TIDMJUSC
RNS Number : 2695J
JPMorgan US Smaller Co. IT
08 April 2020
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN US SMALLER COMPANIES INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEARED
31ST DECEMBER 2019
Legal Entity Identifier : 549300MDD7SOXDMBN667
Information disclosed in accordance with the DTR 4.1.3
CHAIRMAN'S STATEMENT
Performance
I am delighted to report strong returns in 2019 for both the
Company's share price and net asset value (NAV) which more than
compensate for the negative performance experienced in 2018. During
the year the Company's NAV rose by 25.8% which compares favourably
with the increase of 20.4% in our benchmark, the Russell 2000 index
in sterling terms. Our share price performance was even stronger
rising by 33.4% as the shares moved to a small premium to NAV as at
the end of the year. These returns are all the more pleasing as
they have occurred at a time of recurring concerns over trade wars,
politics and the direction of interest rates.
Revenue and Dividend
The revenue for the year, after taxation, was GBP1,590,000. The
Board is therefore delighted to recommend a dividend of 2.5p in
respect of the financial year ended 31st December 2019. Subject to
shareholders' approval at the Annual General Meeting ('AGM'), this
dividend will be paid on 17th June 2020 to shareholders on the
register at the close of business on 5th June 2020. Shareholders
should note the Company's objective is unchanged and remains one of
capital growth and our dividend policy will therefore reflect the
naturally occurring income on the underlying portfolio.
Discount and Premium
Despite volatility in both the US small cap market and the US
dollar sterling exchange rate, our share price was closely aligned
with the changes in NAV through the year. 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 with the result the discount average for 2019
was kept to 2.8%. To help with the management of the discount, we
have in place the authority to repurchase up to 14.99% of the
Company's issued share capital and we will be seeking renewal of
this authority at the AGM. During the year this authority was
exercised and we bought 376,500 shares into Treasury at an average
discount of 5.2%. The Company at year end held no shares in
Treasury having issued 376,500 from Treasury at an average premium
of 1.8%. Since 31st December 2019 the Company has issued a further
960,000 new shares and repurchased 100,000 shares into
Treasury.
Change Of Annual Management Fees
In June the Board was delighted to announce, following a review
of the Company's investment management fee arrangements with
JPMorgan Funds Limited ('JPMF'), a reduction in the annual
management fees. With effect from 1st July 2019, the annual
investment management fee, which was previously 100bps of gross
assets with no tiering, was charged at an annual rate as
follows:
- 90bps on the first GBP100 million of gross assets (excluding
any holding in the JPM Liquidity Fund);
- 75bps on gross assets in excess of GBP100 million (excluding
any holding in the JPM Liquidity Fund).
Both the Board and JPMF worked together constructively in
agreeing this new investment management fee arrangement. Whilst
determining the appropriate level of fees took into account a range
of factors, the overriding focus was our obligation to the
Company's shareholders to ensure they receive good value investment
management. The Board believes that this new fee structure puts the
Company in a competitive position relative to peers, and recognises
the expertise and resources that the JPMorgan Asset Management
investment team bring to this specialist asset class.
Gearing
In April 2019 our revolving credit facility with Scotiabank was
renewed at US$25 million with an option to draw a further US$10
million. During November the Company's revolving line of credit was
renewed on the same terms. At the end of 2019 US$20 million was
drawn and the portfolio was 5% geared; since the start of 2020 the
full $25 million has been drawn. This facility matures in November
2020 and the Board will consider renewing the 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
2019 the recovery of sterling against the US dollar had a modestly
negative impact on our strong returns. By way of illustration the
Russell 2000 returned 25.5% but when reported in sterling terms the
return was reduced to 20.4%. The Board has the authority to reduce,
or eliminate, the exposure to fluctuating currencies through the
use of currency hedging. 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
As I indicated in last year's annual report I will be retiring
at the forthcoming AGM. It has been an honour to serve as the
Chairman and also to have the opportunity to work with the
investment team in New York, all the many people at JPMorgan Asset
Management who help support the Company and last, but not least,
the current Board, as well as those that have retired. Julia Le
Blan, in her role as Senior Independent Director, led the review to
find my successor and I am delighted to confirm that David Ross
will be taking over from me following the AGM. Following my
retirement, the Board will consist of five non-executive directors,
all with less than nine years' tenure, providing the Company with a
strong and appropriate level of skills.
For the past two years, the Company has used an external
evaluator to undertake a comprehensive appraisal of the Board which
covers the structure, size and composition of the Board. Following
on from this process the Board believes it has in place a
well-structured succession plan.
Annual General Meeting and Shareholder Contact
We are holding our AGM at 60 Victoria Embankment, London EC4Y
0JP on Tuesday, 26th May 2020 at 11.00 a.m. Please note that as a
result of the COVID-19 pandemic and the imposition of compulsory
Stay at Home measures by the UK Government, the AGM will be
functional only and follow the minimum legal requirements for an
AGM. There will be no investor presentation in person by the
investment team and there will be no refreshments. In line with the
Stay at Home measures, Shareholders are strongly discouraged from
attending the meeting and indeed entry may be refused if Government
guidance so requires. Arrangements will be made by the Company to
ensure that the minimum number of Shareholders required to form a
quorum will attend the meeting in order that the meeting may
proceed and the business concluded.
Included in the agenda for this year's AGM is a resolution to
continue the Company's existence as an investment trust for a
further five years. The past five years, since the last vote was
taken, have marked an extraordinary period of outstanding returns
for investors. In our case the Company's NAV rose by 96.8% and the
share price rose by 108.1%. Whilst these returns should not be used
as a guide for the next five years, I would urge shareholders to
vote in favour of this resolution as the US smaller companies
sector has proved to be more rewarding over the longer term than
the large cap sector as it always offers exciting growth
opportunities.
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 in the event that
attendance at the AGM is not possible.
In addition, shareholders are encouraged to raise any questions
in advance of the AGM via the 'Ask the Question' link found under
the 'Contact Us' section on the Company's website. Any questions
received will be replied to by the Company Secretary.
In the event that the situation changes the Company will update
shareholders through an announcement to the London Stock Exchange
and on the Company's website.
Illiquid Holdings
As mentioned in the Company's interim report given the scrutiny
on holding unquoted and illiquid investments, it seems appropriate
to clarify the Company's current structure for the benefit of our
shareholders. The portfolio does not consist of any unquoted
investments, nor indeed are there plans to explore this area of the
market, as the investment managers believe that there are more than
enough investment opportunities in the quoted US small cap company
universe. It has to be recognised that small cap companies, by
their very nature, can be less easily traded and more risky
relative to large cap companies, i.e. those in the S&P500
index, but it is these factors that make the sector more rewarding
for long term investors.
Outlook
At the time of writing this Statement, a significant portion of
the world's population is in 'lockdown' causing a sharp reversal in
economic growth and at the same time there is a lack of visibility
as to when 'normal life' can resume. Investors do not like
uncertainty and this has made US small cap companies particularly
vulnerable to profit-taking after the strong recovery experienced
in 2019. US small cap companies, however, are best judged over the
long term and a good start point is to review the Company's Long
Term Financial Record on page 13 as it shows how rewarding this
area of the market can be for patient investors. We have in place
an exceptional, award-winning investment team based in New York
under the strong leadership of Don San Jose. The team has a clearly
defined investment philosophy, a strong 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 businesses in the small cap
sector and our Company is well placed to take advantage of these
opportunities.
Davina Walter
Chairman
8th April 2020
INVESTMENT MANAGERS' REPORT
Review
The Russell 2000 Index ended 2019 with a return of 25.5% in US
dollar terms and 20.4% in sterling terms, an impressive result
given the negative environment in which 2018 ended.
Despite the strong market performance in 2019, it was not all
smooth sailing as investors faced a number of concerns,
particularly in the spring and summer, including a 3-month/10-year
yield curve inversion, which has historically been a reliable
leading indicator of pending recessions. In addition, the US and
China trade war continued to fan anxiety throughout much of the
year, driving further volatility. The fourth quarter brought about
renewed optimism, as the Federal Reserve became dovish, trade
tensions eased and global PMI data appeared to be bottoming,
resulting in a return of +9.9% in US dollar terms for the Russell
2000 in the fourth quarter alone.
In terms of style and market capitalisation, growth outperformed
value, a trend that has been in place for a few years and large
stocks outperformed their small cap peers.
Performance
The Company's net asset value increased by 25.8% in 2019. The
trust's benchmark, the Russell 2000 Index (Net), returned 20.4% for
the year, resulting in outperformance of 5.4% in sterling terms.
Our stock selection and sector allocation proved beneficial for the
year. Additionally, the portfolio's gearing contributed to the
Company's performance during the year.
With regards to relative performance, stock selection in the
producer durables and financial services sectors added the most
value.
Within producer durables, our overweight position in Douglas
Dynamics during the period proved beneficial. Douglas Dynamics is a
premier manufacturer and up-fitter of work truck attachments,
including snowploughs. Shares outperformed in 2019 as its business
outpaced expectations. In spite of a below average snowfall season
in 2018 and 2019, the company reported solid earnings and demand
remained robust. That demand coupled with strong operational
performance, particularly within the Work Truck Solutions segment,
sent shares higher. These demand trends continued into Q3 2019
earnings, with the company reporting continued strength in
pre-season orders and decent field inventory levels.
Within financial services, our overweight position in Kinsale
Capital Group added to performance. The company is a property and
casualty insurer that focuses on coverage for newly established
companies, higher risk operations, or companies with a history of
losses. As some of the larger insurers exit unprofitable business
lines, the company has been able to take market share, grow gross
written premiums faster than anticipated, and increase pricing
selectively. Another contributor to outperformance is the insurance
sector's more defensive characteristics which were rewarded for
much of the year.
Among individual names, our exposure to Catalent within the
health care sector emerged as the top contributor. Catalent is a
leading provider of advanced drug delivery solutions to the
biotechnology and pharma industries. Shares moved higher in
mid-April after the company's USD 1.2 billion acquisition of gene
therapy company, Paragon. Paragon gives Catalent exposure to a
faster growing, higher margin drug development business. Catalent's
strength over the course of the year has been mostly broad based
across business segments, with good organic growth.
On the other hand, our stock selection in the technology and
health care sectors weighed on relative returns.
Our exposure to Grubhub within the technology sector detracted
from performance. Grubhub is the leading online and mobile platform
for restaurant pick-up and delivery orders for independent and
chain restaurants in the US. The company announced disappointing Q3
2019 earnings along with slower expected industry growth and
significant investments to combat competition from the likes of
DoorDash, Uber Eats, and others. We are concerned about the growing
competitive intensity in the industry and have not added to our
position.
In the healthcare sector, our exposure to ICU Medical was the
top detractor in 2019. The medical device company experienced a
steep sell off in its shares after reporting Q2 2019 results in
early August. The company had to reduce annual guidance driven by
their IV bag business. Given excess supply and irrational
competitor behaviour, the company had to slow down production and
make some supply chain adjustments. We still find the business
attractive, though acknowledge it will take time to fix some of the
near term headwinds.
Within materials & processing, our overweight position in
Quaker Chemical was among the top detractors. Quaker Chemical is a
global provider of process fluids and lubricants for the steel and
automotive industries. Shares of Quaker Chemical traded lower on
weaker than expected results as revenues and EBITDA came in below
consensus estimates in Q3 2019. The weaker results were somewhat
expected, as demand for the company's products faced headwinds from
slowing automotive and steel markets, particularly in Europe and
China. We remain optimistic on the long term prospects for the
company, as the high quality business model generates stable cash
flow, further helped by synergies from the acquisition of Houghton
International, which closed in August.
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, albeit more selectively,
and 13 names were added. However, the portfolio's sector
positioning remains relatively unchanged. Similar to the previous
year, our main allocations are in the financial services, producer
durables and consumer discretionary sectors, which make up close to
60% of the overall portfolio's allocation.
On a relative basis, our largest overweights can be found in the
producer durables and materials & processing sectors. We
expanded our consumer discretionary exposure throughout the year as
we initiated new positions and added to others. On the other hand,
our largest relative underweight remains in the health care space
due to a lack of exposure to biotechnology stocks. We increased our
underweight position compared to last year. The next largest
underweight is in technology as this remains an area where we have
had a difficult time finding opportunities that meet our quality
and valuation criteria. Lastly, while our largest absolute weight
remains in financial services, we are slightly underweight compared
to the benchmark due to our underweight exposure to Real Estate
Investment Trusts. At this time, we are comfortable with our
relative underweight position as we struggle to add to our exposure
mainly due to valuation.
ESG Update
As we have discussed previously, we focus on identifying
companies that possess a sustainable competitive advantage, have a
durable business model, and are overseen by a competent management
team with a track record of success. In recent years there has been
an increasing focus on environmental, social and governance (ESG)
issues when it comes to investing. We agree that these are
important components in determining the sustainability of any
business. When we have talked about our investment process, we have
not explicitly talked about ESG considerations even though these
are things we consider in terms of how they impact a company's
future earnings and cash flow streams. For a number of years, we
have excluded from our investment universe companies that have been
identified by an independent third party provider as being involved
in the manufacture, production or supply of cluster munitions,
depleted uranium ammunition and armour and/or anti-personnel mines.
In addition, we have always had robust governance engagement with
companies, particularly given our high ownership levels of many
companies. More recently, we have started to articulate how we
think about ESG in our investment approach and how we partner with
our Stewardship specialists when engaging with companies on these
issues.
J.P.Morgan Asset Management recently incorporated a global ESG
framework across Equities which includes a checklist questionnaire
with questions on Environmental, Social and Governance. We will be
incorporating this checklist as part of our fundamental research
process. The checklist is not a 'pass/fail' exercise. Rather, it is
a tool to inform discussions between portfolio managers and
analysts and an important driver behind our engagement with the
companies we cover. The checklist is not an exclusionary approach
and the portfolio management team can still choose to take a
position in the stock. A strong ESG focus will not be at the
expense of capital returns. Ultimately we believe both factors are
interlinked, especially given we are long term investors. In
formulating our ESG policy, we have endeavoured not to discriminate
against individual companies or sectors purely on the grounds of
the particular business sector in which they are involved. As we
continue on this journey we look forward to sharing more with you
on these considerations.
Market Outlook
We continue to focus on the fundamentals of the economy and of
company earnings. Our expectation entering the year was for
moderate economic expansion and continued earnings growth
predicated in particular on a healthy US consumer. The outbreak of
the COVID-19 virus in China, and subsequent rapid expansion
globally has injected significant near-term uncertainty into our
near term outlook in particular, though we believe the economy
entered this period of uncertainty in a strong fundamental
position. While nearly impossible to quantify at this point, we
expect economic growth to be materially impacted in the first half
of 2020, despite emergency rate cuts by the Fed and growing fiscal
and monetary stimulus globally. If the virus is contained in the
near term, there's a possibility for re-acceleration in the second
half of the year as pent up demand is released, though the bottom
is unclear at this point.
We continue to monitor COVID-19 developments closely, and remain
steadfast in our focus on owning high quality businesses with
durable competitive advantages and robust cash flow generation,
which we believe will continue to provide investors with downside
protection should uncertainty persist and economic fundamentals
deteriorate.
Don San Jose
Dan Percella
Jon Brachle
Investment Managers
8th April 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 drawn up a
risk matrix, which identifies the principal and emerging risks to
the Company. These risks are reviewed and discussed on a regular
basis by the Board and 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.
-- 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 FCA 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 FCA 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 FCA 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 Bank of New York
Mellon (International) 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 and including
cyber risk and risk of data loss, 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.
-- 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 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 21 to the financial statements in the Annual
Report.
-- Political and Economic
Changes in financial or tax legislation, including in the UK as
a result of Brexit, and 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.
-- 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.
The Board is overseeing the Manager to ensure the formal
integration of ESG factors into its investment process over the
course of the coming year. 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, however, the Board and
Manager expect that the portfolio's holdings will not suffer a
material long-term impact and should recover quickly once
containment measures ease. Should the virus spread more
aggressively or become more virulent, it may present risks to the
operations of the Company, its Manager and other major service
providers. The Board and the Manager will continue to monitor
developments as they occur and seek to learn lessons which may be
of use in the event of future pandemics.
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 GBP1,781,000 (2018: GBP1,909,000) of which
GBPnil (2018: GBPnil) was outstanding at the year end.
During the year GBP21,000 (2018: GBP29,000), including VAT, was
payable to the Manager for the administration of savings scheme
products, of which GBPnil (2018: GBPnil) was outstanding at the
year end.
Included in administration expenses in note 6 of the Annual
Report are safe custody fees amounting to GBP2,000 (2018: GBP2,000)
payable to JPMorgan Chase Bank, N.A. of which GBPnil (2018: GBPnil)
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 GBP4.6 million (2018: GBP5.4 million). Income amounting to
GBP195,000 (2018: GBP132,000) was receivable during the year of
which GBPnil (2018: GBPnil) 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 GBP5,000
(2018: GBP6,000) were payable to JPMorgan Chase Bank, N.A. during
the year of which GBP1,000 (2018: GBP1,000) was outstanding at the
year end.
At the year end, total cash of GBP10,000 (2018: GBP18,000) was
held with JPMorgan Chase Bank, N.A. A net amount of interest of
GBPnil (2018: GBPnil) was receivable by the Company during the year
from JPMorgan Chase Bank, N.A of which GBPnil (2018: GBPnil) 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
regulations.
Company law requires the Directors to prepare the Annual Report
and Financial Statements for each financial year. Under that law,
the Directors have elected to prepare the financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising Financial
Reporting Standard 102, the Financial Reporting Standard applicable
in the UK and Republic of Ireland ('FRS 102') and applicable law).
Under Company law the Directors must not approve the Financial
Statements unless they are satisfied that taken as a whole, the
Annual Report and Financial Statements are fair, balanced and
understandable, provide the information necessary for shareholders
to assess the Company's position and performance, business model
and strategy and that they give a true and fair view of the state
of affairs of the Company and of the total return or loss of the
Company for that period. In order to provide these confirmations,
and in preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards, comprising
FRS 102, have been followed, subject to any material departures
disclosed and explained in the financial statements;
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
-- notify the Company's shareholders in writing about the use,
if any, of disclosure exemptions in FRS 102 in the preparation of
the financial statements
and the Directors confirm that they have done so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Under applicable law and regulations the Directors are also
responsible for preparing a Directors' Report and Directors'
Remuneration Report that comply with that law and those
regulations.
Each of the Directors, whose names and functions are listed in
the Annual Report confirm that, to the best of their knowledge:
-- the financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law),
give a true and fair view of the assets, liabilities, financial
position and return or loss of the Company; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal and emerging
risks and uncertainties that it faces.
The Board confirms that it is satisfied that the Annual Report
and Financial Statements taken as a whole are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy.
The Board also confirms that it is satisfied that the Strategic
Report and Directors' Report include a fair review of the
development and performance of the business, and the Company,
together with a description of the principal risks and
uncertainties that it faces.
The Financial Statements are published on the
www.jpmussmallercompanies.co.uk website, which is maintained by the
Manager. The maintenance and integrity of the website maintained by
the Manager is, so far as it relates to the Company, the
responsibility of the Manager. The work carried out by the Auditors
does not involve consideration of the maintenance and integrity of
this website and, accordingly, the Auditor accepts no
responsibility for any changes that have occurred to the accounts
since they were initially presented to the website. The accounts
are prepared in accordance with UK legislation, which may differ
from legislation in other jurisdictions.
For and on behalf of the Board
Davina Walter
Chairman
8th April 2020
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31st December 2019
2019 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- -------- -------- --------- ---------
Gains/(losses) on investments
held at
fair value through profit
or loss - 40,506 40,506 - (8,913) (8,913)
Net foreign currency
gains/(losses) on
cash and loans - 492 492 - (471) (471)
Income from investments 2,828 - 2,828 2,561 - 2,561
Interest receivable 195 - 195 132 - 132
------------------------------- -------- -------- -------- -------- --------- ---------
Gross return/(losses) 3,023 40,998 44,021 2,693 (9,384) (6,691)
Management fee (356) (1,425) (1,781) (191) (1,718) (1,909)
Other administrative
expenses (521) - (521) (477) - (477)
------------------------------- -------- -------- -------- -------- --------- ---------
Net return/(loss) before
finance costs
and taxation 2,146 39,573 41,719 2,025 (11,102) (9,077)
Finance costs (100) (398) (498) (47) (425) (472)
------------------------------- -------- -------- -------- -------- --------- ---------
Net return/(loss) before
taxation 2,046 39,175 41,221 1,978 (11,527) (9,549)
Taxation (456) - (456) (406) - (406)
------------------------------- -------- -------- -------- -------- --------- ---------
Net return/(loss) after
taxation 1,590 39,175 40,765 1,572 (11,527) (9,955)
------------------------------- -------- -------- -------- -------- --------- ---------
Return/(loss) per share
(note 2) 2.76p 67.96p 70.72p 2.75p (20.17)p (17.42)p
Dividend declared in respect of the financial year ended 31st
December 2019 total 2.5p (2018: 2.5p) per share
amounting to GBP1,445,000 (2018:
GBP1,445,000). Further information on dividends is given in note
10 of the Annual Report.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or
discontinued
in the year.
The 'Total' column of this statement is the profit and loss
account of the Company and the 'Revenue' and 'Capital' columns
represent
supplementary information prepared under guidance issued by the
Association of Investment Companies.
Net return/(loss) after taxation represents the profit/(loss)
for the year and also Total Comprehensive Income.
STATEMENT OF CHANGES IN EQUITY
for the year ended 31st December 2019
Called Capital
up
share Share redemption Capital Revenue
capital Premium reserve reserves(1) reserve(1) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- ----------- ------------ ----------- ---------
At 31st December 2017 1,424 10,421 1,851 151,440 1,551 166,687
Issue of new Ordinary shares 21 2,522 - - - 2,543
Shares reissued from Treasury - 348 - 1,054 - 1,402
Repurchase of shares into
Treasury - - - (424) - (424)
Net (loss)/return for the
year - - - (11,527) 1,572 (9,955)
Dividends paid in the year
(note 3) -- - - - (1,422) (1,422)
------------------------------- -------- -------- ----------- ------------ ----------- ---------
At 31st December 2018 1,445 13,291 1,851 140,543 1,701 158,831
Shares reissued from Treasury - 101 - 1,206 - 1,307
Repurchase of shares into
Treasury - - - (1,206) - (1,206)
Net return for the year - - - 39,175 1,590 40,765
Dividends paid in the year
(note 3) - - - - (1,445) (1,445)
------------------------------- -------- -------- ----------- ------------ ----------- ---------
At 31st December 2019 1,445 13,392 1,851 179,718 1,846 198,252
------------------------------- -------- -------- ----------- ------------ ----------- ---------
(1) These reserves form the distributable reserves of the
Company and may be used to fund distributions to investors.
STATEMENT OF FINANCIAL POSITION
as at 31st December 2019
2019 2018
GBP'000 GBP'000
-------------------------------------------------- --------- ----------
Fixed assets
Investments held at fair value through profit or
loss 208,253 168,014
-------------------------------------------------- --------- ----------
Current assets
Debtors 655 1,211
Cash and cash equivalents 4,605 5,382
-------------------------------------------------- --------- ----------
5,260 6,593
Creditors: amounts falling due within one year (15,260) (15,776)
Derivative financial liabilities (1) -
-------------------------------------------------- --------- ----------
Net current liabilities (10,001) (9,183)
-------------------------------------------------- --------- ----------
Total assets less current liabilities 198,252 158,831
-------------------------------------------------- --------- ----------
Net assets 198,252 158,831
-------------------------------------------------- --------- ----------
Capital and reserves
Called up share capital 1,445 1,445
Share premium 13,392 13,291
Capital redemption reserve 1,851 1,851
Capital reserves 179,718 140,543
Revenue reserve 1,846 1,701
-------------------------------------------------- --------- ----------
Total shareholders' funds 198,252 158,831
-------------------------------------------------- --------- ----------
Net asset value per share (note 4) 343.0p 274.8p
-------------------------------------------------- --------- ----------
STATEMENT OF CASH FLOWS
for the year ended 31st December 2019
2019 2018
GBP'000 GBP'000
----------------------------------------------------- --------- ----------
Net cash outflow from operations before dividends
and interest (2,297) (2,385)
Dividends received 2,376 2,186
Interest received 195 139
Overseas tax recovered 23 24
Interest paid (425) (531)
----------------------------------------------------- --------- ----------
Net cash outflow from operating activities (128) (567)
----------------------------------------------------- --------- ----------
Purchases of investments (46,362) (55,685)
Sales of investments 47,557 53,196
Settlement of foreign currency contracts 14 (2)
----------------------------------------------------- --------- ----------
Net cash inflow/(outflow) from investing activities 1,209 (2,491)
----------------------------------------------------- --------- ----------
Dividends paid (1,445) (1,422)
Issue of new ordinary shares - 2,543
Shares reissued from Treasury 921 1,402
Repurchase of shares into Treasury (1,206) (424)
----------------------------------------------------- --------- ----------
Net cash (outflow)/inflow from financing activities (1,730) 2,099
----------------------------------------------------- --------- ----------
Decrease in cash and cash equivalents (649) (959)
----------------------------------------------------- --------- ----------
Cash and cash equivalents at start of year 5,382 5,891
Exchange movements (128) 450
Cash and cash equivalents at end of year 4,605 5,382
----------------------------------------------------- --------- ----------
Decrease in cash and cash equivalents (649) (959)
----------------------------------------------------- --------- ----------
Cash and cash equivalents consist of:
Cash and short term deposits 10 18
Cash held in JPMorgan US Dollar Liquidity Fund 4,595 5,364
----------------------------------------------------- --------- ----------
Total 4,605 5,382
----------------------------------------------------- --------- ----------
RECONCILIATION OF NET DEBT
As at Other As at
31st December non-cash charges 31st December
2018 Cash flows 2019
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------------- ----------- ------------------ ---------------
Cash and cash equivalents
Cash 18 (8) - 10
Cash equivalents 5,364 (641) (128) 4,595
--------------------------- --------------- ----------- ------------------ ---------------
5,382 (649) (128) 4,605
Borrowings
Debt due within one year (15,704) - 607 (15,097)
Total (10,322) (649) 479 (10,492)
--------------------------- --------------- ----------- ------------------ ---------------
NOTES TO THE FINANCIAL STATEMENTS
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 'the Financial Reporting Standard applicable in the UK
and Republic of Ireland' ('FRS 102') and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust
Companies and Venture Capital Trusts' (the 'SORP') issued by the
Association of Investment Companies in October 2019.
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 on in the Audit Committee
Report of the Annual 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/(loss) per share
2019 2018
GBP'000 GBP'000
--------------------------------------------------- ------------ -----------
Revenue return 1,590 1,572
Capital return/(loss) 39,175 (11,527)
--------------------------------------------------- ------------ -----------
Total return/(loss) 40,765 (9,955)
--------------------------------------------------- ------------ -----------
Weighted average number of shares in issue during
the year 57,641,214 57,156,038
Revenue return per share 2.76p 2.75p
Capital return/(loss) per share 67.96p (20.17)p
--------------------------------------------------- ------------ -----------
Total return/(loss) per share 70.72p (17.42)p
--------------------------------------------------- ------------ -----------
3. Dividends
(a) Dividends paid and declared
2019 2018
GBP'000 GBP'000
-------------------------------------------------------------------- ------------ -----------
Dividend paid
2018 final dividend of 2.5p (2017: 2.5p) paid to shareholders
in May 2019 1,445 1,422
-------------------------------------------------------------------- ------------ -----------
Dividend declared
2019 final dividend of 2.5p (2018: 2.5p) declared 1,445 1,445
-------------------------------------------------------------------- ------------ -----------
All dividends paid and declared in the year have been funded
from the revenue reserve.
The final dividend has been declared in respect of the year
ended 31st December 2019. In accordance with the accounting policy
of the Company, this dividend will be reflected in the accounts for
the year ending 31st December 2020.
(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
the dividend proposed in respect of the financial year, shown
below. The revenue available for distribution by way of dividend
for the year is GBP1,590,000 (2018: GBP1,572,000).
2019 2018
GBP'000 GBP'000
2019 final dividend of 2.5p (2018: 2.5p) declared 1,445 1,445
----------------------------------------------------- ------ --------
4. Net asset value per share
2019 2018
--------------------------- ----------- -----------
Net assets (GBP'000) 198,252 158,831
Number of shares in issue 57,791,928 57,791,928
--------------------------- ----------- -----------
Net asset value per share 343.0p 274.8p
--------------------------- ----------- -----------
5. Status of results announcement
2018 Financial Information
The figures and financial information for 2018 are extracted
from the published Annual Report and Financial Statements for the
year ended 31st December 2018 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.
2019 Financial Information
The figures and financial information for 2019 are extracted
from the Annual Report and Financial Statements for the year ended
31st December 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.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
JPMORGAN FUNDS LIMITED
8th April 2020
For further information, please contact:
Lucy Dina
For and on behalf of
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
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SSMFIAESSEDL
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