Half Yearly Report

RNS Number : 0468O

JPMorgan Japanese Inv. Trust PLC

22 May 2015

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
31ST MARCH 2015

Chairman's Statement

Performance

This is my first statement as Chairman and I am delighted to report that, for the six months ended 31st March 2015 the total return to shareholders was +35.6% in sterling terms, with a total return on net assets of +28.6%, compared with a rise in the Company's benchmark of +17.2%.

Shareholders benefited from a combination of strong returns from the Japanese stock markets, good relative performance from the Company's portfolio, and a narrowing of the discount to net asset value at which the Company's shares traded (from 13.9% to 9.4%) over the six months under review.

Revenue and Dividends

As emphasised in previous Chairman's statements, dividend payments from Japanese companies are unpredictable and dividends paid to the Company's shareholders in previous years should not be taken as a guide to future payments. In respect of the year ended 30th September 2014, we paid a dividend of 2.80p per share, in line with the previous year.

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 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 12.3% geared. The Company's loan with Scotiabank matures in July 2015 and arrangements are underway to replace this loan with alternative financing. Since the half year end, the Company has drawn down a further JP¥3 billion from the loan facilities available to it, with gearing now totalling JP¥15 billion.

Directorate

Following many years of service to the Company, Jeremy Paulson-Ellis retired as a Director and Chairman following the Annual General Meeting in December. Christopher Samuel was appointed a Director at that time and I was appointed Chairman.

The Board and the Company benefited enormously from Jeremy's deep knowledge of Japan and his relentless pursuit of excellence and shareholder returns. His wise counsel will be greatly missed and no one will be more pleased to note the recent investment performance of the Company than Jeremy.

Outlook

The Company's Investment Manager successfully repositioned the portfolio in the fourth quarter of 2012 in response to the election of Mr Abe as prime minister on an electoral platform of what has subsequently become known as 'Abenomics'. The much improved performance of the Japanese equity markets and the Company's investment returns is a material result of Mr Abe's policies and  this repositioning.

The portfolio remains positioned to benefit further from 'Abenomics' and the outlook is, therefore, to a large extent dependent on continued reform and associated monetary easing from the Bank of Japan. Of the three main strands that make up 'Abenomics' the third, structural reform, is the last and most difficult to implement. The longer term prospects for the Japanese economy and stockmarkets will largely be dependent on whether and how progress is made in this area.

Japanese exporting companies have also been able to take advantage from the weakness in the yen and they would have their competitiveness challenged by any significant recovery in the value of the Japanese currency.

Andrew Fleming

Chairman                                                                                                                                                                                                 

22nd May 2015

Investment Manager's Report

Review

Several events renewed our conviction in the overall outlook for the market. In October the Bank of Japan announced additional easing measures while Prime Minister Abe was re-elected in December. Political stability combined with an aggressive Bank of Japan is a powerful combination. Additionally, some domestic institutions have begun to buy Japanese equities with the Government Pension Fund, the world's largest pension fund, announcing a change to its asset allocation. As such, its exposure to Japanese equities will increase from 12% to roughly 25%. Oil and commodity prices fell sharply. Falling commodity prices are particularly beneficial to Japan which has almost no natural resources of its own. Corporate profits have continued to be strong and this, combined with a tight labour market, has meant that wages have started to rise. Indeed, the spring wage negotiation resulted in an average wage increase of around 2.5%. This may seem small but it is the fastest pace since 1998. Lower petrol prices and higher wages should mean that consumption improves in 2015.

A recent trend has been the sudden increase in tourists visiting Japan. In 2013 Japan was only the 27th most popular tourist destination globally but, due to relaxed visa restrictions and the weaker yen, tourist arrivals have increased dramatically, particularly from Asia. In 2014, for example, Chinese tourist numbers rose around 80% year-over-year. The impact of this has been felt at airports, hotels, department stores and theme parks amongst other places.

Important developments have taken place in the area of corporate governance. The government has announced a series of measures which have included the introduction of a Stewardship Code while a Corporate Governance Code will be launched in June. A new stock market index - the JPX Nikkei Index 400 - was launched at the beginning of 2014, with return on equity as one of its selection criteria for company constituents. Criteria for inclusion in the index also include a number of qualitative factors including the number of outside board directors. This increased focus on governance and shareholder rights has seen Japanese companies pay record high dividends in the first half of the 2014 fiscal year. When combined with share buybacks, total shareholder returns are expected to reach their highest ever level in 2015. These developments have directly impacted the portfolio with our largest holding Keyence tripling its dividend (although the payout ratio is still very low) and leading robot maker Fanuc announcing that it will increase its dividend payout ratio from 30% to 60%, cancel treasury stock and appoint two outside directors.

Performance Review

The benchmark TOPIX index rose by 17.2% in sterling terms during the half year ended 31st March 2015 with the Company's NAV rising 28.6%. Over three years the Company has returned 72.0% versus 40.8% for the index. Over five years 65.6% versus 38.1% for the index. We continued with a bias to quality companies in areas which we think offer long term growth. We also maintained the Company's gearing close to the maximum permitted to reflect our optimistic view on the market and the fact that we can find many good opportunities in which to invest.

The outperformance versus the benchmark over the six months was due to both asset allocation and stock selection with additional outperformance coming from the effect of the Company's gearing.

At the asset allocation level the overwhelming positives were the gearing and the overweight in services. Services is a very varied sector encompassing everything from internet to karaoke so generalisations are difficult but many of these companies have high market shares in growing markets allowing the companies to have relatively high margins, good free cash flow and strong balance sheets. The main detractor was land transport, an area where we have not found compelling investment opportunities.

Stocks that contributed most positively were Rakuten, Japan Airport Terminal, Don Quijote, Oriental Land and CyberAgent. Rakuten is Japan's number one ecommerce company and is benefiting from the continued growth of the market. The penetration of online retail in Japan is still some way behind other developed markets such as the UK. Japan Airport Terminal operates duty free shops, for example at Tokyo's Haneda Airport, Don Quijote is a well-run retailer and Oriental Land operates Tokyo Disney Land. All three of these companies are enjoying the tail wind of surging tourist arrivals into Japan. CyberAgent specialises in online advertising particularly for smartphones, an area that is growing strongly.

Toyota, Mazda, Hitachi, Sony and Taiheiyo Cement were amongst the stocks that detracted from performance. Toyota has continued to execute well and our non-ownership of the shares hurt. Mazda has relatively high exposure to Europe and Russia and macro-economic weakness weighed on the shares. We sold the position due to the deteriorating outlook. Hitachi reported somewhat disappointing earnings but we continue to believe that the company is restructuring and steadily moving in the right direction. Sony has started to restructure and our continued non-ownership was negative. Results at Taiheiyo Cement were also lacklustre but we believe that the outlook for its operations in Japan and the United States is improving.

Portfolio Strategy

There has been little change to either the market outlook or our strategy. Overall, we continue to see the combination of political stability, policy support from the Bank of Japan, healthy corporate earnings and a recovering global economy as a powerful combination. We are encouraged by improvements in corporate governance so far. If these are long-lasting the market may re-rate.

We think the domestic economic outlook looks brighter than a few months ago. The tight labour market and higher corporate profits have already led to higher wages. Unlike last year this increase will not be soaked up by the consumption tax rise. It is also positive that oil prices are lower as it should mean higher disposable incomes. Lower commodity prices are a positive for Japan, although we are mindful this makes it harder to achieve the Bank of Japan's 2% inflation target. We also believe that the global economy continues to broadly recover albeit slowly.

We have continued with the strategy of investing in stocks that will grow strongly through the economic cycle and will maintain a sustainable edge versus both domestic and global competitors. Key long term themes in the portfolio include the ageing population; use of the internet and online content; domestic consolidation; Japanese brands that have globally strong positions; the increased use of electronics in cars; factory automation; Japanese companies that are growing in Asian markets; and the increase in inbound tourist numbers. We also believe that Japanese companies are starting to make progress in terms of improving corporate governance and shareholder returns and are seeking to take advantage of this in the portfolio. We continue to avoid those companies and industries about which we have long term structural concerns.

At JPMorgan we have a large team based on the ground in Tokyo trying to identify significant changes in sectors and companies. Being based locally is unusual and we expect this to be a source of continued competitive advantage. Overall, we are positive on the outlook for the economy, market, active fund management and the performance of the Company.

Nicholas Weindling

Investment Manager                                                                                                                                                                                

22nd May 2015

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 underperformance and strategy; market and currency; 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 2014.

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 and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operation existence for at least twelve months from the date of the approval of this half yearly financial report. 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 2015, as required by the UK Listing Authority Disclosure and Transparency Rule 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

Andrew Fleming

Chairman                                                                                                                                                                                                 

22nd May 2015

Income Statement

for the six months ended 31st March 2015

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st March 2015			31st March 2014			30th September 2014
	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	-	115,037	115,037	-	(47,622)	(47,622)	-	(26,100)	(26,100)
Net foreign currency
(losses)/gains	-	(680)	(680)	-	4,290	4,290	-	5,933	5,933
Income from investments	3,700	-	3,700	3,052	-	3,052	5,715	-	5,715
Gross return/(loss)	3,700	114,357	118,057	3,052	(43,332)	(40,280)	5,715	(20,167)	(14,452)
Management fee	(282)	(1,128)	(1,410)	(273)	(1,094)	(1,367)	(525)	(2,099)	(2,624)
Other administrative expenses	(290)	-	(290)	(230)	-	(230)	(506)	-	(506)
Net return/(loss) on ordinary
activities before finance
costs and taxation	3,128	113,229	116,357	2,549	(44,426)	(41,877)	4,684	(22,266)	(17,582)
Finance costs	(69)	(277)	(346)	(77)	(310)	(387)	(149)	(596)	(745)
Net return/(loss) on ordinary
activities before taxation	3,059	112,952	116,011	2,472	(44,736)	(42,264)	4,535	(22,862)	(18,327)
Taxation	(370)	-	(370)	(306)	-	(306)	(572)	-	(572)
Net return/(loss) on ordinary
activities after taxation	2,689	112,952	115,641	2,166	(44,736)	(42,570)	3,963	(22,862)	(18,899)
Return/(loss) per share (note 3)	1.67p	70.05p	71.72p	1.34p	(27.74)p	(26.40)p	2.46p	(14.18)p	(11.72)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	redemption	Other	Capital	Revenue
31st March 2015	capital	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2014	40,312	8,650	166,791	186,300	6,409	408,462
Net return on ordinary activities	-	-	-	112,952	2,689	115,641
Dividend appropriated in the period	-	-	-	-	(4,515)	(4,515)
At 31st March 2015	40,312	8,650	166,791	299,252	4,583	519,588
	Called up	Capital
Six months ended	share	redemption	Other	Capital	Revenue
31st March 2014	capital	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2013	40,312	8,650	166,791	209,162	6,961	431,876
Net (loss)/return on ordinary activities	-	-	-	(44,736)	2,166	(42,570)
Dividend appropriated in the period	-	-	-	-	(4,515)	(4,515)
At 31st March 2014	40,312	8,650	166,791	164,426	4,612	384,791
	Called up	Capital
Year ended	share	redemption	Other	Capital	Revenue
30th September 2014	capital	reserve	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2013	40,312	8,650	166,791	209,162	6,961	431,876
Net (loss)/return on ordinary activities	-	-	-	(22,862)	3,963	(18,899)
Dividend appropriated in the year	-	-	-	-	(4,515)	(4,515)
At 30th September 2014	40,312	8,650	166,791	186,300	6,409	408,462

Balance Sheet

at 31st March 2015

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	580,788	430,683	459,633
Current assets
Debtors	2,622	4,852	13,201
Cash and short term deposits	3,673	20,502	15,463
	6,295	25,354	28,664
Creditors: amounts falling due within one year	(67,495)	(1,353)	(79,835)
Net current (liabilities)/assets	(61,200)	24,001	(51,171)
Total assets less current liabilities	519,588	454,684	408,462
Creditors: amounts falling due after more than one year	-	(69,893)	-
Net assets	519,588	384,791	408,462
Capital and reserves
Called up share capital	40,312	40,312	40,312
Capital redemption reserve	8,650	8,650	8,650
Other reserve	166,791	166,791	166,791
Capital reserves	299,252	164,426	186,300
Revenue reserve	4,583	4,612	6,409
Total equity shareholders' funds	519,588	384,791	408,462
Net asset value per share (note 4)	322.2p	238.6p	253.3p

Cash Flow Statement

for the six months ended 31st March 2015

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
Net cash inflow from operating activities (note 5)	888	906	2,352
Net cash outflow from returns on investments
and servicing of finance	(340)	(372)	(735)
Net cash (outflow)/inflow from capital expenditure and
financial investment	(7,077)	9,483	4,143
Dividend paid	(4,515)	(4,515)	(4,515)
Net cash inflow from financing	-	12,204	12,204
(Decrease)/increase in cash for the period	(11,044)	17,706	13,449
Reconciliation of net cash flow to movement in
net debt
Net cash movement	(11,044)	17,706	13,449
Loans drawn down in the period	-	(12,204)	(12,204)
Exchange movements	(672)	4,301	5,933
Movement in net (debt)/funds in the period	(11,716)	9,803	7,178
Net debt at the beginning of the period	(52,016)	(59,194)	(59,194)
Net debt at the end of the period	(63,732)	(49,391)	(52,016)
Represented by:
Cash and short term deposits	3,673	20,502	15,463
Debt falling due within one year	(67,405)	-	(67,479)
Debt falling due after more than one year	-	(69,893)	-
Net debt at the end of the period	(63,732)	(49,391)	(52,016)

Notes to the Financial Statements

for the six months ended 31st March 2015

1.    Financial statements

      The information contained within the financial statements 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 2014 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements 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 financial statements 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 financial statements are consistent with those applied in the financial statements for the year ended 30th September 2014.

3.   Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	2,689	2,166	3,963
Capital return/(loss)	112,952	(44,736)	(22,862)
Total return/(loss)	115,641	(42,570)	(18,899)
Weighted average number of shares in issue	161,248,078	161,248,078	161,248,078
Revenue return per share	1.67p	1.34p	2.46p
Capital return/(loss) per share	70.05p	(27.74)p	(14.18)p
Total return/(loss) per share	71.72p	(26.40)p	(11.72)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 2015 of 161,248,078 (31st March 2014: 161,248,078 and 30th September 2014: 161,248,078).

5.   Reconciliation of net return/(loss) 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 2015	31st March 2014	30th September 2014
	£'000	£'000	£'000
Net return/(loss) on ordinary activities before finance
costs and taxation	116,357	(41,877)	(17,582)
(Less capital return)/add capital loss on ordinary activities
before finance costs and taxation	(113,229)	44,426	22,266
(Increase)/decrease in net debtors and accrued income	(709)	(180)	326
(Decrease)/increase in accrued expenses	(33)	(63)	13
Overseas taxation	(370)	(306)	(572)
Management fee charged to capital	(1,128)	(1,094)	(2,099)
Net cash inflow from operating activities	888	906	2,352

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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