Unaudited Half Year Results

RNS Number : 5860M

JPMorgan Japanese Inv. Trust PLC

26 May 2010

 



LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

31ST MARCH 2010

Chairman's Statement

Performance

Over the six months to 31st March 2010, our benchmark, the Tokyo Stock Exchange First Section (TOPIX) Index, rose by 9.6% in sterling terms. The Company saw an increase in net assets of 16.2%, an outperformance of 6.6%. It is pleasing to note that the improvement in performance witnessed in the second half of the last financial year has continued over the first six months of the current financial year. The changes in the Investment Management process instigated from December 2007 onwards have had a positive effect and the Board remains hopeful that this improvement can be sustained. The Board monitors investment performance closely.

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

Revenue and Dividends

As I emphasise each year in my Chairman's Statements, dividend streams from Japan remain unpredictable and depend to a considerable degree on the portfolio structure. Dividends paid in previous years should therefore not be taken as a guide to future payments. Based on the current portfolio, it appears likely that the dividend paid by the Company for the current financial year will be in the range of 2.0 to 2.4p per share against the 2.8p per share paid for the last financial year.

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 106% geared, having ranged between 105.8% and 112.2% during the six months under review.

Prospects

The investment managers are positive about the prospects for Japan over the medium term. They believe that domestic demand will strengthen as the global economy improves and that Japan's proximity to, and trading links with, the most rapidly advancing economies of Asia will provide further impetus to Japan. The Board supports this position and believes that Japanese companies will continue to benefit as the global economy recovers.

Jeremy Paulson-Ellis

Chairman         26th May 2010

Investment Managers' Report

Performance

The half year ending 31st March 2010 was much improved in terms of global markets and Japan followed this trend. Encouragingly, the performance of the Company continued its recent improvement, with the NAV outperforming our benchmark (TOPIX) by 6.6%. In general, export manufacturing companies, such as Asahi Glass and Mitsubishi Electric, performed well as global demand showed signs of improvement, rates of factory capacity utilisation started to improve and companies benefitted from aggressive cost cutting.

Politics

The political landscape in Japan changed significantly on 30th August 2009 when the opposition Democratic Party of Japan ('DPJ') swept to a landslide victory over the incumbent Liberal Democratic Party ('LDP') - the first time since 1950 that any party other than the LDP has held a majority. In two key areas the new government has been encouraging. First, it sees Asia as representing the future for Japan and has tried to adopt policies and rhetoric that make this clear. Second, it has a clear preference for social welfare programmes, such as increased allowances for families with children, which may help to increase the birth rate, as opposed to public works projects, like roads in rural areas, that had been favoured by the LDP. However, the popularity of the DPJ is falling by the month and many investors are dissatisfied by a perceived lack of progress on reform.

Currency

During the period under review the yen hit a fourteen year high versus the dollar of yen 84. Japan has continued to run a tight monetary and fiscal policy at a time when the rest of the world has been on a loosening path. We expect governments and central banks to take their first tentative steps in withdrawing stimulus and tightening policy, whereas there should be no such trend in Japan. With Japanese exporters having aggressively cut costs over the last year, the following wind of a weaker currency should be positive in terms of profits.

The Economy

The global economy has started to recover and the effects of this can be seen in Japan. Unemployment is already well below its peak level and many companies which made temporary cost cuts via wage and bonus reductions will reinstate these payments. This, combined with the government's child benefit programme, means that disposable incomes will start to return to previous levels. We do not make any case for a substantial recovery in consumer spending, but the situation for companies from railways to retailers will start to look much better. Just as Japan was the hardest hit of all G7 nations during the recession, so it should be the biggest beneficiary of the recovery.

The Market

The fourth quarter of calendar year 2009 was disappointing for Japan as its markets lagged the rest of the world by a considerable margin. Fortunately performance has improved in 2010, but Japanese markets are still significantly below the levels seen prior to the financial crisis while most other major markets have recovered. The TOPIX Index trades on a price to book multiple of 1.2 times, which is well below previous cyclical troughs, while investor sentiment, according to the Merrill Lynch Fund Manager Survey, has remained depressed.

Two significant issues which have hung over the market now look to be behind us. First, the latter half of 2009 saw substantial equity issuance from large companies which had the effect of draining liquidity and stifling the market for IPOs (new company listings). Second, the strong yen, which had been holding back profits for many exporters, has changed trend. These positives will combine with improving capacity utilisation at manufacturing companies as demand recovers. Taken together, this amounts to strong profit growth over the next year, albeit from an extremely low base. In this regard recent earnings announcements have increased our confidence in the picture painted above as we see profitability improving due to cost cutting and top line growth as demand recovers.

Portfolio Strategy

The core of the portfolio continues to be made up of companies that benefit from Asian growth, as exports to Asia now make up over 50% of Japan's total. Japan's proximity to Asia and the Increasing Importance at the company level of China and India in terms of profit growth is the key long-term story for Japanese equities. Stocks held include Kansai Paint, a leader in the Indian paint market, and a number of motorbike parts suppliers in Indonesia. In the short-term we are now more positive on the prospects for companies related to the domestic economy - unemployment is falling while wages and bonuses rise which should be positive for consumption. In this regard we expect passenger numbers to improve at railway companies and for trends to improve in areas from housing to retail. Against this we have somewhat reduced the exposure to export cyclical areas, such as steel companies, following strong performance.

Outlook

The mid-term outlook is positive. Valuations are low. Corporate profits will recover with global demand and companies will reap the benefits of significant cost cuts during the darkest times. The domestic demand environment will improve with the global economy. The weaker yen will be a tail-wind. The percentage of business done with the rest of Asia will continue to increase and investors should come to realise that some of the most attractive exposure to the growing markets of China, India and South-East Asia is to be found in Japan. Our long-term core thesis of Japanese companies benefitting from their positions in Asia next to fast growing markets is unchanged.

James Elliot

Nicholas Weindling

Investment Managers              26th May 2010

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 2009.

Related Party 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 2010

	(Unaudited)				(Unaudited)			(Audited)
	Six months ended				Six months ended			Year ended
	31st March 2010				31st March 2009			30th September 2009
		Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments
held at fair value through
profit or loss		-	38,668	38,668	-	(26,512)	(26,512)	-	26,724	26,724
Net foreign currency losses		-	(512)	(512)	-	(2,072)	(2,072)	-	(3,077)	(3,077)
Income from investments		2,727	-	2,727	5,102	-	5,102	7,357	-	7,357
Other interest receivable
and similar income		-	-	-	240	-	240	239	-	239
Gross return/(loss)		2,727	38,156	40,883	5,342	(28,584)	(23,242)	7,596	23,647	31,243
Management fee		(198)	(792)	(990)	(192)	(767)	(959)	(379)	(1,516)	(1,895)
VAT recoverable		-	-	-	345	3	348	345	3	348
Other administrative expenses		(250)	-	(250)	(276)	-	(276)	(441)	-	(441)
Net return/(loss) on ordinary
activities before finance
costs and taxation		2,279	37,364	39,643	5,219	(29,348)	(24,129)	7,121	22,134	29,255
Finance costs		(35)	(141)	(176)	(35)	(141)	(176)	(88)	(350)	(438)
Net return/(loss) on ordinary
activities before taxation		2,244	37,223	39,467	5,184	(29,489)	(24,305)	7,033	21,784	28,817
Taxation		(191)	-	(191)	(1,522)	1,165	(357)	(1,955)	1,440	(515)
Net return /(loss) on ordinary
activities after taxation		2,053	37,223	39,276	3,662	(28,324)	(24,662)	5,078	23,224	28,302
Return/(loss) per share (note 3)		1.3p	22.7p	24.0p	2.1p	(16.4)p	(14.3)p	3.0p	13.5p	16.5p

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 2010	capital	reserve	reserve	reserve	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
Shares bought back and cancelled	(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
Six months ended	share	Other	redemption	Capital	Revenue
31st March 2009	capital	reserve	reserve	reserve	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
Year ended	share	Other	redemption	Capital	Revenue
30th September 2008	capital	reserve	reserve	reserve	reserve	Total
(Audited)	£'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	(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 31st March 2010

	(Unaudited)	(Unaudited)	(Audited)
	31st March 2010	31st March 2009	30th September 2009
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	358,574	276,920	339,669
Current assets
Debtors	6,447	5,578	8,230
Cash and short term deposits	34,141	11,066	23,577
	40,588	16,644	31,807
Creditors: amounts falling due within one year	(60,904)	(28,884)	(55,799)
Net current liabilities	(20,316)	(12,240)	(23,992)
Total assets less current liabilities	338,258	264,680	315,677
Total net assets	338,258	264,680	315,677
Capital and reserves
Called up share capital	40,387	42,775	42,463
Other reserve	166,791	166,791	166,791
Capital redemption reserve	8,575	6,187	6,499
Capital reserve	119,211	44,452	94,033
Revenue reserve	3,294	4,475	5,891
Shareholders' funds	338,258	264,680	315,677
Net asset value per share (note 4)	209.4p	154.7p	185.9p

Cash Flow Statement

for the six months ended 31st March 2010

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2010	31st March 2009	30th September 2009
	£'000	£'000	£'000
Net cash inflow from operating activities (note 5)	1,241	3,137	5,508
Net cash outflow from returns on investments
and servicing of finance	(176)	(188)	(447)
Net cash inflow/(outflow) from capital expenditure and
financial investment	27,388	15,263	(3,736)
Dividend paid	(4,650)	(4,840)	(4,840)
Net cash outflow from financing	(13,266)	(47,231)	(18,399)
Increase/(decrease) in cash for the period	10,537	(33,859)	(21,914)
Reconciliation of net cash flow to movement in net debt
Net cash movement	10,537	(33,859)	(21,914)
Loans repaid in the period	-	43,317	13,704
Exchange movements	(512)	(2,072)	(3,077)
Movement in net debt in the period	10,025	7,386	(11,287)
Net debt at the beginning of the period	(28,798)	(17,511)	(17,511)
Net debt at the end of the period	(18,773)	(10,125)	(28,798)
Represented by:
Cash and short term deposits	34,141	11,066	23,577
Debt falling due within one year	(52,914)	(21,191)	(52,375)
Net debt at the end of the period	(18,773)	(10,125)	(28,798)

Notes to the Accounts

for the six months ended 31st March 2010

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 2009 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 2009.

3.             Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	31st March 2010	31st March 2009	30th September 2009
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	2,053	3,662	5,078
Capital return/(loss)	37,223	(28,324)	23,224
Total return/(loss)	39,276	(24,662)	28,302
Weighted average number of shares in issue	163,824,770	172,200,517	171,541,388
Revenue return per share	1.3p	2.1p	3.0p
Capital return/(loss) per share	22.7p	(16.4)p	13.5p
Total return/(loss) per share	24.0p	(14.3)p	16.5p

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 2010 of 161,548,078 (31st March 2009: 171,098,266 and 30th September 2009: 169,851,078),

5.            Reconciliation of total net return/(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 2010	31st March 2009	30th September 2009
	£'000	£'000	£'000
Total net return/(loss) on ordinary activities before finance
costs and taxation	39,643	(24,129)	29,255
Add back capital (return)/loss before finance costs
and taxation	(37,364)	29,348	(22,134)
(Increase)/decrease in net debtors and accrued income	(55)	(961)	418
Overseas withholding tax	(191)	(357)	(515)
Expenses charged to capital	(792)	(764)	(1,516)
Net cash inflow from operating activities	1,241	3,137	5,508

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

www.jpmjapanese.co.uk

 

END

 

 

IR FMGZKFVKGGZM