Half Yearly Report

RNS Number : 5025E

JPMorgan Japanese Inv. Trust PLC

31 May 2012

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

31ST MARCH 2012

Chairman's Statement

Performance

Over the six months to 31st March 2012, our benchmark, the Tokyo Stock Exchange First Section (TOPIX) Index, rose by 3.7% in sterling terms. The net assets of the Company increased by 2.1%, an underperformance of 1.6%. The return to shareholders (which includes dividends) was 5.6% as the discount to net asset value narrowed over the period.

After a good run of outperformance it is disappointing to report a setback. We will continue to monitor performance extremely closely.

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

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 the previous year, we paid an increased dividend of 3.3p per share and this year it appears likely that the Company will be in a position to maintain at least this level of payment, utilising revenues earned from the portfolio.

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 has not repurchased any Ordinary Shares 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 8% geared, having ranged between 98% and 108% invested during the six months under review.

Outlook

Japanese equity valuations are currently attractive compared with other Asian markets and we remain confident that the Investment Manager's strategy will deliver positive returns for shareholders over the long term.

Jeremy Paulson-Ellis

Chairman                                                                                                                                         31st May 2012

Investment Manager's Report

The benchmark TOPIX index rose 3.7% in sterling terms during the September 2011 to March 2012 period with the Company's NAV rising 2.1 %. Export and manufacturing sectors performed well, while steadier growth companies such as telecom and technology stocks performed poorly.

Economy and Politics

Inevitably, Prime Minister Noda's popularity has fallen. However, it is worth noting two areas of progress. First, despite significant domestic opposition he has declared that Japan will enter Trans-Pacific Partnership (TPP) negotiations, a multilateral free-trade agreement with countries including the United States and Australia. Membership of the TPP could be positive for many Japanese exporters as import tariffs would be gradually eliminated. He has also made an international commitment to raise the consumption tax over the next few years - a doubling to 10% by the mid-2010s.

In February the Bank of Japan announced that it would have a 'goal' of 1% inflation. It also announced an extension of its Japanese government bond purchase programme. The stock market rallied and the yen weakened in response to these moves. It remains to be seen if this represents a long-term fundamental change in policy from the authorities.

There continues to be uncertainty over Japan's long-term energy policy. At the time of writing all of Japan's 54 nuclear reactors are off-line. This is not just an issue for Tokyo. Indeed, 46% of the Osaka region's and 40% of Kyushu's electricity supply used to come from nuclear. We do not expect an imminent restart to those reactors that are shut down and it is likely that there will be power saving measures in the summer of 2012. We continue to view Liquid Natural Gas as the long-term beneficiary of a move away from atomic energy.

Market and Portfolio

The Japanese stock market trades on a price to earnings ratio of 13 times based on forecasts for 2012 profits. This is comparable to global markets with the S&P 500 in the United States trading on 13 times and MSCI Asia excluding Japan trading on 11 times. The book valuation of the Japanese market continues to trade at a significant discount to global levels. Over the next year profit momentum should be relatively good as one-time factors such as the March 2011 earthquake and Thai floods last autumn drop out.

The core themes of the portfolio remain largely unchanged. We believe that Japan, by geographic chance, is fortunate to be located in the rapidly growing Asian region. In export sectors we hold stocks that will benefit from the growth of emerging market economies and companies such as Honda Motor which has the number one position in motorbike markets including Indonesia and Brazil. We also believe that as wages rise factories will increasingly automate - a key area of Japanese competitive advantage. Growth in this area underpins our investment thesis in companies such as factory automation specialist, Fanuc.

We hold a range of domestic stocks that benefit from structural trends in Japan. One such trend is the rapidly aging population and an example of our exposure in this area is Message, a recent new purchase for the Company and an operator of sheltered housing. We also find many attractive ideas in the retail sector. There are two key trends here - the shift to more purchases being made online and industry consolidation as mom and pops stores slowly but steadily disappear.

We continue to believe there is a major change in the way people play computer games as they shift from consoles to smartphones and, eventually, download directly to their televisions. Stocks in this area, such as Gree, have not performed well recently as the market has been concerned about increasing regulation by the government but we do not believe that the investment case has changed.

We have also maintained our bias towards high quality companies with leading market shares, strong balance sheets and improving shareholder returns. This strategy did not serve us well from January to March 2012 as high quality companies and defensive stocks struggled in the rising market. However, we still expect global growth to be subdued for a protracted period and that only the strongest companies can succeed in this challenging environment. This confidence is reflected in the level of gearing which was increased from a net cash position at the previous year end to 8% at the end of March.

Outlook

There are many long-term trends in Japan, both positive and negative. We believe that the differences between those companies that will succeed and those that will not are set to become ever greater. Our local presence on the ground in Tokyo is a strong competitive advantage in identifying long-term country, sector and stock specific themes. Although there are many macro-economic headwinds we are positive on the outlook for the Company's holdings in the long-term view. Valuations remain compelling with the market still trading at the low end of historical ranges despite notable improvements in corporate governance, dramatically higher exposure to growing Asian markets and a more aggressive pursuit of profit than has been the case in the past. Through continued focus on these beneficiaries of powerful secular trends, at a cheap valuation, we believe that the outlook for our holdings remains attractive.

Nicholas Weindling

Investment Manager                                                                                                                   31st May 2012

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 2011.

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                                                                                                                  31st May 2012

Income Statement

for the six months ended 31st March 2012

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st March 2012			31st March 2011			30th September 2011
	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	-	2,614	2,614	-	20,285	20,285	-	11,029	11,029
Net foreign currency gains/(losses)	-	1,515	1,515	-	204	204	-	(1,260)	(1,260)
Income from investments	3,817	-	3,817	3,714	-	3,714	7,321	-	7,321
Other interest receivable
and similar income	-	-	-	1	-	1	2	-	2
Gross return	3,817	4,129	7,946	3,715	20,489	24,204	7,323	9,769	17,092
Management fee	(206)	(825)	(1,031)	(217)	(866)	(1,083)	(449)	(1,795)	(2,244)
Other administrative expenses	(228)	-	(228)	(263)	-	(263)	(522)	-	(522)
Net return on ordinary
activities before finance
costs and taxation	3,383	3,304	6,687	3,235	19,623	22,858	6,352	7,974	14,326
Finance costs	(36)	(144)	(180)	(69)	(277)	(346)	(210)	(840)	(1,050)
Net return on ordinary
activities before taxation	3,347	3,160	6,507	3,166	19,346	22,512	6,142	7,134	13,276
Taxation	(267)	-	(267)	(260)	-	(260)	(512)	-	(512)
Net return on ordinary
activities after taxation	3,080	3,160	6,240	2,906	19,346	22,252	5,630	7,134	12,764
Return per share (note 3)	1.91p	1.96p	3.87p	1.80p	11.99p	13.79p	3.49p	4.42p	7.91p

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 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
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 the period	-	-	-	-	(4,517)	(4,517)
At 31st March 2011	40,330	166,791	8,632	103,503	4,356	323,612
	Called up		Capital
Year ended	share	Other	redemption	Capital	Revenue
30th September 2011	capital	reserve	reserve	reserves	reserve	Total
(Audited)	£'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	-	-	-	7,134	5,630	12,764
Dividends appropriated in the year	-	-	-	-	(4,517)	(4,517)
At 30th September 2011	40,330	166,791	8,632	91,291	7,080	314,124

Balance Sheet

at 31st March 2012

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2012	31st March 2011	30th September 2011
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	339,397	339,049	312,150
Current assets
Debtors	7,436	3,229	5,727
Cash and short term deposits	1,817	19,241	11,329
	9,253	22,470	17,056
Creditors: amounts falling due within one year	(33,609)	(37,907)	(2,590)
Net current (liabilities)/assets	(24,356)	(15,437)	14,466
Total assets less current liabilities	315,041	323,612	326,616
Creditors: amounts falling after more than one year	-	-	(12,492)
Net assets	315,041	323,612	314,124
Capital and reserves
Called up share capital	40,330	40,330	40,330
Other reserve	166,791	166,791	166,791
Capital redemption reserve	8,632	8,632	8,632
Capital reserves	94,451	103,503	91,291
Revenue reserve	4,837	4,356	7,080
Total equity shareholders' funds	315,041	323,612	314,124
Net asset value per share (note 4)	195.3p	200.6p	194.7p

Cash Flow Statement

for the six months ended 31st March 2012

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2012	31st March 2011	30th September 2011
	£'000	£'000	£'000
Net cash inflow from operating activities (note 5)	1,806	1,524	3,729
Net cash outflow from returns on investments
and servicing of finance	(186)	(324)	(1,033)
Net cash outflow from capital expenditure and
financial investment	(25,256)	(18,311)	(1,110)
Dividend paid	(5,323)	(4,517)	(4,517)
Net cash inflow from financing	20,587	37,646	9,227
(Decrease)/increase in cash for the period	(8,372)	16,018	6,296
Reconciliation of net cash flow to movement in net debt
Net cash movement	(8,372)	16,018	6,296
Loans drawn down in the period	(20,587)	(38,009)	(9,456)
Exchange movements	1,518	337	(1,262)
Movement in net funds/debt in the period	(27,441)	(21,654)	(4,422)
Net (debt)/funds at the beginning of the period	(1,163)	3,259	3,259
Net debt at the end of the period	(28,604)	(18,395)	(1,163)
Represented by:
Cash and short term deposits	1,817	19,241	11,329
Debt falling due within one year	(30,421)	(37,636)	(12,492)
Net debt at the end of the period	(28,604)	(18,395)	(1,163)

Notes to the Accounts

for the six months ended 31st March 2012

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 2011 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 2011.

3.   Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2012	31st March 2011	30th September 2011
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	3,080	2,906	5,630
Capital return	3,160	19,346	7,134
Total return	6,240	22,252	12,764
Weighted average number of shares in issue	161,318,078	161,350,386	161,334,188
Revenue return per share	1.91p	1.80p	3.49p
Capital return per share	1.96p	11.99p	4.42p
Total return per share	3.87p	13.79p	7.91p

-    

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 2012 of 161,318,078 (31st March 2011: 161,318,078 and 30th September 2011: 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 2012	31st March 2011	30th September 2011
	£'000	£'000	£'000
Total net return on ordinary activities before finance
costs and taxation	6,687	22,858	14,326
Less capital return before finance costs and taxation	(3,304)	(19,623)	(7,974)
Increase in net debtors and accrued income	(485)	(585)	(316)
Overseas withholding taxation	(267)	(260)	(512)
Management fee charged to capital	(825)	(866)	(1,795)
Net cash inflow from operating activities	1,806	1,524	3,729

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

 

END

 

 

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