Final Results

RNS Number : 3152C

CC Japan Income & Growth Trust PLC

19 January 2018

 

CC JAPAN INCOME & GROWTH TRUST PLC

LEI:  549300FZANMYIORK1K98

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

INVESTMENT OBJECTIVE

The investment objective of the Company is to provide shareholders with dividend income combined with capital growth, mainly through investment in equities listed or quoted in Japan.

FINANCIAL INFORMATION

At 31 October	2017	2016
Net assets	£130.1m	£98.1m
Net asset value ("NAV") per Ordinary Share ("Share")1	146.0p	123.9p
Share price	152.0p	122.4p
Share price premium/(discount) to NAV	4.1%	(1.2)%

¹ Measured on a cum income basis

PERFORMANCE SUMMARY

	% change1	% change2
NAV total return per share	+20.7%	+24.9%
Share price total return3	+27.2%	+23.5%
Topix index total return3	+10.1%	+32.7%

1Total returns are stated in GBP sterling for the year to 31 October 2017.
2Total returns are stated in GBP sterling for the period from the Company's launch on 15 December 2015 to 31 October 2016.
3Source: Bloomberg

CHAIRMAN'S STATEMENT

Performance

I am pleased to present the Company's second Annual Report. Over the financial year to 31 October 2017, and expressed in pounds sterling on a total return basis, the share price rose by 27.2% while the Net Asset Value ("NAV") per share has increased by 20.7%. In the period, between the Company's listing on the London Stock Exchange in December 2015 and the recent financial year end on a total return basis, the share price has risen by 57.1% while the NAV per share has risen 51%. Since the Company's launch, shareholders have received 4.15p per share in dividends.  Although we do not track a benchmark, for reference, and again in sterling terms, the Topix Total Return Index has returned 10.1% over the year and 46.1% since the Company's inception.  The Coupland Cardiff Asset Management team led by Richard Aston, our Investment Manager, has delivered a very solid set of results for the second consecutive year and has been astute in identifying Japanese companies with the ability to grow their earnings and complement this with appropriate distributions to their shareholders through dividends and share buybacks.

Share issues

Our shares have continued to command a premium to NAV through most of the year under review and stood at a 4.1% premium at the financial year end. This has allowed the Company to consistently issue shares and 10,008,000 new shares were issued over the year to meet investor demand.  This contributed to the increase in the Company's market capitalisation from £97 million to £136 million during the year.

The Board is committed to continue to grow the Company to take advantage of the current investment opportunities in Japan. Furthermore, the Board believes that expanding the size of the Company is in the best interests of existing shareholders and new investors by improving liquidity and spreading costs. Consequently the Board has reinstated a Share Issuance Programme, approved by shareholders at a General Meeting of the Company on 19^th December  2017, to allow for the issue of up to 100 million shares until 8th January 2019.  A tri-partite Prospectus was published and sent to shareholders on 9th January 2018, with the closing of the Initial Issue scheduled for 24th January 2018 and subsequent listing of new shares on 29th January 2018.

Dividends

The revenue account continues to grow satisfactorily. The Company has generated a revenue return of 4.06p per ordinary share based on the weighted average number of shares in issue during the year.

The Board resolved that it would be inappropriate for any new shares issued in the Company's forthcoming Initial Issue to  receive a dividend arising out of the prior financial year. Therefore, the Board will not recommend a final dividend and, in substitution, has declared a second interim dividend of 2.30p on 4th January 2018 payable to shareholders on the register as at 19th January 2018. This will be paid on 16th February 2018 and represents a 15% increase over last year's final dividend of 2.00p per share and will also be paid a month earlier than last year's final dividend. Including the interim dividend of 1.15p, the total dividend for the year ending 31 October 2017 amounts to 3.45p, representing a 15% increase over the 3.00p for the previous financial period.  

The Board considers it important to build up revenue reserves to provide a cushion for the future, particularly with the translation risks of portfolio income into sterling from a weaker yen. The clear objective is to grow the dividend over time and shareholders should be aware of the special reserve, which could allow us to make distributions out of capital, if appropriate. The sterling/yen cross rate is important in terms of the translation effect on valuation and portfolio income. The Board and Investment Manager monitor the position and currency trends on a regular basis but our policy remains not to hedge our yen exposure.

Market developments

The Japanese market has had another strong year, with the Topix Total Return Index rising by 29.4% in yen terms. The Bank of Japan has been wedded to an accommodative monetary policy, zero interest rates and a flat yield curve, while corporate earnings and disposable incomes have been improving. The re-election of Prime Minister Abe in the October 2017 General Election has given additional impetus to the market with renewed confidence in the LDP's economic programme.  Abe now has an electoral mandate until 2021. His reform measures should continue to drive improvements in corporate governance and highlight the potential for active balance sheet management to stimulate better returns on equity, axiomatic to improved levels of dividend payouts and share buyback activity. During October 2017, we saw three of our portfolio Top Ten holdings report significant increases in dividend and buyback programmes. Although aggregate dividends increased by 7% in the current financial year (to March 2018) to 12.8 trillion yen, the annual payout ratio, at 30%, is well below Europe and the USA - there is still considerable scope for improvement. Japanese company managements are under increasing pressure from investors following the introduction of the Stewardship Code in 2014 to communicate their long term business strategies, capital management policies and decision making processes in a clear and transparent manner.

Tax reform also features prominently on the current agenda amongst policy makers in Japan and this potentially includes the introduction of measures to facilitate business reorganisation. Specifically, this relates to the suspension of capital gains tax when businesses are acquired or sold, both for the companies in question and also for the incumbent shareholders. The Ministry of Economy, Trade and Industry ("METI") has attributed the higher profitability and asset efficiency of many international companies, compared to their Japanese counterparts, to the lack of significant business portfolio management in Japan. The deferral of capital gains liabilities is one contributing factor overseas and the inability to do this in Japan has hitherto proved a notable deterrent to the reorganisation of complicated company structures. The changes should broaden the options available to conglomerates especially with regard to their treatment of treasury stock, which has reached an all-time high on both a book and market value basis. The potential for more aggressive use of this stock could be very significant and the implications potentially profound, allowing for considerable group restructuring, the rationalisation of subsidiaries and better capital efficiency. In December 2017, draft measures were approved by the cabinet to reduce the rates of corporate tax to as low as 20% from the current 30% level providing companies raise wages by more than 3% per annum (1.5% for small companies) with additional tax breaks to invest in new technologies.

These changes could be very positive and continue to influence the behaviour of Japanese management, pointing to consistently  higher corporate profitability, improving returns on equity and more equitable treatment of shareholders, all of which will continue to support our investment strategy.  

Regulation

The Company has embraced the MiFID 2 regulation, which went live on 3rd January 2018. The Board has amended the Investment Management Agreement to encompass a Research Purchasing Agreement with our Investment Managers for the provision of external research replacing previous commission and trade execution arrangements. In addition, to comply with Packaged Retail and Insurance based Investment Products Regulation ("PRIIPS"), our Manager as the Alternative Investment Fund Manager, has published a Key Information Document ("KID") which is now available on our website and has been distributed to sales intermediaries. Shareholders should note that the cost, performance and risk calculations included in the KID follow the methodology prescribed by EU rules and are not determined by the Company.  In addition, the Board is aware of the challenges presented by new General Data Protection Regulations ("GDPR") due to be implemented on 25th May 2018 and its responsibility for cyber security.

 Outlook

A decade of unparalleled monetary creation has at last resulted in the world pulling out of a long period of economic stagnation, with firm evidence of a synchronised global economic recovery. For the moment, inflation remains benign, although important supply side reforms in China radically cutting back industrial capacity, together with low unemployment in Western economies, means that Central Banks and markets are watching price data carefully. The Federal Reserve is intent on trying to set higher interest rates and trim its balance sheet, which combined with the US tax reform agenda points to a stronger US dollar. However, the Bank of Japan looks like the last of the central banks to reduce its Quantitative Easing (QE) programmes, because of its firm commitment to policy action designed to create inflation with as yet only a modest impact. Perhaps their 2% inflation target will become a more realistic prospect, if we see persistent government initiatives encouraging the enormous surpluses in the corporate and household sector to moving back into the economy. Certainly, monetary accommodation has seen the Japanese economy picking up, with GDP forecast to grow 1.5% in 2017 compared to 1% in 2016; meanwhile unemployment has fallen to below 3%. The Tankan Index of Business conditions for the last Quarter of 2017 is standing at its highest level since 1991 with trade, exports and company earnings all improving. Indeed, the prospects for corporate earnings appear robust, with net profits rising by 35% in the first half of 2017, beating consensus by 10% and leading to stronger earnings guidance. Furthermore, the market valuation stands at a significant discount to other major stock markets, which gives plenty of scope for further advances.

Notwithstanding the continuing tensions on the Korean peninsula, our Investment Manager remains confident of the immediate prospects for Japan and should continue to find attractive investment opportunities as recovery spreads and new practices gain wider acceptance.  Domestic funds are still shy of returning to the Japanese stock market, reflecting entrenched, risk averse convictions. A massive Y1,800 trillion (£11,800 billion) in savings is still sitting in liquid financial assets earning poor returns and have not yet been tempted back into equities. Hopefully, the cyclical earnings recovery should be accompanied by higher inflation expectations, which ultimately will engender more domestic investor interest in the underlying potential offered by their own stock market.

 Harry Wells

18 January 2018

INVESTMENT MANAGER'S REPORT

Market

The Japanese equity market recorded a strong performance in the twelve month period to 31^st October 2017, with the Topix Total Return Index rising by 29.4% year on year in local currency terms.  The market rallied strongly towards the end of 2016 alongside other international equity markets in expectation that Donald Trump's victory in the US Presidential election would lead to reflationary economic policies and a rise in US interest rates.  The performance in the first half of 2017 was however, relatively lacklustre, despite evidence of improving corporate performance as the yen/USD exchange rate reversed some of its initial weakness and subsequent domestic and international political events weighed notably on foreign investor flows.  Prime Minister Abe called a snap General Election in October 2017 and his resounding victory eased many of these concerns and contributed to the strong autumn rally which saw the Topix Total Return Index reach levels last achieved in 2007.  The Prime Minister is now expected to continue his programme of reforms and incentives that have made a significant contribution to the improvement in capital management and corporate governance evident in recent years.  

Portfolio

The Company's portfolio performed well over the twelve month period with the total return (dividend plus NAV appreciation) rising 20.7% in sterling terms, ahead of the 10.1% of the Topix Total Return Index.  The structural gearing of 20% has made a substantial contribution given the positive return of the market. However, the main driver has been the performance of individual portfolio holdings. 

Smaller company stocks have had a particularly strong year in Japan and many feature in the top contributors for the Trust.  Noevir (cosmetics manufacturer), Yamada Consulting (corporate advisory), Trust Tech (engineering outsourcing), Shoei (motorcycle helmets) and Solasto (medical employee outsourcing) all performed extremely well, complementing their strong earnings growth with improving prospects for dividends. Tokyo Electron benefitted from healthy demand for semiconductor equipment and the announcement of a clear shareholder return policy; and Tsubaki Nakashima, a manufacturer of precision steel balls used in ball bearings, has confirmed its global leadership through contract gains and acquisition.  Conversely, Daito Trust and Japan Tobacco have been weak, affected by short term trends in the domestic market which do not impact either company's long term commitment to improving shareholder returns. 

The transactional activity in the fund has resulted from the successful issuance of equity at various times during the year, a reconsideration of a single company's valuation or a fundamental reassessment of the long term potential for growth of shareholder returns. A total of 10,008,000 new shares in the Company were issued during the year and the funds raised have been used to bolster positions in small cap holdings such as Shoei and Yamada Consulting and more recently to large cap holdings such as Toyota Motor and Tokio Marine Holdings, given their more attractive valuation profile.  The positions in Aoyama Trading, Matsui Securities and Kaken Pharmaceutical were sold due to longer term concerns regarding their ability to deliver sustained dividend growth, while Otsuka Holdings and Solasto were sold following strong share price performance leading to over extended valuations. 

Outlook

We move forward into 2018 with a great deal of optimism.  The domestic economy has remained robust despite the volatility of the currency during the past twelve months and is set to reap further benefits from the Prime Minister's economic and reform initiatives.  The strength of the Japanese equity market has been underpinned by the improvements in corporate performance which have complemented the underlying efforts to improve productivity.  Importantly, these improvements have been accompanied by a steady but meaningful increase in returns to shareholders.  This aspect, in particular, is gaining wider recognition and attracting the attention of investors who have historically ignored Japan. 

In the Japanese financial year to 31 March 2017, the aggregate dividends for the overall market rose 9.7% reaching a fourth consecutive annual record while the number of companies announcing share buybacks also rose to a new high of almost 700.  This annual growth of dividends was again the fastest of the major global equity markets.  Despite this, cash and deposits held by corporations continue to rise, such that now over 55% of listed companies have net cash on their balance sheets.  For the market as a whole, the aggregate payout ratio still hovers around 30%, considerably lower than other major international markets and consequently offers considerable scope for improvement. 

While the ability of many companies in Japan to enhance their potential shareholder returns in the future is clear, it is the willingness of management to do so that is often questioned. For example, although the number of companies announcing share buybacks has risen, the aggregate value of these programmes has fallen and this has been raised as evidence of a waning commitment to corporate governance reforms.  However, many of these companies have cited new investment opportunities - capital expenditure and M&A - as alternative uses of these cash resources to sustain future growth and this confirms our opinion that companies are and should be considering share buybacks on a flexible basis. 

Importantly, we believe that the same company managements are increasingly focusing on the sustainability of the dividend payment as the primary objective of their shareholder return policy.  The emphasis on growth, with this added security of an income return, represents the most significant change in recent years and has created the opportunity for investors to consider Japanese equities on at least an equal footing with other leading world markets. 

Richard Aston

Coupland Cardiff Asset Management LLP

18 January 2018

PRINCIPAL RISKS AND UNCERTAINTIES

Together with the issues discussed in the Chairman's Statement and the Investment Manager's Report, the Board considers that the principal risks and uncertainties faced by the Company fall into the following main categories:

(i) Market risks

Economic conditions

Changes in economic conditions in Japan (for example, interest rates and rates of inflation, industry conditions, competition, political and diplomatic events and other factors) and in the countries in which the Company's investee companies operate could substantially and adversely affect the Company's prospects.

Sectoral diversification

The Company has no limits on the amount it may invest in any sector. This may lead to the Company having significant concentrated exposure to portfolio companies in certain business sectors from time to time.

Concentration of investments in any one sector may result in greater volatility in the value of the Company's investments and consequently its NAV and may materially and adversely affect the performance of the Company and returns to shareholders.

Unquoted companies

The Company may invest in unquoted companies from time to time. Such investments, by their nature, involve a higher degree of valuation and performance uncertainties and liquidity risks than investments in listed and quoted securities and they may be more difficult to realise.

The Company currently holds no unquoted companies.

Management of risks

The Company is invested in a diversified portfolio of investments.

The Company's investment policy states that no single holding (including any derivative instrument) will represent more than 10% of the Company's Gross Assets at the time of investment and, when fully invested, the portfolio is expected to have between 30 to 40 holdings although there is no guarantee that this will be the case and it may contain a lesser or greater number of holdings at any time.

A maximum of 10% of the Company's Gross Assets at the time of investment may be invested in unquoted or untraded companies at time of investment.

Whilst the Company does not have a benchmark, the Board measures performance for reference purposes against the Topix Index. The Board also monitors performance relative to the Company's peer group over a range of periods, taking into account the differing investment policies and objectives.   

(ii) Corporate governance and internal control risks

The Board has contractually delegated to external agencies the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the registration services and the accounting and company secretarial requirements.

The main risk areas arising from the above contracts relate to allocation of the Company's assets by the Investment Manager, and the performance of administrative, registration and custodial services. These could lead to various consequences including the loss of the Company's assets, inadequate returns to shareholders and loss of investment trust status.

Management of risks

Each of the above contracts was entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Company. All of the above services are subject to ongoing oversight of the Board and the performance of the principal service providers is reviewed on a regular basis. The Board monitors key personnel risks as part of its oversight of the Investment Manager.

(iii) Regulatory risks

Breaches of Section 1158 of the Corporation Tax Act could result in loss of investment trust status. Loss of investment trust status would lead to the Company being subject to tax on any gains on the disposal of its investments. Breaches of the FCA's rules applicable to listed entities could result in financial penalties or suspension of trading of the Company's shares on the London Stock Exchange. Breaches of the Companies Act 2006, The Financial Services and Markets Act, The Alternative Investment Fund Managers' Directive, Accounting Standards, The Listing Rules, Disclosure Guidance and Transparency Rules and Prospectus Rules could result in financial penalties or legal proceedings against the Company or its Directors. Failure of the Investment Manager to meet its regulatory obligations could have adverse consequences on the Company.

Management of risks

The Company has contracted out relevant services to appropriately qualified professionals. The Investment Manager reports on regulatory matters to the Board on a quarterly basis. The assessment of regulatory risks forms part of the Board's risk assessment programme.

(iv) Financial risks

The Company's investment activities expose it to a variety of financial risks which include foreign currency risk and interest rate risk. The Company's dividends are received in Japanese yen but payable in sterling.

Management of risks

The Company converts its dividends received into sterling upon receipt.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the Directors to prepare accounts 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, including FRS 102 The Financial Reporting Standard applicable to 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 as at the end of the year and of the net return for the year. In preparing these accounts, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates, which are reasonable and prudent;

• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts; and

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

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts 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 Company's website at www.ccjapanincomeandgrowthtrust.com which is maintained by the Company's Investment Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since being initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmation statement

The Directors each confirm to the best of their knowledge that:

(a) the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

(b) this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

Having taken advice from the Audit Committee, 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 performance, business model and strategy.

For and on behalf of the Board

Harry Wells

Director

18 January 2018

INCOME STATEMENT

For the year ended 31 October 2017

		Year ended 31 October 2017							Period ended 31 October 2016
		Revenue		Capital		Total			Revenue			Capital	Total
		£'000		£'000		£'000			£'000			£'000	£'000
Gains on investments  held at fair value		-		18,540		18,540			-			16,510	16,510
Income		4,361		-		4,361			3,220			-	3,220
Investment management fee		(162)		(647)		(809)			(97)			(386)	(483)
Other expenses		(417)		-		(417)			(343)			-	(343)
Return on ordinary activities before finance costs and taxation		3,782		17,893		21,675			2,780			16,124	18,904
Finance costs		(47)		(84)		(131)			(26)			(61)	(87)
Return on ordinary activities before taxation		3,735		17,809		21,544			2,754			16,063	18,817
Taxation		(371)		-		(371)			(280)			13	(267)
Return on ordinary activities after taxation		3,364		17,809		21,173			2,474			16,076	18,550
Return per Ordinary Share		4.06p		21.47p		25.53p			3.60p			23.39p	26.99p
The total column of the Income Statement is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations.
Both the supplementary revenue and capital columns are prepared under guidance from the Association of Investment Companies. There is no other comprehensive income and therefore the return for the year is also the total comprehensive income for the year.

STATEMENT OF FINANCIAL POSITION

At 31 October 2017

		2017		2016
		£'000		£'000
Fixed assets
Investments at fair value through profit or loss		129,211		96,638
Current assets
Debtors		1,427		793
Amounts due in respect of contracts for difference		4,931		580
Cash collateral paid in respect of contracts for difference		71		1,018
Cash at bank		-		873
		6,429		3,264
Creditors: amounts falling due within one year
Bank overdraft		(863)		-
Creditors		(3,970)		(267)
Amounts payable in respect of contracts for difference		(662)		(1,550)
		(5,495)		(1,817)
Net current assets		934		1,447
Total assets less current liabilities		130,145		98,085
Net assets		130,145		98,085
Capital and reserves
Share capital		892		792
Share premium account		28,111		14,761
Special reserve		64,671		64,671
Capital reserve:
- Revaluation of investments held at year end		23,187		16,569
- Other capital reserves		10,698		(493)
Revenue reserve		2,586		1,785
Total shareholders' funds		130,145		98,085
NAV per share - Ordinary Shares (pence)		145.95p		123.91p

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 October 2017

		Share capital	Share premium	Special reserve	Capital reserve	Revenue reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 November 2016		792	14,761	64,671	16,076	1,785	98,085
Return on ordinary activities		-	-	-	17,809	3,364	21,173
Issue of shares		100	13,507	-	-	-	13,607
Share issue costs		-	(157)	-	-	-	(157)
Dividends paid		-	-	-	-	(2,563)	(2,563)
Balance at 31 October 2017		892	28,111	64,671	33,885	2,586	130,145
For the period from 28 October 2015 to 31 October 2016
		Share capital	Share premium	Special reserve	Capital reserve	Revenue reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Beginning of period		-	-	-	-	-	-
Return on ordinary activities		-	-	-	16,076	2,474	18,550
Issue of shares		792	80,805	-	-	-	81,597
Transfer to special reserve		-	(64,671)	64,671	-	-	-
Share issue costs		-	(1,373)	-	-	-	(1,373)
Dividends paid		-	-	-	-	(689)	(689)
Balance at 31 October 2016		792	14,761	64,671	16,076	1,785	98,085

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 OCTOBER 2017

				2017		2016
				£'000		£'000
Return on ordinary activities before finance costs and taxation*				21,675		18,904
Gains on investments				(12,926)		(18,365)
Increase in other debtors				(634)		(793)
(Decrease)/increase in other creditors				(8)		163
Tax paid on overseas income				(371)		(267)
Net cash flow from operating activities				7,736		(358)
Cash flows from investing activities
Purchases of investments				(49,350)		(102,831)
Proceeds from sales of investments				33,282		24,659
CFD transactions				(4,150)		(48)
Net cash flow used in investing activities				(20,218)		(78,220)
Cash flows from financing activities
Issue of Ordinary Share capital				13,607		81,597
Payment of Ordinary Share issue costs				(178)		(1,373)
Equity dividends paid				(2,563)		(689)
Finance costs paid				(120)		(84)
Net cash flow from financing activities				10,746		79,451
(Decrease)/increase in cash and cash equivalents				(1,736)		873
Cash and cash equivalents at the beginning of the year				873		-
Cash and cash equivalents at the end of the year				(863)		873
* Cash inflow from dividends was £3,728,000 (2016: £2,358,000).

NOTES

1. GENERAL INFORMATION

CC Japan Income & Growth Trust plc (the "Company") was incorporated in England and Wales on 28 October 2015 with registered number 9845783, as a closed-ended investment company. The Company commenced its operations on 15 December 2015. The Company intends to carry on business as an investment trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act 2010.

The Company's investment objective is to provide shareholders with dividend income combined with capital growth, mainly through investment in equities listed or quoted in Japan.

The Company's shares were admitted to the Official List of the UK Listing Authority with a premium listing on 15 December 2015. On the same day, trading of the Ordinary Shares commenced on the London Stock Exchange.

The registered office is Mermaid House, 2 Puddle Dock, London, EC4V 3DB.

2. ACCOUNTING POLICIES

The principal accounting policies followed by the Company are set out below:

(a) Basis of accounting
The financial statements have been prepared in accordance with FRS 102 ("the Financial Reporting Standard applicable in the UK and Republic of Ireland" issued by the Financial Reporting Council) and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (issued in November 2014). The financial statements have been prepared on the historical cost basis except for the modification to a fair value basis for certain financial instruments as specified in the accounting policies below.

They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis.

The financial statements have been presented in GBP sterling (£), which is also the functional currency since the Company operates in the UK.

(b) Investments
As the Company's business is investment in a portfolio of investments with a view to profit from their total return in the form of increases in fair value, the investments are held at fair value through profit or loss in accordance with FRS 102 Section 11: 'Basic Financial Instruments', and Section 12: 'Other Financial Instruments'. The Company manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy, and information about the investments is provided on this basis to the Board of Directors.

Upon initial recognition, investments are held by the Company "at fair value through profit or loss". They are accounted for on the date they are traded and are included initially at fair value, which is taken to be their cost. Subsequently investments are valued at fair value, which is the bid market price for listed investments.

Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are included in the capital column of the income statement within "gains on investments held at fair value".

(c) Derivatives
Derivatives which comprise of CFDs are held at fair value by reference to the underlying market value of the corresponding security. Gains or losses on these derivative transactions are recognised within the income statement. These gains and losses are either classified as a revenue return or capital return dependent on the nature of the underlying contract. The extent that any gains or losses are of a mixed revenue and capital nature, they are apportioned between revenue and capital accordingly.

(d) Foreign currency
Transactions denominated in foreign currencies including dividends are translated into sterling at actual exchange rates as at the date of the transaction. Assets and liabilities denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year end. Foreign exchange movements on investments and derivatives are included in the Income Statement within gains on investments. Any other gain or loss is included as an exchange gain or loss to capital or revenue in the Income Statement as appropriate.

(e) Income
Investment income has been accounted for on an ex-dividend basis or when the Company's right to the income is established. Special dividends are credited to capital or revenue in the Income Statement, according to the circumstances surrounding the payment of the dividend. Overseas dividends are included gross of withholding tax.

Interest receivable on deposits is accounted for on an accruals basis.

f) Dividend payable
Interim dividends are recognised when the Company is obligated to pay the dividend. Final dividends are recognised in the period which they are declared/approved by the Directors.

(g) Expenses
All expenses are accounted for on an accruals basis and are charged as follows:
• the basic investment management fee is charged 20% to revenue and 80% to capital;
• CFD finance costs are charged 20% to revenue and 80% to capital;
• investment transactions costs are allocated to capital; and
• other expenses are charged wholly to revenue.

(h) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Financial Position because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that were applicable at the financial reporting date.

Where expenses are allocated between capital and revenue any tax relief in respect of the expenses is allocated between capital and revenue returns on the marginal basis using the Company's effective rate of corporation taxation for the accounting period.

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the financial reporting date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the financial reporting date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the timing differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.

(i) Other receivables and other payables
Other receivables and other payables do not carry any interest and are short term in nature and are accordingly stated at their nominal value.

(j) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business being that of an Investment Trust as explained in note 1.

(k) Estimates and assumptions
The preparation of financial statements requires the Directors to make estimates and assumptions that affect items reported in the Statement of financial position and Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based on management's best knowledge of current facts, circumstances and, to some extent, future events and actions, the Company's actual results may ultimately differ from those estimates, possibly significantly. There have not been any instances requiring any significant estimates or judgements in the year.

(l) Cash and cash equivalents

Cash comprises cash and demand deposits. Cash equivalents, which include bank overdrafts, are short term, highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risks of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

3. INCOME

			Year ended 31 October 2017	Period ended 31 October 2016
			£'000	£'000
Income from investments:
Overseas dividends			4,361	3,220
			4,361	3,220

Overseas dividend income is translated into sterling on receipt.

4. INVESTMENT MANAGEMENT FEE

			Year ended 31 October 2017	Period ended 31 October 2016
			£'000	£'000
Basic fee:
20% charged to revenue			162	97
80% charged to capital			647	386
			809	483

The Company's Investment Manager is Coupland Cardiff Asset Management LLP. The Investment Manager is entitled to receive a management fee payable monthly in arrears and is at the rate of one-twelfth of 0.75% of Net Asset Value per calendar month. There is no performance fee payable to the Investment Manager.

5. OTHER EXPENSES
			Year ended 31 October 2017	Period ended 31 October 2016
			£'000	£'000
Secretarial services			55	46
Administration and other expenses			223	160
Auditor's remuneration - audit services			34	42
- non-audit			-	8
Directors' fees			105	87
			417	343

6. FINANCE COSTS

			Year ended 31 October 2017	Period ended 31 October 2016
			£'000	£'000
Interest paid			25	11
CFD finance cost and structuring fee - 20% charged to income			20	14
Structure fees - 20% charged to income			2	1
			47	26
CFD finance cost and structuring fee - 80% charged to capital			77	56
Structure fees - 80% charged to capital			7	5
			84	61

7. TAXATION
	Year ended 31 October 2017			Period ended 31 October 2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(a) Analysis of tax charge in the year:
Corporation tax	-	-	-	13	(13)	-
Overseas withholding tax	371	-	371	267	-	267
Total tax charge for the year (see note 7 (b))	371	-	371	280	(13)	267

(b) Factors affecting the tax charge for the year:
The tax assessed for the year is lower than the standard rate of corporation tax in the UK for a large company of 19.41% (2016: 20%). The differences are explained below:

	Year ended 31 October 2017			Period ended 31 October 2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Total return before taxation	3,735	17,809	21,544	2,754	16,063	18,817
UK corporation tax at 19% (2016: 20%)	725	3,457	4,182	551	3,212	3,763
Effects of:
Overseas withholding tax suffered	371	-	371	267	-	267
Non-taxable overseas dividends	(734)	-	(734)	(543)	-	(543)
Capital gains not subject to tax	-	(3,599)	(3,599)	-	(3,301)	(3,301)
Finance costs	9	16	25	5	12	17
Movement in unutilised management expenses	-	126	126	-	64	64
Total tax charge	371	-	371	280	(13)	267

The Company is not liable to tax on capital gains due to its status as an investment trust. The company has an unrecognised deferred tax asset of £177,000 (2016: £54,000) based on the long term prospective corporation tax rate of 17%. This asset has accumulated because deductible expenses exceeded taxable income for the year ended 31 October 2017. No asset has been recognised in the accounts because, given the composition of the Company's portfolio, it is not likely that this asset will be utilised in the foreseeable future.

8. DIVIDEND

The dividend relating to the year ended 31 October 2017, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered is detailed below:

	Year ended 31 October 2017		Period ended 31 October 2016
	Pence per Ordinary share	£'000	Pence per Ordinary share	£'000
Interim dividend - Paid	1.15p	980	1.00p	689
Second interim dividend payable*	2.30p	2,051	-	-
Final dividend - paid	-	-	2.00p	1,583
	3.45p	3,031	3.00p	2,272

*Not included as a liability in the year ended 31 October 2017 accounts.

The Directors have declared a second interim dividend for the financial year ending 31 October 2017 of 2.30p per Ordinary Share. The dividend will be paid on 16 February 2018, to shareholders on the register at the close of business on 19 January 2018.

9. INVESTMENTS
(a) Summary of valuation
			As at 31 October 2017		As at 31 October 2016
			£'000		£'000
Investments listed on a recognised overseas investment exchange			129,211		96,638
			129,211		96,638
(b) Movements
In the year ended 31 October 2017
			2017		2016
			£'000		£'000
Book cost at the beginning of the year			80,069		-
Gains on investments held at beginning of the year			16,569		-
Valuation at beginning of the year			96,638		-
Purchases at cost			53,061		102,932
Sales:
- proceeds			(33,282)		(24,659)
- Gains on investment holdings sold in the year			6,176		1,796
Movements in gains on investment holdings held at end of the year			6,618		16,569
Valuation at end of the year			129,211		96,638
Book cost at end of the year			106,024		80,069
Unrealised gains on investment holdings at the year end			23,187		16,569
Valuation at end of the year			129,211		96,638

Transaction costs on investment purchases for the year ended 31 October 2017 amounted to £54,000 (2016: £68,000) and on investment sales for the year amounted to £36,000 (2016: £21,000).

(c) Gains on investments
			Year ended 31 October 2017		Period ended 31 October 2016
			£'000		£'000
Gains on investment holdings sold in the year			6,176		1,796
Revaluation gains on investment holdings at the year end			6,618		16,569
Other capital gains			132		-
Total gains on investments			12,926		18,365
Realised gains/(losses) on CFD assets and liabilities			668		(1,178)
Movement in gains/(losses) on CFD assets and liabilities			4,946		(677)
Total gains on investments held at fair value through profit or loss			18,540		16,510

Due to the different nature of cash equity and CFD positions they have different accounting treatment. Whilst in local currency terms both products move in line with each other, when gains/losses are translated back to the base currency of the Company they will reflect the impact of local to base currency movements differently.

10. DEBTORS
			As at 31 October 2017		As at 31 October 2016
			£'000		£'000
Amounts due in respect of CFDs			4,931		580
Accrued income			1,415		782
Prepayments			12		11
			6,358		1,373

11. CREDITORS
			As at 31 October 2017		As at 31 October 2016
			£'000		£'000
Amounts falling due within one year:
Purchases for future settlement				3,812	101
Amounts payable in respect of CFDs			662		1,550
Accrued expenses			158		166
			4,632		1,817

12. SHARE CAPITAL
Share capital represents the nominal value of shares that have been issued. The share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium.
					As at 31 October 2017			As at 31 October 2017	As at 31 October 2016			As at 31 October 2016
					No of shares			£'000	No of shares			£'000
Allotted, issued & fully paid:
Ordinary Shares of 1p					89,168,162			892	79,160,162			792
					89,168,162			892	79,160,162			792
Share Movement
The table below sets out the share movement for the year to 31 October 2017.
								Shares in issue as at 31 October 2017							Shares in issue as at 31 October 2016
			Shares issued			Shares redeemed				Shares issued		Shares redeemed
Redeemable shares			-			-		-		50,000		50,000			-
Ordinary shares of 1p			89,168,162			-		89,168,162		79,160,162		-			79,160,162

During the year under review, 10,008,000 (2016: 79,160,162) Ordinary shares of 1p each were issued.

 The issue prices ranged from 125.7p to 149.3p (2016: 100p to 123.0p) and the total amount raised was £13,607,000 (2016: £80,805,000).

13. FINANCIAL COMMITMENTS

At 31 October 2017, there were no commitments (2016: none) in respect of unpaid calls and underwritings.

14. RETURN PER ORDINARY SHARE

Total return per ordinary share is based on the return on ordinary activities, including income, for the year after taxation of £21,173,000 (2016: £18,550,000).

Based on the weighted average of number of 82,937,053 (2016: 68,726,923) Ordinary Shares in issue for the year to 31 October 2017, the returns per share were as follows:

					As at 31 October 2017			As at 31 October 2016
			Revenue	Capital		Revenue	Capital
			£'000	£'000	£'000	£'000	£'000	£'000
Return per Ordinary Share			4.06p	21.47p	25.53p	3.60p	23.39p	26.99p

15. NET ASSET VALUE PER SHARE

Net Asset Value per Ordinary Share is based on net assets of £130,145,000 (2016: £98,085,000) divided by 89,168,162 (2016: 79,160,162) Ordinary Shares in issue (excluding shares held in Treasury) at the year end.

There is no dilution to Net Asset Value per Ordinary Share as the Company has only Ordinary Shares in issue.

16. RELATED PARTY TRANSACTIONS

Transactions with the Investment Manager and the Alternative Investment Fund Investment Manager ("AIFM")

The Company provides additional information concerning its relationship with the Investment Manager and AIFM, Coupland Cardiff Asset Management LLP. The fees for the year are disclosed in note 4 and amounts outstanding at the year ended 31 October 2017 were £78,884 (2016: £58,272).

Directors' fees and shareholdings

The Directors' fees and shareholdings are disclosed in the Directors' Remuneration Implementation Report in the Annual Report.

17. FINANCIAL INFORMATION

This announcement does not constitute the Company's statutory accounts.  The financial information is derived from the statutory accounts, which will be delivered to the registrar of companies and will be put forward for approval at the Company's Annual General Meeting. The statutory accounts for the period ended 31 October 2016 have been delivered to the registrar of companies.   The auditors have reported on the accounts for the year ended 31 October 2017 and the period ended 31 October 2016, their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Annual Report for the year ended 31 October 2017 was approved on 18 January 2018.  It will be made available on the Company's website at www.ccjapanincomeandgrowthtrust.com

The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM

This announcement contains regulated information under the Disclosure Rules and Transparency Rules of the FCA.

18. ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 13 March 2018 at 12 noon at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London, EC2M 7SH.

18 January 2018

Secretary and registered office:

PraxisIFM Fund Services (UK) Limited

Mermaid House

2 Puddle Dock

London

EC4V 3DB

For further information contact:

Anthony Lee

PraxisIFM Fund Services (UK) Limited

Tel: [phone]

END

 

END

 

 

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