Final Results

RNS Number : 7622W

JPMorgan Japanese Inv. Trust PLC

24 November 2010

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 30^TH SEPTEMBER 2010

Chairman's Statement

Investment Performance

Over the year to 30th September 2010, your Company produced a total return on net assets in sterling terms of 3.7%, outperforming the sterling total return of the Tokyo Stock Exchange First Section (TOPIX) Index (our benchmark) of 0.9%. The share price total return was 3.9%.

Revenue and Dividends

Earnings per share were 2.91p (2009: 2.96p). The Company's revenue position is sufficiently strong to maintain last year's level of dividend and, to that end, the Board proposes, subject to shareholders' approval at the AGM, to pay a final dividend of 2.80p per share (2009: 2.80p). The dividend would be payable on 22nd December 2010 to shareholders on the register at the close of business on 3rd December 2010. It remains important to stress that dividend streams from Japan remain unpredictable and depend to a considerable degree on the construction of the portfolio at any given time. This year's payment therefore should not be taken as any indication of future dividend payments.

Gearing

The Board of Directors sets the overall strategic gearing policy and guidelines and reviews these at each meeting. The investment managers then manage the gearing within these agreed levels. At the year-end on 30th September 2010 the Company was un-geared due to the investment manager's cautious view on the Japanese market. The management of gearing has been active during the year with the level having ranged between a geared position of 12.2% and a net cash position (un-geared) of 2.3%. Since the year end the Manager has made a number of additional purchases and the Company is once again in a geared position.

Investment Manager

The Company's objective is to provide shareholders with capital growth from a portfolio of investments in Japanese companies

Shareholders will be pleased to see that, in the latest year, your Investment Manager has achieved some outperformance against the TOPIX index used as our benchmark. It is now nearly three years since responsibility for the management of the portfolio was transferred to Tokyo in December 2007, and your Directors believe that the changes and subsequent refinements that have been made to the portfolio management process have helped improve the performance of the portfolio. Achieving good investment results remains imperative and your Board will continue to monitor the ongoing investment operations to ensure that these improvements are maintained.

In July 2010, Nicholas Weindling became the sole investment manager overseeing the portfolio. This followed the depature of James Elliot from the Tokyo office and his return to London.

Board of Directors

Two Directors are seeking re-election at this year's Annual General Meeting. The Director retiring by rotation is Alan Barber, who being eligible offers himself for re-election. In addition, I, having served as a Director for in excess of nine years, therefore also retire and will seek re-election. The Board does not believe that length of service in itself should disqualify a Director from seeking re-election and, in proposing my re-election, it has taken into account the ongoing requirements of the Combined Code, including the need to refresh the Board and its Committees. Alan contributes significantly to the Board's deliberations and I have no hesitation in recommending his re-election.

Authority to Repurchase the Company's Shares

At last year's AGM, shareholders granted the Directors authority to repurchase up to 14.99% of the Company's shares for cancellation. The Company repurchased 5.0% of the Company's issued share capital (8,393,000 shares) for cancellation during the year, adding 0.9% to performance. The Directors believe that the power to buyback shares is of ongoing benefit to shareholders and therefore proposes that the authority be renewed for a further period.

Annual General Meeting

This year's Annual General Meeting will be held on 21st December 2010 at 2.00 p.m. at Trinity House, Tower Hill, London EC3N 4DH. As in previous years, in addition to the formal part of the meeting, there will be a presentation from the Investment Manager who will answer questions on the portfolio and performance. There will also be an opportunity to meet the Board, the Investment Manager and representatives of J.P. Morgan Asset Management after the meeting. I look forward to welcoming as many of you as possible to this meeting. If you have any detailed or technical questions, it would be helpful if you could raise these in advance of the meeting with the Company Secretary at Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ. Shareholders who are unable to attend the AGM are encouraged to cast their votes by proxy.

Prospects

Growth remains at subdued levels in domestic Japan with continuing deflation a problem. Satisfactory investment results are therefore going to depend on those companies which are able to seize the opportunities that are available in the neighbouring Asia-Pacific region. To this end, as your Managers comment, it would be helpful both if the Japanese yen were to weaken against other world currencies and there were a period of stable politics within the country. Such a situation would materially add to the potential for those companies which are already internationally competitive and which form a significant proportion of the portfolio.

Jeremy Paulson-Ellis

Chairman                                                                                                                     24 November 2010                                                                                                                                        

Investment Managers' Report

In the twelve months ended 30th September 2010 the Topix benchmark index rose 0.9% in sterling terms. Encouragingly, recent improvements in the Company's performance continued with the NAV rising by 3.7% thereby outperforming our benchmark by 2.8%. In general, the global economic recovery was not as smooth as some had hoped, while in Japan the yen continued to strengthen and the political environment remained uncertain. The key focus of the Company's holdings remained as last year, that is companies based in Japan but with an opportunity to grow in emerging markets, particularly Asia.

The Economy

Globally, the economic recovery has been proceeding at two speeds. In the West and Japan there remain concerns about employment, the sustainability of growth and levels of government debt. By contrast, the emerging world looks ever more attractive with strong growth looking set to be driven by infrastructure projects and a rapidly growing middle class. In China the government has so far managed to control the pace of growth and our team there remains confident in the outlook. In Japan, deflation remains entrenched and government debt continues to increase. There has been very little recovery in consumer spending. Many of these trends are long-term structural issues and therefore play a significant part in shaping the portfolio.

Politics

In last year's report we discussed the important change in the political landscape whereby the Democratic Party of Japan came to power, thus ending around sixty years of almost unbroken rule by the Liberal Democratic Party. There were expectations that this would lead to substantial change and more reform. However, this year has actually been characterised by virtually continuous political infighting with Yukio Hatoyama being replaced by Naoto Kan who then faced a further leadership challenge. At the very least it would be helpful if Japan could have stable and strong leadership. It is no coincidence that one of the best periods for stockmarket performance was during Junichiro Koizumi's premiership.

Currency

The continuing strength in the yen was one of the defining characteristics of the last year with the yen/dollar rate moving from ¥89.7 to ¥83.5, touching a fifteen year high in the process. There were similar moves against other currencies, including sterling and the euro. This trend is problematic for Japan as it not only reduces overseas profits when they are converted back into yen but, perhaps more importantly, Japanese products risk becoming uncompetitive. In global markets Japan tends to be strong in industries which are also key, for example, to Germany and Korea. In this respect products from companies from Samsung to Volkswagen are 20% more competitive simply due to recent movements in currency markets. In light of these challenges it is remarkable how much cost has been cut at companies from Honda to Canon in order stay profitable.

Towards the end of the review period the Bank of Japan and the government intervened in the foreign exchange market for the first time in six years. It is too early to judge if these actions will be successful but it is at least encouraging to see this problem treated seriously, even if the results so far are not encouraging with the yen continuing to climb. Our view is that the trend will not reverse until there are expectations for interest rate rises in other markets. Once the yen does weaken, however, profits look set to surge as companies will benefit from significantly lower cost bases.

The Market and Portfolio Strategy

In general terms those sectors that performed well over the year were export oriented, such as wholesale trade, glass, electric appliances and transportation while domestic sectors, such as banks and retail, performed poorly. This in part reflects the better outlook for export companies as they grow in Asia versus more limited prospects domestically. However, we also saw the continuance of large scale equity issuance as companies sought to repair their balance sheets, the bulk of which came from domestically oriented companies. While in some cases these fund raisings were justified, in others these were not necessarily in the best interests of shareholders. We continue to stress the importance of balance sheet strength and concern for shareholder returns in our investment process. For example, this has long underpinned our disinclination to invest in Japan's largest utility, Tokyo Electric Power, which sold new shares towards the end of the financial year.

The overall valuation on the market remains at a historically low level of around 1x price/book. Sentiment also remains at depressed levels. We believe that some investors under-appreciate the opportunities for Japanese companies to grow earnings, particularly the opportunity for companies in Asia, and the relatively low valuations on which these trade.

Turning to your Company's investments, we continue to favour those that can grow in Asia. Prime examples include Suzuki Motor which is number one in the Indian auto market and Kansai Paint, the number one in auto paint in India. The Trust has significant exposure to the Honda group due to its commanding market share in motorbikes in markets such as Indonesia. Our weighting in trading companies, such as Mitsubishi and Mitsui, gives us significant exposure to commodities. Omron should benefit from increasing factory automation in China as wages there rise. Asahi Breweries owns significant stakes in the leading Chinese brewing and food companies.

In the Real Estate sector we started the year with 3.2% exposure and ended with a zero weighting. We have been concerned with the balance sheet strength of real estate companies in Japan as well as the high level of new office property available in Tokyo.

We continue to invest in companies with strong cash flow which are prioritising return to shareholders. Examples include the investments in the telecom sector, such as Nippon Telegraph, and railways, such as East Japan Railway. We also hold positions in companies we believe can grow despite headwinds at home, for example Japan's leading online retailer, Rakuten, as well as companies which are aggressively restructuring such as JS Group and JX Holdings.

Outlook

It is important to note that the market and the economy are not the same, just as the FTSE 100 is not representative of the UK at large. We at JPMorgan Asset Management firmly believe that Japan is fortunate that, by geographic chance and by the nature of the products in which the country is competitive, the country is ideally positioned to benefit from the development of Asian economies. Our local presence on the ground in Tokyo is a strong competitive advantage in identifying long-term regional or country-specific themes. Similarly, there are many long-term structural trends in Japan which make active management in the market exciting as we differentiate between those companies that can grow profits in a tough domestic environment and those that cannot. Given historically low valuations and our confidence in Asian growth we have increased our exposure through drawing down and investing a proportion of the available borrowings. We remain positive on the outlook for the Trust's performance and the market overall in the period ahead.

Nicholas Weindling

Investment Manager                                                                                        24 November 2010

Principal Risks 

With the assistance of the Manager, the Board has drawn up a risk matrix which identifies the key risks to the Company. These key risks fall broadly under the following categories:

•Investment and Strategy: An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to under-performance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported. JPMAM provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, who attend all Board meetings, and reviews data which shows statistical measures of the Company's risk profile. The Investment Managers employ the Company's gearing tactically, within a strategic range set by the Board. The Board holds a separate meeting devoted to strategy each year.

•Financial: The Company is exposed to market risk, liquidity risk and credit risk. The principal financial risk facing the Company is market risk arising from uncertainty about the future prices of the Company's investments. It represents the potential loss the Company might suffer through holding investments in the face of negative market movements. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by JPMAM. The Board monitors the implementation and results of the investment process with the Investment Managers.

•Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158 of the Income and Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under "Business of the Company" above. Should the Company breach Section 1158, it may lose investment trust status and as a consequence capital gains within the Company's portfolio would be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by JPMAM and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, as its shares are listed on the London Stock Exchange, the UKLA Listing Rules. A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. A breach of the UKLA Listing Rules may result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary, JPMAM, and its professional advisers to ensure compliance with the Companies Act 2006 and the UKLA Listing Rules.

•Corporate Governance and Shareholder Relations: Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance report.

•Operational: Disruption to, or failure of, JPMAM's accounting, dealing or payments systems or the custodian's records may prevent accurate reporting and monitoring of the Company's financial position. Details of how the Board monitors the services provided by JPMAM and its associates and the key elements designed to provide effective internal control are included within the Internal Control section of the Corporate Governance report.

Directors' Responsibilities in Respect of the Accounts

The Directors are responsible for preparing the annual report and the accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have elected to prepare the accounts in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under Company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent; and

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

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The accounts are published on the www.jpmjapanese.co.uk website, which is maintained by the Company's Manager, J.P. Morgan Asset Management (UK) Limited ('JPMAM'). The maintenance and integrity of the website maintained by JPMAM is, so far as it relates to the Company, the responsibility of JPMAM.

Statement under the Disclosure & Transparency Rules 4.1.12

(a) the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b) this Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face.

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.jpmjapanese.co.uk.

For further information please contact:

Andrew Norman

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 6000

Income Statement

for the year ended 30th September 2010

		2010			2009
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss		-	8,318	8,318	-	26,724	26,724
Net foreign currency losses		-	(3,862)	(3,862)	-	(3,077)	(3,077)
Income from investments		6,132	-	6,132	7,357	-	7,357
Other interest receivable and similar income		6	-	6	239	-	239
Gross return		6,138	4,456	10,594	7,596	23,647	31,243
Management fee		(403)	(1,613)	(2,016)	(379)	(1,516)	(1,895)
VAT recoverable		-	-	-	345	3	348
Other administrative expenses		(505)	-	(505)	(441)	-	(441)
Net return on ordinary activities before finance costs and taxation		5,230	2,843	8,073	7,121	22,134	29,255
Finance costs		(75)	(301)	(376)	(88)	(350)	(438)
Net return on ordinary activities before  taxation		5,155	2,542	7,697	7,033	21,784	28,817
Taxation		(429)	-	(429)	(1,955)	1,440	(515)
Net return on ordinary activities after taxation		4,726	2,542	7,268	5,078	23,224	28,302
Return per share (note 3)		2.91p	1.56p	4.47p	2.96p	13.54p	16.50p

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

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
	share	Other	redemption	Capital	Revenue
	capital	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2008	43,500	166,791	5,462	76,687	5,653	298,093
Repurchase and cancellation of the Company's own shares	(1,037)	-	1,037	(5,878)	-	(5,878)
Net return on ordinary activities	-	-	-	23,224	5,078	28,302
Dividends appropriated in the year	-	-	-	-	(4,840)	(4,840)
At 30th September 2009	42,463	166,791	6,499	94,033	5,891	315,677
Repurchase and cancellation of the Company's own shares	(2,098)	-	2,098	(12,189)	-	(12,189)
Net return on ordinary activities	-	-	-	2,542	4,726	7,268
Dividends appropriated in the year	-	-	-	-	(4,650)	(4,650)
At 30th September 2010	40,365	166,791	8,597	84,386	5,967	306,106

Balance Sheet

at 30th September 2010

		2010	2009
		£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		300,515	339,669
Current assets
Debtors		2,439	8,230
Cash and short term deposits		3,259	23,577
		5,698	31,807
Creditors: amounts falling due within one year		(107)	(55,799)
Net current assets/(liabilities)		5,591	(23,992)
Total assets less current liabilities		306,106	315,677
Total net assets		306,106	315,677
Capital and reserves
Called up share capital		40,365	42,463
Other reserve		166,791	166,791
Capital redemption reserve		8,597	6,499
Capital reserves		84,386	94,033
Revenue reserve		5,967	5,891
Shareholders' funds		306,106	315,677
Net asset value per share (note 4)		189.6p	185.9p

Cash Flow Statement

for the year ended 30th September 2010

		2010	2009
		£'000	£'000
Net cash inflow from operating activities		3,072	5,508
Returns on investments and servicing of finance
Interest paid		(381)	(447)
Capital expenditure and financial investment
Purchases of investments		(229,559)	(478,664)
Sales of investments		280,860	474,938
Other capital charges		(13)	(10)
Net cash inflow/(outflow) from capital expenditure and financial investment		51,288	(3,736)
Dividend paid		(4,650)	(4,840)
Net cash inflow/(outflow) before financing		49,329	(3,515)
Financing
Net repayment of loans		(56,165)	(13,704)
Repurchase and cancellation of the Company's own shares		(13,410)	(4,695)
Net cash outflow from financing		(69,575)	(18,399)
Decrease in cash and cash equivalents		(20,246)	(21,914)

Notes to the Accounts

for the year ended 30th September 2010

1.         Accounting policies

Basis of accounting

          The accounts are prepared in accordance with the Companies Act 2006, 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' (the 'SORP') issued by the AIC in January 2009. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.

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

          The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments and derivative financial instruments at fair value.

          The policies applied in these accounts are consistent with those applied in the preceding year.

2.     Dividends

        Dividends paid and proposed

	2010	2009
	£'000	£'000
Dividend paid
2009 final dividend of 2.8p (2008: 2.8p)	4,650	4,840
Dividend proposed
2010 final dividend of 2.8p (2009: 2.8p)	4,521	4,756

          The final dividend proposed in respect of the year ended 30th September 2009 amounted to £4,756,000. However, the amount actually paid was £4,650,000 due to shares repurchased and cancelled after the balance sheet date but prior to the share register dividend record date.

          The final dividend proposed in respect of the year ended 30th September 2010 is subject to approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the accounts for the year ending 30th September 2011.

3.      Return per share

          The revenue return per share is based on the revenue earnings attributable to the ordinary shares of £4,726,000 (2009: £5,078,000) and on the weighted average number of shares in issue throughout the year of 162,661,550 (2009: 171,541,388).

          The capital return per share is based on the capital earnings attributable to the ordinary shares of £2,542,000 (2009: £23,224,000) and on the weighted average number of shares in issue throughout the year of 162,661,550 (2009: 171,541,388).

          The total return per share is based on the total earnings attributable to the ordinary shares of £7,268,000 (2009: £28,302,000) and on the weighted average number of shares in issue throughout the year of 162,661,550 (2009: 171,541,388).

4.      Net asset value per share

          The net asset value per share is based on the net assets attributable to the ordinary shareholders of £306,106,000 (2009: £315,677,000) and on the 161,458,078 (2009: 169,851,078) shares in issue at the year end.

5.      Status of announcement

2009 Financial Information

             The figures and financial information for 2009 are extracted from the Annual Report and Accounts for the year ended 30^th September 2009 and do not constitute the statutory accounts for that year.  The Annual Report and Accounts has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985.

2010 Financial Information

             The figures and financial information for 2010 are extracted from the Annual Report and Accounts for the year ended 30^th September 2010 and do not constitute the statutory accounts for that year.  The Annual Report and Accounts includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Registrar of Companies in due course.

Annual Report and Accounts

The Annual Report and Accounts will be posted to shareholders on or around 25th November 2010 and will shortly be available on the Company's website (www.jpmjapanese.co.uk) or in hard copy format from the Company's Registered Office, Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

 

END

 

 

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