Annual Financial Report

RNS Number : 9143A

JPMorgan Japan Smaller Co Tst PLC

10 June 2016

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPAN SMALLER COMPANIES TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED
31st MARCH 2016

Chairman's Statement

Dear Shareholders

The Company's undiluted total return on net assets, net of fees and expenses (or portfolio return) for the year ended 31st March 2016, was 13.9%, versus 6.9% for the benchmark. The Company's diluted return on net assets, which assumes that all of the Subscription shares in issue were exercised at the rate of 243 pence per share, was 12.2%. The share price total return was 7.8%.

Investment Performance

As you will see from the Investment Managers' Report, despite a weak market background our Company enjoyed a further year of positive returns. In local currency terms, the portfolio's diluted total return on net assets was 1.8% versus -3.0% for the benchmark. The strengthening of the yen boosted the portfolio's returns in sterling terms to 12.2%, an increase of 10.4%, while the negative benchmark return moved to a positive outcome of 6.9%.

But whether we focus on the sterling or yen returns, our Investment Managers achieved another year of strong relative performance, further consolidating the medium and longer term record of the Company. I am particularly pleased with this transformation of our performance record since our present team took fund management responsibility in 2012. Our year by year results have been consistently good and have been accomplished by the disciplined application of a well constructed investment approach and process.

Borrowing

The Company has a Japanese Yen 3.0 billion credit facility with ING which gives the Investment Managers 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 Company, in normal market conditions, to operate in the range of 5% cash to 15% geared. The level of gearing is reviewed by the Directors at each Board meeting. During the year the Company's gearing level ranged between 4.8% and 10.3% and finished the fiscal year at around 5.2%.

Subscription Shares

In December 2014, Shareholders approved a further bonus issue to Ordinary shareholders of one Subscription share for every five Ordinary shares held. The conversion rights attached to these Subscription shares are exercisable between 30th January 2015 and 30th November 2016 at 243 pence per share. A total of 9,255,764 Subscription shares were duly allotted in December 2014 and, from 30th January 2015 to 31st March 2016, 637,290 Ordinary shares were issued following receipt of valid notices of exercise from Subscription shareholders. Between 1st April 2016 and the date of this report, a further 154,218 Ordinary shares have been issued on the same basis.

Board of Directors

After many years of valuable service to your Company, Chris Russell will retire from the Board following the 2016 Annual General Meeting and will not seek reappointment. Chris has been an outstanding independent director and Audit Committee Chairman. The Board, and I personally, will miss his support and wise counsel.

Further progress in implementing the Board's current succession plan, which will complete next year with a further retirement, was achieved with the appointment on 11th April of Alexa Henderson as an independent Non-executive Director. I am delighted that Alexa agreed to join our Board and that she will succeed Chris Russell as Audit Committee Chair. Alexa possesses substantial financial services experience, including with other investment companies, and I look forward to her receiving shareholders' support as she seeks reappointment at our forthcoming Annual General Meeting.

Outlook

After enjoying extremely strong growth in our previous financial year, the latest twelve months have been more challenging for your Company although our Managers have successfully navigated the prevailing choppy waters. Looking ahead, some of the uncertainties which have caused concern remain largely unresolved for example, the anxieties about the resilience of the Chinese economy or the broader worries about the health of the global economy. Furthermore, Japan continues to wrestle with its own challenges, as our Investment Managers explain in their report.

Our much improved performance record has been achieved principally by our Investment Managers' ability to identify those companies within our investable universe with strong growth characteristics, allied with capable managements and secure finances. Investment in such companies has served us well. I believe that excellent research-based, active investment management is the appropriate approach in a generally low growth environment.

Alan Clifton

Chairman                                                                                                                                                                                                  10 June 2016

Investment Managers' Report

Market Review

The Company's Net Asset Value gained 13.9% in sterling terms on an undiluted basis for the fiscal year ended in March 2016. The positive return for the fiscal year was attributable to solid performance of smaller companies in general, the fall in the value of sterling against the yen and above all the excess return that we generated over the benchmark. Over the same period, the broader Japanese equity market, measured by the bellwether TOPIX index, fell by more than 10% in yen terms. The yen strengthened from circa ¥120 to ¥112 against the dollar and from about ¥180 to ¥160 against sterling. The appreciation of the yen was more strongly pronounced against sterling due to concerns that the UK may vote to leave the European Union at the referendum in June 2016.

It was a challenging year for equities not only in Japan but also globally. The MSCI All Country World (excluding Japan) index fell by 3.5% in dollar terms, which is only marginally better than the dollar-based TOPIX return of -5%. Commodity prices fell sharply and the crude oil price, which traded as high as $90/barrel in 2014, fell to below $30 in January 2016, the lowest level in 12 years. The initial trigger for the sell-off in risk assets was the unexpected devaluation of the Chinese currency in August 2015. The devaluation raised concerns that the Chinese economy might be performing much worse than widely believed and also that it might lead to a negative spiral as in the Asian currency crisis. The Chinese currency fell further against the dollar in December 2015 and January 2016, accelerating cash outflows from a broad range of risk assets, including equities, commodities and high-yield fixed income products.

Partly because of the deteriorating outlook for the global economy, investors became increasingly concerned about the health of the US economy which for the past several years had been the most reliable source of growth for the world. The Federal Reserve Board has echoed investor concerns by being cautious in raising interest rates and has so far done so only once, in December 2015, by 0.25%. The bond market has performed strongly under these conditions and the US 10-year government bond yield fell from as high as 2.5% in July 2015 to circa 1.8% in March 2016. The currency market has also adjusted to this shift in the balance of risks by selling dollars.

In Japan, the domestic economy has not responded to the tightening labour market where the ratio of job offers to applications continues to make all-time highs. The economy contracted in the second and fourth quarters of calendar year 2015. Wages are not growing strongly enough to stimulate consumption growth and companies remain reluctant to invest in Japan. Inflation remains low, although this is partly the result of falling commodity prices. It is because of these factors that the Bank of Japan (BOJ) announced a third round of monetary easing on 29th January. The second round announced in October 2014 focused primarily on the expansion of asset purchase programme. This time, the BOJ introduced negative interest rates. The initial reaction was to sell the yen and buy equities. However, the equity market came under renewed selling pressure as the BOJ's action failed to reverse the yen appreciation and investors became concerned about the adverse impact of negative interest rates on the financial system. One area where the additional stimulus has had a positive impact is in the domestic bond market: yields on Japanese government bonds are negative for maturities of up to 10 years.

Despite the headwinds from the macro economy, listed companies in Japan have continued to make positive progress in terms of both earnings and corporate governance. Although the recent strength of the yen negatively impacts export sector earnings, aggregate profit for the fiscal year 2015 is expected to have grown to a record high. Total dividend payments have also increased to pass the previous peak in 2007 and the number of share buybacks is continuing to grow.

Over the last 12 months, defensive and domestic-focused sectors, such as food, telecommunications, pharmaceuticals, construction and retail, outperformed the broader market. On the other hand, sectors that are exposed to emerging economies and/or commodities including energy, steel and capital goods underperformed. Financials also performed poorly as a result of negative interest rates.

Portfolio Review

The Company delivered an undiluted return on net assets of +13.9% in sterling terms, 7.0% ahead of the benchmark S&P/Citigroup Japan Extended Market Index (Total Return Net) in sterling terms. The Company is ahead of the benchmark for each of the preceding one, three and five-year periods. Over the last five years, the cumulative total return was 91.6%.

During the last fiscal year, approximately three quarters of the excess return was attributable to our stock selection and the remainder is explained by sector allocation. Stocks that contributed most positively to the excess return included Peptidream (pharmaceuticals, biotechnology & life sciences), GMO Payment Gateway (software & services), Invincible Investment Corp. (real estate), Anicom Holdings (insurance) and Sohgo Security Services (commercial & professional services).

•     Peptidream is a biotechnology company. Using its proprietary technology platform, pharmaceutical companies attempt to discover peptide drugs for various diseases. Since the end of 2014, the company has signed seven new licensing contracts with drug companies. It has partnerships with global mega pharmaceutical companies including AstraZeneca, Novartis, Bristol-Myers Squibb, Amgen and GSK.

•     GMO Payment Gateway provides a payment processing service, with a primary focus on credit card payments for online shopping. It is dominant amongst small merchandisers and has grown strongly on the back of increasing diffusion of e-commerce. It is diversifying: (1) its customer base to cover larger firms and public entities; (2) into overseas markets; and (3) into new lines of business. We believe the company can continue to grow earnings by 20~30% per annum over the medium term.

•     Invincible Investment Corporation is a REIT that has increased exposure to hotels through acquisitions. The REIT performed strongly, supported by rising hotel revenues. The hospitality industry is enjoying strong demand from an increasing number of inbound tourists, in particular from Asia. The REIT sector is likely to benefit from increasing demand from financial institutions in the negative interest rate environment.

•     Anicom provides pet insurance, a market which is still in its infancy in Japan and is continuing to grow strongly. The ageing population acts as a tailwind for the company as an increasing number of elderly people live with pets and have a high propensity to spend on them.

•     Sohgo Security Services is the second-largest operator of home and office security services in Japan after Secom. The company has grown strongly over the last few years, under the new management team that took charge in 2012, following many years of stagnation. Its profit margin still lags that of Secom and we believe there is further scope for the company to expand its margins and therefore its profits.

On the other hand, Dowa Holdings (materials), Taiheiyo Cement (materials) and Aida Engineering (capital goods) were among stocks that detracted most from performance.

•     Dowa Holdings is a diversified industrials company whose businesses range from industrial waste management, to niche electronics materials, to auto parts. Its earnings have been under downward pressure because falling commodity prices have depressed the profit from the sale of recycled precious metals.

•     Taiheiyo Cement is the largest producer of cement in Japan with operations in the US, ASEAN and China. The company's short-term earnings outlook deteriorated throughout the year due to poorer-than-expected demand in Japan.

•     Aida Engineering manufactures press machines for the auto industry. It is the second largest manufacturer of its kind globally and has enjoyed strong order growth as the manufacturing process becomes increasingly complex. We believe that the poor performance is attributable to concerns about the global economic outlook in general and the auto industry capital expenditures in particular.

In each of the above cases, we believe that this is a short-term cyclical setback and that their investment cases are intact. As such, we have maintained the positions.

With respect to sector allocation, the top contributors include software & services (overweight), banks (underweight) and insurance (overweight). The level of gearing fell from 10.3% at the end of March 2015 to 5.2% in March 2016 primarily as a result of our bottom-up investment decisions.

•     There are broadly two subsets within the software & services sector: domestic-oriented service companies, which tend to be defensive in terms of both their earnings and share price performance; and internet companies. The former performed better than the broader market in the volatile environment, and internet companies in general performed well in line with their strong earnings growth.

•     Banks underperformed significantly after the introduction of negative interest rates in January.

•     The insurance sector performed strongly thanks to the largest constituent Anicom.

There has been little change in the overall structure of the portfolio, excepting the reduction in gearing. As a result, turnover for the year was 30%. We maintained a bias towards quality and growth companies rather than cyclical companies, favouring those with strong balance sheets and cash flows. Although quality companies tend to command a valuation premium, we believe the premium will be sustained in the current environment of slow growth and low inflation. In addition, the growth bias of the portfolio reflects our desire to invest in companies with durable competitive advantage that can deliver long-term growth in earnings and shareholder returns.

On the other hand, we continued to avoid companies that operate in industries plagued by excess supply. A number of commodities and commodity-related goods and services fall into this category. Consumer durables such as TVs, white goods and even mobile devices are also examples.

We have continued to allocate a large part of the capital to our long-lasting investment themes, including healthcare, factory automation and e-commerce/mobile internet. We also own a number of companies which we believe will benefit from increasing demand for domestic infrastructure investments. Infrastructure in Japan entering a replacement phase as many infrastructure projects were completed around the last time of the Olympic games in Tokyo in 1964. We continue to believe REITs offer very attractive yields, and have owned several of them, including the large position in Invincible Investment Corp.

Outlook and Strategy

We have been positive on the Japanese market since at least 2012, and remain so on a medium-term basis. Our base case remains that the global economy will continue to expand, albeit slowly. Accordingly, we believe that corporate earnings will prove resilient to the stronger yen and we do not expect a material fall from the previous year. Corporate governance reforms, in terms of better capital management and shareholder returns, combined with unwinding of cross shareholdings, are slowly but steadily taking hold. Listed companies in general have healthy balance sheets and can afford much higher payout ratios. The valuations are not at all demanding in our opinion. The TOPIX Index trades on around 13x prospective earnings and 1.1x book value, and is cheap relative to its own history. Such positive fundamentals provide downside support in the short term and create opportunities in the medium term.

Given the recent poor performance of the domestic economy and the equity market, it is not surprising that investors are starting to ask whether "Abenomics" has failed. Indeed, many foreign investors appear to have given up on Abenomics and the statistics show they were sellers of Japanese equities throughout most of the last 12 months. It is true that inflation expectations remain low, or are even falling, and as a result both households and corporations are reluctant to spend. Our view is more balanced. We consider the following as the achievements of Abenomics:

•     agricultural reform;

•     Trans-Pacific Partnership (this is yet to be ratified by the member states including Japan);

•     a rise in female participation in the labour market as well as an increase in overall employment;

•     corporate tax cuts;

•     promotion of Japanese tourism; and

•     Stewardship Code and Corporate Governance Code.

Indeed, we are encouraged by the level of shareholder returns that have been announced so far. Although companies in aggregate are guiding their profit to be lower in FY2016, most companies are forecasting dividends to be at least the same as, or even higher than, last year. Share buyback announcements have also been positive. As of 16th May, over 98% of all listed companies had reported their earnings for FY2015 and issued profit guidance for the new fiscal year. The data showed that operating profits grew by over 10% in FY2015 and are expected to fall by circa 3% in FY2016. We believe that such outcomes are largely reflected in the share price as the TOPIX Index has fallen by more than 10% since the end of 2015.

Risks

We acknowledge that downside risks are greater now than six months ago when we wrote our commentary for the interim report. Firstly, we did not anticipate the strength of the yen. Our view has been that the normalisation of US monetary policy, and the widening interest rate differential as a result, should put downward pressure on the yen. It now appears more likely that the pace of US monetary policy normalisation will be much slower than we originally foresaw, capping the upside for the dollar. Secondly, the domestic economy has failed to gain traction. If the government goes ahead with the planned consumption tax increase from the current 8% to 10% in April 2017, it is likely to put additional downward pressure on the economy and inflation expectations. Although we continue to believe that the BOJ is committed to its 2% inflation target, recent events have shown that there are limits to what monetary policy alone can achieve. As a result, the earnings outlook for 2016 and beyond is less positive than six months ago. Banks and insurance companies will suffer pressure on net interest margins and investment returns but we need more time before assessing the impact of negative interest rates on the domestic economy.

In addition, there are several risks that are structural in nature and we have commented on them in previous reports: the demographic headwind in Japan will only intensify and domestic demand continues to disappoint despite positive employment data; the Chinese economy continues to face downward pressure from the structural shift from investment to consumption; the European Union is yet to address properly the imbalances within the European economy which is therefore susceptible to shocks.

Based on the outlook, our investment strategy remains unchanged. We intend to stay overweight quality and growth. At the same time, we remain cautious towards economically sensitive companies with weak balance sheets, in particular in industries which face structural challenges in terms of the outlook for demand, excess supply, or a combination of both. Above all, we try to identify company-specific growth opportunities that can withstand external shocks and can be sustained over the long term.

The caveat is that we are paying a valuation premium. If global growth accelerates and/or interest rates rise significantly, the valuation premium is likely to come under pressure. Although such a scenario is not our central case, we must remain flexible and make changes when the balance of risk and reward is no longer compelling. We are therefore committed to maintaining valuation discipline and keeping the portfolio well diversified.

At JPMorgan we have a large team based on the ground in Tokyo which is foccussed on identifying significant changes in sectors and companies. A team based locally is increasingly unusual and we expect this to be a source of continuing competitive advantage. Overall, we are positive on the outlook for the market, on active fund management and on the future performance of the Company.

Shoichi Mizusawa-

Nicholas Weindling

Naohiro Ozawa

Investment Managers                                                                                                                                                                              10 June 2016

Business Review

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:

Investment underperformance and strategy

An inappropriate investment strategy, for example excessive concentration of investments, asset allocation, the level of gearing, or the degree of portfolio risk, 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 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 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 meetings, the Board visits the offices of JPMAM Japan in Tokyo on an annual basis to discuss strategy and consider all other relevant aspects of the Investment Management operations.

Discount

A widening of the discount results in loss of value for shareholders. In order to try to manage the Company's discount, which can be volatile, the Company operates a share issuance and repurchase programme. The Board regularly discusses discount policy and has set parameters for the Manager and the Company's broker to follow.

Operational

Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary's or Custodian's records may prevent accurate reporting and monitoring of the Company's financial position. This includes the risk of cybercrime and consequent potential threat to security and business continuity. Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective risk management and internal controls are included within the Risk Management and Internal Controls section of the Corporate Governance Statement on pages 26 and 31.

Confidence in Manager

Loss of key staff by the Manager, such as one or more of the Investment Managers, could result in a short-term deterioration in investment performance. The Manager takes steps to retain key personnel as well as ensuring appropriate succession planning and the adoption of a team-based approach.

Political and economic

Administrative risks, such as the imposition of restrictions on the free movement of capital may impair the Manager's ability to continue with its investment activity. These risks are discussed by the Board on a regular basis.

Viability Statement

The 2014 UK Corporate Governance Code requires the Board to assess the prospects of the Company over a longer period than the 12 months required by the 'Going Concern' provision.

The Company's current position and prospects are set out in the Chairman's Report, the Portfolio Managers' Report and the Strategic Report.

Taking account of the Company's current position, the principal risks that it faces and their potential impact on its future development and prospects, the Directors have assessed the prospects of the Company, to the extent that they are able to do so, over the next three years. They have made that assessment by considering those principal risks, the Company's investment objective of achieving long term capital growth, its ability to liquidate the portfolio and meet its expenses as they fall due, the investment capabilities of the Manager and the current outlook for the Japanese economy and equity market.

Having regard to the Company's objective, which is to achieve long term capital growth for its shareholders, the Directors considered three years to be an appropriate time horizon to assess the Company's viability.

The Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of assessment.

Statement of Directors' Responsibilities

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

The Companies Act 2006 law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards 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 accounting estimates that are reasonable and prudent;

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

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

and the Directors confirm that they have done so.

The Directors are responsible for keeping proper 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.

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

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

Each of the Directors 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 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 position and performance, strategy and business model of the Company.

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 position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

For and on behalf of the Board

Alan Clifton

Chairman

10 June 2016

Income Statement

for the year ended 31st March 2016

			2016			2015
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair
value through profit or loss		-	19,822	19,822	-	33,784	33,784
Net foreign currency (losses)/gains		-	(744)	(744)	-	609	609
Income from investments		2,259	-	2,259	1,640	-	1,640
Gross return		2,259	19,078	21,337	1,640	34,393	36,033
Management fee		(1,510)	-	(1,510)	(1,233)	-	(1,233)
Other administrative expenses		(398)	-	(398)	(414)	-	(414)
Net return/(loss) on ordinary activities
before finance costs and taxation		351	19,078	19,429	(7)	34,393	34,386
Finance costs		(261)	-	(261)	(270)	-	(270)
Net return/(loss) on ordinary activities
before taxation		90	19,078	19,168	(277)	34,393	34,116
Taxation		(224)	-	(224)	(164)	-	(164)
Net (loss)/return on ordinary activities
after taxation		(134)	19,078	18,944	(441)	34,393	33,952
(Loss)/return per Ordinary share -            (note 2)
undiluted		(0.29)p	40.76p	40.47p	(0.95)p	74.32p	73.37p
(Loss)/return per Ordinary share -            (note 2)
diluted		(0.29)p	40.57p	40.28p	(0.95)p	74.32p	73.37p

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.

Statement of Changes in Equity

for the year ended 31st March 2016

	Called up		Capital
	share	Share	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve	reserves	Reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2014	4,058	1,446	1,836	314,775	(222,640)	(12,783)	86,692
Bonus issue of Subscription shares	9	(9)	-	-	-	-	-
Conversion of Subscription shares into
Ordinary shares2	(68)	68	-	-	-	-	-
Issue of Ordinary shares on exercise of
Subscription shares3	679	10,909	-	-	-	-	11,588
Net return/(loss) on ordinary activities	-	-	-	-	34,393	(441)	33,952
At 31st March 2015	4,678	12,414	1,836	314,775	(188,247)	(13,224)	132,232
Conversion of Subscription shares into
Ordinary shares4	(1)	1	-	-	-	-	-
Issue of Ordinary shares on exercise of
Subscription shares5	64	1,474	-	-	-	-	1,538
Net return/(loss) on ordinary activities	-	-	-	-	19,078	(134)	18,944
At 31st March 2016	4,741	13,889	1,836	314,775	(169,169)	(13,358)	152,714

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

²Comprises £67,455 for conversion of the remaining 6,784,547 Subscription shares of 1p each issued on 5th March 2009, plus £3 for the conversion of 3,286 Subscription shares of 0.1p each issued on 16th December 2014.

³Comprises £11,805,112 received upon the conversion into Ordinary shares of the remaining 6,784,547 Subscription shares of 1p each issued on 5th March 2009, plus £7,985 received upon conversion into Ordinary shares of 3,286 Subscription shares of 0.1p each issued on 16th December 2014, less the costs associated with the bonus issue of Subscription shares in December 2014 of £225,324.

⁴Comprises £634 for conversion of the 634,004 Subscription shares of 0.1p each issued on 16th December 2014.

⁵Comprises £1,540,630 received upon the conversion into Ordinary shares of the 634,004 Subscription shares of 0.1p each issued on 16th December 2014, less the costs associated with the conversion of Subscription shares of £2,655.

Statement of Financial Position

at 31st March 2016

		2016	2015
		£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		160,080	145,730
Current assets
Debtors		1,005	690
Cash and short term deposits		10,643	3,252
		11,648	3,942
Creditors: amounts falling due within one year		(19,014)	(589)
Net current (liabilities)/assets		(7,366)	3,353
Total assets less current liabilities		152,714	149,083
Creditors: amounts falling due after more than one year		-	(16,851)
Net assets		152,714	132,232
Capital and reserves
Called up share capital		4,741	4,678
Share premium		13,889	12,414
Capital redemption reserve		1,836	1,836
Other reserve		314,775	314,775
Capital reserves		(169,169)	(188,247)
Revenue reserve		(13,358)	(13,224)
Total equity shareholders' funds		152,714	132,232
Net asset value per Ordinary share - undiluted    (note 3)		325.5p	285.7p
Net asset value per Ordinary share - diluted        (note 3)		312.7p	278.6p

Alan Clifton

Chairman

Company registration number: 3916716.

Statement of Cash Flows
for the year ended 31st March 2016

		2016	2015
		£'000	£'000
Net cash outflow from operations before dividends and interest		(1,032)	(1,753)
Dividends received		1,793	1,389
Interest paid		(254)	(268)
Net cash inflow/(outflow) from operating activities		507	(632)
Purchases of investments		(44,433)	(52,369)
Sales of investments		49,571	38,908
Settlement of foreign currency contracts		(11)	78
Net cash inflow/(outflow) from investing activities		5,127	(13,383)
Issue of Ordinary shares on exercise of Subscription shares		1,541	11,813
Costs in relation to issue of shares		(3)	(225)
Net cash inflow from financing activities		1,538	11,588
Increase/(decrease) in cash and cash equivalents		7,172	(2,427)
Cash and cash equivalents at start of year		3,252	5,649
Exchange movements		219	30
Cash and cash equivalents at end of year		10,643	3,252
Increase/(decrease) in cash and cash equivalents		7,172	(2,427)
Cash and cash equivalents consist of:
Cash and short term deposits		10,643	3,252
Total		10,643	3,252

Notes to the Financial Statements

for the year ended 31st March 2016

1.   Accounting policies

(a)  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.

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 23 of the Directors' Report in the Annual Report and Financial Statements form part of these financial statements.

2.    (Loss)/return per Ordinary share
	2016		2015
	£'000		£'000
Revenue loss	(134)		(441)
Capital return	19,078		34,393
Total return	18,944		33,952
Weighted average number of Ordinary shares in issue during the year used for the purpose
of the undiluted calculation	46,809,711		46,279,583
Weighted average number of Ordinary shares in issue during the year used for the purpose
of the diluted calculation	47,030,398		46,279,583
Undiluted
Revenue loss per share	(0.29)p		(0.95)p
Capital return per share	40.76p		74.32p
Total return per share	40.47p		73.37p
Diluted
Revenue loss per share	(0.29)p		(0.95)p
Capital return per share	40.57p		74.32p
Total return per share	40.28p		73.37p

The diluted return/(loss) per Ordinary share represents the return/(loss) on ordinary activities after taxation divided by the weighted average number of Ordinary shares in issue during the year as adjusted in accordance with IAS 33, as required by FRS 102.

3.   Net asset value per Ordinary share

	2016	2015
Undiluted
Ordinary shareholders' funds (£'000)	152,714	132,232
Number of Ordinary shares in issue	46,916,586	46,282,582
Net asset value per Ordinary share	325.5p	285.7p
Diluted
Ordinary shareholders' funds assuming exercise of dilutive Subscription shares and reissuance
of any dilutive Treasury shares (£'000)	173,657	154,715
Number of potential Ordinary shares in issue	55,535,060	55,535,060
Net asset value per Ordinary share	312.7p	278.6p

The diluted net asset value per Ordinary share assumes that all outstanding dilutive Subscription shares were converted into Ordinary shares at the year end and all shares held in Treasury at the year end were reissued, where this has a dilutive effect. The Company policy on the reissuance of Treasury shares is that Treasury shares will only be reissued at a premium to net asset value per share. Hence, the shares held in Treasury at 31st March 2016 had no dilutive effect (2015: none).

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.

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.hemscott.com/nsm.do

The annual report will also 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

ENDS

 

END

 

 

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