Final Results

RNS Number : 0956C

JPMorgan Smaller Cos IT PLC

14 October 2020

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN SMALLER COMPANIES INVESTMENT TRUST PLC

(the 'Company')

FINAL RESULTS FOR THE YEAR ENDED 31ST JULY 2020

Legal Entity Identifier: 549300PXALXKUMU9JM18

Information disclosed in accordance with DTR 4.2.2

The Directors announce the Company's results for the year ended 31st July 2020

CHAIRMAN'S STATEMENT

Investment Performance

Despite an extremely volatile year, I am delighted to report positive returns for the year for both the Company's net asset value ('NAV') and share price which more than compensate for the modest relative underperformance experienced in the previous year. During the year the Company's total return on net assets (with net dividends reinvested) rose by 3.8% which compares favourably to the return of -8.7% for the Company's benchmark, the Numis Smaller Companies plus AIM Index (excluding Investment Companies). The return to shareholders was +3.7% reflecting a steady discount level over the year as a whole. For context it is worth noting that the total return of the FTSE 100 Index over the same period was -19.2%.

It is most pleasing that the Investment Managers have achieved such good returns in an unusually challenging environment. The Board believes that this is a reflection of the Managers' skill and experience and demonstrates the attraction of a well diversified, actively managed portfolio of smaller companies. We feel that the change of benchmark, to enhance the available investment universe, and greater commitment by the managers to their best ideas has also played its part. I am happy to report that since the year end performance has continued to be strong. Over the two months to 30th September 2020 the total return on net assets rose by 9.8% which was comfortably ahead of the Company's benchmark which rose by 5.2%.

In their report, the Investment Managers provide further detail on portfolio performance and attribution, together with a commentary on markets.

COVID-19 and the Company's Key Service Providers

Since the on-set of the pandemic, the Board has been closely monitoring the Manager and the Company's other service providers and is pleased to report that these providers have been able to adjust their business models to accommodate the working from home requirements with limited disruption. The Board has received assurances that the Company's operations, to include the management of the portfolio and the maintenance of a strong controls environment, have continued as normal with no issues being identified.

Revenue and Dividends

Shareholders will be aware that the Company's investment policy does not prioritise income growth. However, after 8 years of consecutive dividend growth, the revenue return per share, calculated on the average number of shares in issue, decreased this year to 3.80p (2019: 6.33p). This reflected the significant reduction in stock market dividends overall as a result of COVID-19 and means that the company has not produced enough income, after costs, to cover a maintained dividend. However, despite this reduction in net revenue, the Directors are recommending a maintained final dividend of 5.50p per share. This is possible due to the Company's undistributed income retained from previous years, known as a Revenue Reserve, which is an advantage of the investment trust structure. In arriving at this recommendation, the Directors considered the Manager's revenue projections and, as far as it is possible, the possible path of economic growth. Clearly this revenue reserve will only support dividends for a finite period of time and, if the hoped for economic recovery does not occur, the Board may need to re-assess the dividend level in future years. If approved, the dividend will be paid on 7th December 2020 to shareholders on the register at close of business on 30th October 2020.

Gearing

The Board believes that a moderate level of gearing is an efficient way to enhance long-term shareholder returns, particularly in the current low interest rate environment, albeit at the cost of a small increase in short-term volatility. The level of gearing is regularly discussed with the Manager and is adjusted by them to reflect short-term considerations.

On 2nd October 2020, following the financial year end, the borrowing facility of £25 million with Scotiabank was renewed for a further 12 months. The current facility will expire in October 2021. There is a further option to increase borrowings to £35 million subject to certain conditions. At the year end, £21 million (2019: £24 million) was drawn on the loan facility with the gearing level of 8.6% (2019: 8.7%) of net assets.

Share Repurchases and Issuance

At last year's Annual General Meeting ('AGM'), shareholders granted the Directors authority to repurchase the Company's Shares for cancellation or to be held in Treasury for possible re-sale. During the financial year the Company repurchased 514,217 Ordinary Shares into Treasury, for a total consideration of £1,140,000. This amount represented 0.6% of the issued Ordinary Share capital at the beginning of the year. Treasury Shares will only be sold at a premium to net asset value thus enhancing shareholder value.

As in previous years, the Board's objective is to use the repurchase authority to manage imbalances between the supply and demand of the Company's shares, with the intention of reducing the volatility of the discount. To date the Board believes this mechanism has been helpful and therefore proposes and recommends that powers to repurchase up to 14.99% of the Company's Shares (less shares held in Treasury) be renewed as at the date of the AGM.

Board of Directors and Succession Planning

As previously announced, Andrew Robson will retire from the Board immediately after the forthcoming AGM. Accordingly, he will not stand for reappointment at that meeting. Andrew has served as a non-executive Director of the Company since 2007 and as Chairman of the Audit Committee since 2013. The Board is very grateful to him for his valuable contribution during his tenure and we wish him all the best for the future.

As part of its succession planning, the Board, through the Nomination Committee, carried out a search process during the year using an independent recruitment consultancy. This led to the appointment of Gordon Humphries as an independent non-executive Director with effect from 1st July 2020. Gordon is a Chartered Accountant and has more than 30 years of investment trust experience, including responsibilities in the areas of risk management and controls processes, company secretarial and corporate finance. The Board is looking forward to working with Gordon and is already benefiting from his contribution. Upon the retirement of Andrew following the next AGM, Gordon will be appointed as Chairman of the Audit Committee.

Continuation of the Company

In accordance with the Company's Articles of Association, an ordinary resolution will be put to shareholders at the forthcoming AGM that the Company continues in existence as an investment trust for a further three year period.

The Board believes that long-term investment in UK smaller companies remains favourable, despite some near term challenges, and the Company provides access to investments in a controlled risk environment that individual investors would find difficult to replicate on their own. Over the last three and ten years to 31st July 2020, the total return from the Company's net assets has been +17.8% and +233.3% respectively, significantly outperforming its benchmark which returned -10.9% and +141.4% over the same periods.

During the last twelve months, the Board, via the Management Engagement Committee, has undertaken a detailed review of the Manager and their investment approach. Whilst all investment styles will deliver returns that vary over time, the Board believes that the Manager's approach continues to be appropriate for the Company and that JPMorgan Asset Management has the appropriate resources to continue to successfully manage the Company.

Accordingly, the Board believes that the continuation of the Company is in the best interests of all shareholders and strongly recommends that shareholders vote in favour of the resolution at the AGM on 24th November 2020, as the Directors intend to do so in respect of their own holdings.

Annual General Meeting

The Company's thirtieth AGM will be held on Tuesday 24th November 2020 at 3.00 p.m. at 60 Victoria Embankment, London EC4Y 0JP. Despite the easing of lockdown measures which were put in place due to COVID-19, restrictions remain, and given ongoing uncertainty about the course of this pathogen and due to the ongoing public health concerns, the Board has most reluctantly decided to proceed with this year's AGM by limiting attendance in person to only Directors or their proxies and representatives from JPMorgan. With a quorum in place the formal business will be able to proceed.

The Board is aware that many shareholders look forward to hearing the views of the Investment Managers and perhaps particularly this year, given the uncertainties that lie ahead for the UK economy and markets. Accordingly a presentation with the Investment Managers, which would have been delivered at the AGM, will be available for shareholders to watch on the Company's website.

In light of the changed format, the Board strongly encourages all shareholders to exercise their votes in respect of the meeting in advance, by completing and returning their proxy forms. This will ensure that the votes are registered. Shareholders are also invited to address any questions they have for the Investment Managers or the Board by writing to the Company Secretary at the address in the Annual Report or via email to [e-mail].

Outlook

After an initial sharp bounce, the recovery in the UK stock market has stalled as investors wait to see how the nascent economic recovery develops. This is further complicated by the fact that economic growth is harder than ever to predict given the possible imposition of further partial or 'restart' restrictions and also the tremendous reliance on government and central bank largesse. Additionally, the UK economy still faces the uncertainty of how we will leave the European Union. However, we believe these issues are to some extent already reflected in UK share prices which have underperformed their international counterparts, partially due to a greater reliance on the service economy and consumer behaviour.

Clearly the future remains uncertain and careful stewardship of investments will be required. However, the Company is invested in a good spread of well positioned, soundly financed companies, with both UK and international exposure, which also have strong medium term growth prospects. The Board remains confident that the Manager has an appropriate approach to UK smaller company investment and the long term returns for the Company are testament to this sound approach.

Andrew Impey

Chairman  14th October 2020

INVESTMENT MANAGERS' REPORT

Performance & Market Background

The financial year to July 2020 was definitively a year of two halves. The first half of the year, to January 2020, was dominated in the UK by Brexit (again) and by the General Election. It was our belief that the decisive Conservative victory in December bode well for the UK economy and for finality on our departure from the European Union, and the UK stockmarket, and in particular the Small Cap market, reacted strongly.

All of this rapidly became irrelevant as COVID-19 spread across the world, causing misery, death and global economic turmoil. February and March 2020 witnessed precipitous declines in global stockmarkets, but the rebound was swift, as is now customary for stockmarkets, very much pre-empting the cessation of the COVID-19 impact on the world. The peak to trough fall in the FTSE 100 during the first half of 2020 was -34.9, while for the Numis Smaller Companies plus AIM Index (excluding Investment Companies) it was -41.8%. For our financial year as a whole, our index fell -8.7%, having been up 8.9% at the end of January. The Company strongly outperformed this decline, producing a positive return on net assets of 3.8%. The average discount remained fairly static, year on year, leading to a share price return of +3.7%.

Portfolio

The key contributors to performance in the year were a number of our largest high conviction holdings. These included Games Workshop, Dunelm, Avon Rubber, Future, Team 17, Codemasters, Softcat and Computacenter. We also benefitted from the take-overs of Eland, EI Group, Huntsworth and more recently RockRose Energy. The main underperformers were those companies perceived by the market to be hard hit by Covid, namely Dart Group, Vistry and OneSavings Bank. We believe the stockmarket has misjudged these companies; we maintain our holdings in all of them, and added to both Dart and Vistry after their shareprice declines.

The impact of Covid on the portfolio was significant in March, as certain sectors such as travel and leisure and retail were dramatic underperformers, and our index fell by almost 24%. In response to the pandemic we made a number of changes to the portfolio. However, key to our approach throughout this turbulent period has been to maintain a balance within the portfolio. We aimed to own both those companies that would not be too hard hit by the lockdown, or indeed might benefit from it, but also those that despite suffering a significant impact in the period we believed to be either extremely oversold and hence very undervalued, or those which we analysed would not only survive, but come out the other side stronger and with better competitive environments.

Further examples of companies where we increased our position as prices fell include Future, Pets at Home and Computacenter. New additions to the portfolio, which should benefit from recent events, included Halfords and Restaurant Group (both very oversold), CMC Markets (a beneficiary of volatile stockmarkets) and the gold producer Centamin. Other new purchases include Premier Foods, Gamma Communications and LSL, the estate agent. We exited a number of holdings including the train operator, Go-Ahead, Greggs, the food-on-the-go outlet, the tour operator On The Beach and TI Fluids, exposed to the automotive market. In the second half of the year we also participated in one IPO, Inspecs, a global manufacturer and distributor of eyewear.

Market Outlook

The initial official estimate for the GDP decline in Q2 2020 is -20.4% (quarter on quarter). The UK is now in recession. This is no surprise, given the effective shutdown of much of the economy in the quarter, and in fact is a less severe decline than was initially forecast. In August, the Bank of England revised upwards its estimates for GDP growth for the year to -9.5% for 2020, followed by +9% in 2021. On this basis, by the end of 2021 the Bank forecasts that the economy will have recovered to pre-Covid levels. The Bank also forecasts that at its worst, by the end of this year, unemployment will be 7.5%. This is substantially less than original estimates of over 10%, and this is a crucial question for the outlook. There is clearly huge uncertainty over the length and depth of this recession and of future unemployment levels after the end of the Government's furlough scheme.

While markets have recovered significantly from the spring lows of this year, and indeed in the USA markets are above pre-Covid levels, the UK stockmarket has been a laggard. From the start of January to the end of August, the FTSE 100 was down 22%, although the Numis Small Cap Index was down only 14%. When we look out to 2021 forecast valuations, based upon downgraded expectations for growth post Covid, our index is on an attractive 13x price/earnings ratio. We believe these forecasts are sensibly and cautiously based, and do not contain expectations of a rapid 'V-shaped' recovery, and are also cognisant of the recession. While clearly highly volatile, equity markets have carried out their function during this unprecedented period. Companies have been able to raise equity to fund holes in their balance sheets. To date this has mainly been done via placings, but we expect more rights issues to follow.

Our focus over the next eighteen months is firstly on the trajectory of Covid, and how that will affect our companies and the broader economy. Messages are mixed, but recent Purchasing Managers Indices and inventory levels have been encouraging. Second is the shape and length of the recession, and how that will impact the consumer. And third is Brexit, where our working assumption is that the UK will trade with Europe on WTO terms after the end of the transition period on 31 December 2020. There are so many unknowns at present, but one key point of clarity from the Government is that we are not going to pursue the austerity route imposed after the last recession. There has been a huge amount of Government support for the economy over the last several months, and we do not expect this approach to change. The opportunity set that we currently see, the Government support, and current valuations have led to gearing currently sitting at close to 8%. Our role as managers of the Company is to be adaptable to changing circumstances, but, as ever, to focus on the winners. We have outlined above in the portfolio section a number of the changes we have made in order to benefit from the new environment we all live in. These include both those companies that have traded strongly throughout the pandemic but also those where we believe the stockmarket has mispriced their future trading. These are the companies that we believe will not only survive but thrive in the post Covid world, adapting to fit the new climate, as their competition falters.

Georgina Brittain

Katen Patel

Investment Managers   14th October 2020

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. The risks identified and the ways in which they are managed or mitigated are summarised below.

With the assistance of the Manager, the Board has completed a robust risk assessment and drawn up a risk matrix, which identifies the key risks to the Company. In assessing the risks and how they can be mitigated, the Board has given particular attention to those issues that threaten the viability of the Company. These key risks fall broadly under the following categories:

• Corporate Strategy

The corporate strategy, including the investment objectives and policies, may not be of sufficient interest to current or prospective shareholders. Other factors, such as the size of the Company and level of liquidity in its shares, may also deter shareholder interest, resulting in the shares trading at an increased discount to net asset value. The Board regularly reviews its strategy, and assesses, with its brokers, shareholder views.

• Investment and Performance

Poor investment performance, for example due to poor stock selection, asset allocation or an inappropriate level of gearing, may lead to under-performance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported on. The Manager provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates and liquidity reports. The Board monitors the implementation and results of the investment process with the Investment Manager, who attend Board meetings, and reviews data which shows statistical measures of the Company's risk profile. The Investment Manager employs the Company's gearing, within a strategic range set by the Board.

•  Discount

A disproportionate widening of the discount relative to the Company's peers could result in loss of value for shareholders. In order to manage the volatility of the Company's discount the Company operates a share repurchase programme and the Board regularly discusses discount management policy and has set parameters for the Manager and the Company's broker to follow. The Board receives regular reports and is actively involved in the discount management process.

• Smaller Company Investment

Investing in smaller companies is inherently more risky and volatile, partly due to a lack of liquidity in the shares, plus AIM stocks are less regulated. The Board discusses these risk factors at each Board meeting with the Investment Managers. The Board has placed investment restrictions and guidelines to limit these risks.

• Political and Economic

Changes in financial or tax legislation, uncertainty about the UK's future relationship with the EU, and changes in government policies may each adversely affect the Company. The Manager makes recommendations to the Board on accounting, dividend and tax policies, and seeks external advice where appropriate.

• Investment Management Team

Investment performance may suffer if the designated investment managers were to leave. The Board considers that, though there may be short-term disruption, the risk would be mitigated by the substantial investment management resources of JPMorgan, and the use of an established investment methodology.

• Market

Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. 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 implication and results of the investment process with the Manager.

• Accounting, Legal and Regulatory

In order to qualify as an investment trust, the Company must comply with Section 1158 of the Income and Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given on page 18 of the Annual Report. Should the Company breach Section 1158, it may lose its investment trust status and as a consequence capital gains within the Company's portfolio would be subject to Capital Gains Tax. The Section 1158 qualification criteria are regularly monitored by the Manager and the results reported to the Board each month. The Company must also comply with the provisions of The Companies Act 2006 and, as its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure and Transparency Rules ('DTRs'). A breach of the Companies Act 2006 could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs may result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary, JPMFL and its professional advisers to monitor compliance with all relevant requirements.

• Corporate Governance and Shareholder Relations

Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement on pages 28 to 33 of the Annual Report. The Board receives regular reports from the Manager and the Company's broker about shareholder communications, their views and their activity.

• Operational and Counterparty Failure

Disruption to, or failure of, the Manager's or a counterparty's accounting, dealing or payments systems or the Depositary or Custodian's records may prevent accurate reporting and monitoring of the Company's financial position. Under the terms of its agreement, the Depositary has strict liability for the loss or misappropriation of assets held in custody. See note 21(c) for further details on the responsibilities of the Depositary. Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective risk management and internal controls are included within the Risk Management and Internal Controls section of the Corporate Governance Statement on pages 32 and 33 of the Annual Report.

• Cyber Crime

The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Board has received the cyber security policies for its key third party service providers and JPMF has assured Directors that the Company benefits directly or indirectly from JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by an independent third party and reported every six months against the AAF Standard.

• Financial

The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. Counterparties are subject to daily credit analysis by the Manager. In addition the Board receives reports on the Manager's monitoring and mitigation of credit risks on share transactions carried out by the Company. Further details are disclosed in note 21 on pages 64 to 68 of the Annual Report.

The Board also considered the status of emerging risks and identified the following principal emerging risks.

• Climate Change

Climate change, which barely registered with investors a decade ago, has today become one of the most critical issues confronting asset managers and their investors. Investors can no longer ignore the impact that the world's changing climate will have on their portfolios, with the impact of climate change on returns now inevitable. Financial returns for long-term diversified investors should not be jeopardised given the investment opportunities created by the world's transition to a low-carbon economy. The Board is also considering the threat posed by the direct impact on climate change on the operations of the Manager and other major service providers. As extreme weather events become more common, the resiliency, business continuity planning and the location strategies of our services providers will come under greater scrutiny.

• Global Pandemics

The recent emergence and spread of coronavirus (COVID-19) has raised the emerging risk of global pandemics, in whatever form a pandemic takes. COVID-19 poses a significant risk to the Company's portfolio. At the date of this report, the virus has contributed to significant volatility in trading recently. The global reach and disruption to markets of this pandemic is unprecedented, so there are no direct comparatives from history to learn from. However, seismic events and situations in the past have also been the catalyst for violent market contractions. 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 once containment measures ease. Since the on-set of the pandemic and throughout, the Manager and the Company's other service providers have been able to adjust their business models to accommodate working from home requirements. The Board has been closely monitoring all service arrangements and has received assurances that the Company's operations, to include the management of the portfolio, have continued as normal with no reduction in the level of service provided nor any issues being identified to date. Should the virus become more virulent than is currently the case, it may present risks to the operations of the Company, its Manager and other major service providers.

Should efforts to control a pandemic prove ineffectual or meet with substantial levels of public opposition, there is the risk of social disorder arising at a local, national or international level. Even limited or localised societal breakdown may threaten both the ability of the Company to operate, the ability of investors to transact in the Company's securities and ultimately the ability of the Company to pursue its investment objective and purpose.

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors' Report on page 26 of the Annual Report.  The management fee payable to the Manager for the year was £1,735,000 (2019: £1,779,000) of which £nil (2019: £nil) was outstanding at the year end.

During the year £nil, including VAT, was payable to (2019: £32,000, was refunded by) the Manager for the administration of savings scheme products, of which £nil (2019: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 58 of the Annual Report are safe custody fees amounting to £4,000 (2019: £3,000) payable to JPMorgan Chase of which £1,000 (2019: £1,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £nil (2019: £nil) of which £nil (2019: £nil) was outstanding at the year end.

The Company also holds cash in the JPMorgan Sterling Liquidity Fund, which is managed by JPMorgan. At the year end this was valued at £4.7 million (2019: £4.9 million). Interest amounting to £40,000 (2019: £57,000) was receivable during the year of which £nil (2019: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £11,000 (2019: £11,000) were payable to JPMorgan Chase during the year of which £2,000 (2019: £2,000) was outstanding at the year end.

At the year end, total cash of £303,000 (2019: £722,000) was held with JPMorgan Chase. A net amount of interest of £nil (2019: 78) was receivable by the Company during the year from JPMorgan Chase of which £nil (2019: £28) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found on page 38 and in note 6 on page 58 of the Annual Report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards), comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the annual report and accounts are fair balanced and understandable, provide the information necessary, for shareholders to assess the Company's performance, business model and strategy, and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• state whether applicable UK Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;

• make judgments and accounting estimates that are reasonable and prudent; and

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

and the Directors confirm that they have done so.

The Directors are responsible for keeping 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 enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the www.jpmsmallercompanies.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the Annual Report since it was initially presented on the website. The Annual Report is prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report and a Directors' Remuneration Report that comply with that law and those regulations. The Strategic Report and the Directors' report include a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

Each of the Directors, whose names and functions are listed in Directors' Report confirm that, to the best of their knowledge:

• the Company's financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

• the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Board confirms that it is satisfied that the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

For and on behalf of the Board

Andrew Impey

Chairman

14th October 2020

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31ST JULY 2020

	2020			2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at
fair value through profit or loss	-	6,130	6,130	-	(15,909)	(15,909)
Net foreign currency gains/(losses)	-	11	11	-	(4)	(4)
Income from investments	3,940	-	3,940	6,376	-	6,376
Interest receivable and similar income	40	-	40	71	-	71
Gross return/(loss)	3,980	6,141	10,121	6,447	(15,913)	(9,466)
Management fee	(520)	(1,215)	(1,735)	(534)	(1,245)	(1,779)
Other administrative expenses	(393)	(66)	(459)	(441)	-	(441)
Net return/(loss) before finance costs
and taxation	3,067	4,860	7,927	5,472	(17,158)	(11,686)
Finance costs	(83)	(193)	(276)	(166)	(387)	(553)
Net return/(loss) before taxation	2,984	4,667	7,651	5,306	(17,545)	(12,239)
Taxation	(19)	-	(19)	(268)	-	(268)
Net return/(loss) after taxation	2,965	4,667	7,632	5,038	(17,545)	(12,507)
Return/(loss) per share	3.80p	5.98p	9.78p	6.33p	(22.05)p	(15.72)p

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST JULY 2020

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2018	3,985	25,895	2,899	187,547	6,782	227,108
Repurchase and cancellation of the
Company's own shares	(4)	-	4	(190)	-	(190)
Repurchase of shares into Treasury	-	-	-	(2,354)	-	(2,354)
Costs relating to sub-division of shares	-	-	-	(18)	-	(18)
Net (loss)/return	-	-	-	(17,545)	5,038	(12,507)
Dividend paid in the year (note 3)	-	-	-	-	(4,299)	(4,299)
At 31st July 2019	3,981	25,895	2,903	167,440	7,521	207,740
Repurchase of shares into Treasury	-	-	-	(1,142)	-	(1,142)
Net return	-	-	-	4,667	2,965	7,632
Dividends paid in the year (note 3)	-	-	-	-	(4,293)	(4,293)
At 31st July 2020	3,981	25,895	2,903	170,965	6,193	209,937

¹ This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors.

STATEMENT OF FINANCIAL POSITION AT 31ST JULY 2020

	2020	2019
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	228,054	225,773
Current assets
Debtors	531	2,489
Cash and cash equivalents	5,025	5,589
	5,556	8,078
Current liabilities
Creditors: amounts falling due within one year	(23,673)	(26,111)
Net current liabilities	(18,117)	(18,033)
Total assets less current liabilities	209,937	207,740
Net assets	209,937	207,740
Capital and reserves
Called up share capital	3,981	3,981
Share premium	25,895	25,895
Capital redemption reserve	2,903	2,903
Capital reserves	170,965	167,440
Revenue reserve	6,193	7,521
Total shareholders' funds	209,937	207,740
Net asset value per ordinary share	269.0p	264.4p

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31ST JULY 2020

	2020	2019
	£'000	£'000
Net cash outflow from operations before dividends and interest	(1,994)	(2,264)
Dividends received	4,168	6,079
Interest received	(94)	119
Interest paid	(346)	(355)
Net cash inflow from operating activities	1,734	3,579
Purchases of investments	(94,402)	(104,183)
Sales of investments	100,601	110,307
Net cash inflow from investing activities	6,199	6,124
Dividends paid	(4,293)	(4,299)
Repurchase and cancellation of the Company's own shares	-	(190)
Repurchase of shares into Treasury	(1,171)	(2,325)
Costs relating to sub-division of shares	-	(18)
Fees in relation to aborted CULS issue	(33)	(99)
Drawdown of loans	10,000	5,000
Repayment of bank loans	(13,000)	(6,000)
Net cash outflow from financing activities	(8,497)	(7,931)
(Decrease)/increase in cash and cash equivalents	(564)	1,772
Cash and cash equivalents at start of year	5,589	3,817
Cash and cash equivalents at end of year	5,025	5,589
(Decrease)/increase in cash and cash equivalents	(564)	1,772
Cash and cash equivalents consist of:
Cash and short-term deposits	303	722
Cash held in JPMorgan Sterling Liquidity Fund	4,722	4,867
Total	5,025	5,589

NOTES TO THE FINANCIAL STATEMENTS   FOR THE YEAR ENDED 31ST JULY 2020

1.  Accounting policies

  Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014, and updated in October  2019.

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

The financial statements have been prepared on a going concern basis. In forming this opinion, the directors have considered the potential impact of COVID-19 pandemic on the going concern and viability of the Company, including the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience, particularly in light of COVID-19. The Directors have reviewed the compliance with loan covenants in assessing the going concern and viability of the Company. The Directors have reviewed income and expense projections and the liquidity of the investment portfolio in making their assessment.

The policies applied in these financial statements are consistent with those applied in the preceding year.

2.   Return/(loss) per share

	2020	2019
	£'000	£'000
Revenue return	2,965	5,038
Capital return/(loss)	4,667	(17,545)
Total return/(loss)	7,632	(12,507)
Weighted average number of shares in issue during the year	78,102,148	79,561,385
Revenue return per share	3.80p	6.33p
Capital return/(loss) per share	5.98p	(22.05)p
Total return/(loss) per share	9.78p	(15.72)p

3.  Dividends

(a)  Dividends paid and proposed

	2020	2019
	£'000	£'000
Dividend paid
2019 final dividend of 5.5p (2018: 5.4p1) per share	4,293	4,299
Dividend proposed
2020 final dividend proposed of 5.5p (2019: 5.5p) per share	4,293	4,321

¹   The dividend rate has been restated following the sub-division of each existing ordinary share of 25p into 5p each on 30th November 2018.

All dividends paid and proposed in the period have been and will be funded from the revenue reserve.

The dividend proposed in respect of the year ended 31st July 2020 is subject to shareholder approval at the forthcoming AGM. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 31st July 2021.

(b)  Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year, shown below. The revenue available for distribution by way of dividend for the year is £2,964,000 (2019: £5,038,000). The revenue reserve after payment of the final dividend will amount to £1,891,000 (2019: £3,229,000).

	2020	2019
	£'000	£'000
2020 final dividend of 5.5p (2019: 5.5p) per share	4,293	4,293

4.    Net asset value per share

	2020	2019
Net assets (£'000)	209,937	207,740
Number of shares in issue	78,051,669	78,565,886
Net asset value per ordinary share	269.0p	264.4p

5.    Status of results announcement

2019 Financial Information

The figures and financial information for 2019 are extracted from the Annual Report and Financial Statements for the year ended 31st July 2019 and do not constitute the statutory accounts for the 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.

2020 Financial Information

The figures and financial information for 2020 are extracted from the published Annual Report and Financial Statements for the year ended 31st July 2020 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements has 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.

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.

14th October 2020

For further information, please contact:

Lucy Dina

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

ENDS

A copy of the 2020 Annual Report will shortly be submitted to the FCA's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

The 2020 Annual Report will shortly be available on the Company's website at www.jpmsmallercompanies.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN FUNDS LIMITED

 

END

 

 

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