Final Results

RNS Number : 3131I

JPMorgan US Smaller Co. IT

20 March 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED
31ST DECEMBER 2017

Legal Entity Identifier:  549300MDD7SOXDMBN667

Information disclosed in accordance with the DTR 4.1.3

The Directors of JPMorgan US Smaller Companies Investment Trust plc announce the Company's results for the year ended 31st December 2017.

CHAIRMAN'S STATEMENT

Performance

Following the exceptional returns achieved in 2016, a year in which the Company's share price rose by 53.4% and its net asset value (NAV) increased by 50.1%, I am delighted to report further positive progress in 2017 as the Company's share price rose by 7.7% and the NAV increased 6.3%. Good stock selection has resulted in outperformance of our benchmark index, the Russell 2000 which rose by 4.5% in sterling terms. The only disappointment to note is that all our returns were stronger in local currency but were hurt by the recovery in sterling against the US dollar (please see comment under Currency Hedging).

Revenue and Dividend

The revenue for the year, after taxation, was £1,567,000 and as was indicated in last year's statement, the deficit in the revenue reserve was eliminated during the year. The Board is therefore delighted to recommend a dividend of 2.5 pence in respect of the financial year ended 31st December 2017. Subject to shareholders' approval at the Annual General Meeting ('AGM'), this dividend will be paid on 9th May 2018 to shareholders on the register at the close of business on 13th April 2018. Shareholders should note the Company's objective is unchanged and remains that of capital growth and thus our dividend policy will simply be to pay a dividend sufficient to maintain investment company status.

Discount and Premium

At the end of 2017 the shares were standing at a modest premium to NAV and whilst the share price is closely aligned to the change in NAV on a year-on-year basis there have been periods during the year when the shares have traded at a discount (the average discount to NAV for the shares during 2017 was 2.5%). As has been said in the past, it is always going to be a challenge to align our share price movement with the change in the NAV as US smaller companies are seen as riskier assets and are, as a consequence, more volatile in nature. The relationship between the share price and the NAV is, however, monitored on a daily basis by the Board and our professional advisers. To help the management of the discount, we have in place the authority to repurchase up to 14.99% of the Company's issued share capital and we will be seeking renewal of this authority at the AGM. During the year this authority was exercised and we bought back 260,000 shares into Treasury at an average discount of 7.8%. As at 31st December 2017, the Company held 319,000 shares in Treasury having issued 1,325,000 from Treasury at an average premium of 1.5% during the year. Since the year-end, the Company has issued a further 225,000 shares from Treasury.

Gearing

In April 2017 our revolving credit facility with Scotiabank was renewed at US$25 million with an option to draw a further US$10 million. At the end of 2017, US$20 million was drawn and the portfolio was 5.2% geared. This facility matures in April 2018 and the Board will consider another gearing facility at this point.

Currency Hedging

Both our portfolio and our loan facility are denominated in US dollars and these values need to be converted into sterling on a daily basis for calculating and reporting the NAV which exposes the assets to fluctuations in the US dollar/sterling exchange rate. In 2016 the NAV strongly benefitted from its exposure to US dollars following the sharp fall in sterling. 2017, however, was one of those years when it was a detraction for UK investors holding US dollar assets as sterling recovered from being 'oversold' in the aftermath of the Brexit vote. The Board does have the authority to reduce, or eliminate, the exposure to fluctuating currencies through the use of currency hedging and our policy on currency hedging is reviewed regularly, but to date we have not carried out any hedging and have no plans to do so in the immediate future.

Board Succession Planning

The Board has set in place succession plans which we believe will smooth over the discontinuity that can be caused by the retirement of non-executive directors after nine years' service when a board consists of only five directors. At the most recent Nomination Committee meeting it was agreed that all the Directors will offer themselves for re-appointment at the forthcoming AGM and I very much hope you will vote for their re-appointment. We believe the Board has good diversity and the correct balance of skills and three Directors have been appointed since 2012. However in order to maintain the momentum of refreshing the Board, we plan on starting the recruitment process after the AGM with a view to appointing a new Director during the latter half of 2018.

Annual General Meeting

We are holding our AGM at 60 Victoria Embankment, London EC4Y 0JP on Friday 27th April 2018 at 2.30 p.m. As in previous years, there will be a presentation by one of the investment management team which will cover a review of 2017 as well as the outlook for the current year. Following the meeting some refreshments will be served which will provide shareholders with the opportunity to meet the Directors and the representatives from JPMAM and ask any questions on the portfolio and performance. If you have any detailed or technical questions, it would be helpful if you could raise them in advance of the meeting by writing to the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP.

Outlook

It feels strange to be writing about the US small cap outlook and not make any mention of President Trump, interest rates, inflation, valuation levels and tax cuts but there is nothing to add to the insightful views in the Manager's Report as these will likely influence markets over the short term.

Over the long term I would just like to remind investors how rewarding US small cap investment can be, since Don and his team took over running the portfolio nine years ago, the NAV has increased by over 400% compared to the benchmark return of 274%. Also, I would urge you to look at the Trust's Long Term Financial Record in the Annual Report and Financial Statements which shows how consistent the outperformance against the benchmark has been and to remind you that these figures are after all management fees and other costs. It is an impressive record but it is not an accidental one as the Board believes the Company has in place the key ingredients that investors should look for: people, philosophy, investment process, strong stable ownership and performance. Performance is deliberately last as it is based on the past whereas the other factors are essential to the future performance.

'People' has been the key factor to our success in the past and is the reason why we have confidence in the long term outlook for the Company. We have in place an exceptional investment team based in New York that is strongly led by Don San Jose. The team has a clearly defined investment philosophy, a disciplined investment process and the support of an asset management business which is both stable and well-resourced. Over the long term the US economy has a long history of creating exciting growth prospects in the small cap sector and our Company should continue to take advantage of these opportunities for the reasons set out above.

Davina Walter

Chairman

20th March 2018

investment managers' report

Market Review

Performance in the US equity markets in 2017 proved to be much stronger than most investors anticipated at the beginning of the year. The newly passed tax reform act, continued strength in the job market and the resulting hopes for greater capital investment have led Street analysts to raise earnings estimates and lent support to the equity market. The S&P 500® finished the year up 11.0% in sterling terms, including dividends, and hit all-time highs 62 times over the course of the year. Small caps also participated in the markets advance, with the Russell 2000 Index® up 4.5% in pound sterling terms. The best performing sectors within the index were healthcare and producer durables, while energy was the worst performing sector and the only sector to post a negative return.

The economic environment was robust over the course of the year which allowed the Federal Reserve (Fed) to raise interest rates three times in 2017. Inflation continued to be muted, with the headline US Consumer Price Index rising 2.1% year-on-year. The IHS Markit US Manufacturing PMI™ (Purchasing Managers Index) was strong over the course of the year and signaled a solid improvement in the health of the industrial sector. US strength coincided with strength around the globe with the J.P. Morgan Global Manufacturing PMI™ rising to 54.45 in December, near a seven-year high.

Legislative reform was perhaps the biggest political driver of the year for the equity markets. The eventual signing of the tax reform act in late December resulted in raised earnings estimates for many companies and gave investors renewed hope that 2018 would see an increase in investment spending.

Performance

The Company's net asset value grew by 6.3% in 2017. The return was ahead of the benchmark, the Russell 2000 Index (Net), which rose by 4.5% in GBP. The majority of the added value was driven by strong stock picking which is highlighted in more detail in the following paragraphs. Additionally, the portfolio's gearing was beneficial to the Company's performance during this period.

With regards to relative performance, our stock selection in the financial services and materials & processing sectors proved very beneficial. In the financial services sector, our stock selection benefitted from several subsectors working in our favor. Banks, insurers and capital market companies worked well as these profited from the corporate tax reform. In particular, our exposure to Eaton Vance was among the largest contributors. The oldest investment management firm in the US, which offers investment products and wealth management services, outperformed during the year, mainly in the second half. Even though earnings results were slightly below expectations in both quarters, best-in-class organic growth rates and inflows into every asset class helped the stock to move higher. The company's management is optimistic around its growth initiatives and flows continue to be solid. Furthermore, Eaton Vance should be a big beneficiary of the corporate tax reform which will further provide a tailwind for earnings. We think the company is a high quality asset manager that is better positioned than peers with its custom beta strategies and are comfortable with our current positioning.

Within materials & processing, our overweight positions in Cabot Microelectronics was among the largest contributors. Cabot Microelectronics, a leading global supplier of high-performance polishing slurries and pads was a solid performer driven by strong fourth quarter earnings results in which new products drove revenue and EPS growth. Management also provided an upbeat view on the sustainability of current strong top line trends into the next fiscal year, as well as a guidance for continued margin expansion, which was greeted positively by investors. We continue to think the shares look reasonably attractive and believe the company's defensive business model will enable it to outperform during a potential technology sector correction.

On a standalone basis, our investments in the technology name Grubhub added the most value for the period. Grubhub, the leading online and mobile platform for restaurant pick-up and delivery orders in the US, was a strong performer in Q4 on the back of solid Q3 2017 earnings results that showed better than expected organic customer growth and continued improvement in unit economics. With a rapidly scaling delivery business, accelerated ad spend driving strong diner and restaurant partner growth as well as a step function in scale from the recently announced Eat24 acquisition, 2017 has been a productive year for Grubhub in being the long term winner in the large and growing online food ordering/delivery market. We believe the strong share performance reflects growing investor appreciation for the company's strong market position and growth opportunity, with particular excitement around the potential benefits of the Eat24 acquisition.

In contrast, our stock selection in the consumer discretionary and healthcare sectors weighed on relative returns.

Our investments in the consumer discretionary name E.W. Scripps hurt our performance. The owner of broadcast TV stations and national digital assets, underperformed as the traditional TV ecosystem saw an acceleration in cord cutting in the quarter, which caused the company to miss their Q3 guidance. In addition, the company wrote down a digital acquisition they made only a short time ago in April 2016, which further calls into question their acquisition strategy, and their recent purchase of Katz Broadcasting. E.W. Scripps is also undergoing a change in management with an internal CEO promotion, and a change in their CFO (also an internal candidate). We think these efforts should ultimately add value for shareholders over-time and we continue to hold our position.

Within healthcare, our lack of exposure to several names, including Nektar Therapeutics, hurt performance. The biopharmaceutical company that develops new drug candidates by applying its proprietary technology and supplying the technology to pharmaceutical companies, provided positive phase 2 data related to their drug treating melanoma during the period. The data highlighted compelling patient response rates as well as an encouraging safety profile. The FDA also provided an unexpected regulatory update on Nektar's non-addictive pain medication and indicated that they will likely not need to run additional trials. This ultimately moves the filing timeline ahead and the news was well received by the market.

Among individual names, our overweight in the consumer discretionary name Papa John's and our exposure to the consumer staples name Spectrum Brands were among the largest detractors. Papa John's, a company that operates and franchises pizza delivery and carry-out locations throughout the world, underperformed mainly in the fourth quarter as they lowered FY 2017 EPS guidance, implying negative EPS growth in Q4. The restaurant and pizza category was hit as a whole, and the company additionally blamed poor sales on their affiliation with the NFL, which has seen viewership declines. We still believe the company has a strong brand, an attractive business model, and a long runway for growth and therefore took the opportunity to add to the position during the quarter on this pullback. Spectrum Brands, a global and diversified consumer products company, slightly detracted during the year. We do however think that they have strong value brands that compete effectively in markets dominated by a small number of higher name brand products. We are attracted to the high free cash flow generation of the businesses they hold, and how management thoughtfully thinks about allocating capital.

Portfolio Positioning

With regards to our portfolio positioning, not much has changed as we continue to focus on finding companies with durable franchises, good management teams and stable earnings that trade at a discount to intrinsic value. During the year we were able to find new names to add to the portfolio and the team continue to be very productive as 19 names were added. However, the portfolio's positioning remains relatively unchanged. Similar to the previous year, our main allocations remained in the financial services, consumer discretionary and producer durables, which make up close to 60% of the overall portfolio's allocation. On a relative basis, our largest underweight is in the healthcare space due to a lack of exposure to biotechnology stocks. The next largest underweight is in technology. Even though we increased our position throughout the year, the technology sector remains the area where we have had a difficult time finding opportunities that meet our quality and valuation criteria. Lastly, our third largest underweight is in the financial services sector which is mainly due to our underweight exposure to Real Estate Investment Trusts. The financial services sector has rallied during the year due to hopes of corporate tax reform, less regulation and rising interest rates. At this time, we are comfortable with our relative underweight position as we struggle to add to our exposure mainly due to valuations.

Market Outlook

Even with US equity markets continuing to make new highs, we think the current market multiples, which are above average, are supported by underlying earnings growth expectations and the low yield environment. We do not see a material risk of a recession in the near term, but we continue to monitor potential risks that could represent headwinds for US equity markets. The passage of the tax reform act removed one risk to the market, but prudent equity investment will require active flexibility, as the implications of tax reform, trade policy, inflation and rising rates could drive rotations among sectors and styles.

Inflation should continue to rise on the margin, helped by the weaker dollar, higher oil prices and a tightening labour market. This means that the Fed is likely to stay on track for further rate increases. Ultimately, we believe that a rising yield environment from a low level should be positive to risk assets, as it reflects solid economic fundamentals. While there is the fear from some people that rising rates may quickly choke off equity markets, we are of the view that rates will rise in response to an improving economy that is also driving up earnings. Moreover, the pace of rate hikes is hardly aggressive, and prevailing policy remains negative in real terms in most major economies. As a result, we believe equity markets can and will withstand higher rates over the course of 2018.

We continue to believe US earnings will grow in 2018 and that the recent tax reform should act as a tailwind to the current late cycle growth environment. More specifically, US small caps, who pay a higher effective tax rate than large caps could benefit the most from the corporate tax reform. Moreover, the repatriation of profits from overseas could also boost M&A activity, which would be beneficial to small caps. While small caps currently tend to trade at a premium valuation relative to large caps, they are doing so at a time when small cap earnings expectations are lagging behind large caps. However, any revisions higher for small cap earnings as well as a pick up in US economic growth due to the impact of tax reform, at both the corporate and individual level, could see small caps move even higher.

Don San Jose

Dan Percella

Jon Brachle

Investment Managers

20th March 2018

Principal Risks

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The risks identified have not changed over the year under review and the ways in which they are managed or mitigated are summarised as below:

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. These key risks fall broadly under the following categories:

•   Investment and Strategy

     An inappropriate investment strategy, for example excessive concentration of sector selection or the level of gearing, may lead to underperformance against the Company's benchmark index and peer companies, which may result 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, JPMF, provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, who participate at all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Investment Managers employ the Company's gearing tactically, within a strategic range set by the Board. In addition to regular Board reviews of investment strategy, the Board holds a separate meeting devoted to strategy each year.

•   Loss of Investment Team or Investment Managers

A sudden departure of the investment managers, or several members of the investment management team could result in a short-term deterioration in investment performance. The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team-based approach.

•   Discount

A disproportionate widening of the discount could result in a loss of value for shareholders. In order to manage the Company's discount, which can be volatile, the Company operates a share repurchase programme.

•   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 JPMAM. The Board monitors the implementation and results of the investment process with the Manager.

•   Political and Economic

Changes in financial or tax legislation, including in the European Union and the US, may adversely affect the Company. The Manager makes recommendations to the Board on accounting, dividend and tax policies and the Board seeks external advice where appropriate. In addition, the Company is subject to administrative risks, such as the imposition of restrictions on the free movement of capital. These risks are discussed by the Board on a regular basis.

•   Accounting, Legal and Regulatory

In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Structure of the Company' above. Should the Company breach Section 1158, it may lose investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 1158 qualification criteria are monitored continually by JPMAM and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure Guidance and Transparency Rules ('DTRs'). A breach of the Companies Act 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 could 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, the Manager, and its professional advisers to ensure compliance with the Companies Act 2006 and the UKLA Listing Rules and DTRs.

•   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 report in the Annual Report.

•   Operational

Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the depositary's or custodian's records could prevent accurate reporting and monitoring of the Company's financial position. The Company has appointed BNY Mellon Trust & Depositary (UK) Limited to act as its depositary, responsible for oversight of the custody of the Company's assets and for monitoring its cash flows.

Details of how the Board monitors the services provided by the Manager and its associates and the key elements designed to provide effective internal control are included within the Risk Management and Internal Control section of the Corporate Governance report in the Annual Report.

•   Cybercrime

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. JPMF has assured Directors that the Company benefits directly or indirectly from all elements of 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 independent reporting accountants and reported every six months against the AAF Standard. Equiniti, the Company's Registrar, also produces an AAF report which is reported on at the Company's Audit Committee meeting.

•   Foreign currency

The Company has exposure to foreign currency as part of the risk reward inherent in a company that invests overseas. The income and capital value of the Company's investments can be affected by exchange rate movements as the majority of the Company's assets and income are denominated in currencies other than sterling which is the reporting currency. The Company's loan facility is denominated in US dollars.

The Board has the authority to reduce or eliminate the exposure to fluctuating currencies through the use of currency hedging. It reviews its policy on this matter regularly; to date no hedging has been carried out and there are no plans to do so in the immediate future.

•   Going concern

Boards are now advised to consider going concern as a potential risk, whether or not there is an apparent issue arising in relation thereto. Going concern is considered rigorously on an ongoing basis and the Board's statement on going concern is detailed in the Annual Report.

•   Financial

The financial risks faced by the Company include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. Further details are disclosed in note 20 to the financial statements in the Annual Report.

TRANSACTIONS WITH THE MANAGER

Details of the management contract are set out in the Directors' Report in the Annual Report. The management fee payable to the Manager for the year was £1,740,000 (2016: £1,342,000) of which £nil (2016: £nil) was outstanding at the year end.

During the year £nil (2016: £68,000), including VAT, was payable to the Manager for the administration of savings scheme products, of which £nil (2016: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 50 are safe custody fees amounting to £2,000 (2016: £1,000) payable to JPMorgan Chase Bank, N.A. of which £nil (2016: £nil) was outstanding at the year end.

The Company also holds cash in the JPMorgan US Dollar Liquidity Fund, which is managed by JPMorgan. At the year end this was valued at £5.7 million (2016: £9.4 million). Income amounting to £92,000 (2016: £38,000) was receivable during the year of which £7,000 (2016: £nil) was outstanding at the year end. The JPMorgan US Dollar Liquidity Fund does not charge a fee and the Company does not invest in any other investment fund managed or advised by JPMorgan.

Handling charges on dealing transactions amounting to £5,000 (2016: £4,000) were payable to JPMorgan Chase Bank, N.A. during the year of which £2,000 (2016: £1,000) was outstanding at the year end.

At the year end, total cash of £152,000 (2016: £nil) was held with JPMorgan Chase Bank, N.A. A net amount of interest of £nil (2016: £nil) was receivable by the Company during the year from JPMorgan Chase Bank, N.A. of which £nil (2016: £nil) was outstanding at the year end.

TRANSACTIONS WITH RELATED PARTIES

Full details of Directors' remuneration and shareholdings can be found in the Directors' Remuneration Report and in note 6 of the Annual Report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared 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 they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:

•   select suitable accounting policies and then apply them consistently;

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

•   make judgements and accounting estimates that are reasonable and prudent; 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.

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.

The Directors 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 Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements 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 Directors' Remuneration Report that comply with the 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 Directors' 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 Directors consider 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 position and performance, business model and strategy.

For and on behalf of the Board
Davina Walter
Chairman

20th March 2018

statement of comprehensive income

for the year ended 31st December 2017

	2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	9,134	9,134	-	52,175	52,175
Net foreign currency gains/(losses) on cash and loans	-	845	845	-	(1,736)	(1,736)
Income from investments	2,460	-	2,460	2,279	-	2,279
Interest receivable	92	-	92	38	-	38
Gross return	2,552	9,979	12,531	2,317	50,439	52,756
Management fee	(174)	(1,566)	(1,740)	(134)	(1,208)	(1,342)
Other administrative expenses	(385)	-	(385)	(438)	-	(438)
Net return before finance costs and taxation	1,993	8,413	10,406	1,745	49,231	50,976
Finance costs	(30)	(265)	(295)	(20)	(182)	(202)
Net return before taxation	1,963	8,148	10,111	1,725	49,049	50,774
Taxation	(396)	-	(396)	(336)	-	(336)
Net return after taxation	1,567	8,148	9,715	1,389	49,049	50,438
Return per share (note 2)	2.79p	14.48p	17.27p	2.51p	88.76p	91.27p

statement of changes in equity

for the year ended 31st December 2017

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	Premium	reserve	reserves1	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st December 2015	1,424	8,046	1,851	93,889	(1,405)	103,805
Shares reissued from Treasury	-	952	-	1,671	-	2,623
Repurchase of shares into Treasury	-	-	-	(3,042)	-	(3,042)
Net return for the year	-	-	-	49,049	1,389	50,438
At 31st December 2016	1,424	8,998	1,851	141,567	(16)	153,824
Shares reissued from Treasury	-	1,423	-	2,393	-	3,816
Repurchase of shares into Treasury	-	-	-	(668)	-	(668)
Net return for the year	-	-	-	8,148	1,567	9,715
At 31st December 2017	1,424	10,421	1,851	151,440	1,551	166,687

¹    These reserves form the distributable reserves of the Company and may be used to fund distributions of profits to investors via dividend payments.

statement of financial position

at 31st December 2017

	2017	2016
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	175,408	160,194
Current assets
Debtors	298	651
Cash and cash equivalents	5,891	9,408
	6,189	10,059
Creditors: amounts falling due within one year	(14,910)	(16,429)
Net current liabilities	(8,721)	(6,370)
Total assets less current liabilities	166,687	153,824
Net assets	166,687	153,824
Capital and reserves
Called up share capital	1,424	1,424
Share premium	10,421	8,998
Capital redemption reserve	1,851	1,851
Capital reserves	151,440	141,567
Revenue reserve	1,551	(16)
Total shareholders' funds	166,687	153,824
Net asset value per share (note 4)	294.2p	276.7p

statement of cash flows

for the year ended 31st December 2017

	2017	2016
	£'000	£'000
Net cash outflow from operations before dividends and interest	(2,113)	(1,801)
Dividends received	2,189	1,687
Interest received	91	32
Overseas tax recovered	13	7
Interest paid	(290)	(164)
Net cash outflow from operating activities	(110)	(239)
Purchases of investments	(57,705)	(29,098)
Sales of investments	51,707	34,985
Settlement of foreign currency contracts	13	6
Net cash (outflow)/inflow from investing activities	(5,985)	5,893
Shares reissued from Treasury	3,816	2,623
Repurchase of shares into Treasury	(668)	(3,042)
Net cash inflow/(outflow) from financing activities	3,148	(419)
(Decrease)/increase in cash and cash equivalents	(2,947)	5,235
Cash and cash equivalents at start of year	9,407	3,298
Exchange movements	(569)	874
Cash and cash equivalents at end of year	5,891	9,407
(Decrease)/increase in cash and cash equivalents	(2,947)	5,235
Cash and cash equivalents consist of:
Cash and short term deposits	152	-
Bank overdraft	-	(1)
Cash held in JPMorgan US Dollar Liquidity Fund	5,739	9,408
Total	5,891	9,407

Notes to the financial statements

1.     Accounting policies

        Basis of accounting

The financial statements are prepared under the historic cost convention, modified to include fixed asset investments at fair value, 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, updated in January 2017.

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

The financial statements have been prepared on a going concern basis. The disclosures on going concern in the Audit Committee Report form part of these financial statements.

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

2.     Return per share

		2017	2016
		£'000	£'000
	Revenue return	1,567	1,389
	Capital return	8,148	49,049
	Total return	9,715	50,438
	Weighted average number of shares in issue during the year	56,256,353	55,258,808
	Revenue return per share	2.79p	2.51p
	Capital return per share	14.48p	88.76p
	Total return per share (basic and diluted)	17.27p	91.27p

3.     Dividends

(a)   Dividends declared

	2017	2016
	£'000	£'000
2017 final dividend declared of 2.5p (2016: £nil) payable to shareholders in May 2018	1,416	-

All dividends declared in the year to be funded from the revenue reserve.

The final dividend has been declared in respect of the year ended 31st December 2017.  In accordance with the accounting policy of the Company, this dividend will be reflected in the accounts for the year ending 31st December 2018.

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

The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year as shown below. The revenue available for distribution by way of dividend for the year is £1,567,000.

	2017	2016
	£'000	£'000
2017 final dividend of 2.5p (2016: £nil)	1,416	-

4.    Net Asset Value per share

	2017	2016
Net assets (£'000)	166,687	153,824
Number of shares in issue	56,651,928	55,586,928
Net asset value per share	294.2p	276.7p

5.     Status of results announcement

2016 Financial Information

The figures and financial information for 2016 are extracted from the published Annual Report and Financial Statements for the year ended 31st December 2016 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2017 Financial Information

The figures and financial information for 2017 are extracted from the Annual Report and Financial Statements for the year ended 31st December 2017 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.

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.

20th March 2018

For further information:

Lucy Dina,

JPMorgan Funds Limited                                 020 7742 4000

ENDS

A copy of the Annual Report and Financial Statements will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

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

JPMORGAN FUNDS LIMITED

 

END

 

 

FR SEDFESFASELD