Final Results to 31st March 2018

RNS Number : 8943S

JPMorgan Japan Smaller Co Tst PLC

28 June 2018

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPAN SMALLER COMPANIES TRUST PLC

(the 'Company')

FINAL RESULTS FOR THE YEAR ENDED 31st MARCH 2018

Legal Entity Identifier: 549300KP3CRHPQ4RF811

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Dear Shareholders,

I am pleased to report on a very rewarding year for shareholders of the Company.

Investment Performance

The Company's total return on net assets for the year ended 31st March 2018 was +27.8%, versus +13.2% for the benchmark. Over the same period, the total return to ordinary shareholders was +26.5%, reflecting a slight widening of the share price discount to net asset value from 10.7% at the beginning of the financial year to 11.6% at 31st March 2018.

Despite increased political and economic uncertainty, investors benefited from global economic growth leading to steadily rising equity markets over the financial year to 31st March 2018. At the same time, Japan's stock market performed strongly while its economy continued to grow at a rate well above its long-term average.

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 detail on portfolio management, performance and attribution, together with a commentary on markets.

Dividend Policy

The Company's objective is to achieve long-term capital growth through investment in small-sized and medium-sized Japanese companies. The Board remains supportive of this investment strategy and believes that the Company will continue to outperform against the benchmark over the long run. At the same time, the Board is keenly aware that volatility and a widening of the Company's share price discount to net asset value ('NAV') can significantly dilute shareholders' participation in any outperformance against the benchmark achieved by the investment managers, which is undesirable.

Considering the Company's recent discount levels, the Board is not satisfied, and has been actively considering how to tackle the discount on a sustainable basis. In doing so, it has been taking into account the views of shareholders as provided to our advisers. The Board believes that the use of share buy-backs alone will not be enough to manage either the discount level or the volatility of the discount. While buy-backs may be useful in addressing short-term mismatches in supply and demand for the Company's shares, the Board believes it would be better to adopt an approach that in its view will serve to increase marginal demand for the Company's shares.

The Board has no desire to change the Company's investment approach. However, it is aware that a growing number of investors seek investment opportunities that provide a reliable level of income alongside capital growth. In the current low interest rate environment the Board believes that investors will continue to be attracted to income-generating investments. This desire for income is particularly strong among smaller retail investors who buy either through an execution-only platform or who use a wealth manager to provide investment advice. These investors make up much of the potential demand for investment trust companies, and the Board believes that securing their investment is indispensable in both addressing the longer-term imbalance between supply and demand for the Company's shares and in diversifying the Company's shareholder base. Across the investment trust sector there is evidence that trusts which offer investors a higher yield trade at lower discounts than similar but lower-yielding funds.

With this in mind, the Board proposes introducing a new dividend policy 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. This dividend would be paid from a combination of the revenue and capital reserves. The Board will propose a resolution at the Annual General Meeting ('AGM') to amend the Company's Articles of Association to allow the Company to distribute capital as dividends, to allow for the long-term implementation of the new dividend policy. It will also propose a separate resolution to approve the new dividend policy. The proposed changes to the Company's Articles of Association are explained in the Directors' Report on pages 25 and 26 of the Annual Report.

By dissociating the dividend policy of the Company from the nature of returns generated from its current investment policy - of achieving long-term capital growth through investment in small-sized and medium-sized Japanese companies - the Board expects to attract new buyers for the Company's shares whilst maintaining the portfolio's ability to generate attractive total returns with a low level of attrition to the capital base of the Company.

The revised dividend policy, if approved by shareholders, will be effective for the year which started on 1st April 2018. The announcement of the first dividend, for the period ending 30th June 2018, will be contingent on the passing of the relevant resolutions at the AGM. Thereafter, a dividend announcement for each quarter will be made immediately following the conclusion of the quarter.

As part of its deliberations, the Board has considered the effect of similar changes in dividend policy on other investment trusts, the likely impact on the discount at which the Company's shares trade, the nature of the shareholder base, and the resilience of the Company to withstand future market downturns. In addition, it asked its advisers to secure feedback from major shareholders as to their views on increasing the dividend yield by paying dividends out of capital and they have found support for the proposal.

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. It may amend the policy in the light of any potential changes in the expected total returns from the portfolio or of any changes in the nature of returns desired by shareholders.

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 more traditional use of buy-backs will be effective in tightening the discount at which your Company's shares trade.

It is important for investors to note that there is no proposed change in the Company's investment policy, nor the investment managers' approach to their investment strategy or the current benchmark. This change to the Company's dividend policy will widen the appeal of the Company to investors as it will continue to offer exposure to smaller Japanese growth companies, which the Board believes will outperform over the longer term, while delivering a strong, reliable and attractive income stream. It is expected to result in a narrowing of the discount to reflect the wider appeal of income to investors. The Board therefore recommends these proposals to shareholders for approval at the AGM.

Investment Management Team

Management of the Company's portfolio has been led by Shoichi Mizusawa since May 2012. Also on the team have been Nicholas Weindling (since January 2009) and Eiji Saito (since late 2016).

Under Shoichi's leadership, which continues, the resources available to the Tokyo-based investment management team have seen both substantial investment in technology and the recruitment of further investment professionals.

This has presented the opportunity for the Company to augment the team responsible for the management of its portfolio. We are pleased to announce that from 1st July 2018, Naohiro Ozawa and Michiko Sakai will join the Company's investment management team alongside Mr Mizusawa and Mr Saito. Mr Ozawa and Ms Sakai together have a combined 19 years of investment management experience. They bring with them knowledge and experience of small-cap investment in Japan and across Asia.

While Nicholas Weindling will no longer be a named manager for the Company, the team-based approach to investment management will ensure that he continues to add value to the investment process.

Borrowing

During the year, the Company replaced its Yen 3.0 billion one-year revolving floating rate loan facility with a two-year revolving floating rate loan of Yen 4.0 billion with Scotiabank.

The credit facility with Scotiabank 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. The level of gearing is reviewed by the Directors at each Board meeting. During the year, the Company's gearing level ranged between 17.2% and 5.0%, and finished the financial year at 6.3%.

The Board

Having had the pleasure of serving as a Director and of chairing the Board since 2003, I plan to step down from the Board at the conclusion of the 2018 AGM. I am pleased to inform you that Robert White, who has been a Director since 2008, has been selected to succeed me as Chairman of the Board and of the Nomination Committee. Although Robert's tenure as a director of the Company would exceed nine years at the date of his appointment, the remaining three directors, having each served less than four years, ensure that there would be a majority of independent directors on the Board. The Board considers that in order to ensure continuity it is important to have at least one director, in this case Robert, who has longer experience and valuable knowledge of your Company's history. Following the Board's annual evaluation and given the recent refreshment of the Board, no further changes to its composition or size are anticipated in the twelve months following my retirement.

It has been a privilege to serve on this Company's Board. I would like to thank all my Board colleagues, both past and present, for their help and support. Good investment performance is critical to ensure the success of the Company and in this regard I am delighted that JPMorgan's current investment team are such able stock pickers. 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. I wish my fellow Directors every success in the future.

Annual General Meeting

My fellow Directors and I invite you to attend the Company's Annual General Meeting which will be held at 60 Victoria Embankment, London EC4Y 0JP on Tuesday, 31st July 2018 at 12.30 p.m. A telepresence investment presentation will be made at the meeting by the Investment Managers. 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 in person are encouraged to use their proxy votes.

There will be an opportunity for shareholders and Directors to meet following the AGM. I hope to have the pleasure of seeing you then.

Outlook

Expectations for GDP growth in Japan remain high with improving demand, both domestically and from overseas. The economy shows little evidence of strain. Despite some disappointing recent data releases, the country's fundamental economic drivers continue to be healthy. Japanese equities are relatively cheap and the environment for earnings is positive, which suggests room for further upside. The Bank of Japan seems likely to continue its stimulative yield curve control policy in the near term amid consistently low levels of inflation. The key risks for Japan are geo-political tensions, potential trade protectionism in the US and a faster than expected slowdown in China. The Board is confident that the investment management team is well resourced and positioned to continue to identify appropriate and attractive investment opportunities in this environment and that the Company's portfolio is well placed to deliver strong performance over the longer term.

Alan Clifton

Chairman

28th June 2018

INVESTMENT MANAGERS' REPORT

Market Review

The Company's net asset value ('NAV') rose 27.8% in sterling terms during the fiscal year to the end of March 2018. This is 14.6 ppts. above the benchmark return of 13.2%. Over the same period, the TOPIX index, which is the bellwether for the Japanese equity market, rose by 15.7% and 7.9% year on year in yen and sterling terms, respectively.

The Japanese stock market was not alone in posting strong returns. Globally, equities performed strongly, buoyed by growth in economic output and corporate earnings, against a benign outlook for inflation. Japanese companies reported robust results for the financial year ending March 2018 and are on track to report another set of strong earnings figures for the financial year to March 2019.

In October 2017 the ruling coalition won another sweeping victory in the Lower House election. Prime Minister Abe's Liberal Democratic Party and its partner the Komeito Party secured a two-thirds majority. Although the popularity of the Prime Minister and his party has fallen recently, political stability appears intact. This implies the continuation of Abenomics for the foreseeable future - a policy focused on economic stimulus and supported by an aggressive monetary policy. This policy framework was further reinforced in February 2018 by the reappointment to a second five-year term at the helm of the Bank of Japan, of Governor Haruhiko Kuroda, chief advocate of the country's loose monetary policy.

Investment Philosophy

The Company maintained its focus on companies that we believe will be able to compound earnings growth over the long term, supported by strong management teams and positive cash flow. Through our fundamental research we aim to identify companies about which we can have strong positive conviction and in which we can become an owner for the long term. Our research process is conducted in Tokyo by a team of over 20 investment professionals. Many stocks have poor sell-side coverage, particularly the mid- and smaller-capitalisation stocks. We have internal resources that allow us to identify investment opportunities in the areas of the market which are generally under-researched and under-appreciated by many market participants.

We aim to invest in companies that have strong economics with sustainable competitive advantage. While it is possible, or even likely, that these may face occasional short-term setbacks caused by either wider economic issues or else company-specific challenges, we believe their strong and durable competitive positions will allow them to substantially increase the intrinsic value of the enterprise over the long term.

The Company avoids investing in businesses that operate in industries plagued by excess supply. As a result, the portfolio has a bias towards quality and growth. At the aggregate level, the companies that we have invested in have a return on equity substantially above that of the S&P Japan Small Cap Index benchmark, with significantly lower leverage. Their historic earnings growth has been faster than that of the benchmark and we believe this will continue.

While our decisions are based on company-specific dynamics, there are structural trends or themes that underlie much of our stock selection. Long term by nature, these do not change very often. We have written about some of these in past reports and they remain firmly in place today. Below are some examples.

•   The single most important change in Japan over the last five years has been the improvement in corporate governance which began with the adoption of a stewardship code, then of a corporate governance code. As a result, we have witnessed steady increases in both dividends and share buybacks, a rise in the number of external directors that sit on company boards, and more companies officially stating return on equity and/or return on asset targets. While the pace of change is moderate, we believe this trend will endure. We continue to engage with companies in order to establish constructive dialogue on these and other matters.

•   The internet continues to disrupt off-line incumbents in many arenas globally. Here, Japan is a fertile market for entrepreneurs because the country is behind, for example, the US, UK and China in terms of internet penetration.

•   The healthcare industry is witnessing a number of innovations and we own several companies in the sector for this reason. Asahi Intecc (healthcare, discussed further in the Performance Review section) and PeptiDream (biotechnology) are examples where research into medical device technology and diseases for which there are no current treatments looks promising.

•   Staffing services is another group where we see opportunities. Shrinking and ageing of the population is creating a tailwind for related companies as employers find it increasingly difficult to hire and retain staff.

•   Semiconductor-related companies remain attractive to us even after their recent strong performance. The key driver here is the exponential growth in demand for data as the cloud and internet of things become integral to society. In addition, many chip companies are enjoying strong demand growth from the automobile industry as the chip content per vehicle rises.

Performance Review

Over the twelve months under review, the Company's NAV outperformed the benchmark by 14.6 ppts., delivering a positive return of 27.8% in sterling terms. The Company's NAV has performed ahead of the benchmark by 10.5% over three years and by 43.9% over five years. Over the last five years, almost all of the excess return has come from our stock selection across a wide range of sectors. Stock selection is what we believe to be our competitive strength, being the means by which we aim to deliver superior returns to the shareholders of the Company.

In fact, during the year, both sector allocation and stock selection added value, with 80% of the excess return being attributable to stock selection. Stocks that contributed most positively to the excess return included IRISO Electronics (information technology), Asahi Intecc (health care) and Benefit One (services)

•   IRISO Electronics, is a manufacturer of miniature connectors, generates over 80% of its revenue from automobiles. The company has steadily increased the value of content per vehicle on the back of the increasing popularity of electric and hybrid vehicles and the increasing use of electronic driver assistance systems.

•   Asahi Intecc is a medical equipment manufacturer. Its main products are guide wires and catheters used in surgery where its market is growing by taking an increasing share from more invasive bypass surgery. Asahi Intecc in turn has grown its market share here, with innovative new products. We reduced the position size in the fourth quarter of this fiscal year for valuation reasons, although it remains one of our largest positions.

•   Benefit One manages fringe benefit programmes on behalf of employers. With a shrinking and ageing population, the incentive for companies to improve benefits for their employees will only increase as competition for those employees increases. As a new line of business, Benefit One now operates healthcare programmes on behalf of employers. This is supported by new government initiatives which aim to encourage companies to spend more time and effort on improving employee wellbeing.

     With respect to sector allocation, semiconductors & semiconductor production equipment (overweight) and banks (underweight) were the key contributors, whilst gearing contributed positively in a rising market.

•   The semiconductor & semiconductor equipment sector performed strongly globally, following strong earnings across the board. The growth drivers are broad-based, ranging from memory (both DRAM and NAND) to power devices to logic chips (autos, industrials and home appliances).

•   Banks gave back their outperformance of the preceding period due to profit taking. Lack of inflationary pressure, despite a tight labour market, and low interest rates weighed on sentiment towards the sector.

Portfolio Activity

The turnover during the last 12 months was relatively low at 20.8% and the gearing level was virtually flat at 6.3% at the end of March 2018, having also been at 6.3% as at 31st March 2017.

The top five purchases during the reporting period were:

•   Mitsui Chemical (materials) is a petrochemical company that has shifted its activities away from commodity chemicals to high value-added products including auto parts, spectacle lens monomers and diaper and food packaging materials. We believe these high value-added products will continue to support profit growth over the medium term.

•   SBI Holdings (financials) is a financial service company that operates online securities, internet banking and venture capital fund management businesses. We believe that it is in a good position to capture the potential of block chain technology. It has a stake in Ripple (the US block chain company) which has the potential to be the platform for international remittance, and also invests in various financial technology companies.

•   Net One Systems' (information technology) main service includes network integration. The company's earnings have recovered over the last few years on the back of steadily increasing demand from enterprises and we believe the company should continue to benefit from increasing penetration of cloud computing in Japan.

•   Kansai Paint (materials) is Japan's leading paint manufacturer with significant footprints in emerging markets including India, South-east Asia and South Africa. The company has a high market share in each of its key operating markets and has enjoyed substantial pricing power as well as healthy profit margins and cash flow. The long-term outlook is excellent, with rising middle class consumer demand for paints used for both automobiles and the home.

•   KOKUYO (industrial) is a major Japanese office furniture/supplies and stationery goods manufacturer, which also operates an e-commerce business supplying various office products. KOKUYO's profitability has continuously improved over the last several years on the back of business restructuring and rationalisation. We believe KOKUYO should continue to benefit from new office development in Japan and a structural shift towards e-commerce. KOKUYO has also enhanced its corporate governance; it has moved from having no external directors before 2010, to three outside directors currently.

     Three of the largest sales were Anicom Holdings (financials), Sho-Bond Holdings (industrials), and Pola Orbis Holdings (consumer staples). We sold all three following their strong share price performances.

•   We first initiated a position in Anicom Holdings in December 2012 and held it as one of our largest positions. A leader in pet insurance in Japan, it has doubled its premium income in the last five years.

•   We had owned Sho-Bond Holdings since April 2012. The company specialises in the repair and maintenance of bridges. Just as with its population, much of Japan's social infrastructure is ageing. Much of it was built over 50 years ago, just ahead of the 1964 Tokyo Olympic Games. The company has expanded operating profit margins from around 15% to 19% in the last five years through productivity gains.

•   Pola Orbis Holdings offers multiple cosmetics brands. The company has successfully grown sales through new product launches and has benefited from sales to the increasing number of inbound tourists into Japan.

Outlook

The outlook for Japanese equities remains positive. We believe that global economic growth will continue to expand at a healthy rate. The lack of inflationary pressure suggests that the risk of aggressive tightening in monetary policies around the world, including in the US, is low. Although the Japanese equity market has performed well, since this is largely attributable to earnings growth, valuations remain attractive.

Shoichi Mizusawa

Eiji Saito

Naohiro Ozawa

Michiko Sakai

Investment Managers

28th June 2018

Principal Risks

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The 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 28 and 29.

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.

The Board also reviews the cyber security standards of each of its key service providers.

•   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 2018, 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.

Transactions with related parties

Full details of Directors' remuneration and shareholdings can be found on pages 34 and 35 and in note 6 on page 53 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

Non-Executive Director

28th June 2018

Statement of Comprehensive income

For the year ended 31st March 2018

	2018			2017
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	-	55,519	55,519	-	36,931	36,931
Net foreign currency gains/(losses)	-	1,224	1,224	-	(1,544)	(1,544)
Income from investments	3,735	-	3,735	3,528	-	3,528
Gross return	3,735	56,743	60,478	3,528	35,387	38,915
Management fee	(2,199)	-	(2,199)	(1,928)	-	(1,928)
Other administrative expenses	(415)	-	(415)	(447)	-	(447)
Net return before finance costs and taxation	1,121	56,743	57,864	1,153	35,387	36,540
Finance costs	(170)	-	(170)	(275)	-	(275)
Net return before taxation	951	56,743	57,694	878	35,387	36,265
Taxation	(373)	-	(373)	(355)	-	(355)
Net return after taxation	578	56,743	57,321	523	35,387	35,910
Return per Ordinary share - undiluted	1.06p	103.70p	104.76p	1.04p	70.69p	71.73p
Return per Ordinary share - diluted	1.06p	103.70p	104.76p	1.01p	68.67p	69.68p

statement of changes in equity

For the year ended 31st March 2018

	Called up		Capital
	share	Share	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve1	reserves	reserve2	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2016	4,741	13,889	1,836	314,775	(169,169)	(13,358)	152,714
Repurchase of shares into Treasury	-	-	-	(1,771)	-	-	(1,771)
Conversion of Subscription shares into Ordinary shares3	(8)	8	-	-	-	-	-
Issue of Ordinary shares on exercise of Subscription shares4	862	20,081	-	-	-	-	20,943
Net return for the year	-	-	-	-	35,387	523	35,910
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

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

²    This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

³    Comprises £8,618 for conversion of the remaining 8,618,474 Subscription shares of 0.1p each issued on 16th December 2014.

⁴    Comprises £20,942,892 received upon the conversion into Ordinary shares of the remaining 8,618,474 Subscription shares of 0.1p each issued on 16th December 2014.

statement of financial position

At 31st March 2018

	2018	2017
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	279,946	220,785
Current assets
Derivative financial instruments	-	4
Debtors	1,898	1,461
Cash and cash equivalents	9,117	4,895
	11,015	6,360
Creditors: amounts falling due within one year	(799)	(19,349)
Net current assets/(liabilities)	10,216	(12,989)
Total assets less current liabilities	290,162	207,796
Creditors: amounts falling due after more than one year	(26,812)	-
Net assets	263,350	207,796
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	311,237	313,004
Capital reserves	(77,039)	(133,782)
Revenue reserve	(12,257)	(12,835)
Total shareholders' funds	263,350	207,796
Net asset value per Ordinary share	483.1p	377.9p

statement of cash flows

For the year ended 31st March 2018

	2018	2017
	£'000	£'000
Net cash outflow from operations before dividends and interest	(2,206)	(848)
Dividends received	3,200	2,647
Interest paid	(154)	(371)
Net cash inflow from operating activities	840	1,428
Purchases of investments	(55,664)	(62,298)
Sales of investments	49,966	40,244
Settlement of foreign currency contracts	27	(78)
Net cash outflow from investing activities	(5,671)	(22,132)
Issue of Ordinary shares on exercise of Subscription shares (net of costs)	-	20,943
Repurchase of shares into Treasury	(1,301)	(1,771)
Repayment of bank loan	-	(23,208)
Drawdown of bank loan	10,385	18,993
Net cash inflow from financing activities	9,084	14,957
Increase/(decrease) in cash and cash equivalents	4,253	(5,747)
Cash and cash equivalents at start of year	4,895	10,643
Exchange movements	(31)	(1)
Cash and cash equivalents at end of year	9,117	4,895
Increase/(decrease) in cash and cash equivalents	4,253	(5,747)
Cash and cash equivalents consist of:
Cash and short term deposits	9,117	4,895
Total	9,117	4,895

Notes to the financial statements

For the year ended 31st March 2018

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 31 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 per Ordinary share

		2018	2017
		£'000	£'000
	Return per Ordinary share is based on the following:
	Revenue return	578	523
	Capital return	56,743	35,387
	Total return	57,321	35,910
	Weighted average number of Ordinary shares in issue during the year used for the purpose of the undiluted calculation	54,717,778	50,056,102
	Weighted average number of Ordinary shares in issue during the year used for the purpose of the diluted calculation1	54,717,778	51,532,925
	Undiluted
	Revenue return per share	1.06p	1.04p
	Capital return per share	103.70p	70.69p
	Total return per share	104.76p	71.73p
	Diluted
	Revenue return per share	1.06p	1.01p
	Capital return per share	103.70p	68.67p
	Total return per share	104.76p	69.68p

¹   The Company's Subscription shares were all exercised on or before 30th November 2016.

The diluted return per Ordinary share represents the return 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

		2018	2017
	Ordinary shareholders' funds (£'000)	263,350	207,796
	Number of Ordinary shares in issue	54,510,339	54,980,560
	Net asset value per Ordinary share	483.1p	377.9p

4.     Status of results announcement

2017 Financial Information

The figures and financial information for 2017 are extracted from the published Annual Report and Accounts for the year ended 31st March 2017 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

28th June 2018

For further information, please contact:

Divya Amin

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.  Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.

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.

 

END

 

 

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