Half Year Results

RNS Number : 2105D

JPMorgan Fleming Japanese Smllr Cos

27 November 2009

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN FLEMING JAPANESE SMALLER 

COMPANIES INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS 

ENDED 30TH SEPTEMBER 2009

Chairman's Statement

Performance

During the six months to 30th September 2009 the Japanese smaller companies market benefited from a strong recovery in Asian equities, as signs of an improving global economy lifted investor sentiment. It is pleasing to report that, during this period, the Company was able to pull back some of the poor performance from the previous year with a positive portfolio return of 36.3%. This compares favourably with an increase of 22.3% from the Company's benchmark, the S&P/Citigroup Japan Extended Market Index (total return net). The diluted total return on net assets, which assumes that all of the Subscription shares were exercised at the rate of 135 pence per share and that all Treasury shares were re-issued in accordance with the Board's policy on the re-issuance of Treasury shares, increased by 30.8%. Over the same period, the Company's Ordinary share price return rose by 40.6% and the Subscription share price return was 218.5%. The Company's 'Unit' share price return, which comprises the total return from 5 Ordinary shares and 1 Subscription share (as issued to shareholders on 5th March 2009) was 44.9%. 

Gearing

The Company has a Japanese Yen 2.0bn credit facility with ING Bank which gives the investment managers the ability to gear tactically. The Board has given the investment managers the flexibility to set gearing within the range of 90% to 120% invested. During the period the level of gearing has ranged between 105% and 120%, ending the half year at 118%.

Subscription Shares

On 5th March 2009 the Company issued Subscription shares to qualifying shareholders on the basis of one Subscription share for every five Ordinary shares held. Each Subscription share confers the right (but not the obligation) to subscribe for one Ordinary share on any business day during the period from 1st April 2009 to 31st March 2014 (both dates inclusive) when the rights under the Subscription shares will lapse.

During the six months to 30th September 2009 and up to the date of this report, the Company has issued 30,032 Ordinary shares following the exercise of Subscription shares, amounting to proceeds of £41,000. Further details of the Subscription shares can be found on the Company's website at www.jpmfjapanesesmallercompanies.co.uk

Share Issues and Repurchases

During the reporting period and up to the date of this report the Company has repurchased 23,500 Ordinary shares into Treasury for a total consideration of £34,000. Other than the exercise of Subscription shares, the Company has not issued any Ordinary shares during this period.

Outlook

Whilst it is encouraging to note the recent good performance of the Japanese smaller companies market, it is too early to tell if the momentum is sustainable and, for the short term at least, high levels of volatility look set to continue. The Bank of Japan's tight monetary policy has impeded the recovery of the Japanese market of late, although this is expected to ease towards the end of the calendar year. Low valuations, improving earnings momentum and recent government policy initiatives appear to be supportive to the Japanese smaller companies sector and, with this in mind, the Board remains confident that the Company can continue to build on its better recent performance.

Alan Clifton

Chairman 

27th November 2009

Investment Managers' Report

Performance

The six months to 30th September 2009 opened with Japanese smaller companies trading at their lowest valuation levels for more than 30 years. We had believed for some time that the market was offering exceptional value, but also recognised that a catalyst was lacking. We had tried to position the portfolio with a bullish approach, preparing for an eventual upturn in the market. The massive liquidity injection by global authorities and the pick up in production after the near death experience of many companies in the autumn of last year, turned the global business cycle around. Japan, as a cyclical market and one highly dependent on global demand, also began to see these benefits. A combination of cheaply valued stocks and improving corporate news helped push share prices higher. The Japanese market continues to lag behind other global markets, leaving valuations at very cheap levels, but with the economy improving. Even the much maligned Japanese domestic economy is showing signs of bottoming out, which some of our holdings are exploiting very successfully.

Politics

The lower house election on 30th August 2009 brought about the most significant change in the Japanese political landscape for decades. The opposition Democratic Party of Japan (DPJ) swept to a landslide victory pushing aside the Liberal Democratic Party (LDP). This is the first time since 1950 that any party other than the LDP has held a majority. The DPJ, under Yukio Hatoyama, has a strong mandate to push through much needed reforms which could reinvigorate the inefficient domestic economy. In the long-term view there is no doubt that it will be positive if Japan can become a country with two distinct parties offering a real choice to voters. There is much that is laudable within the new ruling party's manifesto, not least a desire to boost domestic demand, a realisation that Japan's future lies in Asia and a focus on the environment. So far the government's inexperience has shone through with confusion surrounding their policies on the yen after the Ministry of Finance head Hirohisa Fujii stated that he supported a strong yen, but then quickly retracted his comments. The DPJ has also proposed a small company support scheme, announced as a debt moratorium, but in reality more of a credit guarantee scheme. This is especially targeted at very small companies where banks may have been cutting credit lines and imposing tougher fees. The DPJ is understandably focused on delivering its core manifesto commitments of improving the Japanese social welfare net, reforming bureaucratic abuses, and supporting workers. So far it has neglected longer term fiscal reform and macroeconomic policy measures, which action, however, markets rate more highly.

Currency

This year, the strengthening yen has undoubtedly hurt the recovery in Japan. Against some important export markets such as Indonesia, the yen remains 20% higher than last year. This yen shift is enough to hide significant increases in volumes by companies operating there. The Japanese policymakers are operating a very tight monetary policy compared to other developed economies by refusing to expand the central bank balance sheet and inject liquidity aggressively into the market. The monetary policy stance sends a contractionary message to firms and individuals. Our expectation over the medium term is that the Japanese currency, compared to some Asian and commodity currencies, will regain competitiveness. A key driver in this will be increased interest rates in countries like Australia, India and other Asian economies. The widening interest rate gap between Japan and other countries should weaken the yen, increasing competitiveness and providing an export boost to the economy. Within the portfolio we have been investing in companies that are highly exposed to Asia to benefit from this longer term trend.

Portfolio

During the period under review, the Company ran with a significant weighting in technology stocks, reflecting our belief that we are entering a new technology cycle. The proliferation in new handheld devices and methods of interacting with content are driving a much broader and wider technology cycle than those based on a narrow category such as PC's. We have also invested in a number of internet companies focused on mobile content. The rapid improvement in network speed and handsets is offering these companies the opportunity to create new businesses.

Over the past few months we have been steadily increasing our weightings in real estate stocks and we also purchased some very beaten down low cost housing shares. With cheap land and low construction prices, they are able to offer everyday Japanese a compellingly priced house. We expect their strong sales performance to continue as many of their former competitors have been wiped out by the financial crisis. It is worth noting that the Japanese housing market remains weak and that most companies are performing badly, but not all.

One theme that seems set to remain an extremely important long term driver is the rapidly rising importance of Asia as a source of earnings for many Japanese companies. This comes from as diverse sectors as Chinese purchases of childcare products, to Indonesian sales of hair wax, Indian paint, to the more obvious machinery and car components. Increasingly, we can buy 'Asian' companies that just happen to be listed in Japan and usually at a substantial discount to those trading on Asian bourses.

Market Outlook

The Japanese smaller companies market offers a diverse range of exciting investments at the moment. The depressing news of last year has been replaced by a more positive outlook, yet valuations remain at rock bottom levels. We can see more and more companies expressing a cautiously positive view and earnings are generally being revised up. Those firms geared most tightly to technology and the emerging worlds have performed the best and we think they will continue to do well. At the same time, the dislocation has offered opportunities for many companies in domestic Japan with low valuations. Sentiment is so depressed that any positive news flow could boost their share prices sharply higher. The Company is fully invested and reflects a positive pro-growth and pro-cyclical investment outlook that we hope will be rewarded in the second half of this year.

David Mitchinson

Nicholas Weindling

Investment Managers

27th November 2009

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 six broad categories: investment and strategy; 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 2009.

During the recent period of market turmoil, JPMAM reacted with heightened management scrutiny of counterparty risk. In addition, reviews were initiated of exposures, policies, procedures and legal arrangements applicable to the major sources of counterparty exposure.

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.

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 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.

For and on behalf of the Board

Alan Clifton

Chairman 

27th November 2009

For further information, please contact:

Christopher Legg

For and on behalf of 

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 6000

Please note that up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can be found at www.jpmfjapanesesmallercompanies.co.uk

Income Statement

for the six months ended 30th September 2009

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	30th September 2009			30th September 2008			31st March 2009
	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	-	19,642	19,642	-	(17,421)	(17,421)	-	(22,282)	(22,282)
Net foreign currency losses	-	(628)	(628)	-	(36)	(36)	-	(1,811)	(1,811)
Income from investments	371	-	371	370	-	370	1,215	-	1,215
Other interest receivable and
similar income	3	-	3	158	-	158	206	-	206
Gross return/(loss)	374	19,014	19,388	528	(17,457)	(16,929)	1,421	(24,093)	(22,672)
Management fee	(439)	-	(439)	(494)	-	(494)	(945)	-	(945)
Other administrative expenses	(174)	-	(174)	(164)	-	(164)	(585)	-	(585)
Net (loss)/return on ordinary
activities before finance costs
and taxation	(239)	19,014	18,775	(130)	(17,457)	(17,587)	(109)	(24,093)	(24,202)
Finance costs	(133)	-	(133)	(105)	-	(105)	(191)	-	(191)
Net (loss)/return on ordinary
activities before taxation	(372)	19,014	18,642	(235)	(17,457)	(17,692)	(300)	(24,093)	(24,393)
Taxation	(22)	-	(22)	(26)	-	(26)	(85)	-	(85)
Net (loss)/return on ordinary
activities after taxation	(394)	19,014	18,620	(261)	(17,457)	(17,718)	(385)	(24,093)	(24,478)
(Loss)/return per Ordinary
share - undiluted (note 3)	(1.01)p	48.85p	47.84p	(0.66)p	(44.41)p	(45.07)p	(0.98)p	(61.45)p	(62.43)p
(Loss)/return per Ordinary
share - diluted (note 3)	(1.01)p	48.60p	47.59p	(0.66)p	(44.41)p	(45.07)p	(0.98)p	(61.45)p	(62.43)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	Share	Other	redemption	Capital	Revenue
30th September 2009	capital	premium	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2009	4,008	-	314,857	1,794	(258,254)	(11,099)	51,306
Issue of Ordinary shares on exercise
of Subscription shares	2	25	-	-	-	-	27
Net return/(loss) on ordinary activities	-	-	-	-	19,014	(394)	18,620
At 30th September 2009	4,010	25	314,857	1,794	(239,240)	(11,493)	69,953
	Called up			Capital
Six months ended	share	Share	Other	redemption	Capital	Revenue
30th September 2008	capital	premium	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2008	3,930	-	315,427	1,794	(234,161)	(10,714)	76,276
Net loss on ordinary activities	-	-	-	-	(17,457)	(261)	(17,718)
At 30th September 2008	3,930	-	315,427	1,794	(251,618)	(10,975)	58,558
	Called up			Capital
Year ended	share	Share	Other	redemption	Capital	Revenue
31st March 2009	capital	premium	reserve	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2008	3,930	-	315,427	1,794	(234,161)	(10,714)	76,276
Shares bought into Treasury	-	-	(492)	-	-	-	(492)
Bonus issue of Subscription shares	78	-	(78)	-	-	-	-
Net loss on ordinary activities	-	-	-	-	(24,093)	(385)	(24,478)
At 31st March 2009	4,008	-	314,857	1,794	(258,254)	(11,099)	51,306

Balance Sheet

at 30th September 2009

	(Unaudited)	(Unaudited)	(Audited)
	30th September 2009	30th September 2008	31st March 2009
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	82,573	62,624	50,409
Current assets
Debtors	2,050	2,886	1,499
Cash and short term deposits	2,230	8,272	12,042
	4,280	11,158	13,541
Creditors: amounts falling due within one year	(16,900)	(15,224)	(12,644)
Net current (liabilities)/assets	(12,620)	(4,066)	897
Total assets less current liabilities	69,953	58,558	51,306
Total net assets	69,953	58,558	51,306
Capital and reserves
Called up share capital	4,010	3,930	4,008
Share premium	25	-	-
Other reserve	314,857	315,427	314,857
Capital redemption reserve	1,794	1,794	1,794
Capital reserve	(239,240)	(251,618)	(258,254)
Revenue reserve	(11,493)	(10,975)	(11,099)
Shareholders' funds	69,953	58,558	51,306
Net asset value per Ordinary share - undiluted (note 4)	179.7p	149.0p	131.8p
Net asset value per Ordinary share - diluted  (note 4)	172.1p	149.0p	131.6p

  Cash Flow Statement

for the six months ended 30th September 2009

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2009	30th September 2008	31st March 2009
	£'000	£'000	£'000
Net cash (outflow)/inflow from operating
activities (note 5)	(135)	155	17
Net cash outflow from return on investments
and servicing of finance	(117)	(53)	(180)
Net cash (outflow)/inflow from capital expenditure
and financial investment	(12,268)	1,265	10,118
Net cash inflow/(outflow) from financing	3,055	5,189	(804)
(Decrease)/increase in cash for the period	(9,465)	6,556	9,151
Reconciliation of net cash flow to movement in
net debt
Net cash movement	(9,465)	6,556	9,151
Net loans (drawndown)/repaid	(3,091)	(5,190)	376
Exchange movements	(628)	(36)	(1,811)
Movement in net funds/debt in the period	(13,184)	1,330	7,716
Net funds/(debt) at the beginning of the period	1,447	(6,269)	(6,269)
Net (debt)/funds at the end of the period	(11,737)	(4,939)	1,447
Represented by:
Cash and short term deposits	2,230	8,272	12,042
Debt falling due within one year	(13,967)	(13,211)	(10,595)
Net (debt)/funds at the end of the period	(11,737)	(4,939)	1,447

  Notes to the Accounts

for the six months ended 30th September 2009

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 31st March 2009 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' issued in January 2009.

All of the Company's operations are of a continuing nature.

The accounting policies applied in these half year accounts are consistent with those applied in the accounts for the year ended 31st March 2009. 

3.    (Loss)/return per Ordinary share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2009	30th September 2008	31st March 2009
	£'000	£'000	£'000
(Loss)/return per Ordinary share is based on the following:
Revenue loss	(394)	(261)	(385)
Capital return/(loss)	19,014	(17,457)	(24,093)
Total return/(loss)	18,620	(17,718)	(24,478)
Weighted average number of Ordinary shares in issue during the period used for the purpose
of the undiluted calculation	38,924,543	39,309,423	39,207,211
Weighted average number of Ordinary shares in issue during the period used for the purpose
of the diluted calculation	39,123,442	39,309,423	39,207,211
Undiluted revenue loss per Ordinary share	(1.01)p	(0.66)p	(0.98)p
Capital return/(loss) per Ordinary share	48.85p	(44.41)p	(61.45)p
Total return/(loss) per Ordinary share	47.84p	(45.07)p	(62.43)p
Diluted
Revenue loss per Ordinary share	(1.01)p	(0.66)p	(0.98)p
Capital return/(loss) per Ordinary share	48.60p	(44.41)p	(61.45)p
Total return/(loss) per Ordinary share	47.59p	(45.07)p	(62.43)p

4.     Net asset value per Ordinary share

Undiluted

The undiluted net asset value per Ordinary share is calculated by dividing shareholders' funds by the number of Ordinary shares in issue at 30th September 2009 of 38,933,986 (30th September 2008: 39,309,423 and 31st March 2009: 38,913,423), excluding shares held in Treasury. 

Diluted 

The diluted net asset value per Ordinary share is calculated assuming that all shares held in Treasury at the balance sheet date were re-issued in accordance with the Board's policy on the re-issuance of Treasury shares and all Subscription shares outstanding at the balance sheet date were converted into Ordinary shares at the earliest opportunity. The Board will only re-issue shares out of Treasury if the share price discount to NAV is at least 5% narrower than the weighted average discount of the shares held in Treasury at the time of the sale. Holders of Subscription shares may currently exercise their right to subscribe for Ordinary shares at a price of 135 pence up to 31st March 2010.

5.    Reconciliation of net return/(loss) on ordinary activities before finance costs and taxation to net cash (outflow)/inflow from operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2009	30th September 2008	31st March 2009
	£'000	£'000	£'000
Total return/(loss) on ordinary activities before finance
costs and taxation	18,775	(17,587)	(24,202)
Less capital (return)/loss before finance costs and taxation	(19,014)	17,457	24,093
Decrease in accrued income	168	317	124
Decrease/(increase) in other debtors	45	14	(10)
(Decrease)/increase in other creditors	(87)	(20)	97
Overseas withholding tax	(22)	(26)	(85)
Net cash (outflow)/inflow from operating activities	(135)	155	17

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

 

END

 

 

IR ZGMZMZNFGLZM