Final Results

RNS Number : 0133D

JPMorgan UK Smaller Cos IT PLC

17 October 2022

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC

(the 'Company')

FINAL RESULTS FOR THE YEAR ENDED 31ST JULY 2022

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 2022

CHAIRMAN'S STATEMENT

Investment Performance

After an exceptionally strong prior year, performance over the financial year to 31st July 2022 was disappointing. Over the period, the Company's total return on net assets (with net dividends reinvested) was -23.8% as compared to the Numis Smaller Companies plus AIM Index (excluding investment companies) which returned -16.0%. In addition, and in contrast to the previous year, the Company's share price discount to NAV widened from 8.0% on 31st July 2021 to 11.0% on 31st July 2022. Whilst the Company's peer group also experienced widening discounts, this nevertheless amplified the negative share price total return to shareholders which was -26.1%.

Having skillfully navigated the challenges of COVID, the managers entered 2022 with some optimism only to have the financial outlook turned on its head by Putin's invasion of Ukraine. Amongst other factors, the resultant effect on energy and commodity prices rapidly forced many central banks to increase interest rates significantly, in sharp contrast to the economic stimulus previously provided by governments. This not only piled pressure on consumers but also caused long term growth focused investment strategies, such as the Company's, to underperform dramatically. Whilst the managers have not and will not change their investment approach, the macro economic backdrop necessitated significant changes to the portfolio. In their report, the managers provide further detail on portfolio performance and attribution, together with a commentary on markets and portfolio activity.

Since the year-end, the discount has widened to 16.6% as at 12th October 2022. The return on net assets was -15.9% compared to a decrease in the benchmark of -13.2% and the return to shareholders was -21.2%.

Revenue and Dividends

Shareholders will remember that the dividend was not fully covered by revenue in the previous year. However, the Directors felt able to pay an increased dividend (supplemented by revenue reserves) when taking into account the managers' robust revenue projections. These projections have proved to be correct with net revenue increasing by 91.7% to £6.6 million in the financial year to 31st July 2022.

Consequently, the Directors are recommending a final dividend of 6.9p (2021: 5.7p) per share, an increase of 21.1%. If approved, the dividend will be paid on 19th December 2022 to shareholders on the register at close of business on 11th November 2022.

Gearing

The Board believes that a moderate level of gearing is an efficient way to enhance long-term shareholder returns, albeit at the cost of a small increase in short-term volatility. The Board takes into consideration the cost of borrowing when arranging facilities available to the Manager. The level of gearing is regularly discussed with the Manager and is adjusted by them, to reflect short-term considerations, within parameters set by the Board.

In order that the Managers could retain the flexibility to maintain gearing up to the maximum permitted level, on 1st October 2021 the borrowing facility with Scotiabank was increased from £40 million (with an option to increase the commitment by £10 million) to £50 million for a period of 24 months. The current facility will expire on 1st October 2023. There is a further option to increase borrowings to £60 million subject to certain conditions.

At the year-end, £25 million (2021: £35 million) was drawn on the loan facility with the gearing level of 5.8% (2021: 8.9%) of net assets. As at 12th October 2022, gearing was 7.3%.

Change to Investment Guideline

In July 2022, the Board announced its decision to amend the current investment restriction that the Company would not normally invest more than 50% of its gross assets in AIM stocks. With more small cap companies choosing to list on AIM and fewer moving from AIM to the Main Market of the London Stock Exchange, the Board agreed with its Investment Managers to increase the percentage of assets which the Company can hold in AIM stocks. In addition, reflecting the composition of the Benchmark, it was agreed that a minimum holding of AIM stocks relative to the Benchmark be introduced. The amended investment guideline now allows the Company to invest in AIM stocks up to a maximum and minimum exposure limit of +/-20% relative to the Benchmark.

Share Repurchases and Issuance

At last year's Annual General Meeting ('AGM'), shareholders granted the Directors authority to allot new shares and to repurchase the Company's shares for cancellation or to be held in Treasury for possible re-sale. During the financial year the Company did not repurchase or allot any shares. There are currently 79,611,410 shares in issue, including 1,559,741 shares which are held in treasury and available for reissuance. Treasury shares will only be sold at a premium to net asset value thus enhancing shareholder value.

As in previous years, the Board's objective is to use the repurchase and allotment authorities to manage imbalances between the supply and demand of the Company's shares, with the intention of reducing the volatility of the discount or premium, in normal market conditions. 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) and the allotment of new shares or sale of shares out of Treasury up to approximately 10% as at the date of the AGM be renewed.

Board of Directors and Succession Planning

During the year, the Board, through its Nomination Committee, employed an independent board advisory consultant to facilitate a comprehensive evaluation of the Board, its committees, the individual Directors and the Chairman. Their report confirmed the efficacy of the Board.

Frances Davies will retire from the Board at the AGM in December 2022. She joined the Board in March 2013 and has made a significant contribution to the performance of the Company. On behalf of the Board, I would like to thank Frances for her contribution to the Company over the years. As you are aware, Frances is also Chairman of the Remuneration Committee and Senior Independent Director and following her retirement Alice Ryder will take over these roles.

As part of succession planning, the Board appointed Katrina Hart in June 2022. Katrina has longstanding financial markets expertise and extensive Board experience. She brings a wealth of experience to the Board, gained from her roles in corporate finance and equity research and, subsequently, her involvement as a Non-Executive Director of both investment trusts and asset management companies. The Board believes Katrina will be a valuable addition to the Board and therefore recommend that shareholders vote in favour of her appointment at the forthcoming AGM.

In accordance with good corporate governance practice, all the other Directors will stand for reappointment at the forthcoming AGM.

Environment, Social and Governance (ESG) considerations

The Board shares the Investment Managers' view of the importance of ESG factors when making investments for the long term and of the necessity of continued engagement with investee companies throughout the duration of the investment. The Investment Managers' report describes the developments in the ESG process that have taken place during the year together with examples of how these are implemented in practice. Further information on the Manager's ESG process and engagement is set out in the ESG Report section within the Annual Report.

Annual General Meeting

We are delighted that this year we will once again be able to invite shareholders to join us in person for the Company's thirty-second Annual General Meeting ('AGM') to be held at 60 Victoria Embankment, London EC4Y 0JP on 5th December 2022 at 3.00 p.m. The Board hopes to welcome as many shareholders as possible.

As with previous years, you will have the opportunity to hear from the Investment Managers and their presentation will be followed by a question and answer session. Shareholders wishing to follow the AGM proceedings but choosing not to attend will be able to view them live and ask questions through conferencing software. Details on how to register together with access details can be found on the Company's website: www.jpmuksmallercompanies.co.uk, or by contacting the Company Secretary at [e-mail].

In accordance with normal practice, all voting on the resolutions will be conducted on a poll. Due to technological reasons, shareholders viewing the meeting via conferencing software will not be able to vote on the poll and we therefore encourage all shareholders, and particularly those who cannot attend physically, to submit their proxy votes in advance of the meeting, so that they are registered and recorded at the AGM. Proxy votes can be lodged in advance of the AGM either by post or electronically: detailed instructions are included in the Notes to the Notice of Annual General Meeting in the Annual Report. In addition, shareholders are encouraged to send any questions ahead of the AGM to the Board via the Company Secretary at the email address above. We will endeavour to answer relevant questions at the meeting or via the website depending on arrangements in place at the time.

If there are any changes to the above AGM arrangements, the Company will update shareholders through the Company's website and, as appropriate, through an announcement on the London Stock Exchange.

Outlook

As we anticipated in the interim outlook, the invasion of Ukraine has had a detrimental effect on ordinary citizens across the globe and particularly those that are less well off. However, we did not anticipate the severity of the cost of living crisis and the level of government support that would be necessitated. Governments and policy makers are having to grapple with an unusually uncertain and complex set of economic and geopolitical situations which are requiring a significant re-evaluation of the globalisation of previous decades and the source of supply of essential commodities and goods. Many of these issues will take a number of years to resolve but in the short-term the very real cost of living crisis driven by inflation and interest rate increases not previously experienced by many needs to be addressed. This is particularly so in the UK where immediate and significant intervention is required to alleviate the prospect of 'sticky inflation' driven by a wage/price spiral and the damage caused by the expectation of further inflation.

Following the recent change of Prime Minister, her new Chancellor's mini budget has caused turmoil in the UK markets. Whilst the desire to make a dramatic and immediate impact on the UK economy and aid those suffering from the rising cost of living is understandable, the manner in which it has been done is not. The poor communication, lack of obvious consultation with the Bank of England and absence of independent guidance from the OBR has led to a significant loss of investor confidence reflected in crashing bond prices, equities and the value of sterling. The public criticism from the International Monetary Fund is almost unprecedented and does not aid government credibility. The government's cost of borrowing, as reflected in sharply rising gilt yields (falling prices), has dramatically increased as investors demand a premium for financing UK plc. The Bank of England has been set at odds with the government as it attempts to counter the potential inflationary effects of the current government policy, weakened sterling and high gilt yields. The Bank has already intervened in bond markets, attempting to lower yields by buying gilts, and will almost certainly have to increase the base rate further than previously anticipated. This will cause a significant increase in mortgage payments and put pressure on property valuations all to the detriment of the embattled consumer. In short, the outlook is as uncertain as it has been in a long time and we and the Managers anticipate continued, significant volatility in markets.

The share prices of UK domestic and smaller companies have been hit hard in actual and relative terms in anticipation of uncertainty and the challenging outlook for the UK. As previously mentioned, this has required a significant re-appraisal of the construction of the Company's portfolio as the managers adapt to the rapidly changing environment that we find ourselves in. We are fortunate to have very experienced Managers who are working hard to preserve and grow shareholders' assets and their success in doing so is evident in their impressive long term record of outperformance.

Andrew Impey

Chairman    14th October 2022

INVESTMENT MANAGERS' REPORT

Performance and Market Background

The Company's financial year to July 2022 was dominated in the first half by COVID-19. As the vaccines took effect, the country started to re-open, only for the Omicron variant to re-awaken fears towards the end of 2021. As expected, in December 2021 the Bank of England (BoE) raised rates for the first time since the COVID-induced reduction to 0.1 %. As we entered 2022, the picture looked more positive, despite concerns over the impact of rising inflation and rising interest rates from their historic low. Forecasts at that time were for a continued strong rebound in GDP growth of approximately 4.5% in 2022 as the economy continued to recover, and inflation was expected to peak in April at around 6%. Events clearly intervened, with the Russian invasion of Ukraine upending these forecasts as the increasing cost of staples and energy drove inflation expectations significantly higher. As bills rose and wages failed to keep pace, the cost of living pressures escalated for many households. In addition, on-going logistic bottlenecks and constrained labour supply added to inflationary pressures for corporates. The BoE continued to raise interest rates in an attempt to combat inflation, and they ended our financial year at 1.25%.

Against this very testing backdrop, the Numis Smaller Companies plus AIM (ex Investment Companies) Index declined by 16% in the year. Disappointingly, the Company produced a decline in net assets of 23.8%. The share price total return was -26.1%, as the discount of the share price relative to net assets widened, due to a sell-off in the more domestically focused smaller companies arena in the light of the economic outlook.

Portfolio

A number of our largest positions continued to perform strongly, among them OSB (formerly known as OneSavings Bank), Alpha FX, Ergomed and Serica. OSB specialises in lending to professional landlords in the UK market, benefitting from rate increases and growing strongly through market share gains and refinancing activity. It has also initiated a buyback of shares as it has significant excess capital on its balance sheet. The high growth company Alpha FX, which provides currency solutions for corporates, has again outperformed market expectations and is continuing to expand its operations outside the UK. Ergomed, a provider of services to the pharmaceutical industry, continues to demonstrate its resilient business model and its expansion into the US is bearing fruit as pharmaceuticals continue to outsource specialist activities, while Serica, a North Sea gas producer, is a beneficiary of high gas prices and was also subject to a takeover approach.

However, these successes were not enough to outweigh the detractors in the portfolio. These included Halfords, Reach, Victorian Plumbing, Luceco and Joules, all of which were exited in the year as the underlying performance of the businesses declined. The three retailers, Halfords (car parts and bicycles), Victorian Plumbing (bathroom related products) and Joules (clothing), suffered from poor sales and inventory issues. Luceco, a producer of LED bulbs and electrical accessories, faced difficult end markets as a supplier into the DIY chains. The national and regional news publisher Reach disappointed as its progress in expanding into digital media unexpectedly slowed, and in its traditional newspapers it suffered from rising newsprint costs.

Additionally, the share prices of a few of our largest positions such as Future, Dunelm and Games Workshop declined precipitously as the market de-rated these consumer exposed names, despite a notable lack of earnings downgrades from company guidance. With hindsight, we were slow to react, as our analysis of the specific outcome for these individual companies was very much counter to the market perception. While we did reduce the sizing in these positions, the magnitude of the market de-ratings has led us to maintain holdings in the above names, given their current valuations and long-term prospects.

That said, we have of course made a number of significant changes to the portfolio in 2022, given the dramatic change in outlook over the year for inflation, consumer confidence and interest rate expectations. Among the many changes to the portfolio, we have increased our energy exposure with new positions in Ashtead Technology (a recent IPO which provides subsea rental equipment to the global offshore energy sector), Hunting (oil services) and Energean (gas producer) and added to our holding in Serica (oil and gas producer). Other new additions include FRP Advisory Group (insolvency/debt advisory company) and H&T (pawn-broker), which should be well-positioned in these difficult economic times, and more defensive names such as Wilmington (professional services) and Telecom Plus (a utility provider). On the other side, we have significantly reduced our consumer exposure as the outlook has darkened. Among the exits from the portfolio are Saga, Marston's, Moonpig, Curry's, Rank and Restaurant Group.

Overall as can be seen from a number of our sales in the year, we have significantly reduced our exposure to the UK consumer. However we also believe that a number of consumer-facing companies will weather the economic downturn well and continue to take market share; we strongly believe this is not reflected in their current share prices. We continue to remain overweight to the UK (and the USA), in underlying revenue terms, relative to our benchmark. We also reduced our gearing and paid down £10 million of our debt during the second half of the year as the economic backdrop deteriorated. In navigating these uncharted waters we have endeavoured to position the portfolio to have a balance between structural growth companies and cheap 'recovery' names; the portfolio compares favourably with the benchmark on all our key metrics, which will hopefully serve us well when market sentiment shifts.

Outlook

As we write this report, we have a new Prime Minister. There are too many unanswered questions to enumerate at this time but it seems clear that her absolute priority is to help UK citizens and UK companies to deal with the energy price crisis, which would otherwise threaten to overwhelm many. Among the many things we do not know, key questions include: How long will energy costs remain elevated? How much will the proposed energy cap cost the UK? While it will lower inflation in the short term, will it prove of itself to be inflationary? When will the Russian war with Ukraine end? Will there be gas shortages in Europe and the UK this winter? How high will interest rates need to go? The answers to these questions will have a direct impact on the looming recession in the UK - small and short, or long and severe, as suggested by the recent Bank of England forecast.

Our present view is that there is likely to be a recession in the UK in 2023. Currently, key metrics in the UK such as employment levels, PMIs (purchasing manager indices), the housing market and retail sales are all holding up to a greater or lesser extent - and indeed that is the message we are receiving from talking to our companies. However, both we and they are obviously aware of the many risks on the horizon. These include significantly higher interest rates, higher mortgage rates impacting the consumer and house prices, inflation remaining elevated for longer and the impact of sterling's devaluation. But the key metric we are focusing on is inflation, and in particular a fall in core inflation. If this eventually starts to emerge, then we believe stock markets will start to rally. If history provides a reliable guide, markets will rally prior to the GDP data turning more positive.

The last year has been a painful one for all investors. However, we believe that the structural drivers that have driven the superior performance in the small cap arena over longer time frames have not changed. Over the last many years we have seen periods of extreme volatility and drawdowns, such as we experienced during the Brexit referendum and the onset of COVID, and now once again in 2022, when the domestic UK market has fallen dramatically out of favour. These have proven historically to be very advantageous buying opportunities in this area of the market, and we do not believe this will prove to be different in this economically challenging time.

Georgina Brittain

Katen Patel

Investment Managers    14th October 2022

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. 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 considers emerging risks which it defines as potential trends, sudden events or changing risks which are characterised by a high degree of uncertainty in terms of occurrence probability and possible effects on the Company. As the impact of emerging risks is understood, they may be entered on the Company's risk matrix and mitigating actions considered as necessary. At present, no key emerging risks have been identified by the Board.

Principal risk	Description	Mitigating activities
Strategic and Performance Risk	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. 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 regularly reviews its strategy, and assesses, with its brokers, shareholder views. 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 Managers, 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/ premium	A disproportionate widening of the discount or narrowing of the premium relative to the Company's peers could result in loss of value for shareholders, including as a result of lack of investor interest or reduction in market makers in the Company's shares.	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. The Board receives shareholder feedback from the Company's brokers and Manager and agrees the Company's sales and marketing plan with the Manager. Meetings with the Chair are offered annually to the Company's largest holders and shareholders are encouraged to attend the AGM.
Smaller Company Investment and Market	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 Investment Managers manage investment risk in a variety of ways including the limits in relation to individual stocks and sectors relative to the Benchmark, together with other investment restrictions and guidelines, which are agreed with the Board. These are monitored on an ongoing basis.
Political and Economic	Changes in financial or tax legislation, uncertainty about the UK's future relationship with the EU, changes in government policies, financial crises, natural disasters and significant falls in the market could each adversely affect the Company's operation or performance.	The Manager makes recommendations to the Board on accounting, dividend and tax policies, and seeks external advice where appropriate. In addition, the Board seeks to mitigate risks though portfolio diversification and limits on gearing and conducts a regular review of the Company's control environment to ensure the Company can continue to operate.
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.
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'). Should the Company breach Section 1158, it may lose its investment trust status and as a consequence capital gains within the Company's portfolio would be subject to Capital Gains Tax. The Company must also comply with the provisions of The Companies Act 2006 and, as its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure and Transparency Rules ('DTRs'). A breach of the Companies Act 2006 could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs may result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Company is also subject to a number of other laws and regulations including AIFMD, MiFID II and the Market Abuse Regulations. Corporate governance risk arises if the Board fails to keep abreast of evolving best practice.	The Section 1158 qualification criteria are regularly monitored by the Manager and the results reported to the Board each month. The Board relies on the services of its Company Secretary, JPMFL and its professional advisers to monitor compliance with all relevant requirements.
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. In addition to threatening the Company's operations, such an attack is likely to raise reputational issues which may damage the Company's share price and reduce demand for its shares.	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.
Global pandemics	The emergence of COVID-19 has highlighted the speed and extent of economic damage that can arise from a pandemic. There is the risk that emergent strains may not respond to current vaccines and may be more lethal and that they may spread as global travel increases.	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 has been assessed throughout the course of the covid-19 pandemic and the Board will continue to monitor developments as they occur and seek to learn lessons which may be of use in the event of future pandemics. To date the portfolio's holdings have not exhibited a material long-term impact and have recovered as the containment measures eased, although the pandemic has yet to run its course.
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 also considers the threat posed by the direct impact of 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. In preparing the Company's financial statements the Directors have considered the impact of climate change risk (see Note 1(a)).

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors' Report in the Annual Report. The management fee payable to the Manager for the year was £2,492,000 (2021: £2,116,000) of which £nil (2021: £nil) was outstanding at the year end. 

During the year £nil, including VAT, was payable to (2021: £nil) the Manager for the administration of savings scheme products, of which £nil (2021: £nil) was outstanding at the year end

Included in administration expenses in note 6 in the Annual Report are safe custody fees amounting to £6,000 (2021: £4,000) payable to JPMorgan Chase of which £1,000 (2021: £3,000) 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 (2021: £2,000) of which £nil (2021: £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 £9.4 million (2021: £2.8 million). Interest amounting to £50,000 (2021: £3,000) was receivable during the year of which £nil (2021: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £9,000 (2021: £13,000) were payable to JPMorgan Chase during the year of which £2,000 (2021: £10,000) was outstanding at the year end.

At the year end, total cash of £294,000 (2021: £250,000) was held with JPMorgan Chase. A net amount of interest of £nil (2021: £nil) was receivable by the Company during the year from JPMorgan Chase of which £nil (2021: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found in the Annual Report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

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

• select suitable accounting policies and then apply them consistently;

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

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

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

and the Directors confirm that they have done so.

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

Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report and a Directors' Remuneration Report that comply with that law and those regulations.

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

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

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

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

For and on behalf of the Board

Andrew Impey

Chairman

14th October 2022

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31st July 2022

	2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at fair value
through profit or (loss)	-	(85,781)	(85,781)	-	138,923	138,923
Net foreign currency losses	-	(2)	(2)	-	(3)	(3)
Income from investments	8,101	-	8,101	4,572	-	4,572
Interest receivable and similar income	50	-	50	3	-	3
Gross return/(loss)	8,151	(85,783)	(77,632)	4,575	138,920	143,495
Management fee	(748)	(1,744)	(2,492)	(635)	(1,481)	(2,116)
Other administrative expenses	(566)	-	(566)	(425)	-	(425)
Net return/(loss) before finance costs and taxation	6,837	(87,527)	(80,690)	3,515	137,439	140,954
Finance costs	(180)	(419)	(599)	(83)	(210)	(293)
Net return/(loss) before taxation	6,657	(87,946)	(81,289)	3,432	137,229	140,661
Taxation	(106)	-	(106)	(14)	-	(14)
Net return/(loss) after taxation	6,551	(87,946)	(81,395)	3,418	137,229	140,647
Return/(loss) per share (note 2)	8.39p	(112.68)p	(104.29)p	4.38p	175.82p	180.20p

A final dividend of 6.9p per share (2021: 5.7p per share) is proposed in respect of the year ended 31st July 2022 amounting to £5,386,000 (2021: £4,449,000).

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. Net return/(loss) after taxation represents the profit/(loss) for the year and also Total Comprehensive Income.

STATEMENT OF CHANGES IN EQUITY

For the year ended 31st July 2022

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves1	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2020	3,981	25,895	2,903	170,965	6,193	209,937
Net return	-	-	-	137,229	3,418	140,647
Dividends paid in the year (note 3)	-	-	-	-	(4,293)	(4,293)
At 31st July 2021	3,981	25,895	2,903	308,194	5,318	346,291
Net (loss)/return	-	-	-	(87,946)	6,551	(81,395)
Dividends paid in the year (note 3)	-	-	-	-	(4,449)	(4,449)
At 31st July 2022	3,981	25,895	2,903	220,248	7,420	260,447

¹   These reserves form the distributable reserves of the Company and may be used to fund distribution of profits to investors.

STATEMENT OF FINANCIAL POSITION

At 31st July 2022

	2022	2021
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	275,604	377,140
Current assets
Debtors	1,476	2,291
Cash and cash equivalents	9,650	3,077
	11,126	5,368
Current liabilities
Creditors: amounts falling due within one year	(1,283)	(36,217)
Net current liabilities	9,843	(30,849)
Total assets less current liabilities	285,447	346,291
Non Current liabilities
Creditors: amounts falling due after one year	(25,000)	-
Net assets	260,447	346,291
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	220,248	308,194
Revenue reserve	7,420	5,318
Total shareholders' funds	260,447	346,291
Net asset value per ordinary share (note 4)	333.7p	443.7p

STATEMENT OF CASH FLOWS

For the year ended 31st July 2022

	2022	2021
	£'000	£'000
Net cash outflow from operations before dividends and interest	(3,018)	(2,566)
Dividends received	7,419	4,414
Interest received	40	4
Overseas tax recovered	-	29
Interest paid	(604)	(291)
Net cash inflow from operating activities	3,837	1,590
Purchases of investments	(105,409)	(142,657)
Sales of investments	122,651	129,424
Settlement of foreign currency contracts	(4)	-
Net cash inflow/(outflow) from investing activities	17,238	(13,233)
Dividends paid	(4,449)	(4,293)
Litigation expense	(52)	(14)
Repayment of bank loans	(18,000)	-
Drawdown of bank loans	8,000	14,000
Net cash (outflow)/inflow from financing activities	(14,501)	9,693
Increase/(decrease) in cash and cash equivalents	6,574	(1,950)
Cash and cash equivalents at start of year	3,077	5,025
Exchange movements	(1)	2
Cash and cash equivalents at end of year	9,650	3,077
Increase/(decrease) in cash and cash equivalents	6,574	(1,950)
Cash and cash equivalents consist of:
Cash and short-term deposits	294	250
Cash held in JPMorgan Sterling Liquidity Fund	9,356	2,827
Total	9,650	3,077

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31st July 2022

1.  Accounting policies

  Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including 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 April 2021. In preparing these financial statements the Directors have considered the impact of climate change risk as a principal risk and have concluded that it does not have a material impact on the Company's investments. In line with FRS 102 investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the 31st July 2022 and therefore reflect market participants view of climate change risk.

The financial statements have been prepared on a going concern basis. In forming this opinion, the directors have considered the potential impact of the ongoing COVID-19 pandemic and other market strains 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 and other market strains. The Directors have reviewed income and expense projections to 31st October 2023 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

	2022	2021
	£'000	£'000
Revenue return	6,551	3,418
Capital (loss)/return	(87,946)	137,229
Total (loss)/return	(81,395)	140,647
Weighted average number of shares in issue during the year	78,051,669	78,051,669
Revenue return per share	8.39p	4.38p
Capital (loss)/return per share	(112.68)p	175.82p
Total (loss)/return per share	(104.29)p	180.20p

3.    Dividends

(a)  Dividends paid and proposed

	2022	2021
	£'000	£'000
Dividend paid
2021 final dividend of 5.7p (2020: 5.5p) per share	4,449	4,293
Dividend proposed
2022 final dividend proposed of 6.9p (2021: 5.7p) per share	5,386	4,449

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 2022 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 2023.

(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 £6,551,000 (2021: £3,418,000). The revenue reserve after payment of the final dividend will amount to £2,034,000 (2021: £869,000).

	2022	2021
	£'000	£'000
2022 final dividend of 6.9p (2021: 5.7p) per share	5,386	4,449

4.  Net asset value per share

	2022	2021
Net assets (£'000)	260,447	346,291
Number of shares in issue	78,051,669	78,051,669
Net asset value per ordinary share	333.7p	443.7p

5.  Status of results announcement

2021 Financial Information

The figures and financial information for 2021 are extracted from the Annual Report and Financial Statements for the year ended 31st July 2021 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2022 Financial Information

The Figures and financial information for 2022 are extracted from the published Annual Report and Financial Statements for the year ended 31st July 2022 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Financial Statements will be delivered to the Register of Companies in due course.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

14th October 2022

For further information:

Lucy Dina

JPMorgan Funds Limited

020 7742 4000

ENDS

A copy of the 2022 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 2022 Annual Report will shortly be available on the Company's website at www.jpmuksmallercompanies.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN FUNDS LIMITED

 

END

 

 

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