JPMorgan Japan Smaller Co Tst PLC Final Results (8080C)

TIDMJPS TIDMJPSS

RNS Number : 8080C

JPMorgan Japan Smaller Co Tst PLC

19 June 2019

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPAN SMALLER COMPANIES TRUST PLC

FINAL RESULTS FOR THE YEARED 31st MARCH 2019

Legal Entity Identifier: 549300KP3CRHPQ4RF811

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Dear Shareholders,

This is my first report to you as Chairman following the retirement of Alan Clifton after our Annual General Meeting ('AGM') held in July last year.

Investment Performance

The Company's total return on net assets for the year ended 31st March 2019 was -7.9%, compared with -7.3% returned by the benchmark. The total return to ordinary shareholders was -8.9%, reflecting a slight widening of the share price discount to net asset value from 11.6% at the beginning of the financial year to 12.8% at 31st March 2019.

After starting the year with a sense of optimism, Japanese equity markets experienced significant volatility during the financial year as macro-economic and political concerns, including the US-China trade dispute, intensified globally.

The long-term performance of the Company continues to be strong with both the net asset value and share price having outperformed the benchmark over three and five years.

In their report, the Investment Managers have provided further details on portfolio management, performance and attribution, together with a commentary on markets.

Dividends Policy and Discount Management

The Company implemented a new dividend policy with effect from 1st April 2018, under which the Company aims to pay, in the absence of unforeseen circumstances, a regular quarterly dividend equal to 1% of the Company's NAV on the last business day of the preceding financial quarter, being the end of March, June, September and December. Over the year this would approximate to 4% of the average NAV. These dividends are paid from a combination of the revenue, capital and other reserves. In respect of the quarters to 30th June 2018, 30th September 2018, 31st December 2018 and 31st March 2019, dividends of 4.9p, 4.9p, 3.9p and 4.3p per share respectively were declared. This totalled 18.0p per share for the year, amounting to 4.5% of average share price for the year and 4.2% of average NAV over the year.

It is important for investors to note that there has been no change in the Company's investment policy, or in the Investment Managers' approach to investment or the benchmark as a result of the new dividend policy.

Since the introduction of the new dividend policy, it is pleasing to note some narrowing of the Company's discount rate driven by new demand and positive press commentary. Following the Company's year end, the discount levels have narrowed further. The Board will keep the dividend policy, as well as its expected positive impact on both demand for the Company's shares and the discount level, under constant review. The Board may also use share buy-backs alongside the new dividend policy. It is expected that a combination of a higher yield and the use of buy-backs will be effective over time in tightening the discount at which your Company's shares trade. At the time of writing, the discount level was 11.6%.

A Resolution to approve the Company's dividend policy will be put to shareholders at the forthcoming Annual General Meeting.

Fund Managers

Eiji Saito, who is responsible for the management of all mid- and small-cap Japanese funds, including the investments in your portfolio, is assisted by Naohiro Ozawa and Michiko Sakai. Shoichi Mizusawa, who leads the Japanese research and investment management team of over twenty people in Tokyo, continues to have oversight of the Company's investments, but is not involved in the day-to-day investments decisions and is therefore no longer shown in this respect.

Gearing and Borrowing

Gearing is regularly discussed between the Board and the Investment Managers and its level is reviewed by the Directors at each Board meeting.

The Company has in place a two-year revolving floating rate loan of Yen 4.0 billion with Scotiabank until October 2019 at which time it will be reviewed and replaced as appropriate. The credit facility is flexible and provides the Investment Managers with the ability to gear tactically. The Company's investment policy permits gearing within a range of 10% net cash to 25% geared. However, the Board requires the Investment Managers, in normal market conditions, to operate in the range of 5% cash to 15% geared.

During the year, the Company's gearing level ranged between 10.6% and 3.9%, and finished the financial year at 7.9%.

The Board

Having had the privilege of serving as a director of the Company since 2008 and of chairing the Board since July 2018, I sadly and very reluctantly, due to health reasons, plan to retire from the Board at the conclusion of the forthcoming AGM on 29th July 2019. I am pleased to inform you that Alexa Henderson has agreed to replace me as chairman of the Board and of the Nomination Committee when I step down. I am delighted that Martin Shenfield and Tom Walker will be joining the Board immediately after the AGM as the result of a recruitment process that involved an independent consultant to identify candidates. Both Martin and Tom bring a wealth of experience and different skill sets, and I am sure they will make a strong contribution to the Board. Tom will replace Alexa as chairman of the Audit Committee. Following the AGM the Board will consist of five non-executive directors and will continue to have an appropriate balance of skills and diversity.

It has been a pleasure to serve on this Company's Board and I would like to thank my Board colleagues for all their help and support over the years. I should like to thank all shareholders for supporting the Board over the period during which I have been involved. The Board's top priority continues to be to deliver the best possible returns for shareholders and I wish my colleagues every success in the future.

Annual General Meeting

My fellow Directors and I invite you to attend the Company's AGM which will be held at 60 Victoria Embankment, London EC4Y 0JP on 29th July 2019 at 11.30 a.m. An investment presentation will be made at the meeting by the Investment Managers via telepresence. There will be an opportunity for shareholders to meet the Board and representatives of JPMorgan after the meeting. I look forward to welcoming as many of you as possible to this meeting.

If you have any detailed or technical questions, please submit these in advance of the meeting in writing, or via the Company's website, to the Company Secretary whose contact details are shown on page 79 of the annual report. Shareholders who are unable to attend the AGM are encouraged to use their proxy votes. Proxy votes may be lodged electronically, whether shares are held through CREST or in certificate form, and full details are set out on the form of proxy.

Outlook

Whilst global economic growth is slowing and earnings expectations are being downgraded, the Investment Managers expect a slow down rather than a recession. Valuations of Japanese equities are low by historic levels, as well as relative to other major markets. On the policy front, Japan continues to make progress in corporate governance, employment laws, free trade and in improving relationships with many countries. Mr Shinzo Abe is likely to become Japan's longest serving prime minister since the birth of Japan's parliamentary system in the 1880s, providing a period of stability which is in contrast to the situation in many other countries. The positive corporate governance story in Japan continues to develop and this increasingly looks structural in nature. The market is likely to reward companies with improving governance policies overall, including areas such as shareholder returns, board structure and disclosure.

It is encouraging to note that the fundamental outlook for Japanese smaller companies remains positive despite some of Japan's key structural challenges, particularly demographics. The Company's Tokyo-based research and portfolio management team has been able in the past number of years to identify attractive Japanese smaller companies with strong growth potential, healthy balance sheets and attractive cash generation prospects. The Board believes that this approach will continue to serve the Company's shareholders well over the medium and longer term.

Robert White

Chairman

19th June 2019

INVESTMENT MANAGERS' REPORT

Market Review

Over the twelve months to March 2019, the Company's benchmark, the Standard & Poor's Japan SmallCap NR (in sterling terms), produced in sterling terms a total return of -7.3%. The Company's net assets underperformed the index by 0.6 percentage points over the same period, delivering a total return of -7.9%. The Company's share price performance is ahead of the benchmark by 0.4 percentage points per annum over three years and by 3.1 percentage points per annum over five years.

The Japanese stock market as a whole experienced a volatile year and ended the period with a negative return, principally driven by weakness during calendar Q4 2018. A major source of this volatility was US-China trade friction and associated concerns about the outlook for global growth. During the same quarter, the Japanese yen declined against the US dollar. This provided some support to Japanese equity prices, particularly those with overseas earnings.

Investment Philosophy

We aim to invest in companies that we believe will be able to compound earnings growth over the long term, supported by sustainable competitive advantages and good management teams. While it is possible, even likely, that they may face occasional short-term setbacks caused by either wider economic issues or more company-specific challenges, we believe their strong and durable competitive positions will allow them to substantially increase their intrinsic value over the long term. Companies exhibiting these attributes combine to form a portfolio with a bias towards quality and growth. At the aggregate level, the companies in which we have invested have returns on equity considerably above the benchmark, with significantly lower leverage. Their historic earnings growth has been faster than that of the benchmark and we expect these portfolio attributes to endure.

Our research process is conducted in Tokyo by a team of over 20 investment professionals. Many stocks in Japan have little or no third-party research coverage, particularly mid-and smaller-capitalisation stocks. We have internal resources that allow us to identify investment opportunities in areas of the market which are generally under-researched and are therefore potentially under-appreciated by many market participants.

Investing Responsibly

An increasingly broad spectrum of investors now rightly focus not simply on return, risk and investment process issues but also on Environmental, Social and Governance ('ESG') considerations for their portfolios. They want to know that: their investment managers are aware of these concerns; they take them into account in building their portfolios; and they raise matters directly with investee companies. Simplistic negative or positive screening has dwindled in popularity. Investors expect to see an integrated approach to ESG and that this approach is clearly linked to driving financial returns, both through portfolio construction and stewardship.

JPMorgan has long been a leader in using such an Integrated Approach and believes that this has particular relevance in Japan, where widespread shareholder engagement is a more recent phenomenon but where, equally, it is beginning to prove effective.

We believe that ESG factors, particularly those related to governance, can play a critical role in a long-term investment strategy. Companies that address ESG issues and adopt sustainable business practices are better placed to maximise their performance and create enduring value for shareholders.

In our view, corporate governance considerations have the most direct bearing on the risk/reward profile of the Company's portfolio; as such it is the area most integrated into our investment process. However, environmental concerns are an ever-increasing part of the investment landscape in part due to the impact they can have on investment returns and cash flows; where relevant we make an assessment of environmental issues and include them in our decision-making process. Where social issues are relevant, again the focus is on the economic impact of the involvement.

We seek to identify investee companies that run their businesses in a sustainable and efficient way, with high-quality board decision-making, and aim to influence their behaviour and encourage best practice through dialogue. While we are always focused on efficient capital use and structures we have engaged broadly on multiple topics that affect valuation and propriety. The introduction of the Stewardship and Corporate Governance Codes has led to greater willingness on the part of a number of companies to engage.

We use an active bottom-up process, with emphasis placed on direct contact with companies. ESG factors are systematically and explicitly considered during the investment decision-making process, with a risk profile analysis undertaken on the economics, duration (which includes sustainability) and governance of a company, to ensure that there is due focus on potential risks.

Our commitment to sustainable investing extends beyond the initial investment, as we incorporate ESG issues into our ownership policies and practices. The following are examples of topics discussed during recent engagements:

Environmental - Clean Energy/Carbon Emissions

We have requested that a company publicly disclose its greenhouse gas reduction target, like many of its global peers. This will help independent parties to monitor and to track progress of CO(2) reduction.

Social - Cyber Security

Upon our request, one company for example delivered a satisfactory plan detailing their policies and actions taken toward cyber security and data privacy protection.

Governance - Board Structure

After numerous exchanges with one company with global operations, we welcomed its management's decision to appoint two new foreign directors to the board. We believe that having external and independent directors on the board is essential.

In addition to engaging in meaningful interaction with investee companies through dedicated meetings, we vote in a prudent and diligent manner, and in the financial interests of our clients. The highest percentage of our votes against management were on income allocation, director and statutory auditor elections (primarily due to independence concerns) and director remuneration, where the increase is significant or there is no compensation committee.

Investment Themes

While our decisions are based on company-specific factors, there are also structural, long-term trends and themes that underlie much of our stock selection. These trends include changing demographics, technological innovation, and international trade and tourism. Japan faces slowing economic growth due to ageing demographics. This presents opportunities for Japanese companies that are working to improve the quality of life for an ageing population. Although Japanese companies are often by nature conservative, driven by the tightening labour market, many are having to pursue technological innovation and the beneficial productivity opportunities available from adopting such technology. Despite Japan being an advanced industrial economy, certain areas such as financial services and payments lag behind many other markets in terms of technological sophistication. This is creating all kinds of opportunities for innovative Japanese companies. Supporting innovation and efficiency, Japanese manufacturing is world class and Japan is a leading supplier of factory automation equipment and robots.

Operating beyond Japan's shores, companies are also in a very strong position to capture the benefits of the dynamic economic growth across Asia which is creating new customers for Japanese goods, services and brands. Japanese products are often recognised as high quality and are widely embedded in regional supply chains.

Another important dynamic operating in Japan over past years has been the improvement in corporate governance, which began with the adoption of a stewardship code, followed by a corporate governance code. This has resulted in steady increases in both stock dividends and share buybacks and a rise in the number of independent outside directors serving on company boards, leading to an increase in the number of companies specifying return on equity and/or asset targets. Although the pace of change is gradual, we observe that compliance with the governance code is steadily growing. We continue to engage with companies in order to establish and maintain a constructive dialogue in this area.

Government policies have also been supportive, recognising as they do the need to pursue reforms aimed at improving labour productivity in the face of a declining workforce. The significant rise in the female employment participation rate is a key indicator and, remarkably, this is now higher than in the United States. The stable political environment has also led to the adoption of policies to reform work style and corporate governance and to encourage inbound tourism. Against this backdrop we remain very positive that the Japanese stock market can continue to offer a wealth of opportunities in small- and mid-capitalisation stocks.

Performance Review

During the 12 months under review not one of the three key drivers of performance stood out. That being said, the Company's gearing modestly detracted from performance. A positive level of gearing was maintained throughout the year, leading to a negative performance impact in a declining market. Stock selection and sector allocation in aggregate had a small positive impact.

Stocks that contributed most positively include Bengo4.com, which was one of the largest new purchases during the period, Benefit One, and RAKSUL. These companies all performed well thanks to strong earnings growth supported by a tight labour market and the increasing use of online services designed to improve workforce productivity in Japan.

PERFORMANCE ATTRIBUTION

YEARED 31ST MARCH 2019

 
                                      %      % 
--------------------------------  -----  ----- 
 Contributions to total returns 
--------------------------------  -----  ----- 
 Benchmark return                         -7.3 
--------------------------------  -----  ----- 
 Asset allocation                  -0.4 
--------------------------------  -----  ----- 
 Stock selection                   +1.6 
--------------------------------  -----  ----- 
 Gearing/cash effect               -0.7 
--------------------------------  -----  ----- 
 Return relevant to Benchmark             +0.5 
--------------------------------  -----  ----- 
 Portfolio return                         -6.8 
--------------------------------  -----  ----- 
 Management fee/other expenses            -1.1 
--------------------------------  -----  ----- 
 Return on net assets(A)                  -7.9 
--------------------------------  -----  ----- 
 Return to shareholders(A)                -8.9 
--------------------------------  -----  ----- 
 

Source: Factset, JPMAM, Morningstar.

All figures are on a total return basis.

Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.

(A) Alternative Performance Measure ('APM').

A glossary of terms and APMs is provided on pages 75 and 76 of the annual report.

-- Bengo4.com operates an online legal consulting service. As the most popular website in the legal sector, with nearly 11 million users, Bengo4.com is an attractive marketing tool for lawyers. The company also runs a website called Zeiri4.com, which offers similar services for tax accountants, and has a business called CloudSign, a cloud-based service that shifts contract paperwork to digital format, reducing time, paper and postal charges.

-- Benefit One manages fringe benefit programs on behalf of employers. With a shrinking and ageing population, the incentive for companies to improve benefits for their employees will increase as competition for labour rises. Work style reform, which pursues equal pay for equal work amongst other things, will also drive fringe benefit growth.

-- RAKSUL operates two resource sharing platform services called 'Raksul', a print sharing platform, and 'Hacobell', a logistics sharing platform. Online representation by both the printing and trucking industries is still low. We believe the company has huge growth potential as it offers companies the opportunity to cut costs by utilising and matching excess capacity through internet-based platforms.

SUMCO, RS Technologies and Taiyo Yuden were among stocks that contributed negatively to relative performance. Semiconductor and technology hardware companies such as these underperformed due to concerns over the US-China trade war and over current levels of stock held by manufacturers. We believe demands for semiconductor and electronics parts will grow in response to innovation entailing increased use of technology in the automotive industry and the emerging 'internet-of-things'. We have, therefore, kept these holdings in the face of short-term headwinds.

With respect to sector allocation, top contributors include software & services (overweight), and top detractors include semiconductors & semiconductor equipment (overweight).

Portfolio Activity

The Company maintained its focus on stocks that we believe will be able to compound earnings growth over the long term, supported by strong management teams and healthy cash flow. We avoided stocks that have no clear differentiation and operate in industries plagued by excess supply. Many stocks in the financial services and real estate sectors fall into this category.

For the period, the portfolio's largest overweight positions were in the information technology and communication services sectors. We maintained our higher weighting in them, favouring companies with high earnings growth potential.

Three of the largest purchases were Taiyo Yuden, Mercari, and Bengo4.com. We expect these stocks to benefit from technological innovation in the automotive and retail industries, and also from a tighter labour market which will increase internet usage in Japan.

-- Taiyo Yuden manufactures large-size multi-layer ceramic capacitors (MLCC). The automotive industry is in the middle of a significant technological innovation cycle related to 'connected' cars (those that use mobile internet technology), autonomous driving, shared services and electric vehicles, which will translate into huge potential markets for MLCC manufacturers.

-- Mercari operates the largest consumer-to-consumer (C2C) market place in Japan. It recently launched a mobile-based service, and we believe the company has significant further potential as the C2C market grows. A further source of growth comes from the company's efforts to broaden its offering through a new payment service called Merpay.

   --   Bengo4.com is described above. 

Three of our largest divestments were Sanwa Holdings, Yamabiko, and Nippon Shinyaku. We sold Sanwa Holdings as we now believe it will take longer than expected to improve margins in its US subsidiary, ODC, which manufactures speciality doors. We liquidated our holding in Yamabiko in response to emerging tough competition in battery outdoor power equipment products, a key area in which it operates. Nippon Shinyaku is a mid-sized pharmaceutical company which develops drugs for 'orphan' diseases such as chenne Muscular Dystrophy (DMD). We sold it as we consider an experimental gene therapy for DMD, developed by a US pharmaceutical company, risks posing a serious threat to Nippon Shinyaku in the long term.

Over the period, the portfolio turnover was 22%. The overall shape of the portfolio has not changed significantly, and we maintain a bias towards quality and growth, higher than average ROE and EPS growth. The Company's gearing level was increased from 6.3% to 7.9%.

Outlook

Valuations of Japanese companies are lower than historical averages and below those of most major markets. Many economies around the world have seen steady growth over recent years and we believe that the global economic backdrop remains broadly positive. Japanese companies are sensitive to economic cycles in overseas markets and, although we do not expect a recession, a failure to achieve a positive outcome for the current range of trade issues would pose a headwind.

The fundamental outlook for Japanese smaller companies remains positive, and we see no shortage of exciting investment opportunities. As symbolised by the new Imperial era named Reiwa (beautiful harmony) which began on 1st May Japan is seeking to achieve sustainable and broadly-based growth thanks to reforms to tackle threats such as the declining size of its population. Japan's key structural challenge presents significant opportunities, especially for smaller companies. The Company maintains its focus on investing in businesses with strong growth potential, solid balance sheets and strong cash generation, across a diverse range of industries.

We remain mindful that the current economic cycle is maturing, but believe that the global financial and business environment is healthy and not showing imminent signs of a broader slowdown. We also believe that by focusing on companies with leading market positions, strong balance sheets and healthy cash generation, the Company is well positioned to benefit from the secular trends in Japan as well as weathering potential short-term changes in sentiment driven by trade policies or other shorter-term economic indicators.

Eiji Saito

Naohiro Ozawa

Michiko Sakai

Investment Managers

19th June 2019

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 principal risks and how they are being managed or mitigated are summarised as follows:

   --   Operational and Cyber Crime 

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. 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 on pages 30 and 31.

The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The 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 on every six months against the AAF Standard.

   --   Investment Underperformance and Strategy 

An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to underperformance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and regularly reported on by the Manager. The Manager 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 attend all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Investment Managers employ the Company's gearing within a strategic range set by the Board. The Board holds a separate meeting devoted to strategy each year.

   --   Loss of Investment Team or Investment Manager 

Loss of key staff by the Manager, such as the Investment Managers, could affect the performance of the Company. 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.

   --   Share Price Relative to Net Asset Value ('NAV') per Share 

If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount. Throughout the year ended 31st March 2019, the Company's shares traded at a discount. The Board monitors the Company's discount level and, although the rating largely depends upon the relative attractiveness of the portfolio, the Board will seek to address imbalances in the supply and demand of the Company's shares through a programme of share issuance and buybacks.

   --   Political and Regulatory 

Changes in financial or tax legislation, including in Japan and the UK may adversely affect the Company either directly or because of restrictions or enforced changes on the operations of the Manager. JPMF 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 political risks, such as the imposition of restrictions on the free movement of capital. The Company is therefore at risk from changes to the regulatory, legislative and taxation framework within which it operates, whether such changes were designed to affect it or not. The Board will continue to keep under review the impact of the UK's decision to leave the European Union. The negotiations between the UK and European Union are likely to introduce further currency volatility which may impact portfolio returns.

   --   Financial 

The financial risks faced by the Company include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk, credit risk and the failure of any counterparty. Further details are disclosed in note 22 on pages 62 to 67 of the annual report.

Transactions with related parties

Full details of Directors' remuneration and shareholdings can be found on pages 36 and 37 and in note 6 on page 55 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

Deborah Guthrie

Director

19th June 2019

Statement of Comprehensive income

FOR THE YEARED 31ST MARCH 2019

 
                                                            2019                           2018 
                                               Revenue     Capital      Total   Revenue   Capital     Total 
                                               GBP'000     GBP'000    GBP'000   GBP'000   GBP'000   GBP'000 
--------------------------------------------  --------  ----------  ---------  --------  --------  -------- 
 (Losses)/gains on investments held at fair 
  value through profit or loss                       -    (20,917)   (20,917)         -    55,519    55,519 
 Net foreign currency (losses)/gains                 -       (530)      (530)         -     1,224     1,224 
 Income from investments                         4,007           -      4,007     3,735         -     3,735 
--------------------------------------------  --------  ----------  ---------  --------  --------  -------- 
 Gross return/(loss)                             4,007    (21,447)   (17,440)     3,735    56,743    60,478 
 Management fee                                (2,294)           -    (2,294)   (2,199)         -   (2,199) 
 Other administrative expenses                   (426)           -      (426)     (415)         -     (415) 
--------------------------------------------  --------  ----------  ---------  --------  --------  -------- 
 Net return/(loss) before finance costs 
  and taxation                                   1,287    (21,447)   (20,160)     1,121    56,743    57,864 
 Finance costs                                   (220)           -      (220)     (170)         -     (170) 
--------------------------------------------  --------  ----------  ---------  --------  --------  -------- 
 Net return/(loss) before taxation               1,067    (21,447)   (20,380)       951    56,743    57,694 
 Taxation                                        (389)           -      (389)     (373)         -     (373) 
--------------------------------------------  --------  ----------  ---------  --------  --------  -------- 
 Net return/(loss) after taxation                  678    (21,447)   (20,769)       578    56,743    57,321 
--------------------------------------------  --------  ----------  ---------  --------  --------  -------- 
 Return/(loss) per share (note 2)                1.24p    (39.35)p   (38.11)p     1.06p   103.70p   104.76p 
 

statement of changes in equity

FOR THE YEARED 31ST MARCH 2019

 
                          Called 
                              up                Capital 
                           share     Share   redemption          Other       Capital      Revenue 
                         capital   premium      reserve   reserve(1,2)   Reserves(2)   reserve(2)      Total 
                         GBP'000   GBP'000      GBP'000        GBP'000       GBP'000      GBP'000    GBP'000 
----------------------  --------  --------  -----------  -------------  ------------  -----------  --------- 
 At 31st March 2017        5,595    33,978        1,836        313,004     (133,782)     (12,835)    207,796 
 Repurchase of shares 
  into Treasury                -         -            -        (1,767)             -            -    (1,767) 
 Net return for the 
  year                         -         -            -              -        56,743          578     57,321 
----------------------  --------  --------  -----------  -------------  ------------  -----------  --------- 
 At 31st March 2018        5,595    33,978        1,836        311,237      (77,039)     (12,257)    263,350 
 Share transaction 
  expense(3)                   -         -            -            (3)             -            -        (3) 
 Net (loss)/return 
  for the year                 -         -            -              -      (21,447)          678   (20,769) 
 Dividends paid in 
  the year (note 3)            -         -            -        (7,468)             -            -    (7,468) 
----------------------  --------  --------  -----------  -------------  ------------  -----------  --------- 
 At 31st March 2019        5,595    33,978        1,836        303,766      (98,486)     (11,579)    235,110 
----------------------  --------  --------  -----------  -------------  ------------  -----------  --------- 
 

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

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

3 Stamp duty on shares repurchased into Treasury on 29th March 2018.

statement of financial position

AT 31ST MARCH 2019

 
                                                                2019       2018 
                                                             GBP'000    GBP'000 
---------------------------------------------------------  ---------  --------- 
 Fixed assets 
 Investments held at fair value through profit or loss       253,585    279,946 
---------------------------------------------------------  ---------  --------- 
 Current assets 
 Debtors                                                       1,786      1,898 
 Cash and cash equivalents                                    10,343      9,117 
---------------------------------------------------------  ---------  --------- 
                                                              12,129     11,015 
 Creditors: amounts falling due within one year             (30,604)      (799) 
---------------------------------------------------------  ---------  --------- 
 Net current (liabilities)/assets                           (18,475)     10,216 
---------------------------------------------------------  ---------  --------- 
 Total assets less current liabilities                       235,110    290,162 
 Creditors: amounts falling due after more than one year           -   (26,812) 
---------------------------------------------------------  ---------  --------- 
 Net assets                                                  235,110    263,350 
---------------------------------------------------------  ---------  --------- 
 Capital and reserves 
 Called up share capital                                       5,595      5,595 
 Share premium                                                33,978     33,978 
 Capital redemption reserve                                    1,836      1,836 
 Other reserve                                               303,766    311,237 
 Capital reserves                                           (98,486)   (77,039) 
 Revenue reserve                                            (11,579)   (12,257) 
---------------------------------------------------------  ---------  --------- 
 Total shareholders' funds                                   235,110    263,350 
---------------------------------------------------------  ---------  --------- 
 Net asset value per share (note 4)                           431.3p     483.1p 
 

statement of cash flows

FOR THE YEARED 31ST MARCH 2019

 
                                                                       2019       2018 
                                                                    GBP'000    GBP'000 
----------------------------------------------------------------  ---------  --------- 
 Net cash outflow from operations before dividends and interest     (2,694)    (2,206) 
 Dividends received                                                   3,465      3,200 
 Interest paid                                                        (222)      (154) 
----------------------------------------------------------------  ---------  --------- 
 Net cash inflow from operating activities                              549        840 
----------------------------------------------------------------  ---------  --------- 
 Purchases of investments                                          (61,376)   (55,664) 
 Sales of investments                                                69,840     49,966 
 Settlement of foreign currency contracts                                30         27 
----------------------------------------------------------------  ---------  --------- 
 Net cash inflow/(outflow) from investing activities                  8,494    (5,671) 
----------------------------------------------------------------  ---------  --------- 
 Dividends paid                                                     (7,468)          - 
 Repurchase of shares into Treasury                                   (469)    (1,301) 
 Drawdown of bank loan                                                    -     10,385 
----------------------------------------------------------------  ---------  --------- 
 Net cash (outflow)/inflow from financing activities                (7,937)      9,084 
----------------------------------------------------------------  ---------  --------- 
 Increase in cash and cash equivalents                                1,106      4,253 
----------------------------------------------------------------  ---------  --------- 
 Cash and cash equivalents at start of year                           9,117      4,895 
 Exchange movements                                                     120       (31) 
 Cash and cash equivalents at end of year                            10,343      9,117 
----------------------------------------------------------------  ---------  --------- 
 Increase in cash and cash equivalents                                1,106      4,253 
----------------------------------------------------------------  ---------  --------- 
 Cash and cash equivalents consist of: 
 Cash and short term deposits                                        10,343      9,117 
----------------------------------------------------------------  ---------  --------- 
 Total                                                               10,343      9,117 
----------------------------------------------------------------  ---------  --------- 
 

Notes to the financial statements

for the year ended 31st march 2019

   1.     Accounting policies 

Basis of accounting

The financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014 and updated in February 2018.

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 page 33 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 
 -------------------------------------------------------------------------  -----------  ----------- 
  Return per share is based on the following: 
  Revenue return                                                                    678          578 
  Capital (loss)/return                                                        (21,447)       56,743 
 -------------------------------------------------------------------------  -----------  ----------- 
  Total (loss)/return                                                          (20,769)       57,321 
 -------------------------------------------------------------------------  -----------  ----------- 
  Weighted average number of shares in issue during the year used for the 
  purpose of the calculation                                                 54,510,339   54,717,778 
  Revenue return per share                                                        1.24p        1.06p 
  Capital (loss)/return per share                                              (39.35)p      103.70p 
 -------------------------------------------------------------------------  -----------  ----------- 
  Total (loss)/return per share                                                (38.11)p      104.76p 
 -------------------------------------------------------------------------  -----------  ----------- 
 
   3.     Dividends 
   (a)   Dividends paid and declared 
 
                                                                                        2019      2018 
                                                                                     GBP'000   GBP'000 
  --------------------------------------------------------------------------------  --------  -------- 
   Dividends paid 
   First quarterly dividend of 4.9p (2018: 0.0p) paid to shareholders in August        2,671         - 
   Second quarterly dividend of 4.9p (2018: 0.0p) paid to shareholders in November     2,671         - 
   Third quarterly dividend of 3.9p (2018: 0.0p) paid to shareholders in February      2,126         - 
  --------------------------------------------------------------------------------  --------  -------- 
   Total dividends paid in the year                                                    7,468         - 
  --------------------------------------------------------------------------------  --------  -------- 
 
                                                                                        2019      2018 
                                                                                     GBP'000   GBP'000 
  --------------------------------------------------------------------------------  --------  -------- 
   Dividend declared 
   Fourth quarterly dividend of 4.3p (2018: 0.0p) payable to shareholders in May       2,344         - 
  --------------------------------------------------------------------------------  --------  -------- 
 

(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.

 
                                                     2019      2018 
                                                  GBP'000   GBP'000 
-----------------------------------------------  --------  -------- 
 First quarterly dividend of 4.9p (2018: 0.0p)      2,671         - 
 Second quarterly dividend of 4.9p (2018: 0.0p)     2,671         - 
 Third quarterly dividend of 3.9p (2018: 0.0p)      2,126         - 
 Final dividend payable of 4.3p (2018: 0.0p)        2,344         - 
-----------------------------------------------  --------  -------- 
 Total                                              9,812         - 
-----------------------------------------------  --------  -------- 
 
   4      Net asset value per share 
 
                                                                        2019         2018 
 --------------------------------------------------------------  -----------  ----------- 
  Net assets (GBP'000)                                               235,110      263,350 
  Number of shares in issue, excluding shares held in Treasury    54,510,339   54,510,339 
 --------------------------------------------------------------  -----------  ----------- 
  Net asset value per share                                           431.3p       483.1p 
 --------------------------------------------------------------  -----------  ----------- 
 
   5.     Status of results announcement 

2019 Financial Information

The figures and financial information for 2019 are extracted from the published Annual Report and Accounts for the year ended 31st March 2019 and do not constitute the statutory accounts for that year. The Annual Report and Accounts 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.

2018 Financial Information

The figures and financial information for 2018 are extracted from the Annual Report and Accounts for the year ended 31st March 2018 and do not constitute the statutory accounts for the year. The Annual Report and Accounts 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 Accounts 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

19th June 2019

For further information, please contact:

Divya Amin

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

ENDS

A copy of the annual report 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.jpmjapansmallercompanies.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

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 [e-mail] or visit www.rns.com.

END

FR UKUVRKAANAAR

(END) Dow Jones Newswires

June 19, 2019 11:25 ET (15:25 GMT)