Half Year Results

RNS Number : 0668T

JPMorgan Japanese Inv. Trust PLC

29 May 2009

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 

31ST MARCH 2009

Chairman's Statement 

Performance

Over the six months to 31st March 2009, the Japanese market, in line with equity markets worldwide, continued to decline. The Tokyo Stock Exchange First Section (TOPIX) Index expressed in sterling terms fell by 3.7% and your Company saw a decline in net assets of 6.6%, an underperformance of 2.9%. This is a further disappointing result for both shareholders and your Board. As elsewhere in the world, however, there has been considerable share price volatility in the Tokyo Stock Market in the period under review. Though there has been an improvement in relative performance when compared with other funds in this sector, your Board has maintained its close watch on the portfolio management process. Included in this monitoring was a further visit to Tokyo by a Committee of the Board and this visit noted that additional refinements to this process were being implemented.

As outlined in the last Annual Report, responsibility for the portfolio was transferred to Tokyo as recently as December 2007. Your Board believes that a reasonable time should be allowed to elapse before the revised management arrangements can be fully assessed, particularly given the amount of instability suffered in the Tokyo Stock Market since the end of 2007.

Further detail on the background against which the Company performed is discussed in the Investment Managers' Report below.

Revenue and Dividends

As I emphasised in my year end report, dividend streams from Japan remain unpredictable and dividends paid in previous years should not be taken as a guide to future payments. This year, having received the benefit of the strong appreciation of the yen and the settlement of the Investment Trust VAT Case, it appears likely that, barring unforeseen circumstances, the Company will be in a position to at least maintain its final dividend of 2.8p per share.

Prospects

The Japanese market has made modest advances since the end of March and the investment management team have increased the Company's gearing level to reflect the valuation case for Japanese equities. Your Board supports this position and believes that Japanese companies will benefit once the global economy recovers. 

Jeremy Paulson Ellis

Chairman

29th May 2009

Investment Managers' Report

Over the six months to 31st March 2009 the Japanese stockmarket, as measured by the TOPIX Index, fell 3.7% in sterling terms in what was a difficult period for global financial markets. The considerable daily volatility of the previous quarter persisted as what began as a Western financial crisis developed into a full blown global economic crisis. 

The political impasse in Japan continues; Taro Aso, six months into the Prime Minister's job, has seen his popularity ratings fall below those of his recent predecessors. The lack of political stability has led to a policy response to the crisis that is seen as increasingly inadequate. Japan needs a stimulus package in excess of USD350 million, initiatives thus far add up to under half that amount. With the populace increasingly disillusioned with both the political landscape and the bureaucrats, the need for change has never been greater. The sense of crisis is growing, but there is no one transformational figure at the moment capable of grasping the opportunity.

The economic data released in the first quarter of 2009 has been apocalyptic. Industrial production has fallen to 1983 levels when capacity was 25% lower. Japanese exports fell 46% in January, on top of a 35% drop in December. This is the steepest slide since 1957. Nominal wages are falling and hours of overtime worked have declined dramatically, down 30% year-on-year. Japan's GDP shrank at an annualised rate of 15.2% in the first quarter of 2009, twice the rate of any other developed economy. There has also been a sharp deterioration in the current account surplus - still marginally positive on a seasonally adjusted basis but sharply negative over December and January, bringing into question the sustainability of current yen levels against other currencies globally.

Lay-offs are occurring at a much faster rate than they did during previous downturns -35% of the workforce are now on temporary contracts and as such the barriers to 8%+ unemployment are lower. Permanent employees are now being let go. It is a near certainty that unemployment will exceed the post-war record of 5.5% it hit in 2002/2003. 

The Market

The 3.7% fall, in sterling terms, in the TOPIX Index over the six months to 31st March 2009 masks the true extent of the savage falls in stock prices in Japan. In yen terms the market fell by 28.0%. The market fell in mid March to a 25 year low but recovered somewhat in the second half of March. Foreign investors in March remained net sellers for the seventh month in a row.

Companies expected to make a loss over the next two years now comprise 25% of TOPIX listed stocks. Analyst expectations for next year are still too high and the divergence between consensus and those at the bottom end of the range has never been higher. Such are the level of losses coming through that it is difficult to say exactly what price/earnings ('P/E') multiple the market is currently on. On a median basis it is trading at 13x twelve month forward consensus earnings estimates. On an average basis the P/E is closer to 30x. 

Performance

The net asset value of the Company fell by 6.6% over the six month period and underperformed the benchmark TOPIX Index by 2.9%. The primary cause of this underperformance relates to the Company's overweight positions in Telecom and Pharmaceutical stocks which performed poorly in March relative to the other areas of the market such as Financial and Automaker stocks where the portfolio is underweight. Our investment stance towards the more defensive Telecom and Pharmaceutical sectors reflects our belief that it is appropriate to focus on earnings stability and balance sheet strength during this period of corporate stress and uncertain economic outlook.

Outlook

Corporate profits in Japan are likely to remain under severe downward pressure due to the low capacity utilisation and weak pricing power that exists in the manufacturing sector. This is also having a knock-on effect on domestic employment and consumption. 

Global Markets have fallen further and faster than at any time since the 1930s and equity fund flows have almost dried up. Japan, with its gloomy economic fundamentals and lack of political initiative, has been particularly affected. However, the substantial share price declines have seen the emergence of value in Japanese equities. Since the end of March we have seen the Japanese market rise by 14% in yen terms and there remains a sharp divergence between optimists and pessimists with regard to the continuing severity of future earnings declines. We believe that the valuation case is compelling and to reflect this we have increased the level of gearing utilised by the Company to 109%.

James Elliot

Nicholas Weindling

Investment Managers

29th May 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: market; 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 2008.

During the market turmoil in the latter part of 2008, 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 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.

Jeremy Paulson Ellis

Chairman    

For further information, please contact:

Andrew Norman

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.jpmjapanese.co.uk

Income Statement

for the six months ended 31st March 2009

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st March 2009			31st March 2008			30th September 2008
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Losses from investments held at fair value through profit or loss	-	(26,512)	(26,512)	-	(68,446)	(68,446)	-	(125,374)	(125,374)
Net foreign currency losses	-	(2,072)	(2,072)	-	(1,551)	(1,551)	-	(1,610)	(1,610)
Income from investments	5,102	-	5,102	3,868	-	3,868	6,995	-	6,995
Other interest receivable and similar income	240	-	240	49	-	49	165	-	165
Gross return/(loss)	5,342	(28,584)	(23,242)	3,917	(69,997)	(66,080)	7,160	(126,984)	(119,824)
Management fee	(192)	(767)	(959)	(253)	(1,012)	(1,265)	(476)	(1,904)	(2,380)
VAT recoverable (note 3)	345	3	348	-	-	-	-	-	-
Other administrative expenses	(276)	-	(276)	(341)	-	(341)	(486)	-	(486)
Net return/(loss) on ordinary activities before finance costs and taxation	5,219	(29,348)	(24,129)	3,323	(71,009)	(67,686)	6,198	(128,888)	(122,690)
Finance costs	(35)	(141)	(176)	(20)	(83)	(103)	(62)	(248)	(310)
Net return/(loss) on ordinary activities before taxation	5,184	(29,489)	(24,305)	3,303	(71,092)	(67,789)	6,136	(129,136)	(123,000)
Taxation	(1,522)	1,165	(357)	(538)	267	(271)	(956)	469	(487)
Net return /(loss) on ordinary activities after taxation	3,662	(28,324)	(24,662)	2,765	(70,825)	(68,060)	5,180	(128,667)	(123,487)
Return/(loss) per share  (note 4)	2.1p	(16.4)p	(14.3)p	1.6p	(40.5)p	(38.9)p	3.0p	(73.8)p	(70.8)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	Other	redemption	Capital	Revenue
31st March 2009	capital	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2008	43,500	166,791	5,462	76,687	5,653	298,093
Shares bought back and cancelled	(725)	-	725	(3,911)	-	(3,911)
Net (loss)/return on ordinary activities	-	-	-	(28,324)	3,662	(24,662)
Dividends appropriated in the period	-	-	-	-	(4,840)	(4,840)
At 31st March 2009	42,775	166,791	6,187	44,452	4,475	264,680
	Called up		Capital
Six months ended	share	Other	redemption	Capital	Revenue
31st March 2008	capital	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2007	44,176	166,791	4,786	210,645	5,372	431,770
Shares bought back and cancelled	(669)	-	669	(5,252)	-	(5,252)
Net (loss)/return on ordinary activities	-	-	-	(70,825)	2,765	(68,060)
Dividends appropriated in the period	-	-	-	-	(4,897)	(4,897)
At 31st March 2008	43,507	166,791	5,455	134,568	3,240	353,561
	Called up		Capital
Year ended	share	Other	redemption	Capital	Revenue
30th September 2008	capital	reserve	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 30th September 2007	44,176	166,791	4,786	210,645	5,372	431,770
Shares bought back and cancelled	(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

Balance Sheet

as at 31st March 2009

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2009	31st March 2008	30th September 2008
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	276,920	369,028	321,882
Current assets
Debtors	5,578	4,105	8,929
Cash at bank and in hand	11,066	7,471	35,333
	16,644	11,576	44,262
Creditors: amounts falling due within one year	(28,884)	(27,043)	(68,051)
Net current liabilities	(12,240)	(15,467)	(23,789)
Total assets less current liabilities	264,680	353,561	298,093
Total net assets	264,680	353,561	298,093
Capital and reserves
Called up share capital	42,775	43,507	43,500
Other reserve	166,791	166,791	166,791
Capital redemption reserve	6,187	5,455	5,462
Capital reserves	44,452	134,568	76,687
Revenue reserve	4,475	3,240	5,653
Shareholders' funds	264,680	353,561	298,093
Net asset value per share (note 5)	154.7p	203.2p	171.3p

Cash Flow Statement

for the six months ended 31st March 2009

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2009	31st March 2008	30th September 2008
	£'000	£'000	£'000
Net cash inflow from operating activities (note 6)	3,137	1,110	3,319
Net cash outflow from returns on investments and servicing of finance	(188)	(102)	(305)
Net cash inflow from capital expenditure and financial investment	15,263	60,789	54,015
Dividend paid	(4,840)	(4,897)	(4,899)
Net cash outflow from financing	(47,231)	(50,110)	(16,987)
(Decrease)/increase in cash for the period	(33,859)	6,790	35,143
Reconciliation of net cash flow to movement in net debt
Net cash movement	(33,859)	6,790	35,143
Loans repaid in the period	43,317	44,147	11,090
Exchange movements	(2,072)	(1,551)	(1,609)
Movement in net debt in the period	7,386	49,386	44,624
Net debt at the beginning of the period	(17,511)	(62,135)	(62,135)
Net debt at the end of the period	(10,125)	(12,749)	(17,511)
Represented by:
Cash at bank and in hand	11,066	7,471	35,333
Debt falling due within one year	(21,191)	(20,220)	(52,844)
Net debt at the end of the period	(10,125)	(12,749)	(17,511)

Notes to the Accounts

for the six months ended 31st March 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 30th September 2008 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 to these half year accounts are consistent with those applied in the accounts for the year ended 30th September 2008.

3.       VAT recoverable

No VAT has been charged on management fees since November 2007 when HM Revenue & Customs announced acceptance that VAT was not chargeable on investment trust management fees. The Company has since recovered VAT amounting to £348,000 in respect of VAT paid in the past and this has been allocated between revenue and capital in the same proportions as it was originally expensed to revenue and capital. Interest amounting to £151,000 has also been received and is included within 'Other interest receivable and similar income' and allocated wholly to revenue.

4.    Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2009	31st March 2008	30th September 2008
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	3,662	2,765	5,180
Capital loss	(28,324)	(70,825)	(128,667)
Total loss	(24,662)	(68,060)	(123,487)
Weighted average number of shares in issue	172,200,517	174,764,457	174,344,727
Revenue return per share	2.1p	1.6p	3.0p
Capital loss per share	(16.4)p	(40.5)p	(73.8)p
Total loss per share	(14.3)p	(38.9)p	(70.8)p

5.     Net asset value per share

        Net asset value per share is calculated by dividing the funds attributable to ordinary shareholders by the number of
        ordinary shares in issue at 31st March 2009 of 171,098,266 (31st March 2008: 174,028,919 and 30th September 2008:
        174,001,919).

6.   Reconciliation of total net loss on ordinary activities before finance costs and taxation to net cash inflow from operating 
      activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2009	31st March 2008	30th September 2008
	£'000	£'000	£'000
Total net loss on ordinary activities before finance costs and taxation	(24,129)	(67,686)	(122,690)
Add back capital loss before finance costs  and taxation	29,348	71,009	128,888
Increase in net debtors and accrued income	(961)	(930)	(488)
Overseas taxation	(357)	(271)	(487)
Expenses charged to capital	(764)	(1,012)	(1,904)
Net cash inflow from operating activities	3,137	1,110	3,319

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

www.jpmjapanese.co.uk

 

END

 

 

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