Final Results

RNS Number : 3332S

JPMorgan Japanese Inv. Trust PLC

17 November 2011

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 30^TH SEPTEMBER 2011

Chairman's Statement

It has been a challenging year for Japan as its citizens have had to cope with the terrible earthquake and tsunami in Eastern Japan on 11th March. The business community have had to deal with ongoing power shortages and supply chain problems exacerbated by a distinct lack of political leadership. Despite these setbacks the Board and Investment Manager believes there are strong opportunities to identify Japanese companies that will deliver good results for shareholders.

Investment Performance

Over the year to 30th September 2011, your Company produced a total return on net assets in sterling terms of 3.9%, outperforming the total return in sterling of the Tokyo Stock Exchange First Section (TOPIX) Index (our benchmark) of 2.8% by 1.1%. The share price total return was 5.9%.

Revenue and Dividends

The Company's revenue position has continued to strengthen with earnings per share for the full year rising to 3.49p (2010: 2.91p) The Board proposes, subject to shareholders' approval at the AGM, to pay a final dividend of 3.3p per share (2010: 2.80p), an increase of 17.9%. The dividend would be payable on 21st December 2011 to shareholders on the register at the close of business on 2nd December 2011. It remains important to stress that dividend streams from Japan 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 2011, the Company was ungeared and held a small net cash position of 0.6% in the portfolio. The management of gearing has been active during the year with the level having ranged between a geared position of 7.1% and a net cash position of 3.0% during the year.

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, again this year, your Investment Manager has achieved some outperformance against the TOPIX index used as our benchmark.

Board of Directors

Two Directors are seeking re-election at this year's Annual General Meeting. The Director retiring by rotation is David Pearson, 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 UK Corporate Governance Code, including the need to refresh the Board and its Committees. David contributes significantly to the Board's deliberations and I have no hesitation in recommending his re-election.

Articles of Association

The Company's Articles are being amended to allow the Company to increase the aggregate Directors' fees payable in any one year, in case an additional member of the Board needs to be recruited. The Directors recommend that shareholders vote in favour of the proposed resolution.

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 0.1% of the Company's issued share capital (140,000 shares) for cancellation during the year. The Directors believe that the power to buyback shares is of ongoing benefit to shareholders and therefore propose that the authority be renewed for a further period.

Annual General Meeting

This year's Annual General Meeting will be held on 20th December 2011 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 Managers who will answer questions on the portfolio and performance. There will also be an opportunity to meet the Board, the Investment Managers and representatives of J.P. Morgan 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

Your Investment Manager believes that there will be a sharp difference between those companies that succeed and those that will not in future. The Company has the added benefit of its physical location in Tokyo helping to identify long-term country, sector and stock specific themes. Despite the number of unknown macro-economic variables, which explains the low level of borrowing at the end of the financial year and the current ungeared position, we are positive over the long-term view. Achieving good investment results remains imperative and your Board will monitor the ongoing investment operations to ensure that this continues.

Jeremy Paulson-Ellis

Chairman

17th November 2011

Investment Manager's Report

The key focus of the Company's holdings remains very much as last year although the number of holdings have been reduced to those companies that have strong balance sheets and are not affected by macro-economic issues - Japanese companies that have an opportunity to grow in Asia; those that are prioritising shareholder returns and those that are in structural growth niches within the domestic economy. Encouragingly this approach has provided another year of outperformance against our benchmark index.

The Great East Japan Earthquake

The triple disaster in March led to a significant slowdown in the economy as factories shut, supply chains were damaged and power was rationed. Encouragingly, the recovery from this tragedy has been far quicker than many expected and production has now normalised for most companies. Disciplined power consumption during the summer months meant that further significant disruptions were avoided. The key long-term consequence will be a reappraisal of Japan's energy policy, a process that has already begun.

The Economy

The speed of the global economic recovery following the 2008 Lehman disaster has been a disappointment. Unemployment in the United States has remained at historically high levels. The Eurozone crisis has deepened as politicians have failed to deal with many of the key issues. Many countries are proceeding with austerity measures at the same time as economic growth falters. This does not bode well for future growth. By contrast, Asia has remained robust and Japan is fortunate that by geographic chance it is located in the heart of a region undergoing a transformation. Japanese exports to Asia are now larger than to the US and Europe combined and many of the products in demand in these areas are key areas of Japanese competitive strength.

Currency

The strength of the Japanese Yen has been a feature of the last four years. The Yen now trades at a multi-year high against many currencies including the US Dollar, the British Pound and the Euro. Against the Pound the exchange rate has moved from ¥250 in the middle of 2007 to around ¥120 currently. The strength of the Yen is important because many of Japan's key competitor nations have very weak currencies. It is remarkable that Japanese manufacturers have dealt so well with this rapidly appreciating currency. Nissan, for example, continues to move substantial production outside of Japan while Canon has been able to keep operating margins above 10%.

Politics

At the end of August Yoshihiko Noda was elected Japan's sixth prime minister in five years. He succeeded Naoto Kan who stepped down under pressure of this handling of the March earthquake and subsequent nuclear crisis. Furthermore, there have now been eight finance ministers in the last three years. Clearly, this level of turnover of senior politicians is not helpful. However, Japan's bureaucracy is strong and these changes have close to no impact on individual companies.

Portfolio Strategy and Performance

There are many long-term trends in Japan which we use to establish a strong framework in which to find companies that will succeed in the long-term. For example, the population will fall, deflation is entrenched and in some areas Japanese companies have lost out to lower cost rivals in the rest of the Asian region. On the more positive side we expect trade with Asia to continue to expand and that even within the domestic market there are structural shifts such as the increased shopping online.

The investments in the portfolio can be broadly divided into four different groups:

(1)Companies that will grow sales and profits by taking advantage of rapidly expanding markets across the Asian region. Familymart is a convenience store operator in the highly mature Japanese market. We believe it is attractive for two reasons. First, the domestic market is a three player oligopoly that focuses on profits and cash flow. Second, it is using this cash flow to aggressively invest across the Asian region to bring future growth.

    There is rapid growth of the middle class across the developing world and this has two main consequences for companies in the portfolio. First, disposable incomes are rising which means increased demand for many products - Canon is the number one in the Chinese camera market, Suzuki is number one in Indian autos, Honda the number one in Indonesian motorbikes, Makita is number one in Russian power tools. Second, as wages rise there is a greater necessity to automate production and Japan has many globally leading companies in the fields of robotics and factory automation - for example Fanuc, THK and Mitsubishi Electric.

(2)Companies that are prioritising shareholder returns. Telecom companies have been long-standing positions for the Company. NTT has consistently bought back shares from the government over the recent past and is committed to improving dividends. Similarly, Japan Tobacco looks set to buy back some of the government's stake. It is also seeking to bring its payout ratio closer to that of global peers.

(3)Companies that are exposed to structurally growing areas domestically and globally. The percentage of online shopping in Japan is some way behind the level we see in other developed markets. We expect that this will change over time and that the environment will become tougher for some traditional retailers, such as department stores, as a result. Rakuten is a key beneficiary of this trend.

     We also anticipate major change in the world of computer games. We no longer expect the majority of people to buy consoles such as the Nintendo Wii or Microsoft Xbox. Rather we think games will be downloaded directly to smart phones, tablet computers and, eventually, televisions and the providers of this content will be key beneficiaries. Companies such as Konami and Gree, amongst others, should benefit.

(4)Company specific opportunities. We are fortunate at JPMorgan to have a large team based on the ground in Tokyo. We conduct many company visits each year - over 2,500 company meetings in the last financial year - to try to identify significant changes in sectors and companies. One such example of this is JS Group, a leading manufacturer of bathrooms and building materials. After many years of stagnation the company is restructuring and prioritising profits over sales. Daido Metal is a manufacturer of bearings that has restructured and is now aggressively taking market share at many auto manufacturers, not just those based in Japan.

The above framework is also helpful in helping to decide which areas we seek to avoid. For example, we believe the global steel industry to be highly competitive and that Japanese production is located too far from end demand leading to inefficiencies. Similarly, we have long believed that Japanese utility companies trade on unjustified valuation premiums to global peers particularly given the poor record of shareholder returns and corporate governance. Companies in this sector are likely to have to spend more on safety measures and find alternative sources of power following the Fukushima disaster and as such we continue to see no attraction in this sector.

It is pleasing to see some of these themes and companies as our main contributors to performance over the last year. Similarly, the decisions not to own Tokyo Electric Power, Sony and more recently Honda in Thailand also helped. Some of the cyclical holdings, such as Honda, Omron and Komatsu, performed less well due to heightened concerns over the global growth outlook

Outlook

There are many long-term trends in Japan, both positive and negative. Whilst some steering from the political leadership would help, we believe that the differences between those companies that will succeed and those that will not are set to become ever greater. Our local presence on the ground in Tokyo is a strong competitive advantage in identifying long-term country, sector and stock specific themes. Although there are many macro-economic headwinds, which explains the current ungeared position, we are positive on the outlook for the Company's holdings in the long-term view and for the Trust's performance.

Nicholas Weindling

Investment Manager

17th November 2011

Principal Risks

With the assistance of the Manager, J.P. Morgan Asset Management (UK) Limited, ('JPMAM'), 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 by the Manager. 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 Manager employs the Company's gearing tactically, within a strategic range set by the Board. The Board holds a separate meeting devoted to strategy each year.

•   Market: Market risk arises 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 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 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. 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 United Kingdom Listing Authority 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.

•   Financial: The financial risks faced by the Company are include market price risk, currency risk, interest rate risk, liquidity risk and credit risk. Bank counterparties are subject to daily credit analysis by the Manager and regular consideration at meetings of the Board. In addition the Board receives regular reports on the Manager's monitoring and mitigation of credit risks on share transactions carried out by the Company.

Related Parties Transactions

During the 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.

Statement under the Disclosure & Transparency Rules 4.1.12

The Directors each confirm to the best of their knowledge that:

(a)     the accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and Applicable Law), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)     the Annual Report and Accounts, to be published shortly, 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 it faces.

For and on behalf of the Board

David Pearson

Director

17th November 2011

For further information please contact:

Chris Cordrey

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary                                     020 7742 6000

Income Statement

for the year ended 30th September 2011

			2011			2010
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss		-	11,029	11,029	-	8,318	8,318
Net foreign currency losses		-	(1,260)	(1,260)	-	(3,862)	(3,862)
Income from investments		7,321	-	7,321	6,132	-	6,132
Other interest receivable and similar income		2	-	2	6	-	6
Gross return		7,323	9,769	17,092	6,138	4,456	10,594
Management fee		(449)	(1,795)	(2,244)	(403)	(1,613)	(2,016)
Other administrative expenses		(522)	-	(522)	(505)	-	(505)
Net return on ordinary activities before finance costs and taxation		6,352	7,974	14,326	5,230	2,843	8,073
Finance costs		(210)	(840)	(1,050)	(75)	(301)	(376)
Net return on ordinary activities before  taxation		6,142	7,134	13,276	5,155	2,542	7,697
Taxation		(512)	-	(512)	(429)	-	(429)
Net return on ordinary activities after taxation		5,630	7,134	12,764	4,726	2,542	7,268
Return per share (note 3)		3.49p	4.42p	7.91p	2.91p	1.56p	4.47p

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 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
Repurchase and cancellation of the Company's own shares	(35)	-	35	(229)	-	(229)
Net return on ordinary activities	-	-	-	7,134	5,630	12,764
Dividends appropriated in the year	-	-	-	-	(4,517)	(4,517)
At 30th September 2011	40,330	166,791	8,632	91,291	7,080	314,124

Balance Sheet

at 30th September 2011

		2011	2010
		£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		312,150	300,515
Current assets
Debtors		5,727	2,439
Cash and short term deposits		11,329	3,259
		17,056	5,698
Creditors: amounts falling due within one year		(2,590)	(107)
Net current assets		14,466	5,591
Total assets less current liabilities		326,616	306,106
Creditors: amounts falling due after more than one year		(12,492)	-
Net assets		314,124	306,106
Capital and reserves
Called up share capital		40,330	40,365
Other reserve		166,791	166,791
Capital redemption reserve		8,632	8,597
Capital reserves		91,291	84,386
Revenue reserve		7,080	5,967
Total equity shareholders' funds		314,124	306,106
Net asset value per share (note 4)		194.7p	189.6p

Company registration number: 223583

Cash Flow Statement

for the year ended 30th September 2011

		2011	2010
		£'000	£'000
Net cash inflow from operating activities		3,729	3,072
Returns on investments and servicing of finance
Interest paid		(1,033)	(381)
Capital expenditure and financial investment
Purchases of investments		(156,837)	(229,559)
Sales of investments		155,730	280,860
Other capital charges		(3)	(13)
Net cash (outflow)/inflow from capital expenditure and financial investment		(1,110)	51,288
Dividend paid		(4,517)	(4,650)
Net cash (outflow)/inflow before financing		(2,931)	49,329
Financing
Net drawdown/(repayment) of loans		9,456	(56,165)
Repurchase and cancellation of the Company's own shares		(229)	(13,410)
Net cash inflow/(outflow) from financing		9,227	(69,575)
Increase/(decrease) in cash and cash equivalents		6,296	(20,246)

Notes to the Accounts

for the year ended 30th September 2011

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.  Dividend

     Dividends paid and proposed

		2011	2010
		£'000	£'000
	Dividend paid
	2010 final dividend of 2.8p (2009: 2.8p)	4,517	4,650
	Dividend proposed
	2011 final dividend of 3.3p (2010: 2.8p)	5,323	4,521

     The final dividend proposed in respect of the year ended 30th September 2010 amounted to £4,521,000. However, the amount actually paid was £4,517,000 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 2011 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 2012.

3.  Return per share

     The revenue return per share is based on the revenue earnings attributable to the ordinary shares of £5,630,000 (2010: £4,726,000) and on the weighted average number of shares in issue throughout the year of 161,334,188 (2010: 162,661,550).

The capital return per share is based on the capital return attributable to the ordinary shares of £7,134,000 (2010: £2,542,000) and on the weighted average number of shares in issue throughout the year of 161,334,188 (2010: 162,661,550).

The total return per share is based on the total earnings attributable to the ordinary shares of £12,764,000 (2010: £7,268,000) and on the weighted average number of shares in issue throughout the year of 161,334,188 (2010: 162,661,550).

4.  Net asset value per share

     The net asset value per share is based on the net assets attributable to the ordinary shareholders of £314,124,000 (2010: £306,106,000) and on the 161,318,078 (2010: 161,458,078) shares in issue at the year end.

5.Status of announcement

2010 Financial Information

The figures and financial information for 2010 are extracted from the published Annual Report and Accounts for the year ended 30th September 2010 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 498(2) or section 498(3) of the Companies Act 2006.

2011 Financial Information

The figures and financial information for 2011 are extracted from the Annual Report and Accounts for the year ended 30th September 2011 and do not constitute the statutory accounts for the 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.

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 annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.hemscott.com/nsm.do.

The annual report is also available on the Company's website at www.jpmjapanese.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

 

END

 

 

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