Final Results

RNS Number : 2226Q

JPMorgan Japan Smaller Co Tst PLC

15 June 2015

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPAN SMALLER COMPANIES TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED
31st MARCH 2015

Chairman's Statement

Investment Performance

The Company's undiluted total return on net assets (or portfolio return) for the year ended 31st March 2015 was +30.2%. This comfortably exceeded the return of the Company's benchmark, the S&P/Citigroup Japan Extended Market Index (Total Return Net), which rose by +22.4%. 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 +30.9%. Over the same period, the Company's Ordinary share price increased by +35.9%, reflecting a narrowing of the discount to the diluted net asset value per share from 13.5% to 10.3%.

Review of Services Provided by the Manager

Your Board is pleased that the Portfolio management arrangements put in place in 2012 continue to work effectively. Your Board has again reviewed the performance of the Manager and has concluded that the continued engagement of the Manager on the existing terms remains the best option for the management of the Company's assets.

Gearing

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 9.2% and 12.7% and finished the fiscal year at around 10.3%.

Subscription Shares

The final date for the exercise of the conversion rights attached to the Subscription shares issued in March 2009 was 31st March 2014. On 1st April 2014, 4,030,780 Ordinary shares were issued following the exercise of conversion rights by uncertificated shareholders and, on 14th April 2014, 6,028 Subscription shares held by certificated holders were converted into Ordinary shares. As a result, 2,747,739 Subscription shares remained outstanding after the final exercise and a Trustee was appointed and the decision was taken to exercise the Subscription rights attaching to these outstanding Subscription shares. This resulted in an issue of a further 2,747,739 Ordinary shares. These Ordinary shares were then sold and, after the deduction of the conversion price of 174 pence per share, together with all associated fees, costs and expenses (including brokerage commission), 7.55 pence per Subscription share were distributed to the Subscription shareholders on whose behalf the Trustee had exercised the Subscription share rights.

In November 2014, the Board decided to recommend a further bonus issue to Ordinary shareholders of one Subscription share for every five Ordinary shares held. Shareholder authority was duly received on 12th December 2014. 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 2015, 3,286 Ordinary shares were issued following receipt of valid notices of exercise from Subscription shareholders. Between 1st April 2015 and the date of this report, a further 553,294 Ordinary shares have been issued on the same basis.

Share Issues and Repurchases

The Company did not repurchase any Ordinary shares into Treasury or for cancellation during the year under review. No Ordinary shares were reissued from Treasury during that period and no Ordinary shares were issued other than the Ordinary shares issued as a result of the exercise of conversion rights attached to the Subscription shares.

Your Board believes that the ability to issue new Ordinary shares and reissue shares from Treasury at a premium and repurchase shares for cancellation or into Treasury at a discount is in the interests of shareholders in assisting the Company in managing any imbalance between the supply and demand for the Company's shares and in reducing the volatility of the discount. Accordingly, the Board will be seeking shareholders' approval to renew these authorities at this year's Annual General Meeting. Further details are given on pages 62 and 63 of the Annual Report and Accounts.

Board of Directors

In accordance with the Company's Articles of Association, Chris Russell and I will seek reappointment at the forthcoming Annual General Meeting due to our length of service. Robert White, having last been reappointed in 2012 will also seek reappointment. The Nomination Committee has met to consider the attributes and contributions of each of the Directors and, following this review, recommends their reappointment.

As part of the Board's succession plan, we were delighted to welcome Deborah Guthrie as a new Director on 1st April 2015. Ms Guthrie seeks reappointment at the forthcoming Annual General Meeting. She is an experienced Japanese equity research sales specialist with Pelham Smithers Associates based in London and has held senior Japanese equity sales roles for Hoare Govett, Smith New Court and Merrill Lynch.

After twelve years of service to your Company, Bernard Grigsby will retire following the Annual General Meeting and is not seeking reappointment. Ben has been an outstanding independent director and has brought his very considerable experience of Japan and the region to bear for the benefit of all Shareholders over those past years. The Board, and I personally, shall miss his wise counsel.

The Board is seeking shareholder approval to increase the maximum aggregate amount of fees payable per annum from £150,000, which was set in 2006, to £200,000 to accommodate Board transitional periods and future fee increases.

Alternative Investment Fund Managers Directive ('AIFMD')

As detailed in my half year statement, with effect from 1st July 2014, the Company appointed JPMorgan Funds Limited as its Alternative Investment Fund Manager as newly required under the AIFMD under a new investment management agreement. Portfolio management is delegated by JPMorgan Funds Limited to JPMorgan Asset Management (Japan) Limited through JPMorgan Asset Management (UK) Limited, thus retaining previous portfolio management arrangements. The management fee and notice period arrangements remain unchanged. The Company appointed BNY Mellon Trust & Depositary (UK) Limited to act as the Company's Depositary, a new requirement under AIFMD. JPMorgan Chase Bank, NA remains the Company's Custodian, but as a delegate of the Depositary. JPMorgan Funds Limited was also appointed as Company Secretary to the Company on 1st July 2014, though personnel arrangements remain unchanged.

Auditor

Deloitte LLP retired as Auditor to the Company following the last Annual General Meeting and were replaced by Grant Thornton UK LLP. You will find their first Audit report on pages 38 to 40 of the Annual Report and Accounts and I would encourage you to read it.

Annual General Meeting

After feedback received from shareholders as to the timing of previous Annual General Meetings, this year's Annual General Meeting will be held at 60 Victoria Embankment, London EC4Y 0JP on Friday, 17th July 2015 at the later time of 2.30 p.m. In addition to the formal proceedings there will be a presentation by one of your Investment Managers, who will review the past year and comment on the outlook for the current period. I look forward to seeing as many of you as possible at the meeting. If you have any detailed questions, you may wish to raise these in advance with the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP or via the Company's website at www.jpmjapansmallercompanies.co.uk. Shareholders who are unable to attend the Annual General Meeting in person are encouraged to use their proxy votes. Shareholders who hold their shares through CREST are able to lodge their proxy votes electronically. More details are given in the notes to the Notice of Meeting on pages 63 and 64 of the Annual Report and Accounts.

Outlook

Shareholders have enjoyed strong returns over the past three years and I am optimistic that the current favourable position of the Japanese equity market will again foster a satisfactory performance by our Company in the period ahead. Our Managers set out their own views of the prospects in the next report and I can confirm that your Board shares their confidence in the outlook for Japanese earnings. Valuations, meanwhile, are not unduly stretched and companies are beginning to respond positively to the emerging higher requirements for Corporate Governance in Japan, which should ultimately lead to much better returns on capital. The overall economic and financial background remains constructive and both government and municipal pension funds are showing an increased appetite for equities. There are risks to this encouraging picture but your Managers will undoubtedly seek to navigate through these using their well-tested, disciplined and successful investment process.

Alan Clifton

Chairman                                                                                                                                                                                                 

15th June 2015

Investment Managers' Report

Market Review

The Japanese equity market continued its ascent during the fiscal year that ended in March 2015. The Nikkei Index, a bellwether for the broader market including large cap stocks, surpassed the 18,000 yen in March, a level which it briefly traded above before the financial crisis sent the global economy and share prices into freefall. The Japanese yen continued to decline against sterling and US dollar, but strengthened against the euro. For the fiscal year, the fund delivered an undiluted total return of +30.2% in sterling terms, compared to the benchmark return of +22.4%.

The rally in the Japanese market was supported by strong corporate fundamentals and attractive valuations. Prime Minister Shinzo Abe and his Liberal Democratic Party continued to enjoy strong support, and won another landslide victory in the November election. The administration took advantage of the strong mandate to postpone the second increase in the consumption tax from October 2015 to April 2017. Because the domestic economy struggled to recover from the first increase in April 2014, this decision was positively received by the market. Equally importantly, Mr Abe looks set to stay in office until 2018, and possibly beyond.

On the 31st October, the Bank of Japan (BOJ) surprised the market by announcing a second round of quantitative easing. On the same day, the Government Pension Investment Fund (GPIF), the largest pension fund in the world, announced that it would target a 25% allocation to domestic equities under its revised strategy. This is a significant increase from the existing target of 12%. Although this change had been widely anticipated, the official announcement was greeted with excitement by the market. As a result of these two developments, the yen fell and the equity market rose to a new high.

Another important development has been corporate governance reform. There are encouraging signs that Japanese companies are starting to improve shareholder returns and corporate governance. This has come about thanks to, amongst other factors, the following developments:

•     The introduction of a Stewardship Code the aim of which is to improve dialogue between companies and institutional investors. Over 180 institutional investors, including JPMorgan Asset Management, have signed up to the Code.

•     The introduction of a Corporate Governance Code.

•     The introduction of the JPX400 Index which places greater emphasis on return on equity (ROE) than do other traditional benchmarks. GPIF has started to allocate some of its assets to this benchmark.

In the fiscal year that ended in March 2015, aggregate dividends paid by listed companies are likely to be the highest in history; ahead of the previous peak marked just before the global financial crisis. We believe that the total payout - the sum of dividends and share buybacks - will make a new record in the fiscal year that has just started.

While the equity market has continued to perform strongly, the macro environment, both domestic and abroad, has been mixed. The domestic economy failed to gain traction as the consumption tax increase in April 2014, combined with imported inflation as a result of the weaker Yen, caused consumption to stagnate. Although the US economy maintained a healthy growth rate of above 2% in real terms, other larger economies, most notably China and Europe, continued to struggle. This poor economic performance has forced a number of central banks, including those in Europe and China, to ease monetary policy, which in turn led to a dramatic fall in the yields of many government bonds. Until recently, German government bonds up to seven years in maturity had been priced at negative yields. Even in the US where the Federal Reserve Bank is preparing for the first rate increase in a decade, longer-dated treasuries have refused to climb in yields, or fall in prices. This has made equities cheap relative to fixed income, supporting equity bull markets in many parts of the world. Within equities, investor preference for bond-like characteristics: namely earnings stability, balance sheet strength and reasonable dividend income, became increasingly pronounced. As a result, pharmaceuticals, consumer staples and utilities have continued to outperform broader markets across the world. On the other hand, stocks which are in cyclical sectors such as commodities and financials have underperformed.

Outlook

The TOPIX Index, the index most widely followed by institutional investors, has gained over 100% since the trough in November 2012. It is therefore important to reassess whether the risk/reward for investing in Japanese equities is still attractive. We believe the answer is "yes" for the following reasons:

Earnings outlook is strong

We believe aggregate earnings will continue to grow in 2015 and 2016. There are at least four factors that support our view.

•     The currency tailwind. The average Yen/Dollar rate for FY2014 was circa 112 yen. At the current rate of circa 125 yen, exporters will enjoy a positive year-over-year currency effect.

•     Our bottom-up research suggests companies are finally starting to increase capital expenditure in a meaningful manner. This is consistent with various surveys that show capacity utilisation is high and therefore companies should be able to enjoy strong operational leverage to top line growth. In addition, there are tentative signs that exporters are bringing some production from overseas to Japan.

•     The lower oil price is a positive for domestic companies and exporters alike.

•     After-tax profit and earnings per share (EPS) are likely to outgrow pre-tax profit in 2015 thanks to a cut in the rate of corporation tax.

Valuations are not stretched

The TOPIX Index trades on a prospective price to earnings ratio (PER) of circa 16x based on consensus forecasts. This is below the multiples commanded by the US and

Europe despite the fact that Japan offers stronger earnings growth. ROE is expected to approach 10% in 2015. This is only slightly below the average in Europe, and yet Japan trades on 1.4x book value compared to 1.6x for Europe.

The outlook for the domestic economy has improved

This is because we believe wages will grow faster than last year. The base wage growth for larger corporations is almost twice as fast as last year. There are also signs that wages are starting to rise for those employees who work for small and medium-sized enterprises. A number of statistics show that the labour market is already very tight. We believe consumption will pick up in 2015. It suffered triple negatives in 2014 of: (1) consumption tax increase; (2) unusually poor weather throughout the year; and (3) lacklustre wage growth.

Improving prospects for good corporate governance

We believe this is one of the most important developments in Japan. What we mean by 'good' corporate governance includes the following:

•     Efficient capital structure - In aggregate, Japanese listed companies have excessive cash on their balance sheets. Both the Stewardship Code and the Corporate Governance Code are means to address this inefficiency. At JPMorgan Asset Management, we have for many years tried to engage in constructive discussions with the management of companies to improve capital structure and, as a result, shareholder returns. Over the last six months, we have been approached by an increasing, although still a small number, of companies who seek our opinion about their corporate governance standards.

•     Investment for growth - We want companies to invest for the future; either in the form of capital expenditure, R&D, M&A or a combination of the three, provided that the expected returns adjusted for risks exceed their cost of capital and as a result increase the value of the company.

•     Focus on core businesses - Often, Japanese companies have diversified into too many different businesses where they do not possess competitive advantage or where there are few synergies available.

While we believe the overall trend is positive, the pace is slow and the majority of companies are yet to embrace this change. In the meantime, we believe this divergence in attitudes creates opportunities for active managers such as ourselves to pick winners and avoid losers. Indeed, corporate governance is one of the key discussion points when we conduct company research.

Risks

Two risks that we highlighted in last year's annual report remain. Firstly, although we believe that the global economy will continue to recover, it is still far from standing on a sound and sustainable footing. Despite continued increases in US employment, wage growth remains anaemic. The Eurozone is yet to resolve the issue of Greek debt. The Chinese economy is continuing to slow down, although this is partly a result of the authorities' desire to rebalance the economy. The geopolitical background is one of continued uncertainties. Secondly, the Abe administration needs to address

structural reform - the third arrow of Abenomics - more forcefully than before. Although this particular issue is unlikely to have material impact in the short run, it will have profound consequences in the longer term. Japan is still faced with a declining as well as ageing population and has an unsustainable level of public debt.

Portfolio Review and Strategy

We are pleased to report that the performance for the fiscal year is ahead of the benchmark. The fund generated an undiluted total return of +34.6% in sterling terms, and outperformed the benchmark S&P Japan Small Cap Index by +7.8%. This was achieved primarily through our bottom-up stock selection. The gearing also added over 3% to the performance. We maintained the gearing at above 10% throughout most of the period, and finished the fiscal year at around 10.3%.

Stocks that contributed most positively to the excess return include Invincible Investment Corp. (real estate), Anicom Holdings (insurance), Asahi Intecc (health care equipment & services), Misumi (capital goods) and Nippon Shinyaku (pharmaceuticals, biotechnology & life sciences).

Invincible Investment Corp. is a Real Estate Investment Trust ('REIT') that has increased exposure to hotels through acquisitions. The REIT has continued to perform strongly, supported by rising hotel revenues. The hospitality industry is enjoying strong demand from an increasing number of inbound tourists, in particular from Asia. Anicom provides pet insurance, a market which is still in its infancy in Japan and continuing to grow strongly. The ageing population is a tailwind for the company as an increasing number of older people live with pets and they have a high propensity to spend on them. Asahi Intecc designs and manufactures medical equipment. Its main products include percutaneous transluminal coronary angioplasty guide wires and catheters. Supported by growth in end demand combined with market share gains, Asahi Intecc has delivered a 16.2% compound annual growth rate in revenue over the last 10 years. We believe that there remain large opportunities for the company to continue to grow strongly over the next 10 years and beyond. Misumi is a leading supplier of factory automation equipment and moulding components in Japan. It has grown strongly overseas, where sales have risen from 14.3% of total in 2005 to 44.4% in 2013. Another growth driver is its 'VONA' e-commerce site for consumable goods used at manufacturing facilities. As wages rise in emerging countries and the working population shrinks in developed countries, the need for automation will intensify. Nippon Shinyaku, meanwhile, rallied after the announcement that one of its new drugs showed good results in phase 3 clinical trials.

On the other hand, Teikoku Electric Manufacturing (capital goods), Tokyo Tatemono (real estate) and Fuji Seal International (materials) were among stocks that detracted from performance.

Teikoku Electric is a manufacturer of industrial pumps. The company is well positioned to benefit from rising investments in chemicals plants in the US. In addition, its customer base is focusing increasingly on environmental issues. This provides a tailwind for Teikoku Electric since its products help reduce adverse impact on the environment. The stock had previously performed strongly and suffered from profit taking. We reduced the position in Teikoku Electric in early April following strong performance. Tokyo Tatemono, together with most other real estate stocks, underperformed the broader market after a strong run in 2013. Although the fundamentals of the real estate market improved with rising property prices in larger cities and falling vacancy rates, the pace of improvement was disappointingly slow. The share price of Fuji Seal International had moved sideways for the past 12 months due to lack of earnings momentum. The company had been busy restructuring its European operations since it acquired a local company in May 2012. We believe Fuji Seal is well positioned to grow in overseas markets over the medium term and therefore that its shares are substantially undervalued.

The aggregate contribution of our sector allocation was marginally positive, excluding the positive impact of the gearing, which added over 3%. The top contributors include insurance (overweight) and real estate (overweight). The insurance sector performed strongly thanks to the largest constituent Anicom, which we owned. The performance of the real estate sector was supported by REITs. On the negative side, the overweights in diversified financials and telecommunication services detracted most. Their negatives were more than offset by our positive stock selection within these sectors such that the overall contribution of our sector positioning was significantly positive.

We did not make large changes to the overall structure of the portfolio, as reflected in the low turnover of 30% for the year. We have maintained a bias towards quality, as opposed to cyclical, companies. This is based on our belief that under the sub-par global growth and low interest rate environment, growth and quality should command increasingly premium valuations. In addition, the growth bias of the portfolio reflects our desire to invest in companies with durable competitive advantage and thus long-term growth in earnings and shareholder returns. We continued to allocate a large part of the capital to our long-lasting investment themes, including 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. The infrastructure of Japan is increasingly in need to replacement as much was built around the time of the last Olympics games in Tokyo in 1964. The Tokyo Olympics of 2020 is the catalyst for such demand to materialise.

We also maintained a bias towards domestic companies at the expense of exporters. This is primarily because we can find more attractive bottom-up opportunities in the former than in the latter. In addition, the aggressive monetary policy by the BOJ will benefit such domestic sectors as financials and real estate.

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 that category. Consumer durables such as TVs, white goods and even mobile devices are examples.

The investment cases for all of the above themes are still intact, and we are maintaining the growth bias of the portfolio. This strategy has served us well over the last three years. However, this also means that growth stocks command larger valuation premiums over cyclical stocks than three years ago. 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 recognise the need to remain flexible and will make changes when the balance of risk and reward is no longer compelling. We are therefore committed to maintaining our valuation discipline and keeping the portfolio well diversified.

At JPMorgan we have a large team based on the ground in Tokyo trying to identify significant changes in sectors and companies. Being based locally is becoming unusual in the international asset management industry and we expect this to be a source of continued competitive advantage. Overall, we are positive on the outlook for the Japanese economy, market, active fund management and the performance of the Trust.

Shoichi Mizusawa-

Nicholas Weindling

Naohiro Ozawa

Investment Managers                                                                                                                                                                             

15th June 2015

Business Review

Principal Risks

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

•     Investment 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.

•     Market and Currency: Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines, which are monitored and reported on by the Manager. The Board monitors the implementation and results of the investment process with the Manager. The majority of the Company's assets, liabilities and income are denominated in yen rather than in the Company's functional currency of sterling (in which it reports). As a result, movements in the yen:sterling exchange rate may affect the sterling value of those items. Therefore, there is an inherent risk from these exchange rate movements. The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. Information to enable an evaluation of the nature and extent of these three elements of market risk is given in note 21(a) on page 59 of the Annual Report and Accounts, together with details of how the Board manages these risks.

•     Liquidity: This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Details of how the Board manages these risks can be found in note 21(b) on pages 59 and 60 of the Annual Report and Accounts.

•     Credit: Credit risk is the risk that the failure of the counterparty to a transaction to discharge its obligations under that transaction could result in loss to the Company. Details of the Company's exposure to credit risk and how the Board manages this risk can be found in note 21(c) on page 60 of the Annual Report and Accounts.

•     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.

•     Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Business of the Company' on page 17 of the Annual Report and Accounts. Were the Company to breach Section 1158, it may lose its investment trust status and, as a consequence, gains within the Company's portfolio would be subject to capital gains tax. The Section 1158 qualification criteria are continually monitored by the Manager and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules, Disclosure and Transparency Rules ('DTRs') and, as an investment trust, the Alternative Investment Fund Managers Directive ('AIFMD'). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary, the Manager and its professional advisers to ensure compliance with the Companies Act, the UKLA Listing Rules, DTRs and AIFMD.

•     Corporate Governance and Shareholder Relations: Details of the Company's compliance with corporate governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement on pages 28 to 33 of the Annual Report and Accounts.

•     Operational: Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary or Custodian's records may prevent accurate reporting and monitoring of the Company's financial position. 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 32 and 33 of the Annual Report and Accounts.

•     Loss of Investment Team: A sudden departure of members of the investment management team 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. These risks are discussed by the Board on a regular basis.

•     Going Concern: The Board considers going concern as a potential risk, whether or not there is an apparent issue arising in relation thereto. The Board's statement on going concern is detailed on page 25 of the Annual Report and Accounts.

Statement of Directors' Responsibilities

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

Company 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 accounts are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's 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 accounts are published on the www.jpmjapansmallercompanies.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the 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 accounts since they were initially presented on the website. The accounts 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, whose names and functions are listed on pages 22 and 23 of the Annual Report and Accounts, 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 accounts taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the 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 principle risks and uncertainties that the Company faces.

For and on behalf of the Board

Yuuichiro Nakajima

Director

15th June 2015

Income Statement

for the year ended 31st March 2015

			2015			2014
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at
fair value through profit or loss		-	33,784	33,784	-	2,340	2,340
Net foreign currency gains		-	609	609	-	1,632	1,632
Income from investments		1,640	-	1,640	1,242	-	1,242
Gross return		1,640	34,393	36,033	1,242	3,972	5,214
Management fee		(1,233)	-	(1,233)	(1,018)	-	(1,018)
Other administrative expenses		(414)	-	(414)	(402)	-	(402)
Net (loss)/return on ordinary activities
before finance costs and taxation		(7)	34,393	34,386	(178)	3,972	3,794
Finance costs		(270)	-	(270)	(246)	-	(246)
Net (loss)/return on ordinary activities
before taxation		(277)	34,393	34,116	(424)	3,972	3,548
Taxation		(164)	-	(164)	(110)	-	(110)
Net (loss)/return on ordinary activities
after taxation		(441)	34,393	33,952	(534)	3,972	3,438
(Loss)/return per Ordinary share -
undiluted (Note 2)		(0.95)p	74.32p	73.37p	(1.36)p	10.13p	8.77p
(Loss)/return per Ordinary share -
diluted1 (Note 2)		(0.95)p	74.32p	73.37p	(1.36)p	9.95p	8.59p

¹The 31st March 2015 dilution has been calculated using the new Subscription shares issued on 16th December 2014. The 31st March 2014 dilution has been calculated using the old Subscription shares issued on 5th March 2009 which had a final exercise date of 31st March 2014.

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. The total column represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL'). For this reason a STRGL has not been presented.

Reconciliation of Movements in Shareholders' Funds

	Called up		Capital
	share	Share	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2013	4,021	764	1,836	314,775	(226,611)	(12,249)	82,536
Repurchase of shares into Treasury1	-	-	-	-	(1)	-	(1)
Conversion of Subscription shares into
Ordinary shares	(4)	4	-	-	-	-	-
Issue of Ordinary shares on exercise of
Subscription shares	41	678	-	-	-	-	719
Net return/(loss) on ordinary activities	-	-	-	-	3,972	(534)	3,438
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

¹Relates to prior year stamp duty.

²Comprises £67,455 for conversion of the remaining 6,784,547 old Subscription shares of 1p each issued on 5th March 2009, plus £3 for the conversion of 3,286 new 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 old Subscription shares of 1p each issued on 5th March 2009, plus £7,985 received upon conversion into Ordinary shares of 3,286 new Subscription shares of 0.1p each issued on 16th December 2014, less the costs associated with the bonus issue of new Subscription shares in December 2014 of £225,324.

Balance Sheet

as at 31st March 2015

		2015	2014
		£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		145,730	97,287
Current assets
Debtors		690	1,473
Cash and short-term deposits		3,252	5,649
		3,942	7,122
Creditors: amounts falling due within one year		(589)	(244)
Net current assets		3,353	6,878
Total assets less current liabilities		149,083	104,165
Creditors: amounts falling due after more than one year		(16,851)	(17,473)
Net assets		132,232	86,692
Capital and reserves
Called up share capital		4,678	4,058
Share premium		12,414	1,446
Capital redemption reserve		1,836	1,836
Other reserve		314,775	314,775
Capital reserves		(188,247)	(222,640)
Revenue reserve		(13,224)	(12,783)
Total equity shareholders' funds		132,232	86,692
Net asset value per Ordinary share - undiluted (Note 3)		285.7p	219.5p
Net asset value per Ordinary share - diluted1 (Note 3)		278.6p	212.8p

¹The 31st March 2015 dilution has been calculated using the new Subscription shares issued on 16th December 2014. The 31st March 2014 dilution has been calculated using the old Subscription shares issued on 5th March 2009 which had a final exercise date of 31st March 2014.

The Company's registration number is 3916716

Cash Flow Statement

for the year ended 31st March 2015

		2015	2014
		£'000	£'000
Net cash outflow from operating activities		(242)	(302)
Returns on investments and servicing of finance
Interest paid		(268)	(137)
Net cash outflow from returns on investments and servicing
of finance		(268)	(137)
Capital expenditure and financial investment
Purchases of investments		(52,369)	(45,963)
Sales of investments		38,913	37,645
Other capital charges		(6)	(5)
Net cash outflow from capital expenditure and
financial investment		(13,462)	(8,323)
Net cash outflow before financing		(13,972)	(8,762)
Financing
Net drawdown of loans		-	13,411
Issue of Ordinary shares on exercise of Subscription shares1		11,813	719
Costs in relation to issue of shares		(225)	-
Repurchase of shares into Treasury		-	(208)
Net cash inflow from financing		11,588	13,922
(Decrease)/increase in cash in the year		(2,384)	5,160

¹Comprises £11,805,112 received upon the conversion into Ordinary shares of the remaining 6,784,547 old Subscription shares of 1p each issued on 5th March 2009, plus £7,985 received upon conversion into Ordinary shares of 3,286 new Subscription shares of 0.1p each issued on 16th December 2014.

Notes to the Financial Statements

for the year ended 31st March 2015

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') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the AIC in January 2009. All of the Company's operations are of a continuing nature.

The financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments at fair value. The disclosures on going concern on page 25 of the Annual Report and Accounts form part of these financial statements.

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

	2015	2014
	£'000	£'000
2.    (Loss)/return per Ordinary share
(Loss)/return per Ordinary share is based on the following:
Revenue loss	(441)	(534)
Capital return	34,393	3,972
Total return	33,952	3,438
Weighted average number of Ordinary shares in issue during the year used
for the purpose of the undiluted calculation	46,279,583	39,200,194
Weighted average number of Ordinary shares in issue during the year used
for the purpose of the diluted calculation1	46,279,583	39,929,867
Undiluted
Revenue loss per share	(0.95)p	(1.36)p
Capital return per share	74.32p	10.13p
Total return per share	73.37p	8.77p
Diluted1
Revenue loss per share	(0.95)p	(1.36)p
Capital return per share	74.32p	9.95p
Total return per share	73.37p	8.59p

¹The 31st March 2015 dilution has been calculated using the new Subscription shares issued on 16th December 2014. The 31st March 2014 dilution has been calculated using the old Subscription shares issued on 5th March 2009 which had a final exercise date of 31st March 2014.

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 the requirements of Financial Reporting Standard 22 'Earnings per share'.

3.   Net asset value per Ordinary share

	2015	2014
Undiluted
Ordinary shareholders' funds (£'000)	132,232	86,692
Number of Ordinary shares in issue	46,282,582	39,494,749
Net asset value per Ordinary share	285.7p	219.5p
Diluted1
Ordinary shareholders' funds assuming exercise of dilutive Subscription shares and
reissuance of any dilutive Treasury shares (£'000)	154,715	98,497
Number of potential dilutive Ordinary shares in issue	55,535,060	46,279,296
Net asset value per Ordinary share	278.6p	212.8p

¹The 31st March 2015 dilution has been calculated using the new Subscription shares issued on 16th December 2014. The 31st March 2014 dilution has been calculated using the old Subscription shares issued on 5th March 2009 which had a final exercise date of 31st March 2014.

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 2015 had no dilutive effect (2014: nil).

The last date on which holders of Subscription shares were permitted to exercise their Subscription Share Right was 31st March 2015.

Status of Announcement

2015 Financial Information

The figures and financial information for 2015 are extracted from the Annual Report and Accounts for the period ended 31st March 2015 and do not constitute the statutory accounts for that period.  The Annual Report and Accounts includes the Report of the Independent Auditors which is unqualified.

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.

15^th June 2015

For further information:

Rhys Williams,

JPMorgan Funds Limited                020 7742 4000

 

END

 

 

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