpmjapansmallercompanies.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 

END