JPSS Jpmorgan Japan Small Cap Growth & Income Plc

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPAN SMALL CAP GROWTH & INCOME PLC

FINAL RESULTS FOR THE YEAR ENDED 31st MARCH 2024

Legal Entity Identifier: 549300KP3CRHPQ4RF811

Information disclosed in accordance with the DTR 4.1.3

ChairMAN's Statement

Investment Performance

During the 12-month period ended 31st March 2024, the Company produced a total return on net assets of +5.0%, while its benchmark, the MSCI Japan Small Cap Net Return Index (in sterling terms), produced a total return of +12.0%, resulting in an underperformance of 7.0%. The MSCI Small Cap Growth Index which better reflects the Company's portfolio rose by 6.6% during the 12-month period ended 31st March 2024.

This is a disappointing result, which is due in part to the Company's investment style which has a bias towards smaller cap, quality, growth names. During the year, the market has favoured larger, lower-quality value-oriented stocks which do not meet the Company's investment criteria, due to their unappealing growth characteristics. However, the Board shares the Portfolio Managers' conviction that good quality companies with strong growth prospects will always perform well over the longer term. Indeed, the Company delivered an annualised return^A on net assets of +8.0% over the ten years ended 31st March 2024, not far below the benchmark, which returned 8.5% over the period.

The Company's recent portfolio activity is detailed in the Investment Manager's Report. The Portfolio Managers also outline the reasons for their optimism about Japan's very favourable long-term prospects, and the positive implications this has for the Company's ability to rebuild strong performance.

Dividend Policy and Discount Management

The Company's dividend policy aims to pay, in the absence of unforeseen circumstances, a regular 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 approximates to 4% of the average NAV, paid from other reserves. For the year ended 31st March 2024, quarterly dividends paid out totalled 14.2p per share (2023: 14.2p). Based on the current share price, the Company offers an attractive dividend yield of 4.5%.

A resolution to approve the Company's dividend policy will be submitted to shareholders at the forthcoming Annual General Meeting ('AGM').

The Company's discount widened over the review period, ending the year at 12.5%, up from the 9.8% discount reported at the same time last year. This widening is broadly in line with the experience of many other investment trusts over this period. The Board closely monitors the discount and recognises that it is in shareholders' interests that the Company's share price does not differ excessively from the underlying NAV under normal market conditions. Given the prolonged period of discount widening and the Board's conviction that the current discount to NAV is unwarranted, during the period under review the Board decided to resume share buybacks for the first time since March 2018. During the year, 166,117 shares were repurchased, amounting to 0.3% of shares in issue, and held in Treasury. A further 175,029 shares have been purchased so far this financial year. At the time of writing, the discount stands at 13.4%.

Gearing/Borrowing

The Portfolio Managers seek, at times, to enhance investment returns for shareholders by borrowing money to buy more assets ('gearing'), subject to their view on prevailing market conditions. The Company's gearing is discussed regularly by the Board and the Portfolio Managers, and the gearing level is reviewed by the Directors at each Board meeting.

The Company currently has a Yen 4.0 billion two-year revolving credit facility with ING Bank. This facility has a maturity date of December 2024, and the Investment Manager will seek to renew or replace this facility, at the best available terms, on expiry.

^A Alternative Performance Measure.

Access to this credit facility provides the Portfolio Managers with the ability to gear tactically within the set guidelines. The Company's investment policy permits gearing within a range of 10% net cash to 25% geared. However, the Board requires the Portfolio Managers to operate in the narrower range of 5% net cash to 15% geared, in normal market conditions. During the past 12 months the Company's gearing level ranged between 4.1% and 7.4%, ending the financial year at 6.1% (2023: 5.6%).

Revised Management Fee Arrangements

As recently announced, with effect from 1st April 2024, the Company's Manager agreed to reduce its investment management fee. The investment management fee will be charged at the rate of 0.85% (previously 1%) per annum on the net asset value of the Company's portfolio up to £150 million, and at the rate of 0.75% thereafter.

The revised fee agreement balances the need for the Company's ongoing charges ratio to remain competitive, whilst rewarding the Manager for its efforts.

Investment Manager Personnel Changes

The Board was informed by JPMAM that Naohiro Ozawa, one of the Company's Portfolio Managers, would be stepping down as Portfolio Manager to the Company with effect from 1st April 2024. Miyako Urabe and Xuming Tao will continue to manage the assets of the Company. On behalf of the Board, I would like to express our sincere gratitude to Naohiro for his contribution to the management of the Company's portfolio and wish him well in his future endeavours.

The Board and Corporate Governance

The Board reviews its composition on a regular basis, giving due account to the need to refresh its membership and maintain diversity, whilst also ensuring the necessary degree of continuity of Board experience. Yuuichiro Nakajima, a member of the Board since April 2014 retired from the Board following the conclusion of the Company's AGM held in July 2023. On behalf of the Board and the shareholders I would like to thank Yuuichiro for his dedication to the Company since his appointment. Deborah Guthrie, who became a Director in 2015, has indicated that she wishes to retire at the conclusion of the Company's AGM in July 2024. The Board has benefited immensely from Deborah's commitment to the role and her specialist knowledge of the Japanese market. She will leave with our gratitude and best wishes for the future. The Board has commenced the search for a new Non-Executive Director.

In accordance with good corporate governance practice, all Directors, with the exception of Deborah Guthrie, will stand for re-election at the forthcoming AGM.

Shareholders who wish to contact the Chair or other members of the Board may do so through the Company Secretary or the Company's website, details of which appear below.

Task Force on Climate-related Financial Disclosures

As a regulatory requirement for the Company's Manager, on 30th June 2023, JPMAM published its first UK Task Force on Climate-related Financial Disclosures ('TCFD') Report for the Company in respect of the year ended 31st December 2022. The report discloses estimates of the Company's portfolio climate-related risks and opportunities according to the Financial Conduct Authority ('FCA') Environmental, ESG Sourcebook and the TCFD. The report is available on the Company's website under the ESG documents section.

This is the first report under the new guidelines and disclosure requirements. The Board is aware that best practice reporting under TCFDs is still evolving with respect to metrics and input data quality, as well as the interpretation and implications of the outputs produced, and will continue to monitor future developments.

Stay Informed

The Company delivers email updates on the Company's progress with regular news and views, as well as the latest performance. If you have not already signed up to receive these communications and you wish to do so, you can opt in via https://tinyurl.com/JSGI-Sign-Up or by scanning the QR code in the Annual Report.

Annual General Meeting

The Company's AGM will be held on Thursday, 25th July 2024 at 12.00 noon at 60 Victoria Embankment, London EC4Y 0JP.

We are delighted to invite shareholders to join us in person for this event, to hear from the Portfolio Managers, who will make a presentation to shareholders via video link from Tokyo. Their presentation will be followed by a live question and answer session. Shareholders wishing to follow the AGM proceedings but who choose not to attend in person will be able to view them live and ask questions (but not vote) through conferencing software. Details on how to register, together with access details, will be available shortly on the Company's website at www.jpmjapansmallcapgrowthandincome.co.uk or by contacting the Company Secretary at invtrusts.cosec@jpmorgan.com.

My fellow Board members, representatives of JPMorgan and I look forward to the opportunity to meet and speak with shareholders after the formalities of the meeting have been concluded.

Shareholders who are unable to attend the AGM are strongly encouraged to submit their proxy votes in advance of the meeting, so they are registered and recorded at the AGM. Proxy votes can be lodged in advance of the AGM either by post or electronically: detailed instructions are included in the Notes to the Notice of the AGM on pages 92 to 95 of the Annual Report.

If there are any changes to the above AGM arrangements, the Company will update shareholders through an announcement to the London Stock Exchange and on the Company's website.

Outlook

The Board is positive about the Company's prospects for several reasons. Foremost signs that the Japanese economy is emerging from its long period of deflation are most welcome. Rising wages should also encourage consumer spending, while exporters are enjoying the competitive benefits of the weak yen. Other structural trends, including digitalisation, de-carbonisation, changing demographics and technological innovation all augur well for productivity and profits over the medium term. As well, ongoing reforms to Japan's corporate governance also promise to drive increases in shareholder returns for years to come. Despite these positives, equity valuations are still relatively low compared to other markets or relative to the market's own history. After years of disinterest, it is gratifying to see that recent developments in the Japanese equity market seem to be finally capturing the attention of investors, including international investors.

In short, Japan's investment environment is more congenial than it has been for some time, especially for innovative smaller companies with exposure to the structural changes underway across the economy. The Board believes that the Portfolio Managers' focus on quality and growth, supported by JPMorgan's extensive, global and Tokyo-based research resources, mean that the Company is ideally placed to identify and capitalise on the many interesting opportunities this environment is generating for smaller cap businesses. We therefore share the Portfolio Managers' confidence in the Company's ability to deliver attractive levels of capital growth, combined with a regular income, to shareholders over the long term.

Alexa Henderson
Chair                                                                                                                                                    20th June 2024

Investment Manager's Report

Performance and Market Review

The 12-month period to March 2024 was another difficult year for the Company's relative performance, following the underperformance of the two previous years, although on an absolute basis the Company continues to claw back some of its previous losses, and, during the past year, it made a positive absolute return. The Company produced a total return on net assets of +5.0% over the period, while the benchmark, the MSCI Japan Small Cap Net Return Index (in sterling terms), produced a total return of +12.0%, meaning the Company underperformed the benchmark by 7.0%. The MSCI Japan Small Cap Growth index which better reflects the Company's portfolio rose by 6.6% during this period.

Historically, the Japanese equity market has been under-owned, but it has come back into focus over the past year, and encouragingly the Nikkei Index reached its highest levels in 34 years earlier this year. Key reasons for the positive market sentiment include: ongoing improvements in corporate governance, signs that the economy is finally emerging from a long period of deflation, and a weaker Japanese yen, which is supporting export earnings.

Corporate governance reforms are no longer a new story. Developments on this front have been underway over the past decade, thanks in large part to the Corporate Governance Code introduced in 2015. The reforms have delivered rising shareholder returns, via increased dividends and share buybacks, and greater board independence and transparency. However, recently we have witnessed further pressure on corporates to improve their governance. Early in 2023, the Tokyo Stock Exchange (TSE) announced initiatives requiring corporates whose share price is consistently below 1x price to book to take steps to raise their valuations. Since then the Financial Services Authority (FSA) has urged non-life insurance companies to sell their strategic shareholdings, following a price fixing scandal. Such strategic shareholdings have long been viewed as problematic for corporate governance and capital efficiency.

Japan is also finally seeing some modest upward pressure on prices and wages, which led the Bank of Japan (BoJ) to begin raising interest rates in March 2024, for the first time in seventeen years. This is consistent with market expectations for a gradual normalisation of the BoJ's ultra-loose monetary policy, although expectations are not for aggressive monetary tightening.

While the broader Japanese equity market has performed well, value stocks have continued to outperform growth as interest rates remain high globally. Large caps have also been in favour compared to small caps, thanks in part to foreign buying. In addition, the weaker Japanese yen has increased the appeal of exporters, which are mainly large cap stocks.

These developments have adversely impacted the Company's performance, given its bias towards quality and growth stocks and its focus on smaller cap companies. While we are very disappointed to report another year of weak relative performance, our investment strategy looks beyond short-term market fluctuations and adopts a long-term perspective, based on the view that excess returns take time to accumulate, especially for smaller cap stocks. We continue to believe this is an attractive area of the market in which to invest over the long term, as the sector includes many interesting businesses geared towards new technology and themes such as e-commerce and digitalisation, technology hardware, and healthcare. We intend to maintain our current investment strategy.

Performance attribution

Year ended 31st March 2024

Source: Factset, JPMAM, Morningstar.

All figures are on a total return basis.

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

^A Alternative Performance Measure ('APM').

A glossary of terms and Alternative Performance Measures is provided on pages 96 and 97 of the Annual Report.

Spotlight on sectors and stocks

Our bias towards growth and quality companies means that the portfolio differs substantially from the benchmark. This variance can often lead to notable volatility in performance relative to the benchmark over the short term, as we have seen in recent years.

During the 12 months under review, both our sector allocation and stock selection decisions had a negative impact on performance.

The biggest positive contributors at the sector level include our overweight in Semiconductors & Semiconductor Equipment and Materials, and our underweight in Equity Real Estate Investment Trusts (REITs). We are positive on the semiconductor supply chain, as we expect the sector to see sustained growth in demand over the long term, backed by structural trends such as the rapid spread of artificial intelligence (AI), the growth of the internet of things (IoT), and the increasing use of electronics in vehicles. Our holdings in Materials include a broad range of quality companies with strong competitive positions, ranging from industrial gas producers to the suppliers of key materials used in the healthcare space. The underweight to REITs is driven by the lack of attractive growth stories in this area of the market.

On the other hand, the main detractors at the sector level were our underweight position in Banks and overweight positions in Software & Services and Commercial & Professional Services. Banks performed strongly in response to the BoJ's gradual monetary policy normalisation. While increased interest rates will likely support banks' earnings, it is difficult to find any legacy banks with sustainable long-term growth opportunities, or clear competitive advantages. The only bank stock we own is Rakuten Bank, which is a fast-growing online bank with the ability to leverage the broader Rakuten group ecosystem to acquire new business. We continue to believe that the Software & Services sector offers many attractive opportunities, especially related to digitalisation, where demand will remain strong over the mid/long-term, as Japan plays catch-up with other major economies in areas such as e-commerce, cloud software services and cashless payments.

At the stock level, several names made significant positive contributions to returns, including Nippon Sanso, Sanwa Holdings and OSAKA SODA:

•   Nippon Sanso is Japan's number one supplier of industrial gas and the fourth largest supplier in the world. We believe that industrial gas is an attractive industry, with high barriers to entry, increasingly consolidated market shares, strong cashflow generation and a favourable pricing environment. Nippon Sanso has been successfully expanding its presence both organically and through M&A activity. Over the past year, the industrial gas industry has continued to demonstrate strong pricing power under an inflationary environment, with successful price hikes globally.

•   Sanwa Holdings is the number one shutter maker in Japan. The domestic market is very stable, dominated by three companies, and Sanwa has the strongest position with over 50% market share. The company also has a presence in the US and Europe, mainly through acquisitions. While the end-demand is cyclical, the company is very well managed, with consistently positive free cashflow, steady margins and proactive shareholder returns. Execution on pricing strategy through the current inflationary environment has also been strong.

•   OSAKA SODA is a chemical company that holds the top global position in multiple niche product categories. The company's biggest future growth driver is silica gel, which is used in the production of obesity drugs. OSAKA SODA has the largest share of the world market for this material, and profitability is very high, as the obesity drug market is growing rapidly. The company is currently expanding its manufacturing capacity accordingly. Developments on the governance front are also positive. The company has announced a medium-term plan to enhance its shareholder return policy and it is now targeting a total payout ratio of 40%, compared to around 20% previously.

Unfortunately, the positive performance effect of these stock selection decisions was more than offset by the adverse impact of other positions, notably Milbon, Taiyo Yuden and Square Enix. However, these names all remain in the portfolio due to our still favourable assessments of their longer-term growth prospects.

•   Milbon is Japan's number one manufacturer of salon exclusive hair care products. With a strong consulting sales approach, the company has been expanding market share at home, and abroad, including in China and Korea. In the near-term, rising raw material costs have dampened profitability, but our positive assessment of Milbon's positioning, and its scope to expand both domestically and overseas, remains unchanged. The company has recently announced plans to raise prices. 

•   Taiyo Yuden manufactures electronic components such as multi-layer ceramic capacitors (MLCCs) used in cars and industrial equipment. It is benefiting from rapid technological innovation in the auto industry, including the rising popularity of electric vehicles, autonomous driving, and 'connected cars' that use mobile internet technology. This is translating into significant potential demand for high quality MLCCs over the medium term. In the near-term, however, demand has been sluggish for all MLCC makers due to an inventory correction.

•   Square Enix develops and publishes video game software, including long-running titles from its Dragon Quest and Final Fantasy IPS. A consistently rising digital download ratio is a favourable industry trend, as digital downloads have higher profitability than packaged games thanks to easier and much cheaper distribution. Square Enix possesses strong intellectual property in the form of a library of popular games and is thus set to benefit from this trend. Near-term earnings have, however, been disappointing, with weaker than expected title sales. The new CEO is focusing on raising profitability to improve the business's performance, and we will monitor execution going forward.

About our investment philosophy

The Company aims to provide shareholders with access to the innovative and fast-growing smaller companies at the core of the Japanese economy. Our investment approach favours quality and structural growth, and we target companies - other than Japan's largest 200 - which we believe can compound earnings growth over the long term, supported by strong competitive advantages, good management teams and judicious capital allocation. We believe the strong and durable market positioning of such businesses will allow them to substantially increase their intrinsic value over time. We avoid stocks that have no clear differentiation and those that operate in industries plagued by excess supply and structural decline.

Our stock selection is based on fundamental analysis, 'on-the-ground' knowledge and extensive contact with the management teams of prospective and current portfolio companies. The Company is managed by a team of two, supported by over 20 Tokyo-based investment professionals. Their knowledge of the local market provides us with what we believe to be a significant competitive advantage in identifying investment opportunities in small cap companies - a sector of the market which is under-researched and overlooked by many investors.

The starting point in our bottom-up investment process is our Strategic Classification framework, where we address the key question 'Is this a business that we want to own?'. Through this process we assign a rating of Premium, Quality, Standard or Challenged to each stock, based on its fundamentals, governance and the viability of its revenues over the long term. We aim to have a high exposure to Premium and Quality companies, and where possible, we invest from an early stage, to benefit fully as companies realise their growth potential.

This patient approach is key to generating excess return over the long term, although the portfolio's focus on quality and growth means it tends to struggle during value rallies. Having said that, the Company does not target 'growth at any price'. We always strive to acquire shares at a reasonable price. To this end, we use a five-year expected return framework to consider whether a stock's price is at an attractive level. We believe it is also important to construct a well-balanced, diversified portfolio, to minimise exposure to unintended risks. The Company's current and prospective portfolio holdings encompass a broad range of sectors, including not only IT hardware and software, but materials, chemicals, construction, machinery and consumer goods and services.

We believe that well-run companies, which exhibit behaviour that respects the environment and the interests of their shareholders, customers, employees and other stakeholders, are most likely to deliver maintainable, long-term returns. Such environmental, social and governance ('ESG') considerations are thus integral to our investment process and a key driver of our quest to generate financial returns. Financially material ESG factors influence our decisions both at the portfolio construction stage and thereafter, once companies are held in the portfolio, when ongoing engagement with managers can be effective in encouraging them to realise and maintain acceptable ESG standards. Our long-term holding in DTS, a business information services provider, is one instance where our engagement with a company has resulted in considerable progress in its corporate governance practices, including, in DTS's case, in greater board independence and diversity and a better shareholder return policy.

Trends and themes

While our decisions are based on company-specific factors, there are also structural, long-term trends and themes that underlie and inspire much of our stock selection.

The investment themes which help shape the portfolio include:

•   Changing demographics: Japan's ageing and declining population is creating significant challenges for Japanese policymakers. The government is committed to tackling these issues through regulatory reforms and greater use of technology, and this is providing opportunities for innovative smaller companies working to improve the quality of life for the elderly, for example, by reducing the need for face-to-face medical consultations. The telemedicine company, Medley, is an example of a portfolio holding benefiting from such innovation.

•   Raising labour productivity via digitalisation: Japan's ageing population profile is also leading to a contraction in labour supply, and technology is a key part of the solution to this problem, as it raises labour productivity. The government wishes to encourage the adoption of digital technology across the economy, and to this end it has established an agency which is focused on digitalising the operations of national and local governments, as well as Japan's education and healthcare systems. Portfolio holdings Rakus, a cloud services provider, and Infomart, a business-to-business trading platform for the food industry, are examples of holdings that benefit from this long-term trend.

•   Technological innovation: While certain areas of the Japanese economy lag other markets in terms of their technological sophistication, Japan's manufacturers are world class. The country is a leading global supplier of factory automation equipment, robots, electronics parts and materials, presenting attractive investment opportunities for portfolio companies such as MEC and Rorze that specialise in niche technology markets.

•   De-carbonisation: The Japanese government's commitment to reduce carbon emissions to net zero by 2050 has galvanised efforts to transition the economy to renewable energy sources and take other necessary steps to mitigate climate change. Some smaller Japanese companies possess unique technologies related to the production of electric vehicles, solar and wind power and other forms of clean energy, and we continue our search for companies such as Canadian Solar Infrastructure Fund that are well-positioned to benefit from the global push towards carbon neutrality.

•   Overseas growth: The Asian region is experiencing rapid structural growth. Japanese luxury goods producers and other strong brands captured by our investments in Milbon, a supplier of exclusive hair products (discussed above), and watchmaker Seiko, are likely to continue experiencing strong demand from new customers in China, Korea, India and other increasingly prosperous Asian countries.

•   Corporate governance: Japan's corporate sector is making a concerted effort to strengthen governance standards via enhanced shareholder returns, the appointment of more independent, external directors to company boards, tighter internal controls and more transparent disclosure rules. As discussed above, the Japanese authorities, and the TSE, continue to encourage these efforts and there is room for further improvement. We engage in constructive dialogues with portfolio companies and potential investments on this broad theme, on the view that the market is likely to keep rewarding companies that upgrade their governance practices.

Portfolio Activity

Key new purchases during the reporting period included Azbil, LIFEDRINK and Sohgo Security Services.

•   Azbil is a building solutions provider. The company provides integrated solutions for building control systems, including architectural design, efficient and environmentally friendly heating and cooling systems and custom-made key components, as well as on and off site management and maintenance services. Azbil is the dominant player in Japan, with a domestic market share of 80%, and it is a very steady and recurring business with maintenance and repairs accounting for 70% of its activities. We see a continued healthy business environment as customers focus increasingly on energy saving solutions.

•   LIFEDRINK is a beverage company focused on private label products for retailers. The company has a vertically integrated business model which allows it to offer lower prices and enjoy higher margins. We believe the company has a healthy growth runway, as the Japanese market for private label products is still under-developed compared to overseas markets such as US, and the inflationary environment is ensuring strong demand, as consumers prefer the company's lower priced items to national brands.

•   Sohgo Security Services is a security service provider focused on the installation of sensors and monitoring equipment and station security services for home and commercial use. The company has the second largest share of the domestic market and is expected to gradually build on this thanks to regulation that favours largescale players. The business has defensive characteristics and has also recently started to increase shareholder returns, although we believe there is potential for further progress on this front given its net cash position.

To fund these and other acquisitions, our largest divestments over the past year included Marui Group, Paltac and Nextage. We continue to believe retailer Marui Group has made excellent progress in recent years by shifting its retail business to a lower risk model and focusing on its finance business, while stepping up shareholder returns, including via a large scale buyback. However, as this story has now largely played out, we have used this position as a source of cash for new ideas. Paltac is the domestic number one wholesaler for daily necessities and toiletries. We expect the company will continue to expand market share and execute topline growth, but we closed the position as we have some concerns over rising labour costs. Nextage is one of Japan's top three used car sellers. The used car market is highly fragmented, with scope for consolidation over the long-term, and Nextage has been expanding through new store openings. However, there have been media reports of fraudulent insurance claims by various companies within the industry, including Nextage, so we exited the position.

Outlook and strategy

After a long period of being unloved and under-owned, we are optimistic about the outlook for both Japanese equities and our portfolio. We believe the global investment community's perception of the Japanese market is starting to improve, with the key structural supports being the continued progress on corporate governance reforms and signs of an exit from deflation.

Reforms to corporate governance over the past few years (as highlighted in the Performance and Market Review section above) have already lifted shareholder returns, and with many Japanese companies still awash with cash, we expect further significant efforts to return cash to shareholders, and increase investment returns accordingly. This expectation is based on our conversations with hundreds of companies. We sense an acceleration in corporate reform efforts this year, particularly after the Tokyo Stock Exchange's (TSE) initiatives announced last year. We anticipate further broad-based progress on the corporate governance front, not only by companies trading below book value. Balance sheet inefficiency is an issue across the Japanese market, and even high-quality companies with strong competitive positions have room to up their game, and shareholder returns will rise accordingly. The portfolio's exposure to several other significant, very positive, long-term structural trends should provide further impetus to performance over the longer term.

There are also signs the country is finally emerging from a long period of deflation. The spring wage negotiations, also known as the Shunto, agreed to a 5.3% wage increase this year, which is the highest level in the past three decades, and well ahead of inflation. A rise in real wages should help to boost consumer sentiment and domestic demand and hopefully eradicate consumers' deflationary mindset.

All these factors - in particular the longer-term potential for improved shareholder returns - bode well for Japanese equities. Meanwhile, despite the market's positive prospects, Japanese equity valuations do not look demanding, either compared to other major markets, or relative to the market's own history. With valuations at attractive levels, and global investors still mostly underweight Japanese equities, even after last year's net investment, prospects appear bright. This is especially the case for small caps with growth characteristics.

We are well-positioned to benefit from this favourable environment. Japan's smaller and more entrepreneurial companies are at the forefront of innovation. Many are global leaders set to prosper over the long term. Yet, the sell side coverage for such exciting small and mid-cap companies remains limited. This gives us a considerable competitive advantage, as our large and dedicated team of Japanese equities analysts and fund managers based on the ground in Tokyo is ideally placed to discover exciting investment opportunities amongst smaller companies, and to capitalise on the long-term structural changes playing out in Japan. We therefore remain confident our investment approach and portfolio positioning will deliver positive and sustained returns to our shareholders over the medium and long term.

Thank you for your ongoing support.

For and on behalf of

JPMorgan Asset Management

Investment Manager

Miyako Urabe

Xuming Tao

Portfolio Managers

20th June 2024

Principal and Emerging Risks

The Board has overall responsibility for reviewing the effectiveness of the Company's system of risk management and internal control.

The Board is supported by the Audit Committee in the management of risk. The risk management process is designed to identify, evaluate, manage, and mitigate risks faced.

Although the Board believes that it has a robust framework of internal controls in place this can provide only reasonable, and not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.

The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The risks identified and the ways in which they are managed or mitigated are summarised below.

With the assistance of JPMF, the Audit Committee has drawn up a risk matrix, which identifies the principal and emerging risks to the Company. These are reviewed and discussed on a regular basis by the Board, through the Audit Committee. These risks fall broadly into the following categories:

Emerging Risks

The Board is cognisant of emerging risks, which are characterised by a high degree of uncertainty in terms of probability of occurrence and possible effects on the Company.

Emerging risks are considered as they are identified and are incorporated into the Company's risk matrix. The Board, through the Audit Committee, will continue to assess these risks on an ongoing basis. The following have been identified as emerging risks:

Transactions with the Manager

Details of the management contract are set out in the Directors' Report on page 45 of the Annual Report. The management fee payable to the Manager for the year was £1,811,000 (2023: £1,856,000) of which £nil (2023: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 76 in the Annual Report are safe custody fees payable to JPMorgan Chase group subsidiaries amounting to £16,000 (2023: £16,000) of which £2,000 (2023: £6,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £nil (2023: £nil) of which £nil (2023: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £6,000 (2023: £5,000) were payable to JPMorgan Chase Bank N.A. during the year of which £1,000 (2023: £1,000) was outstanding at the year end.

At the year end, total cash of £3,083,000 (2023: £7,446,000) was held with JPMorgan Chase. A net amount of interest of £5,000 (2023: £3,000) was receivable by the Company during the year from JPMorgan Chase of which £nil (2023: £nil) was outstanding at the year end.

Transactions with related parties

Full details of Directors' remuneration and shareholdings can be found on pages 57 and 58 and in note 6 on page 76 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 a 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

Alexa Henderson

Chair

20th June 2024

Statement of Comprehensive Income

For the year ended 31st March

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 net return/(loss) after taxation represents the profit/(loss) for the year and also the total comprehensive income.

Statement of Changes in Equity

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

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

Statement of Financial Position

At 31st March

Statement of Cash Flows

For the year ended 31st March

Notes to the Financial Statements

For the year ended 31st March 2024

1.     Accounting policies

(a)   Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include the revaluation of fixed asset investments which are recorded at fair value, 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 July 2022.

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 pages 53 and 54 of the Directors' Report in 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.     Dividends

(a)   Dividends paid and declared

All dividends paid and declared in the period have been funded from the Revenue Reserve.

The fourth quarterly dividend has been declared in respect of the year ended 31st March 2024. In accordance with the accounting policy of the Company, these dividends will be reflected in the financial statements for the year ending 31st March 2025.

(b)  Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year, shown below.

3.     Return/(loss) per share

4.     Net asset value per share

JPMORGAN FUNDS LIMITED                        

 21st June 2024

        For further information, please contact:

 Divya Amin                       ​

        For and on behalf of

        JPMorgan Funds Limited

        0800 20 40 20 or +44 1268 44 44 70

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.

ENDS

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism 

The annual report will shortly be available on the Company's website at www.jpmjapansmallcapgrowthandincome.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.