Final Results

RNS Number : 8703C

JPMorgan Japanese Inv. Trust PLC

20 November 2009

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2009

AND PROPOSED NEW ARTICLES OF ASSOCIATION 

The Directors of JPMorgan Japanese Investment Trust plc announce the Company's results for the year ended 30th September 2009. The following comprises extracts from the Company's Annual Financial Report for the year ended 30th September 2009. The full Annual Report and Accounts, including the Notice of the Annual General Meeting will be available to be viewed on or downloaded from the Company's website at www.jpmjapanese.co.uk shortly.

Chairman's Statement

Investment Performance

Over the year to 30th September 2009, the Company produced a total return on net assets in sterling terms of 10.5%, underperforming the sterling total return of the Tokyo Stock Exchange First Section (TOPIX) Index (our benchmark) of 12.7%. The return to shareholders was 10.3%, reflecting the widening of the discount on the Company's shares from 15.1% to 15.5% over the course of the financial year.

Revenue and Dividends

Net revenue after taxation for the year was £5,078,000 (2008: £5,180,000) and earnings per share were 2.96p (2008: 2.97p). I am pleased to report that 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 (2008: 2.80p). The dividend would be payable on 18th December 2009 to shareholders on the register at the close of business on 4th December 2009. I would again 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. As at the date of this report, the Company was 107.6% geared, the level having ranged between 99.0% and 114.8% during the year.

Investment Manager

The Company's objective is to provide shareholders with capital growth from a portfolio of investments in Japanese companies. Following the initial six months of the year to September 2009 when assets declined, there was an improvement in the second half and overall, your Company produced a total return on net assets in sterling terms of 10.5% for the year under review. This return was below the sterling total return of our Benchmark, the Tokyo Stock Exchange First Section (TOPIX) Index which rose 12.7% during the year, but the whole of the underperformance in the portfolio took place in the first six months. The Board feel that the changes and subsequent refinements that have been made to the portfolio management process over the last two years have materially contributed to this improvement in performance.

With responsibility for the management of the portfolio having been transferred to Tokyo in December 2007, the Board also feel that the success of the revised management process should be apparent on a continuing and consistent basis in the future. The improvement achieved in recent months is, we hope, evidence of this, but the Board continues to monitor closely the ongoing operation to ensure that this improvement is maintained.

Board of Directors

During the year, the Board carried out an evaluation of the Directors, the Chairman, the Board's operations and its Committees. Three Directors are seeking re-election at this year's Annual General Meeting. The Directors retiring by rotation are Andrew Fleming and Keith Percy, who being eligible offer themselves 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. Both Andrew and Keith contribute significantly to the Board's deliberations and I have no hesitation in recommending their 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 2.4% of the Company's issued share capital (4,150,841 shares) for cancellation during the year, adding 0.4% to performance. The Directors believe that the power to buy back 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 18th December 2009 at 2.00 pm at Trinity House, Tower Hill, London EC3N 4DH. 

Outlook

The prospects for much of the domestic Japanese economy are uninspiring as the long term structural problems facing Japan continue to prevail. However, companies that can aggressively cut costs or focus their efforts on the emerging economies within Asia can prosper. Japan's proximity to, and increasing trade with, the fast growing Asian economies should provide further opportunities for the Managers over the coming months.

Jeremy Paulson-Ellis

Chairman    

20th November 2009

Investment Managers' Report

Performance

The year ending 30th September 2009 was an extremely volatile year for global economies and markets and Japan was no exception to this. The Japanese stockmarket is dominated by manufacturing exporters which felt the full force of the global demand collapse even though personal and corporate balance sheets were relatively healthy. The collapse in global trade and the demand for products from cars to computers rapidly affected the domestic economy. By July, Japanese unemployment had reached an all time high and domestic companies felt the effects of falling disposable incomes. 

In sterling terms, the company's NAV rose by 10.5% over the year against the return of our benchmark index, the Tokyo Stock Exchange First Section ("TOPIX") of 12.7%. The underperformance recorded resulted from the weak performance in the very volatile markets witnessed in the first half of the year. The second half of the year saw a modest outperformance of the index (17.6% vs. 17.0%). In yen terms the TOPIX Index actually fell by 14.7% over the year. 

The Economy

The first half of the year saw a plethora of record breaking poor data as the effects of the Lehman bankruptcy spread to Asia. Capacity utilisation levels at many companies fell to record lows. Japanese industrial production fell to 1983 levels when capacity was 25% lower, while exports fell 46% in January on top of a 35% drop in December. In the first quarter of 2009 Japan's GDP fell at an annualised rate of 12.4%, twice the rate of any other developed economy. Due to the speed and severity of the downturn the pick up in macro data has been rapid in the second half of the year. Export volumes rose for a sixth consecutive month in September and are now 25% higher than the trough in February. Global trade is accelerating again and the labour market has also started to show signs of stabilisation, with manufacturing overtime hours up 30% since the bottom in the first quarter. Employment data will eventually improve while wages should increase as companies withdraw emergency measures that saw temporary cuts in salaries. 

Looking at the long-term, the structural problems facing Japan remain significant. The current population of just over 127 million will fall to around 100m by 2050. The ratio of people aged 65 and over will rise from 20% today to over 30% in twenty years time. Deflation remains entrenched which creates a difficult environment for consumer spending - this continued lack of dynamism in the domestic economy contributes to the low return on equity generated by many domestic Japanese companies. However, it is very important for investors to separate the issues affecting the economy from those that affect the market. Manufacturing accounts for close to 60% of market capitalisation of the TOPIX Index, an area where we believe Japan is strongest, whereas it is just 21% of GDP. Simply put, the Japanese economy does not equal the Japanese market.

Politics

The August 30th lower house election 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 thirst for change was further demonstrated by a voter turnout that was the highest in thirty years. The DPJ under Yukio Hatoyama has a strong mandate to push through much needed reforms which could reinvigorate the domestic economy. In the long-term view there is no doubt that it will be a 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 desire to reduce the power of the bureaucracy in favour of greater ministerial accountability. 

Corporate Outlook

Earnings reported by Japanese companies for the quarter ending in June reflected both the stabilisation of the macro environment and also cost cutting undertaken in the first few months of the year. That they were generally better then expected was a reflection of the fact that in many companies the need to address costs was taken seriously. The earnings reported by Japanese companies for the quarter to the end of September have continued to surprise positively as the effects of the pick-up in global trade and in particular the continued strength of the Asian block economies has begun to come through. As an example, over half of profits at Honda Motor now come from Asia. 

We can increasingly identify a widening gap between strong and weak companies across much of the market. Taking the retail sector as an example, the primary dynamic is of persistent deflation. Within this environment it is vital to provide a value proposition to consumers. This business model can only be successful with a low cost base, yet Japanese department stores have singularly failed to bring costs under control while same store sales continue their miserable trend. There are, however, companies which have aggressively adjusted to the reality of the situation, such as Uniqlo, which are now seeing significant profit growth in Japan which gives it the springboard from which to venture overseas.

There is a similar gap developing amongst those companies focused on export markets. Some have seen their competitive edge whittled away each year by Asian competition while their balance sheets have steadily weakened. However, others such as Asahi Glass and Shin-Etsu Chemical, are as competitive as ever and operate in businesses with high barriers to entry. Japanese companies are also aware of the huge opportunity presented to them by Asia. Japan is fortunate that by geographic chance it happens to be ideally positioned in one of the world's fastest developing regions. The share of Japanese exports to Asia has increased from 25% twenty years ago to 54% today with China the biggest single destination, now surpassing the United States. The Trust holds positions in a variety of companies that trade on very attractive valuations that play directly to this theme. 35% of sales at Kansai Paint are from Asia, particularly India. Daihatsu Motor is the number two auto manufacturer in Indonesia behind its partner Toyota. These two companies together enjoy 50% market share in a country where car ownership is only just beginning to take off. Companies also see the benefits of moving production to lower cost Asian centres particularly in view of Japan's declining population. For example, consumer electronics maker Funai Electric manufactures entirely in mainland Asia - as a result it is at no cost disadvantage versus Chinese, Taiwanese or Korean manufacturers. 

Market Outlook

The TOPIX index trades on a price to book multiple of below 1.1 times. This is well below previous cyclical troughs. Earnings momentum has now clearly inflected and we expect companies with strong fundamentals to be rewarded. Investor sentiment towards Japan, according to the Merrill Lynch fund manager survey, sits near all-time lows. It is always darkest before the dawn. Many Japanese companies have shown themselves adept at dealing with the recent crisis and will (and are already) emerging stronger as a result.

The outlook for the domestic economy may be somewhat lacklustre and some companies will struggle to cope with competitive pressures from Asia. However, in aggregate the huge opportunities afforded by Asia outweigh these competitive concerns and the prospects for adding value through stock picking are very exciting. Sell-side broker coverage of the market has diminished appreciably whilst many money managers have switched to passive strategies in the Japan market. With the gap between the winner and loser companies in the market becoming ever greater, a bottom-up, fundamental approach should be amply rewarded. 

The process at JPMorgan Asset Management focuses on companies that offer a combination of growth at attractive valuations, determined by forward looking measures such as price/earnings and cash-flow yield as well as careful consideration of shareholder awareness, determined by measures such as dividend yield. Furthermore, as a group, we have significant resources on the ground in cities such as Hong Kong, Seoul, Mumbai and Singapore, allowing us to be fully aware of the competitive threats and opportunities for Japanese companies. The performance of the JPMorgan Japanese Investment Trust is our number one concern. We are encouraged by the recent stabilisation of investment performance and believe that the current market environment presents us with an excellent opportunity to add value in the coming year. 

James Elliot

Nicholas Weindling

Investment Managers    20th November 2009

Adoption of new Articles of Association

The Company proposes to adopt new Articles of Association. These incorporate amendments to the current Articles of Association to reflect the changes in company law brought about by the 2006 Companies Act (the 'Act') which came into effect on 1st October 2009 and changes made to the 2006 Act in August 2009 to implement the EU Shareholder Rights Directive in the UK, as well as some minor technical or clarifying changes.

The principal changes in the new Articles of Association proposed to be adopted at the 2009 Annual General Meeting relate to shareholder meetings and resolutions, the Company's constitution and share capital.

In August 2009, changes were made to the provisions in the 2006 Act on company meetings by The Companies (Shareholders' Rights) Regulations 2009 ("Shareholders' Rights Regulations") to implement the EU Shareholder Rights Directive in the UK. The new articles incorporate amendments in relation to meetings to ensure consistency with the 2006 Act (as amended by the Shareholders' Rights Regulations). 

Under the 2006 Act all provisions of the Company's memorandum, but most significantly the objects clause, are deemed to form part of the Company's articles from 1st October 2009. It is possible for the objects clause to be removed or amended by amending the articles by special resolution. It is not necessary under the 2006 Act for a company to set out its objects. The 2006 Act provides that, unless the articles state otherwise, a company's objects will be unrestricted.

One of the other key provisions of the memorandum which is deemed to form part of the Company's articles from 1st October 2009 is the restriction created by the existing authorised share capital statement. The 2006 Act removes the requirement for a company to place limits on its authorised share capital.

By adopting the new Articles which do not contain the objects clause or the authorised share capital statement, the Company will remove these provisions, which would otherwise be deemed to form part of the Company's articles under section 28 of the 2006 Act, from its articles.

For a more detailed explanation of these and other amendments please refer to the Notice of Annual General Meeting and the Appendix in the Annual Report and Accounts. Copies of the new Articles of Association will be available for inspection at the offices of JPMAM, Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ from the date of this report up until the close of the Annual General Meeting.

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 on. 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 review 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.

• 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 842 of the Income and Corporation Taxes Act 1988 ('Section 842'). Details of the Company's approval are given under "Business of the Company" above. Should the Company breach Section 842, 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 842 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 842. 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.

• Financial: The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk.

Directors' Responsibilities

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

(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) the 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 it face.

Jeremy Paulson Ellis

Chairman

20th November 2009

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 2009

		2009			2008
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss		-	26,724	26,724	-	(125,374)	(125,374)
Net foreign currency losses		-	(3,077)	(3,077)	-	(1,610)	(1,610)
Income from investments		7,357	-	7,357	6,995	-	6,995
Other interest receivable and similar income		239	-	239	165	-	165
Gross return/(loss)		7,596	23,647	31,243	7,160	(126,984)	(119,824)
Management fee		(379)	(1,516)	(1,895)	(476)	(1,904)	(2,380)
VAT recoverable		345	3	348	-	-	-
Other administrative expenses		(441)	-	(441)	(486)	-	(486)
Net return/(loss) on ordinary activities before finance costs and taxation		7,121	22,134	29,255	6,198	(128,888)	(122,690)
Finance costs		(88)	(350)	(438)	(62)	(248)	(310)
Net return/(loss) on ordinary activities before taxation		7,033	21,784	28,817	6,136	(129,136)	(123,000)
Taxation		(1,955)	1,440	(515)	(956)	469	(487)
Net return/(loss) on ordinary activities after taxation		5,078	23,224	28,302	5,180	(128,667)	(123,487)
Return/(loss) per share (note 3)		2.96p	13.54p	16.50p	2.97p	(73.78)p	(70.81)p

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 2007	44,176	166,791	4,786	210,645	5,372	431,770
Repurchase and cancellation of the Company's own shares	(676)	-	676	(5,291)	-	(5,291)
Net (loss)/return on ordinary activities	-	-	-	(128,667)	5,180	(123,487)
Dividends appropriated in the year	-	-	-	-	(4,899)	(4,899)
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

  Balance Sheet

at 30th September 2009

		2009	2008
		£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		339,669	321,882
Current assets
Debtors		8,230	8,929
Cash and short term deposits		23,577	35,333
		31,807	44,262
Creditors: amounts falling due within one year		(55,799)	(68,051)
Net current liabilities		(23,992)	(23,789)
Total assets less current liabilities		315,677	298,093
Total net assets		315,677	298,093
Capital and reserves
Called up share capital		42,463	43,500
Other reserve		166,791	166,791
Capital redemption reserve		6,499	5,462
Capital reserves		94,033	76,687
Revenue reserve		5,891	5,653
Shareholders' funds		315,677	298,093
Net asset value per share (note 4)		185.9p	171.3p

  Cash Flow Statement

for the year ended 30th September 2009

		2009	2008
		£'000	£'000
Net cash inflow from operating activities		5,508	3,319
Returns on investments and servicing of finance
Interest paid		(447)	(305)
Capital expenditure and financial investment
Purchases of investments		(478,664)	(676,769)
Sales of investments		474,938	730,801
Other capital charges		(10)	(17)
Net cash (outflow)/inflow from capital expenditure and financial investment		(3,736)	54,015
Dividend paid		(4,840)	(4,899)
Net cash (outflow)/inflow before financing		(3,515)	52,130
Financing
Repurchase and cancellation of the Company's own shares		(4,695)	(5,897)
Net repayment of loans		(13,704)	(11,090)
Net cash outflow from financing		(18,399)	(16,987)
(Decrease)/increase in cash and cash equivalents		(21,914)	35,143

  Notes to the Accounts

for the year ended 30th September 2009

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' (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 at fair value.

2.    Dividend

	2009	2008
	£'000	£'000

    Dividend proposed

2009 final dividend of 2.8p (2008: 2.8p)

4,756

4,872

The final dividend proposed in respect of the year ended 30th September 2009 is subject to approval at the forthcoming Annual General Meeting. 

3.    Return/(loss) per share

The revenue return per share is based on the revenue earnings attributable to the ordinary shares of £5,078,000 (2008: £5,180,000) and on the weighted average number of shares in issue throughout the year of 171,541,388 (2008: 174,344,727).

The capital return per share is based on the capital earnings attributable to the ordinary shares of £23,224,000 (2008: losses of £128,667,000) and on the weighted average number of shares in issue throughout the year of 171,541,388 (2008: 174,344,727).

The total return per share is based on the total earnings attributable to the ordinary shares of £28,302,000 (2008: losses of £123,487,000) and on the weighted average number of shares in issue throughout the year of 171,541,388 (2008: 174,344,727).

4.    Net asset value per share

The net asset value per share is based on the net assets attributable to the ordinary shareholders of £315,677,000 (2008: £298,093,000) and on the 169,851,078 (2008: 174,001,919) shares in issue at the year end.

5. Status of preliminary announcement

The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 30th September 2008 or 2009. The statutory accounts for the years ended 30th September 2008 and 2009 have been reported on by the Company's auditors. The auditors report for both years was unqualified and contained no statement under S498(2) or S498(3) of the Companies Act 2006. 

The statutory accounts for the year ended 30th September 2008 have been delivered to the Registrar of Companies and statutory accounts for the year ended 30th September 2009 will be delivered in due course.

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

 

END

 

 

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