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JPMorgan Japanese IT (JFJ)

  Print      Mail a friend       Annual reports

Tuesday 14 November, 2017

JPMorgan Japanese IT

Annual Financial Report

RNS Number : 3776W
JPMorgan Japanese Inv. Trust PLC
14 November 2017
 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 30th SEPTEMBER 2017

Legal Entity Identifier: 549300JZW3TSSO464R15

Information disclosed in accordance with the DTR 4.1.3

 

CHAIRMAN'S STATEMENT

Investment Performance

Over the year your Company produced a total return on net assets of +9.7%, lagging its benchmark index by some 2.5%. When the effects of a tightening discount to net assets at which the shares trade is taken into account, the return experienced by shareholders was just ahead of the benchmark index at +12.3%. I would also emphasise the longer term performance of our Investment Managers. Over the five years to 30th September 2017 there has been outperformance of over 30% against the Company's benchmark index in total return terms.

Further information on performance and stocks held in the portfolio is included in the Investment Managers' Report below.

Revenue and Dividends

Income received during the year rose with earnings per share for the full year increasing to 5.52p (2016: 3.97p). The Board's dividend policy is to pay out the majority of the revenue available each year. This is set alongside the Company's objective of maximising capital growth. The Board proposes, subject to shareholders' approval at the Annual General Meeting, to pay a final dividend of 5.00 pence per share (2016: 3.65p) on 22nd December 2017 to shareholders on the register at the close of business on 23rd November 2017 (ex-dividend date 24th November 2017). This represents a 37.0% increase compared with the year to 30th September 2016.

Gearing

The Board of Directors sets the overall strategic gearing policy and guidelines, reviewing these at each meeting. The Investment Manager then manages the gearing within these agreed levels. During the year the Board agreed to increase the maximum gearing range from 15% to 20% in order to give the Investment Manager the opportunity to take advantage of potential additional market returns.  Funds available to be drawn down by the Company are Y15billion and at the year end this amount was fully drawn down. On 30th September 2017, the Company had a gearing level of 13.6%. The management of gearing has been active during the year with the level ranging between geared positions of 9.0% and 14.5% (month end figures).

New Zealand Listing

As a result of the Board's decision to delist from the New Zealand Stock Exchange, a circular was posted to those New Zealand registered shareholders explaining the delisting arrangements and the delisting took effect on 4th September 2017.

Management Fees

The Board has conducted its annual review of the service providers which includes services provided by J.P. Morgan. This review includes a value-for-money test and a detailed review of the management fee. I am pleased to report that Ongoing Charges have reduced from 0.74% to 0.69% and the Board concluded that this was competitive compared to the Company's peer group.

The Board

Stephen Cohen and George Olcott joined the Board immediately after the Annual General Meeting on 20th December 2016. They will seek reappointment at the Annual General Meeting on 14th December 2017.

Annual General Meeting

This year's Annual General Meeting will be held on Thursday, 14th December 2017 at 2.00 p.m. at 60 Victoria Embankment, London EC4Y 0JP. 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 and representatives of JPMorgan 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 60 Victoria Embankment, London EC4Y 0JP. Alternatively, questions may be submitted via the Company's website (www.jpmjapanese.co.uk). Shareholders who are unable to attend the Annual General Meeting are encouraged to use their proxy votes. Proxy votes may be lodged electronically, whether shares are held through CREST or in certificated form, and full details are set out on the form of proxy.

Outlook

The Investment Managers' Report focuses largely on individual companies and themes given an investment approach that emphasises stock selection. There is no doubt, however, that the overall Japanese economy and quoted companies are huge beneficiaries of a strong synchronised recovery in global GDP growth. In particular some 59% of overall Japanese corporate earnings come from outside Japan.

In addition to corporate earnings benefitting from global growth, Japanese companies have in general built very strong balance sheets with cash or near cash of nearly Y400trillion (US $3.5trillion) in corporate reserves. This combination of gearing to global growth and conservative financing should become more appealing to investors, particularly those based outside Japan who have generally been sceptical of prospects for the Japanese stock market and are underweight Japanese equities.

Japanese companies have been increasing dividends and share buyback programmes and introducing more shareholder friendly targets such as return on equity. There is some evidence that corporate Japan's natural caution in implementing more 'Western' style shareholder measures has caused some scepticism among investors as to how deep and enduring these programmes will be, particularly among overseas investors. The Board believes that as corporate profits recover further in this cycle there is the potential for share buybacks and dividend increases to surprise positively, adding to the appeal of Japanese equities in a global context. I am pleased to note that as a result of higher dividends in the portfolio the Board proposes to pay a dividend of 5.00 pence per share.

The Board continues to believe that an actively managed approach to Japanese equities implemented by a team based on the ground in Japan will deliver good returns for shareholders in the foreseeable future.

 

Andrew Fleming

Chairman                                                                                                                           13th November 2017



 

 

INVESTMENT MANAGERS' REPORT

Performance

In the year to 30th September 2017 the Company produced a total return to shareholders of +12.3% and a total return on net assets of +9.7%. These compare with a total return of +12.2% from the Company's benchmark index, the TOPIX Index, in sterling terms. Over three and five years the Company has returned +71.1% and +138.5% respectively versus +56.7% and +106.1% for the TOPIX index. The average level of gearing over the year was 12.8% which boosted performance in the rising market. Details of the longer term record are set out in the Annual Report and Financial Statements.

Investment Philosophy and Process

We believe that we are able to add value by focusing on quality growth stocks with strong future growth prospects. This means we are not afraid to avoid companies and sectors that face structural issues even if they are large constituents of the benchmark index.

The opportunity to find attractive opportunities is helped by the fact that the Japanese market is under-researched when compared with other developed equity markets. With well over 50% of the constituents of the Company's benchmark index being covered by no more than one provider of broker research, it is clear that there are significant opportunities to uncover hidden sources of return from Japanese equities.

The Company's benchmark index - Topix - is a market weighted index, reflecting the relative sizes of free-float of the companies listed on the Tokyo Stock Exchange First Section. We are mandated to build a portfolio that emphasises individual stock selection that will invariably not represent that of the index while recognising an overall tracking error limit for the whole portfolio.

Against the background of a market with poor sell-side coverage, we have the resources in Japan to carry out our own research and identify attractive investment themes and companies. Our Tokyo-based investment team consists of 24 investment professionals who have carried out over 2,000 company visits in the past year.

A combination of desk-based research and company meetings contribute to our rating of a company. We consider the growth opportunity for the industry overall before considering the company's competitive positioning and management. This allows us to assess the company's potential for growth. We then look at financial metrics with a focus on cash flow and balance sheet strength to assess the overall economics of the business. We also consider governance issues such as shareholder returns, management strength and the track record on environmental and social issues. Only then do we consider valuations - we do not buy a company where the short term valuation looks low if it does not have a strong long term growth outlook.

The work carried out in looking through the under-researched parts of the market helps us build portfolios that are comprised of a number of high conviction holdings which we expect to hold for long periods of time, resulting in lower than average level of stock turnover. Over one year stock turnover was 32.0%, while over five years the annualised turnover was 39.0%.

Portfolio Themes

In building the Company's investment portfolio we have identified several key themes that underlie much of our stock selection. We believe these themes are long term resilient sources of return for Japanese companies.

Below we explain these themes, show the companies that exhibit them, their value in the portfolio and provide examples of holdings in the portfolio which represent them.

Japan Brands & Tourism

One of the most visible changes in Japan over the last five years has been the boom in inbound tourism. For example, in July 2013 around one million tourists came to Japan. In July 2017 this had increased to 2.7 million (https://www.tourism.jp/en/tourism-database/stats/). This has happened for three reasons. Firstly, visa restrictions were lifted for visitors from some parts of Asia. Secondly, the yen weakened making Japan a more affordable destination and thirdly, rising wages across Asia have led to a growing middle class who want to travel more. We believe that growth in tourism to Japan is a long term structural trend.

Whereas Asian tourists visiting Europe often purchase luxury goods, other types of products are also popular in Japan including skin cream, medicines, cosmetics and baby goods. These products all have an image of being high quality, safe and reliable. Additionally, not only do Asian consumers buy these products when visiting Japan but continue to do so once they return to their home countries.

Highlighted Company:

Pigeon

Pigeon is Japan's number one manufacturer of baby goods. It has a dominant market share in some products such as baby bottles where it has 76% of the market. The outlook for the Japanese market is muted in the long term due to the falling population but recently its domestic sales have been boosted by demand from inbound tourists. So, Pigeon is using its Japanese business as a cash cow to invest in Asia and over three-quarters of Pigeon's operating profits now come from overseas.

Automation

Wages in China, the workshop of the world, have increased 2.8 times in the last ten years. Although this is good news for consumption, it is also affecting the profitability of companies that produce there. To cope with this margin pressure some companies are increasingly automating production; others are shifting production nearer to the end consumers in the West. To do this profitably also requires automation. Japanese companies are the leaders in factory automation with several being the global number one in their respective fields.

Highlighted Company:

Keyence

Keyence is a factory automation business that manufactures sensors. It is experiencing rapid growth all over the world as demand rises for its products. Indeed, the percentage of overseas sales has increased from 25% to over 50% in the past few years. Keyence also has one of the highest operating margins of any industrial company anywhere in the world at over 55%. We believe the company is highly competitive with strong growth prospects for many years.

Improving Corporate Governance

The single most important change that has taken place in Japan over the last five years is the improvement in corporate governance. This began with the adoption of a stewardship code and was followed by a corporate governance code. As a result we have witnessed steady increases in both dividends and share buybacks. We also note the rise in the number of outside directors that sit on company boards as well as more companies officially stating return on equity and/or return on asset targets. Although the pace of change is moderate, we believe it will endure and could help Japanese equities start to close the discount that they trade on versus other developed markets.

Highlighted Company:

Tokio Marine

Tokio Marine is Japan's number one non-life insurance company. The top three companies in this sector have an overwhelming 90% domestic market share and we believe the industry is an oligopoly. We are witnessing significant improvements in corporate governance in this sector. Tokio Marine has increased its dividend per share almost fourfold over the last ten years while the number of shares outstanding has decreased by over 10%.

Internet

Although Japan is very advanced in some areas it, perhaps surprisingly, lags in others. E-commerce is a prime example of this. The penetration of online shopping is lower than in many developed nations but, importantly, growth rates are higher. Japan is following exactly the same pattern as countries like the United Kingdom. This allows us to look at business models that have been successful in other markets and find Japanese equivalents.

Highlighted Company:

Start Today

Start Today operates a website called Zozo Town which sells clothing. The penetration of online apparel is much lower in Japan at less than 10% versus approximately 25% in the United Kingdom. However, it is enjoying rapid growth from this lower base. Its business model is somewhat similar to ASOS and Zalando in Europe. The latter two have three times the number of brokerage analysts covering them and trade on significantly higher valuations. We believe that Start Today has a longer growth runway due to the market being at an earlier stage of development. It also has significantly higher profit margins than its overseas peers. As such we believe these lower valuations are not justified.

 

Healthcare

Around the world people are living longer. More illnesses are becoming treatable and procedures are becoming less risky. People living longer and healthier lives is a good thing but over the long term it also means that healthcare costs will continue to rise for governments.

Highlighted Company:

Asahi Intecc

Asahi Intecc is the global number one manufacturer of guidewire which is used in non-invasive heart surgery, an increasingly common procedure in emerging markets such as the Middle East and China. It is a substantially safer and cheaper procedure than open heart surgery with much reduced recovery times. Japan is the leader in non-invasive techniques with almost all procedures being carried out in this way but in markets such as the US and China there is still significant room for growth.

Stock Specific

Of course, not all the companies we like have exposure to these themes. We also see companies with specific products, circumstances or management we believe offer the potential for attractive long term returns.

Highlighted Company:

Seria

Seria is a 100 yen shop operator similar to a pound store in the UK or dollar store in the US. The per capita penetration of such stores in Japan is still low versus the United States. Seria is the fastest growing company in the market. We believe its advanced inventory management system is a strong source of durable competitive advantage. Additionally, we think that 100 yen shops are relatively more insulated from the growth of e-commerce due to the low absolute prices of the items and high shipment costs.

Ageing Population

Japan's population is ageing and falling. Today there are 127 million people living in Japan but by 2050 this will have fallen to around 95 million. The demographic mix will also shift with older people accounting for an increasingly large percentage of the total. It is important to understand that not only Japan faces this problem but many other countries including China, Korea, Thailand, Russia and Italy as well. Clearly, this is bad news for many companies with a domestic bias as demand for their products will drop in the long term. It is, however, good news for a small number of companies. This presents an outstanding opportunity for active managers to eschew the many and focus on the small number of corporates that will enjoy a strong following for many years to come.

Highlighted Company:

Nihon M&A Center

If we look at the Japanese drugstore market as an example, the top ten companies have approximately 30% market share. The remaining 70% is made up of the 'mom and pop' stores, the key feature of these companies being that many have no children to take over the business.This is in contrast to around 60% of the market held by the top two (Boots and Superdrug) in the UK. Nihon M&A Center advises companies in this position and matches them with larger partners. There are approximately 120,000 profitable companies in this situation yet Nihon M&A Center currently executes circa 1,000 deals per year. The industry offers multi-year growth with Nihon M&A Center as the largest participant ideally placed to capitalise on consolidation of the sector.

Investment Performance

The themes to which the portfolio is exposed have not changed during the year under review. The financial characteristics of the portfolio are also unchanged: balance sheets and free cash flows are stronger; earnings growth faster and return on equity higher than the market as a whole. For example, as at 30th September 2017 the holdings in the portfolio generated an average return on equity of 16.6%, compared to the benchmark return on equity of 10.7%. The ageing population means that the shortage of workers in Japan is a structural issue.

We did, however, make some changes to the holdings in the portfolio in the first half of the year. The most noteworthy were the increase in our exposure to financial stocks and to companies in the recruitment industry.

We bought Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group due to their increasing focus on shareholder returns and unwinding of cross-shareholdings. The ageing population means that the shortage of workers in Japan is a structural issue - the labour market is currently the tightest since the 1970s - and companies such as Persol Holdings, which is steadily taking market share, stand to benefit. Recruit is also involved in recruitment but is more global in reach as it operates the world's number one employment website called 'indeed'. We also bought a holding in cosmetics company Shiseido. After several years of struggling to restructure we believe the new management is finally succeeding in turning the company's fortunes around. Finally we initiated a position in internet and telecoms company SoftBank. The combined value of its holdings in Alibaba, Sprint, Yahoo Japan, ARM Holdings and its own Japanese telecoms business are substantially below its own market value. We are positive about the long term investment strategy of the company which focuses firmly on long term structural growth areas.

Start Today, Keyence and Nihon M&A Center are discussed above. In addition the top contributing stocks included:

•   Tokyo Electron - a semiconductor manufacturing equipment maker with dominant market share in many segments. The large and growing installed customer base should increase high margin servicing related sales. It is also prioritising shareholder returns.

•   Suzuki Motor - a car and motorcycle manufacturer. While we are underweight the automobile sector because we think the industry faces structural challenges and is highly competitive, we are focusing on manufacturers with clear niches. Suzuki has a 45% market share in India where car penetration is still very low by global standards with only 4% of people owning a car. Its large dealer and service networks are sources of sustainable competitive advantage as it has three times the number of outlets of the nearest competitor.

The table below shows that a proportion of underperformance over the period came from stock selection. We believe that even good companies that have strong long term prospects and generate long term outperformance will experience periods when they underperform. Unless stocks held have become overvalued or the investment case has altered, we will continue to hold positions through periods of underperformance in the expectation of improvements in performance over the longer term.

Stocks that contributed negatively to performance included M3, Sosei, CyberAgent, Subaru and Mitsubishi UFJ Financial Group. Except for Subaru we continue to hold all of these companies as we do not believe there have been any changes to the long term investment cases:

•   M3 - operates websites used by doctors and helps pharmaceutical companies to reduce their marketing expenses. It is the number one site in Japan and the United Kingdom amongst other regions. It is a globally unique business with top class management.

•   Sosei - a biotechnology company. Earnings have fallen substantially this year due to the absence of a one-time royalty payment but this has no bearing on the long term profit growth potential. Our long term thesis is unchanged.

•   Cyber Agent - Japan's number one online advertising agency. It also operates games for mobile phones and is investing in online television. The penetration of online advertising in Japan is lower than other developed markets and CyberAgent continues to take market share in a growing market. It is currently investing heavily for future growth and this is depressing short term earnings.

•   Subaru - a niche automaker that has successfully taken share over many years in its key market of the United States. We held the stock for several years but decided to sell as we have become more concerned about the outlook for the auto industry.

•   Mitsubishi UFJ Financial Group - Japan's largest financial institution. It is ahead of other banks in both the strength of its balance sheet and prioritising shareholder returns.

Investment performance was also impacted during the year by our underweight positions in Hitachi, Panasonic, Asahi Kasei, Kirin and Dai-ichi Life. These companies made significant contributions to the performance of our benchmark index, TOPIX. We believe that Hitachi, Panasonic and Asahi Kasei are overly diversified conglomerates with few market dominant companies and Kirin and Dai-ichi have no compelling long term growth drivers. As a result we have chosen not to take an investment position.



 

PERFORMANCE ATTRIBUTION

YEAR ENDED 30TH SEPTEMBER 2017


%

%

Contributions to total returns



Benchmark return


12.2

  Sector allocation

-0.8


  Stock selection

-4.3


  Gearing/cash

3.3


Investment Manager contribution


-1.8

Portfolio total return


10.4

  Management fee/other expenses

-0.7


Other effects


-0.7

Return on net assets


9.7

Source: JPMAM and Morningstar.

All figures are on a total return basis.

Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.

 

Investment outlook

The Japanese equity market is more cyclical than other developed markets and can more easily be impacted by global economic developments, both positively and negatively. The current outlook is positive; government policy is supportive, the global economy is improving and companies continue to talk about return on equity and increasing returns to shareholders. The October election victory of the Liberal Democratic Party ensured another term for Prime Minister Shinzō Abe. Stable leadership is unusual in Japan and should be helpful as he is expected to be able to continue with his reform programme. Currently there are concerns about rising tensions with North Korea. However, we believe the overall picture is encouraging.

The JPMorgan Japanese Investment Trust focuses on individual stocks rather than attempting to predict global economic growth. The companies we have invested in have strong structural growth prospects, competitive positions and balance sheets and we believe they will perform well in the long term, regardless of the twists and turns of the wider global economy. The level of gearing (currently 12.50%) reflects our conviction in the companies that we own.

Nicholas Weindling

Shoichi Mizusawa

JPMorgan Asset Management

Tokyo                                                                                                                                 13th November 2017

 

PRINCIPAL RISKS

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The risks identified have changed over the year under review, and the ways in which they are managed or mitigated are summarised as follows.

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 Underperformance and Strategy

An inappropriate investment strategy, for example sector allocation, the level of gearing or the degree of portfolio risk, may lead to underperformance 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 and through its investment restrictions and guidelines, which are monitored and reported on by the Manager. The Manager 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, at least one of whom attends all Board meetings, and reviews data which show 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 and Currency

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 sector 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 the Manager. The Board monitors the implementation and results of the investment process with the Manager. The majority of the Company's assets, liabilities and income are denominated in yen rather than in the Company's functional currency of sterling (in which it reports). As a result, movements in the yen:sterling exchange rate may affect the sterling value of those items and therefore impact on reported results and/or financial position. Therefore, there is an inherent risk from these exchange rate movements. It is the Company's policy not to undertake foreign currency hedging. Further details about the foreign currency risk may be found in note 22 on page 60 of the Annual Report and Financial Statements.

•   Political, Economic and Governance

Administrative risks, such as the imposition of restrictions on the free movement of capital. These risks are discussed by the Board on a regular basis.

•   Loss of Investment Team or Investment Manager

A sudden departure of an Investment Manager or several members of the investment management team could result in a short term deterioration in investment performance. The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team based approach, as well as special efforts to retain key personnel. The Board engages with the senior management of the Manager in order to mitigate this risk.

•   Discount

A disproportionate widening of the discount relative to the Company's peers could result in loss of value for shareholders. The Board regularly discusses discount policy and has set parameters for the Manager and the Company's broker to follow.

•   Change of Corporate Control of the Manager

The Board holds regular meetings with senior representatives of the Manager in order to obtain assurance that the Manager continues to demonstrate a high degree of commitment to its investment trust business through the provision of significant resources.

•   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 Management of the Company on page 25. Were the Company to 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 the Manager and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules, Market Abuse Regulation ('MAR'), Disclosure Guidance and Transparency Rules ('DTRs') and, as an investment trust, the Alternative Investment Fund Managers Directive ('AIFMD'). 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 or DTRs could 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, the Manager and its professional advisers to ensure compliance with the Companies Act 2006, the UKLA Listing Rules, DTRs, MAR and AIFMD.

•   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 Statement on pages 29 to 32 of the Annual Report and Financial Statements.

 

•   Operational and Cyber Crime

 

Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary or 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 JPMF and its associates and the key elements designed to provide effective risk management and internal control are included within the Risk Management and Internal Controls section of the Corporate Governance Statement on pages 31 and 32 of the Annual Report and Financial Statements. The threat of cyber attack, in all guises, is regarded as at least as important as more traditional physical threats to business continuity and security.

•   Financial

The financial risks faced by the Company include market price risk, liquidity risk and credit risk. Further details are disclosed in note 22 on pages 59 to 64 of the Annual Report and Financial Statements.

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors' Report on page 25 of the Annual Report and Financial Statements. The management fee payable to the Manager for the year was £3,874,000 (2016: £3,364,000) of which £nil (2016: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 52 of the Annual Report and Financial Statements are safe custody fees amounting to £50,000 (2016: £38,000) payable to JPMorgan Chase Bank, N.A., of which £17,000 (2016: £7,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities for the year was £13,000 (2016: £33,000) of which £nil (2016: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £3,000 (2016: £7,000) were payable to JPMorgan Chase Bank N.A. during the year of which £nil (2016: £2,000) was outstanding at the year end.

At the year end, total cash of £3,551,000 (2016: £6,118,000) was held with JPMorgan Chase. A net amount of interest of £117 (2016: £359) was receivable by the Company during the year from JPMorgan Chase of which £nil (2016: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found on page 36 and in note 6 on page 52 of the Annual Report and Financial Statements.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom generally accepted accounting practice (United Kingdom Accounting Standards) including FRS 102 'The Financial Reporting Standards applicable in the UK and Republic of Ireland' and applicable laws. Under company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the annual report and accounts are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•   select suitable accounting policies and then apply them consistently;

•   make judgements and accounting estimates that are reasonable and prudent;

•   state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•   prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the www.jpmjapanese.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report, Strategic Report, Statement of Corporate Governance and Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed in the Annual Report and Financial Statements, confirms that, to the best of their knowledge:

•   the financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, and applicable law), (United Kingdom Generally Accepted Accounting Practice) give a true and fair view of the assets, liabilities, financial position and net return or loss of the Company; and

•   the Strategic 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 the Company faces.

The Board confirms that it is satisfied that the annual report and financial statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period.

 

For and on behalf of the Board

Andrew Fleming

Chairman

13th November 2017



 

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30TH SEPTEMBER 2017


2017

2016


Revenue

Capital

Total

Revenue

Capital

Total


£'000

£'000

£'000

£'000

£'000

£'000

Gains on investments held at fair







value through profit or loss

-

 44,397

 44,397

-

179,145

179,145

Net foreign currency gains/(losses)

-

 10,514

 10,514

-

(16,545)

(16,545)

Income from investments

 11,640

-

 11,640

8,725

-

8,725

Gross return

 11,640

 54,911

 66,551

8,725

162,600

171,325

Management fee

 (775)

 (3,099)

 (3,874)

(673)

(2,691)

(3,364)

Other administrative expenses

 (613)

-

 (613)

(619)

-

(619)

Net return on ordinary activities







before finance costs and taxation

 10,252

 51,812

 62,064

7,433

159,909

167,342

Finance costs

 (189)

 (755)

 (944)

(153)

(612)

(765)

Net return on ordinary activities







before taxation

 10,063

 51,057

 61,120

7,280

159,297

166,577

Taxation

 (1,161)

-

 (1,161)

(874)

-

(874)

Net return on ordinary activities







after taxation

 8,902

 51,057

 59,959

6,406

159,297

165,703

Return per share

5.52p

31.66p

37.18p

3.97p

98.79p

102.76p

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30TH SEPTEMBER 2017


Called up

Capital






share

redemption

Other

Capital

Revenue



capital

reserve

reserve

reserves

Reserve1

Total


£'000

£'000

£'000

£'000

£'000

£'000

At 30th September 2015

 40,312

 8,650

 166,791

 241,002

 6,822

 463,577

Net return on ordinary activities

-

-

-

 159,297

 6,406

 165,703

Dividend paid in the year (note 3)

-

-

-

-

 (4,515)

 (4,515)

At 30th September 2016

 40,312

 8,650

 166,791

 400,299

 8,713

 624,765

Net return on ordinary activities

-

-

-

 51,057

 8,902

 59,959

Dividend paid in the year (note 3)

-

-

-

-

 (5,886)

 (5,886)

At 30th September 2017

 40,312

 8,650

 166,791

 451,356

 11,729

 678,838

1.     This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

STATEMENT OF FINANCIAL POSITION

AT 30TH SEPTEMBER 2017


2017

2016


£'000

£'000

Fixed assets



Investments held at fair value through profit or loss

 771,143

683,857

Current assets



Debtors

 3,852

3,465

Cash and cash equivalents

 3,551

6,118


 7,403

9,583

Current liabilities



Creditors: amounts falling due within one year

 (385)

(257)

Net current assets

 7,018

9,326

Total assets less current liabilities

 778,161

693,183

Creditors: amounts falling due after more than one year

(99,323)

(68,418)

Net assets

 678,838

624,765

Capital and reserves



Called up share capital

 40,312

40,312

Capital redemption reserve

 8,650

8,650

Other reserve

 166,791

166,791

Capital reserves

 451,356

400,299

Revenue reserve

 11,729

8,713

Total shareholders' funds

 678,838

624,765

Net asset value per share

421.0p

387.5p

 

 

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 SEPTEMBER 2017


2017

2016


£'000

£'000

Net cash outflow from operations before dividends and interest

(4,442)

(2,441)

Dividends received

9,648

7,190

Interest paid

(1,037)

(751)

Net cash inflow from operating activities

4,169

3,998

Purchases of investments

(250,200)

(329,893)

Sales of investments

207,947

321,976

Settlement of foreign currency contracts

5

(98)

Net cash outflow from investing activities

(42,248)

(8,015)

Dividend paid

(5,886)

(4,515)

Drawdown of bank loan

41,442

-

Repayment of bank loan

-

(32,381)

Net cash inflow/(outflow) from financing activities

35,556

(36,896)

Decrease in cash and cash equivalents

(2,523)

(40,913)

Cash and cash equivalents at start of year

6,118

46,923

Exchange movements

(44)

108

Cash and cash equivalents at end of year

3,551

6,118

Decrease in cash and cash equivalents

(2,523)

(40,913)

Cash and cash equivalents consist of:



Cash and short term deposits

3,551

6,118

 



 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30TH SEPTEMBER 2017

1.       Accounting policies

Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014 and updated in January 2017.

All of the Company's operations are of a continuing nature.

The financial statements have been prepared on a going concern basis. The disclosures on going concern on page 33 of the Annual Report and Financial Statements form part of these financial statements.

The policies applied in these financial statements are consistent with those applied in the preceding year.

 

2.       Return per share


2017

2016


£'000

£'000

Revenue return

 8,902

6,406

Capital return

 51,057

159,297

Total return

 59,959

165,703

Weighted average number of shares in issue during the year

 161,248,078

161,248,078

Revenue return per share

5.52p

3.97p

Capital return per share

31.66p

98.79p

Total return per share

37.18p

102.76p

 

3.       Dividends

(a)     Dividends paid and proposed


2017

2016


£'000

£'000

Dividend paid



2016 final dividend paid of 3.65p (2015: 2.80p) per share

 5,886

4,515

Dividend proposed



2017 final dividend proposed of 5.00p (2016: 3.65p) per share

8,062

5,886

All dividends paid and proposed in the period are and will be funded from the revenue reserve.

The dividend proposed in respect of the year ended 30th September 2017 is subject to shareholder approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 30th September 2018.

(b)    Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of the dividend proposed in respect of the financial year, shown below. The revenue available for distribution by way of dividend for the year is £8,902,000 (2016: £6,406,000). The revenue reserve after payment of the final dividend will amount to £3,667,000.


2017

2016


£'000

£'000

Final dividend proposed of 5.00p (2016: 3.65p) per share

8,062

5,886

 

 

4.       Net asset value per share


2017

2016


£'000

£'000

Net assets (£'000)

 678,838

624,765

Number of shares in issue

 161,248,078

161,248,078

Net asset value per share

421.0p

387.5p

 

     Status of results announcement

 

2016 Financial Information

The figures and financial information for 2016 are extracted from the published Annual Report and Accounts for the year ended 30th September 2016 and do not constitute the statutory accounts for that year. This Annual Report 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.

 

2017 Financial Information

The figures and financial information for 2017 are extracted from the Annual Report and Accounts for the year ended 30th September 2017 and do not constitute the statutory accounts for the year.  The Annual Report 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 will be delivered to the Register 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 FUNDS 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.morningstar.co.uk/uk/NSM

 

The annual report will shortly 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 FUNDS LIMITED

 


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