LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN JAPANESE INVESTMENT TRUST PLC
UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST MARCH 2011
Chairman's Statement
The period covered by this report includes the horrific earthquake and tsunami which devastated so much of Eastern Japan on 11th March. The Directors would like to express their sympathy with all those affected by those terrible events. Japan, however, is a resilient society and the way in which the recovery has begun has been exemplary. Our Manager, J.P. Morgan Asset Management, has a significant Japanese team, based primarily in Tokyo. We were encouraged to see how well the team was supported and noted that they continued to conduct business and meet with clients throughout this testing time. J.P. Morgan as a business and its staff made a significant financial contribution to the relief and recovery efforts.
Performance
Over the six months to 31st March 2011, our benchmark, the Tokyo Stock Exchange First Section (TOPIX) Index, rose by 5.0% in sterling terms. Your Company saw an increase in net assets of 8.9%, an outperformance of 3.9%. Shareholders will be pleased to note that the improvement in performance witnessed in recent years has been continued over the first six months of the current financial year. The Board remains hopeful that this improvement will be sustained.
Further detail on the background against which the Company performed is discussed in the Investment Manager's Report in the half-yearly financial report.
Revenue and Dividends
As I emphasise each year in my Chairman's Statement, dividend streams from Japan are unpredictable and dividends we have paid in previous years should not be taken as a guide to future payments. This year it appears likely that the Company will be in a position at least to maintain its final dividend of 2.8p per share although there is some uncertainty as to companies' individual dividend policies following the earthquake.
Discount Management
The Board has guidelines in place with regard to the management of any discount/premium that may develop between the Company's share price and its net asset value per share. The Company repurchased 140,000 Ordinary Shares of 25p each for cancellation on 12th November 2010 during the period under review.
Gearing
The Board of Directors sets the overall strategic gearing policy and guidelines and reviews these at each meeting. As at the date of this report, the Company was 105% geared, having ranged between 97% and 106% during the six months under review.
Prospects
In the Investment Manager's Report in the half-yearly financial report, your manager reflects on the implications of the earthquake and tsunami. Although the situation remains unclear, valuations remain low and we are confident in our manager's ability to identify the stocks which will outperform the market over the long term.
Jeremy Paulson-Ellis
Chairman 26 May 2011
Investment Manager's Report
The TOPIX index rose 5.0% in sterling terms during the September 2010 to March 2011 period. The Company continued its trend of improving performance, with the NAV outperforming our benchmark (TOPIX) by 3.9% over the half year. The cumulative outperformance over the last two years is +8.5%. In general terms export manufacturing and commodity companies performed well while defensive and domestic-orientated companies such as the utility companies underperformed.
The first five months of the period were characterised by continuing improvements in the global economy and robust company earnings even in the face of the strong yen. There were positive developments in corporate Japan with the announcement of the merger of two of the largest steel companies (Nippon Steel and Sumitomo Metal Industries) and a string of management buyouts amongst smaller companies.
Portfolio turnover was limited during the period as we saw little reason to change our long-term strategy of focusing on companies with strong competitive advantages that are benefiting from Asian growth. In this respect, holdings such as power tool maker Makita and factory automation related THK and Mitsubishi Electric continued to perform well.
The outlook, however, changed substantially on 11th March as Japan was hit by the catastrophic Great East Japan Earthquake. It is this terrible event that we focus on below.
The Great East Japan Earthquake
The Great East Japan Earthquake struck at 14:45 Japan Standard time on 11th March 2011. The 9.0 magnitude earthquake was the fifth largest earthquake in recorded history. The earthquake triggered an enormous tsunami wave of up to 25 metres high which in some cases travelled 10 kilometres inland. Tragically, at the time of writing there are over 26,000 people reported as dead or missing. The event was followed by a failure of the cooling system at the Fukushima Nuclear Power Plant, which is operated by Tokyo Electric Power. The World Bank subsequently estimated the cost of the damage to be as high as 235 billion US Dollars.
Economic Consequences of the Disaster
• Factories and supply chains were severely hit by the quake and it will take some months for production to normalise. Some factories and plants were completely destroyed. Our core view is that this is a temporary factor which will reduce earnings in the short-term but that long-term competitiveness, in most cases, is not impaired.
• In the immediate aftermath of the earthquake there were power shortages in the Tokyo region with rolling blackouts for the capital. This, alongside the supply chain disruptions, had a severe impact on industrial production and consumption. At the time of writing the situation has improved, but there is still a great deal of uncertainty about the summer months when electricity demand peaks.
• Japan's long-term energy policy will likely be reconsidered. At the most basic level the fact is that twenty percent of the world's nuclear plants are located in the most earthquake prone country. The crisis in Fukushima may eventually lead to changes in energy policy globally. In Japan, the most likely alternative is liquefied natural gas.
• The yen surged to a post-war high of ¥76.25 versus the U.S Dollar following the quake. Shortly afterwards the G7 nations announced coordinated currency intervention for the first time in eleven years. Coordinated intervention has a good track record of stabilising currencies having succeeded four times out of five between 1985 and 2000. Indeed, these interventions have marked fundamental turning points for currencies. Companies with substantial overseas production bases and sales had looked to be relatively unaffected by the quake but significant yen strength would have changed that. We are now more confident that the yen will be at least stable around current levels.
• The crisis has not, as yet, led to the political stalemate being broken. Indeed, one of the major concerns is that taxes will be increased to help pay for reconstruction which may further dampen the outlook for domestic demand.
Valuation
TOPIX currently trades on a price to book ratio of one. The price to earnings ratio is uncertain with cuts to earnings estimates likely in most sectors. Prior to the quake the market traded on 13 times March 2012 and we believe that there will be little impact on earnings on 2013 and beyond. Japan therefore trades at a discount to global markets and, as long as the global economy remains relatively robust, it should be able to rebound from this one time shock.
Outlook and Portfolio Strategy
In the short-term we expect earnings estimates to be cut and companies to issue very conservative guidance for next fiscal year. We are focusing on those companies with strong balance sheets which should be able to rebuild capacity without the need for additional funding. Our long-term strategy remains unchanged and we continue to focus on those companies with strong competitive positions that can grow their earnings outside Japan, particularly in Asia. Our core view remains that valuations are low and that we can invest in companies with strong long-term positions at very attractive valuations.
Nicholas Weindling
Investment Manager 26 May 2011
Interim Management Report
The Company is required to make the following disclosures in its half year report.
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Company fall into five broad categories: investment and strategy; market risk; accounting, legal and regulatory; corporate governance and shareholder relations; operational and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 30th September 2010.
Related Parties Transactions
During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.
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.
Directors' Responsibilities
The Board of Directors confirms that, to the best of its knowledge:
(i) the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the Accounting Standards Board's Statement 'Half Yearly Financial Reports'; and
(ii) the half year management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.
For and on behalf of the Board
Jeremy Paulson-Ellis
Chairman 26 May 2011
Income Statement
for the six months ended 31st March 2011
|
(Unaudited) |
(Unaudited) |
(Audited) |
||||||
|
Six months ended |
Six months ended |
Year ended |
||||||
|
31st March 2011 |
31st March 2010 |
30th September 2010 |
||||||
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Gains on investments held at fair value |
|
|
|
|
|
|
|
|
|
through profit |
|
|
|
|
|
|
|
|
|
or loss |
- |
20,285 |
20,285 |
- |
38,668 |
38,668 |
- |
8,318 |
8,318 |
Net foreign currency gains/(losses) |
- |
204 |
204 |
- |
(512) |
(512) |
- |
(3,862) |
(3,862) |
Income from investments |
3,714 |
- |
3,714 |
2,727 |
- |
2,727 |
6,132 |
- |
6,132 |
Other interest receivable and |
|
|
|
|
|
|
|
|
|
similar income |
1 |
- |
1 |
- |
- |
- |
6 |
- |
6 |
Gross return |
3,715 |
20,489 |
24,204 |
2,727 |
38,156 |
40,883 |
6,138 |
4,456 |
10,594 |
Management fee |
(217) |
(866) |
(1,083) |
(198) |
(792) |
(990) |
(403) |
(1,613) |
(2,016) |
Other administrative expenses |
(263) |
- |
(263) |
(250) |
- |
(250) |
(505) |
- |
(505) |
Net return on |
|
|
|
|
|
|
|
|
|
before finance |
|
|
|
|
|
|
|
|
|
costs and taxation |
3,235 |
19,623 |
22,858 |
2,279 |
37,364 |
39,643 |
5,230 |
2,843 |
8,073 |
Finance costs |
(69) |
(277) |
(346) |
(35) |
(141) |
(176) |
(75) |
(301) |
(376) |
Net return on |
|
|
|
|
|
|
|
|
|
before taxation |
3,166 |
19,346 |
22,512 |
2,244 |
37,223 |
39,467 |
5,155 |
2,542 |
7,697 |
Taxation |
(260) |
- |
(260) |
(191) |
- |
(191) |
(429) |
- |
(429) |
Net return on ordinary activities |
|
|
|
|
|
|
|
|
|
after taxation |
2,906 |
19,346 |
22,252 |
2,053 |
37,223 |
39,276 |
4,726 |
2,542 |
7,268 |
Return per share |
1.80p |
11.99p |
13.79p |
1.25p |
22.72p |
23.97p |
2.91p |
1.56p |
4.47p |
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.
The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. The Total column represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL'). For this reason a STRGL has not been presented.
Reconciliation of Movements in Shareholders' Funds
|
Called up |
|
Capital |
|
|
|
Six months ended |
share |
Other |
redemption |
Capital |
Revenue |
|
31st March 2011 |
capital |
reserve |
reserve |
reserves |
reserve |
Total |
(Unaudited) |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
At 30th September 2010 |
40,365 |
166,791 |
8,597 |
84,386 |
5,967 |
306,106 |
Repurchase and cancellation of the |
|
|
|
|
|
|
Company's own shares |
(35) |
- |
35 |
(229) |
- |
(229) |
Net return on ordinary activities |
- |
- |
- |
19,346 |
2,906 |
22,252 |
Dividends appropriated in |
- |
- |
- |
- |
(4,517) |
(4,517) |
At 31st March 2011 |
40,330 |
166,791 |
8,632 |
103,503 |
4,356 |
323,612 |
|
|
|
|
|
|
|
|
Called up |
|
Capital |
|
|
|
Six months ended |
share |
Other |
redemption |
Capital |
Revenue |
|
31st March 2010 |
capital |
reserve |
reserve |
reserves |
reserve |
Total |
(Unaudited) |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
At 30th September 2009 |
42,463 |
166,791 |
6,499 |
94,033 |
5,891 |
315,677 |
Repurchase and cancellation of the |
|
|
|
|
|
|
Company's own shares |
(2,076) |
- |
2,076 |
(12,045) |
- |
(12,045) |
Net return on ordinary activities |
- |
- |
- |
37,223 |
2,053 |
39,276 |
Dividends appropriated in |
- |
- |
- |
- |
(4,650) |
(4,650) |
At 31st March 2010 |
40,387 |
166,791 |
8,575 |
119,211 |
3,294 |
338,258 |
|
|
|
|
|
|
|
|
Called up |
|
Capital |
|
|
|
Year ended |
share |
Other |
redemption |
Capital |
Revenue |
|
30th September 2010 |
capital |
reserve |
reserve |
reserves |
reserve |
Total |
(Audited) |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
At 30th September 2009 |
42,463 |
166,791 |
6,499 |
94,033 |
5,891 |
315,677 |
Repurchase and cancellation of the |
|
|
|
|
|
|
Company's own shares |
(2,098) |
- |
2,098 |
(12,189) |
- |
(12,189) |
Net return on ordinary activities |
- |
- |
- |
2,542 |
4,726 |
7,268 |
Dividends appropriated in |
- |
- |
- |
- |
(4,650) |
(4,650) |
At 30th September 2010 |
40,365 |
166,791 |
8,597 |
84,386 |
5,967 |
306,106 |
Balance Sheet
at 31st March 2011
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
31st March 2011 |
31st March 2010 |
30th September 2010 |
|
£'000 |
£'000 |
£'000 |
Fixed assets |
|
|
|
Investments held at fair value through profit |
339,049 |
358,574 |
300,515 |
Current assets |
|
|
|
Debtors |
3,229 |
6,447 |
2,439 |
Cash and short term deposits |
19,241 |
34,141 |
3,259 |
|
22,470 |
40,588 |
5,698 |
Creditors: amounts falling due within one year |
(37,907) |
(60,904) |
(107) |
Net current (liabilities)/assets |
(15,437) |
(20,316) |
5,591 |
Total assets less current liabilities |
323,612 |
338,258 |
306,106 |
Net assets |
323,612 |
338,258 |
306,106 |
Capital and reserves |
|
|
|
Called up share capital |
40,330 |
40,387 |
40,365 |
Other reserve |
166,791 |
166,791 |
166,791 |
Capital redemption reserve |
8,632 |
8,575 |
8,597 |
Capital reserves |
103,503 |
119,211 |
84,386 |
Revenue reserve |
4,356 |
3,294 |
5,967 |
Shareholders' funds |
323,612 |
338,258 |
306,106 |
Net asset value per share (note 4) |
200.6p |
209.4p |
189.6p |
Cash Flow Statement
for the six months ended 31st March 2011
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
Six months ended |
Six months ended |
Year ended |
|
31st March 2011 |
31st March 2010 |
30th September 2010 |
|
£'000 |
£'000 |
£'000 |
Net cash inflow from operating activities |
1,524 |
1,241 |
3,072 |
Net cash outflow from returns on investments |
|
|
|
and servicing of finance |
(324) |
(176) |
(381) |
Net cash (outflow)/inflow from capital |
|
|
|
expenditure and financial investment |
(18,311) |
27,388 |
51,288 |
Dividend paid |
(4,517) |
(4,650) |
(4,650) |
Net cash inflow/(outflow) from financing |
37,646 |
(13,266) |
(69,575) |
Increase/(decrease) in cash for the period |
16,018 |
10,537 |
(20,246) |
Reconciliation of net cash flow to movement |
|
|
|
Net cash movement |
16,018 |
10,537 |
(20,246) |
Loans (drawn down)/repaid in the period |
(38,009) |
- |
56,165 |
Exchange movements |
337 |
(512) |
(3,862) |
Movement in net funds/debt in the period |
(21,654) |
10,025 |
32,057 |
Net funds/(debt) at the beginning of the period |
3,259 |
(28,798) |
(28,798) |
Net (debt)/funds at the end of the period |
(18,395) |
(18,773) |
3,259 |
Represented by: |
|
|
|
Cash and short term deposits |
19,241 |
34,141 |
3,259 |
Debt falling due within one year |
(37,636) |
(52,914) |
- |
Net (debt)/funds at the end of the period |
(18,395) |
(18,773) |
3,259 |
Notes to the Accounts
for the six months ended 31st March 2011
1. Financial statements
The information contained within the financial accounts in this half year report has not been audited or reviewed by the Company's auditors.
The figures and financial information for the year ended 30th September 2010 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.
2. Accounting policies
The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009.
All of the Company's operations are of a continuing nature.
The accounting policies applied to these half year accounts are consistent with those applied in the accounts for the year ended 30th September 2010.
3. Return per share
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
Six months ended |
Six months ended |
Year ended |
|
31st March 2011 |
31st March 2010 |
30th September 2010 |
|
£'000 |
£'000 |
£'000 |
Return per share is based on the following: |
|
|
|
Revenue return |
2,906 |
2,053 |
4,726 |
Capital return |
19,346 |
37,223 |
2,542 |
Total return |
22,252 |
39,276 |
7,268 |
Weighted average number of shares in issue |
161,350,386 |
163,824,770 |
162,661,550 |
Revenue return per share |
1.80p |
1.25p |
2.91p |
Capital return per share |
11.99p |
22.72p |
1.56p |
Total return per share |
13.79p |
23.97p |
4.47p |
4. Net asset value per share
Net asset value per share is calculated by dividing the funds attributable to ordinary shareholders by the number of ordinary shares in issue at 31st March 2011 of 161,318,078 (31st March 2010: 161,548,078 and 30th September 2010: 161,458,078),
5. Reconciliation of total net return on ordinary activities before finance costs and taxation to net cash inflow from operating activities
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
Six months ended |
Six months ended |
Year ended |
|
31st March 2011 |
31st March 2010 |
30th September 2010 |
|
£'000 |
£'000 |
£'000 |
Total net return on ordinary activities before |
|
|
|
finance costs and taxation |
22,858 |
39,643 |
8,073 |
Less capital return before finance costs and taxation |
(19,623) |
(37,364) |
(2,843) |
Increase in net debtors and accrued income |
(585) |
(55) |
(116) |
Overseas withholding taxation |
(260) |
(191) |
(429) |
Management fee charged to capital |
(866) |
(792) |
(1,613) |
Net cash inflow from operating activities |
1,524 |
1,241 |
3,072 |
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement
JPMORGAN ASSET MANAGEMENT (UK) LIMITED
ENDS
A copy of the half yearly report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.hemscott.com/nsm.do
The half yearly report will also be available on the Company's website at www.jpmjapanese.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.
JPMORGAN ASSET MANAGEMENT (UK) LIMITED