Half Yearly Report
Half Yearly Report
Schroder Japan Growth Fund plc (the "Company") hereby submits its Half Yearly Report for the period ended 31 January 2012 as required by the UK Listing Authority's Disclosure and Transparency Rule 4.2.
The Half Yearly Report is also being published in hard copy format and an electronic copy of that document will shortly be available to download from the Company's website http://www.schroderjapangrowthfund.com. Please click on the following link to view the document:
The Company has submitted the hard copy format of its Half Yearly Report to the National Storage Mechanism and it will shortly be available for inspection at www.Hemscott.com/nsm.do.
Enquiries:
John Spedding
Schroder Investment Management Limited Tel: 020 7658 3206
30 March 2012
Schroder Japan Growth Fund plc
Financial Highlights
31 January 2012 31 July 2011 % Change
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Total assets (£'000)* 153,252 154,331 (0.7)
Borrowings (£'000) (24,932) (23,677) 5.3
Shareholders' funds (£'000) 128,320 130,654 (1.8)
Shares in issue ('000) 125,008 125,008 -
Net Asset Value per share 102.65p 104.52p (1.8)
Share price 86.00p 92.88p (7.4)
Share price discount 16.22% 11.14% -
TSE First Section Total Return Index Level (in sterling terms)** 8.06 8.43 (4.4)
Yen rate to Sterling 120.33 126.71 (5.0)
Market capitalisation (£'000) 107,507 116,108 (7.4)
* Calculated in accordance with AIC guidance and comprises shareholders' funds plus gearing used for investment purposes.
** Source: Thomson Financial Datastream.
Ten Largest Investments
As at 31 January 2012 Market
Value of % of
Holding Shareholders'
Company and Activities £'000 Funds
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Toyota Motor 6,866 5.35
Automobile manufacturer
Mitsui 6,205 4.84
General trading company
SK Kaken 5,037 3.93
Paint manufacturer for construction
East Japan Railway 4,429 3.45
Railway company
Hi-Lex 4,261 3.32
Automobile cables manufacturer
Bridgestone 4,145 3.23
Automobile tyre manufacturer
Sankei Building 3,736 2.91
Real estate investment
Sumitomo Mitsui Financial 3,426 2.67
Banking and other financial services
Seven & I Holdings 3,264 2.54
Retail store operator
Nippon Telegraph & Telephone 3,166 2.47
Telecommunication services
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Total 44,535 34.71
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
At 31 July 2011, the ten largest investments represented 35.18% of Shareholders' Funds.
Analysis of the Portfolio Sector Distribution with the TSE First Section Index (%) as at 31 January 2012
Valuation % of % of
£'000 Portfolio Index
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Chemicals 15,824 11.04 6.0
Transportation Equipment 13,885 9.69 10.0
Wholesale Trade 11,934 8.33 5.8
Electrical Appliances 11,847 8.26 13.5
Retail Trade 11,777 8.22 4.2
Banks 11,418 7.97 9.5
Land Transportation 8,339 5.82 4.1
Pharmaceutical 6,461 4.51 4.9
Real Estate 6,329 4.42 2.3
Machinery 6,232 4.35 5.3
Information & Communication 6,217 4.34 6.3
Insurance 5,638 3.93 2.3
Services 4,688 3.27 1.9
Construction 4,293 2.99 2.5
Rubber Products 4,145 2.89 0.8
Precision Instruments 3,331 2.32 1.4
Other Products 2,651 1.85 1.6
Oil & Coal Products 2,198 1.53 1.0
Securities & Commodity Futures 2,191 1.53 1.0
Glass & Ceramic Products 1,652 1.15 1.2
Marine Transportation 862 0.60 0.4
Mining 769 0.54 0.8
Non-Ferrous Metals 649 0.45 1.2
Foods - - 3.6
Electric Power & Gas - - 3.1
Iron & Steel - - 1.8
Textiles & Apparels - - 1.0
Other Financing Business - - 0.8
Metal Products - - 0.7
Pulp & Paper - - 0.4
Air Transportation - - 0.3
Warehousing & Harbour Transport - - 0.2
Fishery, Agriculture & Forestry - - 0.1
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Total 143,330 100.00 100.00
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Interim Management Statement
Chairman's Statement
Performance
The six-month period to 31 January 2012 was a disappointing one for the Japanese market which declined by 9.2% in local currency terms. At the same time, the yen again strengthened against sterling over the period so that the net effect was that, measured in sterling terms, the TSE First Section Total Return Index produced a negative total return of 4.4% over the period. The Company's net asset value again out-performed the Index, decreasing by 1.8% (from 104.52p per share to 102.65p per share).
The Company's share price decreased by 7.4% and the discount widened from 11.1% to 16.2% as sentiment declined.
Dividend Policy
In recent years, the yield on the Japanese stock market has increased significantly. Whilst the increase has not been uniform each year and dividends received by portfolio companies have been volatile, our current allocation arrangements whereby all management fees and finance costs are charged to the Company's revenue account, have resulted in an accumulated loss on the revenue account. This has meant that whilst the portfolio's income has increased, the Directors have been prevented from paying out this income to shareholders as dividends.
The Directors feel that this situation should be rectified and future net revenue earned by the portfolio paid out to investors in the form of dividends. Therefore, we are seeking shareholder approval to proposals to extinguish the accumulated brought forward loss on revenue reserve so that this will not inhibit the Company from paying dividends in the future.
In order better to reflect the increasing significance of income as part of total return, the Directors will, with effect from 1 August 2012, also adopt a revised allocation policy whereby management fees and finance costs will be charged 70% to the capital account and 30% to the revenue account.
Shareholders should not expect future dividends to increase year on year as dividend income received from Japanese companies is expected to continue to be volatile.
There will be no change in investment policy or strategy to generate additional income.
A circular will be sent to shareholders in due course.
Gearing Policy
During the period the Company maintained its borrowings at ¥3 billion. All of the borrowings were obtained via a revolving credit facility to provide flexibility. The gearing continues to be operated within the limits agreed by the Board. At the beginning of the period, the effective gearing ratio (borrowings less cash and short-term deposits as a percentage of net assets) was 10.3% and the level had slightly increased to 11.4% at 31 January 2012.
Outlook
Since the end of January the stock market has regained all the ground lost in the Company's first half. The improvement in sentiment globally is partially responsible, but there has also been a positive reaction to the Bank of Japan's new policy of targeting a return of inflation. How successful this policy can be, after a decade of deflation, remains to be seen, but at the least the market response has highlighted that Japanese share valuations are not demanding.
At a more direct level, this point was also illustrated by buyouts of two of the portfolio's holdings at prices well above the market price. MBOs are sufficiently rare in Japan that it would be optimistic to expect to find these opportunities regularly, but our Investment Manager continues to believe that large parts of the portfolio still sell at levels well below their true worth. Finding that value remains the Company's main challenge.
Jonathan Taylor
Chairman
29 March 2012
Investment Manager's Review
Market Background
The Japanese stock market fell 9.2% in yen terms during the six months ended 31 January 2012. The decline was less in sterling terms at 4.4%.
The period under review captured the bulk of the sell-off caused by the market succumbing from August onwards to the problems caused by the Eurozone sovereign debt crisis. Sentiment towards the Japanese market also suffered from the Olympus scandal and the subsequent lack of support from Japanese institutional shareholders for the dismissed CEO Michael Woodford. The ECB's measures to ward off the worst of the liquidity problems in November, together with improving data in the US economy, was a trigger for a partial recovery globally that included Japan. This improved sentiment has continued after the end of the Company's half year, encouraged by further monetary easing, although this has also been associated with a weaker yen.
With the market being buffeted by global economic forces it is easy to lose sight of the fact that Japan's own recovery from the tragedy of the earthquake and tsunami has exceeded most initial expectations. However, some industries received a further jolt from nature in the form of the floods in Thailand in areas where several Japanese car and electronics companies have factories.
Most sectors of the market declined over the six months, with the falls less in defensive areas such as transportation and pharmaceuticals. Construction companies also did well due to perceived benefits from reconstruction of the area affected by the earthquake. By contrast more cyclical or higher-beta parts of the market performed worst.
The Company's NAV fell 1.8%. This represented 2.6% outperformance of the benchmark. Stock selection in the real estate sector made the largest positive contribution, with the portfolio benefitting from two companies held in this sector - Tachihi Enterprise and Sankei Building - being bought out at large premia to the share prices. This more than offset the negative impact from stock selection in machinery and from being under-exposed to construction companies.
Outlook
The stock market remains attractively valued and a laggard relative to global markets. This makes it well positioned if global economic conditions sustain their early signs of improvement. The domestic economy should also benefit from a more "normal" year after the one-off shocks of 2011. The hopefully temporary shutdown of most of the nuclear power industry (but with poor visibility surrounding its restart) is a risk, as is the prospect of more domestic political instability. However, there are encouraging signs of relief for the corporate sector from the headwind of a strong yen. Recent Bank of Japan monetary easing surprised markets and has seen the yen depreciate back to where it was last summer. If it stabilises around current levels this would improve the outlook for company profits next fiscal year.
Investment Policy
The portfolio's cyclical exposure was increased moderately at the end of 2011 with new positions in shipping and technology companies. This exposure is being maintained although not added to given the bounce in this part of the market in early 2012. Additions have been made to existing holdings in retail as this area has lagged and should benefit if expectations of a return of inflation slowly improve following a subtle change in the Bank of Japan's stated price objectives. Exposure to overseas earners is broadly neutral but skewed towards autos at the expense of consumer electronics.
Net gearing at 11.4% was slightly ahead of the level at end July 2011, and reflects our belief that the market will rise from these levels.
Schroder Investment Management Limited
29 March 2012
Principal Risks and Uncertainties
The principal risks and uncertainties with the Company's business fall into the following categories: financial risk; gearing; strategic risk and accounting, legal and regulatory risk. A detailed explanation of the risks and uncertainties in each of these categories can be found on page 11 of the Company's published Annual Report and Accounts for the year ended 31 July 2011. These risks and uncertainties have not materially changed during the six months ended 31 January 2012.
Going Concern
The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections; that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.
Related Party Transactions
Details of related party transactions can be found on page 33 of the Company's published Annual Report and Accounts for the year ended 31 July 2011. There have been no material transactions with the Company's related parties during the six months ended 31 January 2012.
Directors' Responsibility Statement
The Directors confirm that, to the best of their knowledge, this condensed set of financial statements has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP) and with the Statement of Recommended Practice: Financial Statements of Investment Companies and Venture Capital Trusts (SORP) issued in January 2009. The Interim Management Report as set out above in the form of the Chairman's Statement and Investment Manager's Review include a fair review of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.
Income Statement
(Unaudited) (Unaudited) (Audited)
For the six months For the six months For the year
ended 31 January 2012 ended 31 January 2011 ended 31 July 2011
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
(Losses)/gains on
investments held at
fair value - (2,035) (2,035) - 16,908 16,908 - 15,588 15,588
Other currency losses - (745) (745) - (473) (473) - (816) (816)
Income 2 1,591 - 1,591 1,422 - 1,422 3,343 - 3,343
Investment
management fee (681) - (681) (697) - (697) (1,385) - (1,385)
Administrative
expenses (199) - (199) (229) - (229) (468) - (468)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Net return/(loss)
before finance costs
and taxation 711 (2,780) (2,069) 496 16,435 16,931 1,490 14,772 16,262
Finance costs (154) - (154) (183) - (183) (345) - (345)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Net return/(loss)
on ordinary activities
before taxation 557 (2,780) (2,223) 313 16,435 16,748 1,145 14,772 15,917
Taxation on
ordinary activities (111) - (111) (99) - (99) (234) - (234)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Net return/(loss)
attributable to equity
shareholders 446 (2,780) (2,334) 214 16,435 16,649 911 14,772 15,683
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Net return/(loss) per
ordinary share 4 0.36p (2.22)p (1.86)p 0.17p 13.15p 13.32p 0.73p 11.82p 12.55p
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
The Total column of this statement is the profit and loss account of the Company. The Revenue and Capital columns are both provided in accordance with guidance issued by The Association of Investment Companies. The Company has no recognised gains or losses other than those disclosed in the Income Statement and the Reconciliation of Movements in Shareholders' Funds. Accordingly no Statement of Total Recognised Gains and Losses is presented.
All Revenue and Capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.
Reconciliation of Movements in Shareholders' Funds
For the six months ended 31 January 2012 (Unaudited)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Called-up Share Share Warrant
share premium purchase exercise Capital Revenue
capital account reserve reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Balance at 1 August 2011 12,501 7 97,205 3 26,612 (5,674) 130,654
Net (loss)/return from
ordinary activities - - - - (2,780) 446 (2,334)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
At 31 January 2012 12,501 7 97,205 3 23,832 (5,228) 128,320
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
For the six months ended 31 January 2011 (Unaudited)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Called-up Share Share Warrant
share premium purchase exercise Capital Revenue
capital account reserve reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Balance at 1 August 2010 12,501 7 97,205 3 11,840 (6,585) 114,971
Net return from ordinary
activities - - - - 16,435 214 16,649
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
At 31 January 2011 12,501 7 97,205 3 28,275 (6,371) 131,620
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
For the year ended 31 July 2011 (Audited)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Called-up Share Share Warrant
share premium purchase exercise Capital Revenue
capital account reserve reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Balance at 1 August 2010 12,501 7 97,205 3 11,840 (6,585) 114,971
Net return from ordinary
activities - - - - 14,772 911 15,683
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
At 31 July 2011 12,501 7 97,205 3 26,612 (5,674) 130,654
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Balance Sheet
(Unaudited) (Unaudited) (Audited)
At 31 January At 31 January At 31 July
2012 2011 2011
Note £'000 £'000 £'000
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Fixed assets
Investments held at fair value through
profit or loss 143,330 148,506 144,885
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
143,330 148,506 144,885
Current assets
Debtors 365 473 158
Cash at bank and short-term deposits 10,307 6,459 10,548
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
10,672 6,932 10,706
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Current liabilities
Creditors - amounts falling due within one year 5 (25,682) (23,818) (24,937)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Net current liabilities (15,010) (16,886) (14,231)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Total assets less current liabilities 128,320 131,620 130,654
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Capital and reserves
Called-up share capital 12,501 12,501 12,501
Share premium account 7 7 7
Share purchase reserve 97,205 97,205 97,205
Warrant exercise reserve 3 3 3
Capital reserve 23,832 28,275 26,612
Revenue reserve (5,228) (6,371) (5,674)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Total shareholders' funds 128,320 131,620 130,654
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Net asset value per ordinary share 6 102.65p 105.29p 104.52p
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Cash Flow Statement
(Unaudited) (Unaudited) (Audited)
For the six months For the six months For the year
ended 31 January ended 31 January ended 31 July
2012 2011 2011
£'000 £'000 £'000
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Net cash inflow from operating activities 344 481 1,828
Net cash outflow from servicing of finance (152) (184) (359)
Total tax paid (110) (97) (232)
Net cash (outflow)/inflow from investment activities (833) (2,065) 513
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Net cash (outflow)/inflow (751) (1,865) 1,750
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Reconciliation of net cash flow to movement in net debt
Net cash (outflow)/inflow (751) (1,865) 1,750
Net debt at 1 August (13,129) (14,063) (14,063)
Exchange losses on currency, loans and cash balances (745) (473) (816)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Net debt carried forward (14,625) (16,401) (13,129)
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Notes to the Accounts
1. Accounting policies
The financial information for each of the six month periods ended 31 January 2012 and 31 January 2011 comprises non-statutory accounts within the meaning of sections 434 - 436 of the Companies Act 2006. The financial information for the year ended 31 July 2011 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
The Company's accounting policies have not varied from those described in the Report and Accounts for the year ended 31 July 2011.
2. Income
(Unaudited) (Unaudited) (Audited)
For the six months ended For the six months ended For the year ended
31 January 2012 31 January 2011 31 July 2011
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
£'000 £'000 £'000
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Overseas dividends 1,591 1,421 3,342
Interest on deposits - 1 1
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
1,591 1,422 3,343
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
3. Investment Management fees and interest payable
The Investment Management fee and finance costs on borrowings for investment purposes are apportioned 100% to revenue.
4. Return/(loss) per ordinary share
(Unaudited) (Unaudited) (Audited)
For the six months ended For the six months ended For the year ended
31 January 2012 31 January 2011 31 July 2011
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Revenue (£'000) 446 214 911
Capital (£'000) (2,780) 16,435 14,772
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Total (£'000) (2,334) 16,649 15,683
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Weighted average number of ordinary
shares in issue 125,008,200 125,008,200 125,008,200
Revenue 0.36p 0.17p 0.73p
Capital (2.22)p 13.15p 11.82p
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Total (1.86)p 13.32p 12.55p
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
5. Creditors: Amounts falling due within one year
Included within creditors is the following loan:
(Unaudited) (Unaudited) (Audited)
At 31 January 2012 At 31 January 2011 At 31 July 2011
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Yen 3,000,000,000 3,000,000,000 3,000,000,000
Equivalent to £24,932,000 £22,860,000 £23,677,000
The Company has an unsecured loan facility of Yen 3 billion with ING Bank N.V. This facility has a revolving 364 day term and is chargeable at a floating rate linked to the Yen LIBOR.
6. Net asset value per ordinary share
(Unaudited) (Unaudited) (Audited)
At 31 January 2012 At 31 January 2011 At 31 July 2011
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Net assets attributable to ordinary
shareholders (£'000) 128,320 131,620 130,654
Ordinary shares in issue at end of period 125,008,200 125,008,200 125,008,200
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
Net asset value per ordinary share 102.65p 105.29p 104.52p
――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――
This information is provided by RNS
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