Half Yearly Report

RNS Number : 3771H

JPMorgan Japanese Inv. Trust PLC

26 May 2011

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

31ST MARCH 2011

Chairman's Statement

The period covered by this report includes the horrific earthquake and tsunami which devastated so much of Eastern Japan on 11th March. The Directors would like to express their sympathy with all those affected by those terrible events. Japan, however, is a resilient society and the way in which the recovery has begun has been exemplary. Our Manager, J.P. Morgan Asset Management, has a significant Japanese team, based primarily in Tokyo. We were encouraged to see how well the team was supported and noted that they continued to conduct business and meet with clients throughout this testing time. J.P. Morgan as a business and its staff made a significant financial contribution to the relief and recovery efforts.

Performance

Over the six months to 31st March 2011, our benchmark, the Tokyo Stock Exchange First Section (TOPIX) Index, rose by 5.0% in sterling terms. Your Company saw an increase in net assets of 8.9%, an outperformance of 3.9%. Shareholders will be pleased to note that the improvement in performance witnessed in recent years has been continued over the first six months of the current financial year. The Board remains hopeful that this improvement will be sustained.

Further detail on the background against which the Company performed is discussed in the Investment Manager's Report in the half-yearly financial report.

Revenue and Dividends

As I emphasise each year in my Chairman's Statement, dividend streams from Japan are unpredictable and dividends we have paid in previous years should not be taken as a guide to future payments. This year it appears likely that the Company will be in a position at least to maintain its final dividend of 2.8p per share although there is some uncertainty as to companies' individual dividend policies following the earthquake.

Discount Management

The Board has guidelines in place with regard to the management of any discount/premium that may develop between the Company's share price and its net asset value per share. The Company repurchased 140,000 Ordinary Shares of 25p each for cancellation on 12th November 2010 during the period under review.

Gearing

The Board of Directors sets the overall strategic gearing policy and guidelines and reviews these at each meeting. As at the date of this report, the Company was 105% geared, having ranged between 97% and 106% during the six months under review.

Prospects

In the Investment Manager's Report in the half-yearly financial report, your manager reflects on the implications of the earthquake and tsunami. Although the situation remains unclear, valuations remain low and we are confident in our manager's ability to identify the stocks which will outperform the market over the long term.

Jeremy Paulson-Ellis

Chairman                                                                                                                     26 May 2011

Investment Manager's Report

The TOPIX index rose 5.0% in sterling terms during the September 2010 to March 2011 period. The Company continued its trend of improving performance, with the NAV outperforming our benchmark (TOPIX) by 3.9% over the half year. The cumulative outperformance over the last two years is +8.5%. In general terms export manufacturing and commodity companies performed well while defensive and domestic-orientated companies such as the utility companies underperformed.

The first five months of the period were characterised by continuing improvements in the global economy and robust company earnings even in the face of the strong yen. There were positive developments in corporate Japan with the announcement of the merger of two of the largest steel companies (Nippon Steel and Sumitomo Metal Industries) and a string of management buyouts amongst smaller companies.

Portfolio turnover was limited during the period as we saw little reason to change our long-term strategy of focusing on companies with strong competitive advantages that are benefiting from Asian growth. In this respect, holdings such as power tool maker Makita and factory automation related THK and Mitsubishi Electric continued to perform well.

The outlook, however, changed substantially on 11th March as Japan was hit by the catastrophic Great East Japan Earthquake. It is this terrible event that we focus on below.

The Great East Japan Earthquake

The Great East Japan Earthquake struck at 14:45 Japan Standard time on 11th March 2011. The 9.0 magnitude earthquake was the fifth largest earthquake in recorded history. The earthquake triggered an enormous tsunami wave of up to 25 metres high which in some cases travelled 10 kilometres inland. Tragically, at the time of writing there are over 26,000 people reported as dead or missing. The event was followed by a failure of the cooling system at the Fukushima Nuclear Power Plant, which is operated by Tokyo Electric Power. The World Bank subsequently estimated the cost of the damage to be as high as 235 billion US Dollars.

Economic Consequences of the Disaster

•          Factories and supply chains were severely hit by the quake and it will take some months for production to normalise. Some factories and plants were completely destroyed. Our core view is that this is a temporary factor which will reduce earnings in the short-term but that long-term competitiveness, in most cases, is not impaired.

•          In the immediate aftermath of the earthquake there were power shortages in the Tokyo region with rolling blackouts for the capital. This, alongside the supply chain disruptions, had a severe impact on industrial production and consumption. At the time of writing the situation has improved, but there is still a great deal of uncertainty about the summer months when electricity demand peaks.

•          Japan's long-term energy policy will likely be reconsidered. At the most basic level the fact is that twenty percent of the world's nuclear plants are located in the most earthquake prone country. The crisis in Fukushima may eventually lead to changes in energy policy globally. In Japan, the most likely alternative is liquefied natural gas.

•          The yen surged to a post-war high of ¥76.25 versus the U.S Dollar following the quake. Shortly afterwards the G7 nations announced coordinated currency intervention for the first time in eleven years. Coordinated intervention has a good track record of stabilising currencies having succeeded four times out of five between 1985 and 2000. Indeed, these interventions have marked fundamental turning points for currencies. Companies with substantial overseas production bases and sales had looked to be relatively unaffected by the quake but significant yen strength would have changed that. We are now more confident that the yen will be at least stable around current levels.

•          The crisis has not, as yet, led to the political stalemate being broken. Indeed, one of the major concerns is that taxes will be increased to help pay for reconstruction which may further dampen the outlook for domestic demand.

Valuation

TOPIX currently trades on a price to book ratio of one. The price to earnings ratio is uncertain with cuts to earnings estimates likely in most sectors. Prior to the quake the market traded on 13 times March 2012 and we believe that there will be little impact on earnings on 2013 and beyond. Japan therefore trades at a discount to global markets and, as long as the global economy remains relatively robust, it should be able to rebound from this one time shock.

Outlook and Portfolio Strategy

In the short-term we expect earnings estimates to be cut and companies to issue very conservative guidance for next fiscal year. We are focusing on those companies with strong balance sheets which should be able to rebuild capacity without the need for additional funding. Our long-term strategy remains unchanged and we continue to focus on those companies with strong competitive positions that can grow their earnings outside Japan, particularly in Asia. Our core view remains that valuations are low and that we can invest in companies with strong long-term positions at very attractive valuations.

Nicholas Weindling

Investment Manager                                                                                                    26 May 2011

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 five broad categories: investment and strategy; market risk; 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 2010.

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.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

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 half year 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.

For and on behalf of the Board

Jeremy Paulson-Ellis

Chairman                                                                                                                     26 May 2011

Income Statement

for the six months ended 31st March 2011

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	31st March 2011			31st March 2010			30th September 2010
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on   investments   held at fair value
through profit
or loss	-	20,285	20,285	-	38,668	38,668	-	8,318	8,318
Net foreign currency   gains/(losses)	-	204	204	-	(512)	(512)	-	(3,862)	(3,862)
Income from   investments	3,714	-	3,714	2,727	-	2,727	6,132	-	6,132
Other interest   receivable and
similar income	1	-	1	-	-	-	6	-	6
Gross return	3,715	20,489	24,204	2,727	38,156	40,883	6,138	4,456	10,594
Management fee	(217)	(866)	(1,083)	(198)	(792)	(990)	(403)	(1,613)	(2,016)
Other administrative expenses	(263)	-	(263)	(250)	-	(250)	(505)	-	(505)
Net return on   ordinary activities
before finance
costs and taxation	3,235	19,623	22,858	2,279	37,364	39,643	5,230	2,843	8,073
Finance costs	(69)	(277)	(346)	(35)	(141)	(176)	(75)	(301)	(376)
Net return on   ordinary activities
before taxation	3,166	19,346	22,512	2,244	37,223	39,467	5,155	2,542	7,697
Taxation	(260)	-	(260)	(191)	-	(191)	(429)	-	(429)
Net return on   ordinary activities
after taxation	2,906	19,346	22,252	2,053	37,223	39,276	4,726	2,542	7,268
Return per share    (note 3)	1.80p	11.99p	13.79p	1.25p	22.72p	23.97p	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 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 2011	capital	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
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	-	-	-	19,346	2,906	22,252
Dividends appropriated in   the period	-	-	-	-	(4,517)	(4,517)
At 31st March 2011	40,330	166,791	8,632	103,503	4,356	323,612
	Called up		Capital
Six months ended	share	Other	redemption	Capital	Revenue
31st March 2010	capital	reserve	reserve	reserves	reserve	Total
(Unaudited)	£'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	(2,076)	-	2,076	(12,045)	-	(12,045)
Net return on ordinary activities	-	-	-	37,223	2,053	39,276
Dividends appropriated in   the period	-	-	-	-	(4,650)	(4,650)
At 31st March 2010	40,387	166,791	8,575	119,211	3,294	338,258
	Called up		Capital
Year ended	share	Other	redemption	Capital	Revenue
30th September 2010	capital	reserve	reserve	reserves	reserve	Total
(Audited)	£'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

Balance Sheet

at 31st March 2011

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2011	31st March 2010	30th September 2010
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit   or loss	339,049	358,574	300,515
Current assets
Debtors	3,229	6,447	2,439
Cash and short term deposits	19,241	34,141	3,259
	22,470	40,588	5,698
Creditors: amounts falling due within one year	(37,907)	(60,904)	(107)
Net current (liabilities)/assets	(15,437)	(20,316)	5,591
Total assets less current liabilities	323,612	338,258	306,106
Net assets	323,612	338,258	306,106
Capital and reserves
Called up share capital	40,330	40,387	40,365
Other reserve	166,791	166,791	166,791
Capital redemption reserve	8,632	8,575	8,597
Capital reserves	103,503	119,211	84,386
Revenue reserve	4,356	3,294	5,967
Shareholders' funds	323,612	338,258	306,106
Net asset value per share (note 4)	200.6p	209.4p	189.6p

Cash Flow Statement

for the six months ended 31st March 2011

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2011	31st March 2010	30th September 2010
	£'000	£'000	£'000
Net cash inflow from operating activities   (note 5)	1,524	1,241	3,072
Net cash outflow from returns on investments
and servicing of finance	(324)	(176)	(381)
Net cash (outflow)/inflow from capital
expenditure and financial investment	(18,311)	27,388	51,288
Dividend paid	(4,517)	(4,650)	(4,650)
Net cash inflow/(outflow) from financing	37,646	(13,266)	(69,575)
Increase/(decrease) in cash for the period	16,018	10,537	(20,246)
Reconciliation of net cash flow to movement   in net debt
Net cash movement	16,018	10,537	(20,246)
Loans (drawn down)/repaid in the period	(38,009)	-	56,165
Exchange movements	337	(512)	(3,862)
Movement in net funds/debt in the period	(21,654)	10,025	32,057
Net funds/(debt) at the beginning of the period	3,259	(28,798)	(28,798)
Net (debt)/funds at the end of the period	(18,395)	(18,773)	3,259
Represented by:
Cash and short term deposits	19,241	34,141	3,259
Debt falling due within one year	(37,636)	(52,914)	-
Net (debt)/funds at the end of the period	(18,395)	(18,773)	3,259

Notes to the Accounts

for the six months ended 31st March 2011

1.         Financial statements

            The information contained within the financial accounts 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 2010 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 and Venture Capital Trusts' 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 2010.

3.         Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2011	31st March 2010	30th September 2010
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	2,906	2,053	4,726
Capital return	19,346	37,223	2,542
Total return	22,252	39,276	7,268
Weighted average number of shares in issue	161,350,386	163,824,770	162,661,550
Revenue return per share	1.80p	1.25p	2.91p
Capital return per share	11.99p	22.72p	1.56p
Total return per share	13.79p	23.97p	4.47p

4.         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 2011 of 161,318,078 (31st March 2010: 161,548,078 and 30th September 2010: 161,458,078),

5.         Reconciliation of total net return 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 2011	31st March 2010	30th September 2010
	£'000	£'000	£'000
Total net return on ordinary activities before
finance costs and taxation	22,858	39,643	8,073
Less capital return before finance costs and taxation	(19,623)	(37,364)	(2,843)
Increase in net debtors and accrued income	(585)	(55)	(116)
Overseas withholding taxation	(260)	(191)	(429)
Management fee charged to capital	(866)	(792)	(1,613)
Net cash inflow from operating activities	1,524	1,241	3,072

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

The half yearly report will also be 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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