Half Yearly Report

RNS Number : 2301F

JPMorgan Japanese Inv. Trust PLC

21 May 2013

 

JPMORGAN JAPANESE INVESTMENT TRUST PLC

LONDON STOCK EXCHANGE ANNOUNCEMENT

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31^ST MARCH 2013

Chairman's Statement

Performance

I am delighted to report an excellent total return to shareholders for the six months ended 31st March 2013 of 31.4%, the best first six month period during my time as Chairman. The total return on net assets over the same period was in line with the Company's benchmark, the Tokyo Stock Exchange First Section (TOPIX) Index, of 24.7% in sterling terms. Both the shareholder returns and return on net assets were impacted by the weakening of the yen against sterling and most other currencies.

Further detail on the background against which the Company performed is discussed in the Investment Manager's Report on pages 3 and 4.

Revenue and Dividends

As I emphasise each year in my Chairman's Statement, dividend streams from Japan are unpredictable and dividends paid in previous years should not be taken as a guide to future payments. In respect of the year ended 30th September 2012, we paid a dividend of 3.65p per share but, given a combination of the impact of the yen on revenue and the revisions to the structure of the portfolio, it is unlikely that we will be able to maintain this level; on current projections, we would hope to pay a final dividend of around 3p per share, subject to shareholder approval at the Annual General Meeting in December 2013.

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 and to enhance returns to ongoing shareholders. The Company repurchased 70,000 ordinary shares for cancellation during the period under review, the first repurchase by the Company since November 2010.

Board of Directors

It is with regret that I have to announce that David Pearson will be retiring from the Board of Directors at the Annual General Meeting in December 2013 having served for nearly eleven years. I would like to express my thanks to David for his valuable contribution to the Board over many years.

I am pleased to announce, however, that Sir Stephen Gomersall, KCMG will be appointed to the Board with effect from 1st July 2013 and will seek reappointment as is required at the December 2013 Annual General Meeting. Sir Stephen is currently a Director of Hitachi Ltd and previously served as British Ambassador to Japan between 1999 and 2004.

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 13% geared, having ranged between 6% and 14% during the six months under review, and this contributed positively to performance.

Outlook

It has been an exceptional period of change within Japan from which shareholders have benefited. In September 2012 when Shinzō Abe became President of the Liberal Democratic Party ('LDP') and was subsequently appointed Prime Minister on 26th December 2012 after the LDP won the general election. Your Manager's Report contains detailed comment on the prospects for the Japanese economy and it is encouraging to note that your Manager believes that there are significant opportunities for investors in Japan, many resulting from the changes in Government policy now under way.

Jeremy Paulson-Ellis

Chairman                                                                                                                                                                                                        21st May 2013

Investment Manager's Report

The total return to shareholders in the six months ended 31st March 2013 was 31.4%. The Company's NAV rose 24.7% during the same period, in line with the Company's benchmark TOPIX index.

Review

The major event during the period was the general election. The Liberal Democratic Party under Prime Minister Shinzō Abe won a landslide victory. The centrepiece of Abe's platform is the economy. A 2% inflation target has already been enacted alongside a group of policies collectively known as 'Abenomics'. The new governor of the Bank of Japan, Haruhiko Kuroda, is focused on trying to generate inflation and is pursuing aggressive policies. It is particularly notable that popularity ratings for Prime Minister Abe have risen post the election. On the negative side relations with China have continued to be difficult. This, and tensions on the Korean Peninsula, are key risks for Japan and the region and we continue to pay close attention to events.

One consequence of the changes above has been a rapid weakening of the yen. From the beginning of October to the end of March the yen weakened against the US dollar from ¥78 to ¥94. This happened because of the loosening of monetary policy in Japan on the one hand and a possible gradual tightening in the United States, as the economy continues to improve, on the other. The yen weakened against all major currencies with the moves against the euro and Korean won noteworthy in terms of the boost to competitiveness this will give Japanese exporters. In addition many Japanese companies will see a marked improvement in their underlying earnings as the weakness of the yen should increase revenues.

Following the decisive election result we increased the level of gearing to the maximum permitted due to the improved outlook. The top stock contributors were Jin, a spectacles retailer that is transforming the industry with its low-cost business model, and MonotaRO, an online retailer similar to Amazon. The major stock that detracted from performance was Namco Bandai, the gaming and software company, which we sold during the period.

Outlook and Future Strategy

We are positive on the outlook. There are four key reasons for this:

      -     Domestic policy support.

             Prime Minister Abe won a landslide victory in the December election and, unusually, has had increasing support ratings in the months that have followed. He has a strong mandate to reform and is pursuing his policies at a faster than expected rate. We expect public works spending to increase, corporate tax rates to come down and Japan to enter negotiations to join the Trans Pacific Partnership, a free trade association which includes the United States. We have already seen some companies increase wages. It is a long time since Japan has had stable and dynamic leadership.

      -     Improving global economic outlook.

The US economy is recovering as evidenced by the housing market and a falling unemployment rate. The most negative outcomes in the Eurozone have, for now, been averted. The Japanese economy is geared to such improvements. It is important to remember that during the 2008 financial crisis it was Japan that suffered the worst recession of any of the G8 nations. Conversely, when the global economy recovers we expect the Japanese economy to benefit strongly. Indeed, the stock market is even more geared to this trend with manufacturing accounting for over 50% of the TOPIX index versus around 20% of GDP.

      -     The weaker yen.

One consequence of the prospect of looser monetary policy in Japan has been a much weaker currency as detailed above. It weakened against all major currencies including the Korean won and the euro. This is important because many of Japan's major competitors are in these regions. The boost to competitiveness should be substantial.

      -     Valuations.

Although the stock market has rallied in recent months it is still around 40% below the highs of the summer of 2008. On a price/book valuation basis Japan trades at a large discount relative to its own history and other major markets. On a price/earnings basis it trades in line with other major markets but has much better earnings momentum, not only for 2013 but also 2014.

Overall, we see significant opportunities ahead. We believe that the primary beneficiaries of so-called Abenomics lie in domestic sectors. The improved outlook for export companies thanks to the weaker yen will feed directly through to the domestic economy in the form of higher profits and in turn higher wages. Furthermore, the drive for inflation should force companies and individuals out of cash savings and into riskier assets as they become concerned about their purchasing power being eroded. The Company is therefore overweight financial companies. Banks will benefit from increased loan demand as well as being able to sell more investment products. Real estate companies will benefit as the improved economic outlook pushes down vacancy rates and drives up rents. We also expect housing and condominium sales to improve. Eventually we expect wages to rise as the economy improves which should in turn increase demand for discretionary goods. The Company is therefore overweight retailers.

Long-term structural trends are the other core pillar of our investment strategy. The percentage of exports from Japan to Asia has increased from 25% to 55% over the last 25 years. For example, Japanese car companies have a 95% market share in the nascent Indonesian auto market. Japanese companies are also global leaders in growth areas such as factory automation - as Chinese wages rise we expect factories to increasingly automate with companies such as robot maker Fanuc ideally placed to benefit. Domestically there are also long-term trends. The percentage of shopping transacted on the internet is still very low by global standards but we see no reason why this low level should persist. We therefore own shares in Japan's largest e-commerce company Rakuten. We also invest in companies that will benefit from the ageing population. One example is Unicharm, the number one company in adult nappies.

At JPMorgan we have a large team based on the ground in Tokyo and we conduct many company visits each year - around 2,400 company meetings in the last financial year - to try to identify significant changes in sectors and companies. We expect this to be a source of continued competitive advantage both this year and into the future.

Nicholas Weindling

Investment Manager                                                                                                                                                                                21st May 2013

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 have not changed and fall into the following broad categories: investment and strategy; market risk; political, economic and governance; loss of investment team or investment manager; discount; change of corporate control of the Manager; 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 2012.

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.

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 gives a true and fair view of the assets, liabilities, financial position and net return of the Company as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; 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   

For further information, please contact:

Rebecca Burtonwood

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 4000                                                                                                                                                                                         21st May 2013

Income Statement

for the six months ended 31st March 2013

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st March 2013			31st March 2012			30th September 2012
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments
held at fair value through
profit or loss	-	67,351	67,351	-	2,614	2,614	-	(11,574)	(11,574)
Net foreign currency gains	-	4,091	4,091	-	1,515	1,515	-	141	141
Income from investments	3,244	-	3,244	3,817	-	3,817	8,121	-	8,121
Gross return/(loss)	3,244	71,442	74,686	3,817	4,129	7,946	8,121	(11,433)	(3,312)
Management fee	(201)	(802)	(1,003)	(206)	(825)	(1,031)	(368)	(1,475)	(1,843)
Other administrative expenses	(273)	-	(273)	(228)	-	(228)	(479)	-	(479)
Net return/(loss) on ordinary
activities before finance
costs and taxation	2,770	70,640	73,410	3,383	3,304	6,687	7,274	(12,908)	(5,634)
Finance costs	(63)	(252)	(315)	(36)	(144)	(180)	(93)	(371)	(464)
Net return/(loss) on ordinary
activities before taxation	2,707	70,388	73,095	3,347	3,160	6,507	7,181	(13,279)	(6,098)
Taxation	(232)	-	(232)	(267)	-	(267)	(569)	-	(569)
Net return/(loss) on ordinary
activities after taxation	2,475	70,388	72,863	3,080	3,160	6,240	6,612	(13,279)	(6,667)
Return/(loss) per share (note 3)	1.53p	43.63p	45.16p	1.91p	1.96p	3.87p	4.10p	(8.23)p	(4.13)p

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 2013	capital	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2012	40,330	166,791	8,632	78,012	8,369	302,134
Repurchase and cancellation of the Company's
own shares	(18)	-	18	(138)	-	(138)
Net return on ordinary activities	-	-	-	70,388	2,475	72,863
Dividends appropriated in the period	-	-	-	-	(5,888)	(5,888)
At 31st March 2013	40,312	166,791	8,650	148,262	4,956	368,971
	Called up		Capital
Six months ended	share	Other	redemption	Capital	Revenue
31st March 2012	capital	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2011	40,330	166,791	8,632	91,291	7,080	314,124
Net return on ordinary activities	-	-	-	3,160	3,080	6,240
Dividends appropriated in the period	-	-	-	-	(5,323)	(5,323)
At 31st March 2012	40,330	166,791	8,632	94,451	4,837	315,041
	Called up		Capital
Year ended	share	Other	redemption	Capital	Revenue
30th September 2012	capital	reserve	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2011	40,330	166,791	8,632	91,291	7,080	314,124
Net (loss)/return on ordinary activities	-	-	-	(13,279)	6,612	(6,667)
Dividends appropriated in the year	-	-	-	-	(5,323)	(5,323)
At 30th September 2012	40,330	166,791	8,632	78,012	8,369	302,134

Balance Sheet

at 31st March 2013

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2013	31st March 2012	30th September 2012
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	417,085	339,397	324,227
Current assets
Debtors	8,536	7,436	9,850
Cash and short term deposits	1,244	1,817	4,796
	9,780	9,253	14,646
Creditors: amounts falling due within one year	(57,894)	(33,609)	(36,739)
Net current liabilities	(48,114)	(24,356)	(22,093)
Net assets	368,971	315,041	302,134
Capital and reserves
Called up share capital	40,312	40,330	40,330
Other reserve	166,791	166,791	166,791
Capital redemption reserve	8,650	8,632	8,632
Capital reserves	148,262	94,451	78,012
Revenue reserve	4,956	4,837	8,369
Total equity shareholders' funds	368,971	315,041	302,134
Net asset value per share (note 4)	228.8p	195.3p	187.3p

Cash Flow Statement

for the six months ended 31st March 2013

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2013	31st March 2012	30th September 2012
	£'000	£'000	£'000
Net cash inflow from operating activities (note 5)	1,975	1,806	4,795
Net cash outflow from returns on investments
and servicing of finance	(277)	(186)	(476)
Net cash outflow from capital expenditure and
financial investment	(24,149)	(25,256)	(25,019)
Dividend paid	(5,888)	(5,323)	(5,323)
Net cash inflow from financing	25,121	20,587	20,587
Decrease in cash for the period	(3,218)	(8,372)	(5,436)
Reconciliation of net cash flow to movement in net debt
Net cash movement	(3,218)	(8,372)	(5,436)
Loans drawn down in the period	(25,121)	(20,587)	(20,587)
Exchange movements	4,092	1,518	143
Movement in net debt in the period	(24,247)	(27,441)	(25,880)
Net debt at the beginning of the period	(27,043)	(1,163)	(1,163)
Net debt at the end of the period	(51,290)	(28,604)	(27,043)
Represented by:
Cash and short term deposits	1,244	1,817	4,796
Debt falling due within one year	(52,534)	(30,421)	(31,839)
Net debt at the end of the period	(51,290)	(28,604)	(27,043)

Notes to the Accounts

for the six months ended 31st March 2013

1.   Financial statements

      The information contained within the financial accounts in the half year report and accounts has not been audited or reviewed by the Company's auditors.

      The figures and financial information for the year ended 30th September 2012 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 2012.

3.   Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2013	31st March 2012	30th September 2012
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	2,475	3,080	6,612
Capital return/(loss)	70,388	3,160	(13,279)
Total return/(loss)	72,863	6,240	(6,667)
Weighted average number of shares in issue	161,316,450	161,318,078	161,318,078
Revenue return per share	1.53p	1.91p	4.10p
Capital return/(loss) per share	43.63p	1.96p	(8.23)p
Total return/(loss) per share	45.16p	3.87p	(4.13)p

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 2013 of 161,248,078 (31st March 2012: 161,318,078 and 30th September 2012: 161,318,078).

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 2013	31st March 2012	30th September 2012
	£'000	£'000	£'000
Net total return/(loss) on ordinary activities before finance
costs and taxation	73,410	6,687	(5,634)
(Less capital return)/add capital loss before finance
costs and taxation	(70,640)	(3,304)	12,908
Decrease/(increase) in net debtors and accrued income	257	(485)	(419)
Decrease in accrued expenses	(18)	-	(16)
Overseas taxation	(232)	(267)	(569)
Management fee charged to capital	(802)	(825)	(1,475)
Net cash inflow from operating activities	1,975	1,806	4,795

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.morningstar.co.uk/uk/NSM

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.

 

END

 

 

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