Half Yearly Report

RNS Number : 8279H

JPMorgan Japanese Inv. Trust PLC

22 May 2014

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST MARCH 2014

Chairman's Statement

Performance

For the six months ended 31st March 2014 the total return to shareholders saw a decline of 9.8% compared with a fall in the Company's benchmark of 5.9% and the total return on net assets declined 9.9%. This underperformance was disappointing. Performance over one, three and five years is ahead of the benchmark.

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 2013, we paid a dividend of 2.80p per share, down on the previous year's dividend of 3.65p per share.

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 did not repurchase any 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 11.9% geared, having ranged between 11.9% and 14.9% during the six months under review.

Alternative Investment Fund Manager's Directive ('AIFMD')

The Company is required by AIFMD to appoint an Alternative Investment Fund Manager ('AIFM'). JPMorgan Asset Management (UK) Limited ('JPMAM') is regulated under the Markets in Financial Instruments Directive (or 'MiFID') and therefore cannot act in the capacity of AIFM to the Company. Therefore, JPMorgan Funds Limited will be appointed as the Company's AIFM. JPMorgan Funds Limited will delegate portfolio management to JPMorgan Asset Management (UK) Limited and there will be further delegation to JPMorgan Asset Management (Japan) Limited which has appointed Nicholas Weindling as Investment Manager to the Company's portfolio. The Company has decided to appoint Bank of New York Mellon as its Depositary (an appointment also required under the AIFMD) and Custody services will continue to be provided by JPMorgan.

Outlook

The Investment Manager's Report details their view of the outlook for the Japanese economy and likely moves in the Stock Market which may result. The portfolio is significantly positioned to take advantage of the changes expected to occur as a result of 'Abenomics' and will be reviewed in the light of progress. 2014 Corporate results are expected to exceed forecasts and we would expect this to lead to a more positive overall view on the Stock Market.

Jeremy Paulson-Ellis

Chairman

22nd May 2014

Investment Manager's Report

The benchmark TOPIX index fell 5.9% in sterling terms during the six months ended 31st March 2014 with the Company's NAV falling 9.9%.

Review

The economy continued to recover as demonstrated by a wide range of data. The Shoko Chukin small firm sentiment index recorded the highest reading since 1989; consumer prices (excluding food and energy) hit +0.8% in February, the highest reading in fifteen years; and land prices in the three major large city areas rose for the first time in six years while office vacancy rates continued to fall.

With prices rising and consumption tax increasing from 5% to 8% from 1st April it is important that bonuses and salaries in particular follow suit. It was therefore reassuring to see many major companies announcing wage increases which, in many cases, were the first for several years. Exporters were able to do this as profits surged due to the weaker yen. As the economy has improved the labour market has also tightened with unemployment falling to just 3.6% in March. This is putting pressure on wages in many domestic sectors such as construction and services. It is important that people expect both prices and wages to rise if Japan is to escape deflation permanently and we continue to watch this data carefully. Our meetings with companies post the consumption tax increase suggest that the impact has been less than expected on demand as a whole and, overall, we think the economy is doing well.

Sino-Japan relations continued to be difficult. Rising tensions in North East Asia are clearly unhelpful but our core view remains that the worst case is a low probability, high impact event and, as a result, we have made no changes to the portfolio.

Portfolio Performance

The underperformance of the benchmark over the six month period was due to both asset allocation and stock selection. Turnover was low as we made few changes to the overall strategy.

Broadly speaking sectors and stocks which outperformed last year were hit hard in the first half of the year. There were two groups of stocks that hurt performance - financial stocks and internet companies. Financials, such as banks and real estate, which we see as key beneficiaries of the return of inflation to Japan, fell as some investors became disillusioned by Abenomics, particularly the pace of structural perform. Internet companies performed poorly globally. Several of the largest detractors were stocks that had performed well over the previous year. These included Digital Garage which invests in unlisted internet start-ups, online restaurant review and booking company Kakaku.com and Cookpad, a recipe website. All three of these companies were top contributors in the last financial year. The worst performing stock was Sanrio, which owns the Hello Kitty franchise, where growth has slowed. We do not believe the investment cases for any of these stocks have changed and continue to hold them in the portfolio. The top positive contributor was Yumeshin Holdings which is a key beneficiary of rising wages in the construction sector as demand recovers.

Outlook

We continue to be positive on the outlook for Japanese equities for several reasons. First, company fundamentals are strong and corporates are becoming more proactive as regards shareholder returns. Second, the Bank of Japan remains committed to fighting deflation and we believe it is willing to use all the tools at its disposal and will increase its quantitative easing programme if required. Third, we expect global demand will continue to be led by the improving US economy as well as Europe. Historically, the Japanese economy has depended on global growth and we think that this will continue. Fourth, as detailed in the review section, economic data continues to be good. We expect the impact of the consumption tax rise will prove to be relatively small and the economy will return to growth in the third quarter of 2014.

There are clearly risks. Although we believe that the global economy will continue to recover, it is still some way from standing on a sound and sustainable footing. There are continuing geopolitical uncertainties. In Japan there is a risk of a lack of progress in structural reform, also known as the "third arrow" of Abenomics. An increasing number of investors and commentators are starting to doubt Abe's commitment to change and the government needs to address structural issues, such as the declining population and high level of public debt, that pose threats to the long term health of the Japanese economy.

Future Strategy

We have not made significant changes to the overall structure of the portfolio over the last six months and have maintained a bias towards domestic sectors that benefit from aggressive monetary easing, such as financials and real estate. Abe remains immensely popular, more so than even Koizumi at the same stage of his premiership and, unusually, there has been no change in the cabinet since he came to power. This popularity and continuity are highly unusual (this is the longest post-war period without a change in the cabinet) and lead us to believe that we should continue to give Abenomics the benefit of the doubt in pushing through with his policy agenda. The other pillar of the portfolio comprises companies that we believe will deliver long term, sustained growth thanks to a combination of secular trends, quality management and strong balance sheets. Examples of these trends include factory automation, growth in ecommerce, greater use of mobile devices such as smart phones, domestic consolidation and the creation of strong Japanese brands in new areas such as consumer goods. We expect these trends to last for many years. We continue to avoid companies whose products and services have been commoditised and therefore do not command strong enough pricing power. Consumer durables such as televisions, white goods and even mobile devices are examples.

Our objective remains to achieve capital growth from investments in Japanese companies by long term outperformance of the Topix benchmark. At JPMorgan we have a strong team based on the ground in Tokyo, conducting many company visits each year - around 2,500 company meetings in 2013 - in order to achieve this aim and to try to identify significant changes in sectors and companies. We expect this to be a continuing competitive advantage.

Nicholas Weindling

Investment Manager

22nd May 2014

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; going concern 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 2013.

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 state of the affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st March 2014, as required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R; and

(ii)  the interim management report includes a fair review of the information required by DTR 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting estimates that are reasonable and prudent;

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

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

and the Directors confirm that they have done so.

For and on behalf of the Board

Jeremy Paulson-Ellis

Chairman

22nd May 2014

For further information, please contact:

Rebecca Burtonwood

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 4000

Income Statement

for the six months ended 31st March 2014

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st March 2014			31st March 2013			30th September 2013
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held   at fair value through profit or loss	-	(47,622)	(47,622)	-	67,351	67,351	-	124,427	124,427
Net foreign currency gains	-	4,290	4,290	-	4,091	4,091	-	9,302	9,302
Income from investments	3,052	-	3,052	3,244	-	3,244	6,041	-	6,041
Gross return/(loss)	3,052	(43,332)	(40,280)	3,244	71,442	74,686	6,041	133,729	139,770
Management fee	(273)	(1,094)	(1,367)	(201)	(802)	(1,003)	(459)	(1,835)	(2,294)
Other administrative expenses	(230)	-	(230)	(273)	-	(273)	(519)	-	(519)
Net return/(loss) on ordinary   activities before finance costs   and taxation	2,549	(44,426)	(41,877)	2,770	70,640	73,410	5,063	131,894	136,957
Finance costs	(77)	(310)	(387)	(63)	(252)	(315)	(151)	(605)	(756)
Net return/(loss) on ordinary   activities before taxation	2,472	(44,736)	(42,264)	2,707	70,388	73,095	4,912	131,289	136,201
Taxation	(306)	-	(306)	(232)	-	(232)	(432)	-	(432)
Net return/(loss) on ordinary   activities after taxation	2,166	(44,736)	(42,570)	2,475	70,388	72,863	4,480	131,289	135,769
Return/(loss) per share (note 3)	1.34p	(27.74)p	(26.40)p	1.53p	43.63p	45.16p	2.78p	81.40p	84.18p

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 2014	capital	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2013	40,312	166,791	8,650	209,162	6,961	431,876
Net (loss)/return on ordinary activities	-	-	-	(44,736)	2,166	(42,570)
Dividends appropriated in the period	-	-	-	-	(4,515)	(4,515)
At 31st March 2014	40,312	166,791	8,650	164,426	4,612	384,791
	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
Year ended	share	Other	redemption	Capital	Revenue
30th September 2013	capital	reserve	reserve	reserves	reserve	Total
(Audited)	£'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	(139)	-	(139)
Net return on ordinary activities	-	-	-	131,289	4,480	135,769
Dividends appropriated in the year	-	-	-	-	(5,888)	(5,888)
At 30th September 2013	40,312	166,791	8,650	209,162	6,961	431,876

Balance Sheet

at 31st March 2014

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2014	31st March 2013	30th September 2013
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	430,683	417,085	487,941
Current assets
Debtors	4,852	8,536	5,623
Cash and short term deposits	20,502	1,244	3,737
	25,354	9,780	9,360
Creditors: amounts falling due within one year	(1,353)	(57,894)	(2,494)
Net current assets/(liabilities)	24,001	(48,114)	6,866
Total assets less current liabilities	454,684	368,971	494,807
Creditors: amounts falling due after more than one year	(69,893)	-	(62,931)
Net assets	384,791	368,971	431,876
Capital and reserves
Called up share capital	40,312	40,312	40,312
Other reserve	166,791	166,791	166,791
Capital redemption reserve	8,650	8,650	8,650
Capital reserves	164,426	148,262	209,162
Revenue reserve	4,612	4,956	6,961
Total equity shareholders' funds	384,791	368,971	431,876
Net asset value per share (note 4)	238.6p	228.8p	267.8p

Cash Flow Statement

for the six months ended 31st March 2014

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2014	31st March 2013	30th September 2013
	£'000	£'000	£'000
Net cash inflow from operating activities (note 5)	906	1,975	3,738
Net cash outflow from returns on investments and servicing of finance	(372)	(277)	(757)
Net cash inflow/(outflow) from capital expenditure and financial investment	9,483	(24,149)	(38,407)
Dividend paid	(4,515)	(5,888)	(5,888)
Net cash inflow from financing	12,204	25,121	41,281
Increase/(decrease) in cash for the period	17,706	(3,218)	(33)
Reconciliation of net cash flow to movement in net debt
Net cash movement	17,706	(3,218)	(33)
Loans drawn down in the period	(12,204)	(25,121)	(41,420)-
Exchange movements	4,301	4,092	9,302
Movement in net funds/(debt) in the period	9,803	(24,247)	(32,151)
Net debt at the beginning of the period	(59,194)	(27,043)	(27,043)
Net debt at the end of the period	(49,391)	(51,290)	(59,194)
Represented by:
Cash and short term deposits	20,502	1,244	3,737
Debt falling due within one year	-	(52,534)	-
Debt falling due after more than one year	(69,893)	-	(62,931)
Net debt at the end of the period	(49,391)	(51,290)	(59,194)

Notes to the Accounts

for the six months ended 31st March 2014

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 2013 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 2013.

3.   (Loss)/return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2014	31st March 2013	30th September 2013
	£'000	£'000	£'000
(Loss)/return per share is based on the following:
Revenue return	2,166	2,475	4,480
Capital (loss)/return	(44,736)	70,388	131,289
Total (loss)/return	(42,570)	72,863	135,769
Weighted average number of shares in issue	161,248,078	161,316,450	161,282,215
Revenue return per share	1.34p	1.53p	2.78p
Capital (loss)/return per share	(27.74)p	43.63p	81.40p
Total (loss)/return per share	(26.40)p	45.16p	84.18p

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 2014 of 161,248,078 (31st March 2013: 161,248,078 and 30th September 2013: 161,248,078).

5.   Reconciliation of net (loss)/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 2014	31st March 2013	30th September 2013
	£'000	£'000	£'000
Net (loss)/return on ordinary activities before   finance costs and taxation	(41,877)	73,410	136,957
Add capital loss/(less capital return) on ordinary   activities before finance costs and taxation	44,426	(70,640)	(131,894)
(Increase)/decrease in net debtors and accrued income	(180)	257	932
(Decrease)/increase in accrued expenses	(63)	(18)	10
Overseas taxation	(306)	(232)	(432)
Management fee charged to capital	(1,094)	(802)	(1,835)
Net cash inflow from operating activities	906	1,975	3,738

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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