TIDMJFJ
RNS Number : 7920V
JPMorgan Japanese Inv. Trust PLC
06 December 2023
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN JAPANESE INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEARED 30TH SEPTEMBER 2023
Legal Entity Identifier: 549300JZW3TSSO464R15
Information disclosed in accordance with DTR 4.2.2
CHAIRMAN'S STATEMENT
Investment Performance
Japanese equities market has had a good year with local currency
returns for the year to 30 September up some 29.3%; the weakening
Yen meant though that in sterling terms the market return was only
14.7%.
In the year to 30th September 2023, the Company's total return
on net assets (in sterling terms), with debt calculated at fair
value, was 8.0% in net asset value (NAV) terms, an underperformance
of some 6.7% relative to the benchmark. The share price total
return, with dividends reinvested, was 6.4%, because of a modest
widening in the discount to NAV at which the Company's shares trade
over the year. NAV and share price performance for the prior year
and the 3, 5 and 10 year annualised performance is shown on page 6
of the Annual Report and Financial Statements.
After the earlier periods of underperformance, this year's
numbers are indeed disappointing. As reported in the half year
report, the Company's performance over the first six months of the
2023 financial year was in line with its benchmark, the Tokyo Stock
Exchange (TOPIX) Index. However, relative performance over the full
year has not been so positive; returns kept up with the market for
most of the second half but we had a very challenging end to our
financial year meaning we lagged the market in the second half of
the year and so for the full year. By way of illustration, c 4.6%
of the year's NAV underperformance of 6.7% came in September, the
final month of our financial year.
The Portfolio Managers set out in more detail in their report on
the following pages the main reason for the underperformance during
the year, namely the market's rotation into low quality, value and
cyclical stocks at the expense of the quality and growth stocks
favoured by the Company's strategy. They also set out the
investment rationale behind recent portfolio activity and the
outlook in more detail.
There is, however, cause for optimism; the TOPIX increase of
14.7% in sterling terms was supported by several positive
developments, including a surge in economic activity following the
post-pandemic reopening of the Japanese economy, widespread wage
increases and an acceleration in corporate governance reforms,
which are lifting shareholder returns. And after decades of
seemingly intractable deflation, unlike other central banks the
Bank of Japan is likely to welcome the recent modest rise in
inflation and therefore take a very cautious approach to monetary
tightening. One other encouraging aspect of the rise in Japanese
stock prices is that it has been fuelled in part by foreign
buying.
Since the end of the financial year, the Company's net asset
value has increased by 2.6% as at 1st December 2023, compared to a
benchmark increase of 0.2%, while the share price increased by
3.4%.
Analyst Ratings
As I commented in the half year report, the Company's
Morningstar Analyst rating has been maintained at the highest
level, Gold, recognising the strength of the Company's Investment
Manager and their investment process. The Company also continues to
maintain the highest Morningstar sustainability rating of five
globes.
Morningstar assesses and publishes data on some 900 Japanese
equity funds and share classes under its 'Japan Large-Cap equity'
classification. Your Manager is one of the only three active
Japanese Equity Managers with a Gold Morningstar Analyst rating
within this category. You can find further details of the
Morningstar research and rating at www.morningstar.co.uk
Board Investment Review
The Board recognises the Company's underperformance vs its
benchmark over the medium term which primarily results from poor
performance at the end of 2021 and in the first quarter of 2022, as
well as the poor numbers in September 2023 referred to above. The
Board is also conscious of the very unusual investment environment
our Manager has faced since the start of Covid in early 2020 and
that your Company has performed reasonably vs growth indices and
peers with a similar growth style of investing.
The Board has continued to spend a significant amount of time
with the Company's Portfolio Managers and other members of the
JPMorgan Asset Management (JPMAM) investment team to discuss and
understand the factors behind the Company's performance. These
conversations focused on the price at which the Portfolio Managers
are willing to buy/sell the stocks they like, the valuation
analysis described on page 20 of the Annual Report and Financial
Statements, and the impact of the corporate governance changes
(described in the Investment Manager's report) on the Company's
portfolio vs the wider index. The Board supported the Portfolio
Managers' plans to increase their focus on valuation (you can read
about some of the resulting changes made to the Portfolio in the
Investment Managers' report), and recognised that the corporate
governance changes may well continue to represent a headwind for
the Company's performance vs. the benchmark and those peers with a
value style of investing.
Following these detailed discussions with JPMAM, the Board
remains fully supportive of the strategy the Company offers UK
investors, our Portfolio Managers and their investment process.
Gearing
The Board believes that gearing can benefit performance. The
Board sets the overall strategic gearing policy and guidelines and
reviews them at each Board meeting. The Portfolio Managers then
manage the gearing within the agreed limits of 5% net cash to 20%
geared in normal market conditions. As at 30th September 2023,
gearing was equivalent to 13.7% (2022: 11.7%) of net assets.
The Scotiabank loan facility expired on 2nd December 2022.
During the second half of the financial year, the Company took out
a Yen10 billion revolving credit facility with Industrial and
Commercial Bank of China Limited, London Branch, which is in
addition to the existing Yen5 billion credit facility with Mizuho
Bank Limited and the Company's long-term fixed rate debt. Further
details on page 84 of the Annual Report and Financial
Statements.
Revenues and Dividends
Income received during the year ended 30th September 2023 again
rose year-on-year, with earnings per share for the full year of
7.46p (2022: 7.48p). This reflected a continued recovery in the
level of dividends paid and the strong balance sheets of portfolio
companies.
The Board's dividend policy is to pay out the majority of
revenue available each year. The Board therefore proposes, subject
to shareholders' approval at the Annual General Meeting to be held
on 11th January 2024, to pay a final dividend of 6.5p per share
(2022: 6.2p) on 5th February 2024 to shareholders on the register
at the close of business on 22nd December 2023 (ex-dividend date
21st December 2023). This increase represents an increase of 4.8%
in the dividend (2022: 17%).
We hope to be able to continue to increase the dividend in
future years.
Discount Management and Share repurchases
The Board monitors the discount to NAV at which the Company's
shares trade. It believes that for the Company's shares to trade
close to NAV over the long term, the focus must remain on
consistent, strong investment performance over the key one, three,
five and ten-year timeframes, combined with effective marketing and
promotion of the Company.
The Board recognises that a widening of, and volatility in, the
Company's discount is seen by some investors as a disadvantage of
investments trusts. The Board has restated its commitment to seek a
stable discount or premium over the long run, commensurate with
investors' appetite for Japanese equities and the Company's various
attractions, not least the quality of the investment team, the
investment process and the resultant strong long-term performance.
To this end, during the past financial year, a total of 3,870,000
shares (2.40% of shares in issue) were repurchased (2022: 2,278,345
shares).
As at 30th September 2023, the discount was 8.8%, compared to
the level of 7.3% where it closed the previous year. Over the past
financial year, the discount ranged from 1.2% to 11.3% and the
average discount was 7.4%. This compares with the previous
financial year, when the discount ranged from 10.6% to a premium of
2.7% and the average discount was 5.7%.
Since the end of the current review period, the Board has
repurchased a further 1,740,000 shares and the discount stood at
8.1% as at 1st December 2023.
Shares are only repurchased at a discount to the prevailing net
asset value, which increases the Company's net asset value per
share on remaining shares. Shares may either be cancelled or held
in Treasury for possible re-issue at a premium to net asset
value.
Stewardship
Effective investment stewardship can materially contribute to
the construction of stronger portfolios over the long term, and
therefore enhance returns. The Company's Investment Manager has a
well-established, active approach to investment stewardship, both
to understand how companies consider issues related to
Environmental, Social and Governance ('ESG') factors (see the ESG
Report on pages 24 to 28 in the Annual Report and Financial
Statements), and to seek to influence their behaviour and encourage
best practices. The portfolio managers, research analysts and
investment stewardship specialists engage regularly with investee
companies and the Company exercises its voice as a long-term
investor through proxy voting. The Board supports the Investment
Manager's approach to investment stewardship and its commitment to
its stewardship responsibilities.
Task Force on Climate-related Financial Disclosures
As a regulatory requirement, JPMorgan Asset Management (JPMAM)
published its first UK Task Force on Climate-related Financial
Disclosures ('TCFD') Report for the Company in respect of the year
ended 31st December 2022 on 30th June 2023. The report discloses
estimates of the Company's portfolio climate-related risks and
opportunities according to the Financial Conduct Authority (FCA)
Environmental, Social and Governance (ESG) Sourcebook and the Task
Force on Climate-related Disclosures (TCFD). The report is
available on the Company's website under the ESG documents
section:
https://am.jpmorgan.com/content/dam/jpm-am-aem/emea/regional/en/regulatory/esg-
information/jpm-japanese-investment-trust-plc-fund-tcfd-report-uk-per.pdf
The Board is aware that best practice reporting under TCFD is
still evolving with respect to metrics and input data quality, as
well as the interpretation and implications of the outputs
produced, and will continue to monitor developments as they
occur.
Board Composition and Appointment
The Board has given considerable thought to its succession
planning. As mentioned previously, having served as a Director for
nine years, I will retire from the Board and Stephen Cohen, our
current Audit Chair, will replace me as Chairman at the forthcoming
Annual General Meeting. Sally Duckworth, who was appointed to the
Board in October 2022, will assume the role of the Company's Audit
Chair.
As illustrated on page 58 of the Annual Report and Financial
Statements, Stephen Cohen and George Olcott would in the normal
course step down together from the Board after nine years in
January 2025. The Board has decided, not least because of the
challenging investment environment, to avoid losing two Directors
in the same year and so has agreed that Stephen Cohen will serve as
Chairman for three years meaning he will have been on the Board for
ten years when he retires. Sally Macdonald, our Senior Independent
Director, will confirm that this has the support of
shareholders.
Given these plans, the Company engaged an independent search
consultancy to find a suitably qualified Director to join the
Board. After a thorough selection process, Lord Jonathan Kestenbaum
was appointed as a non-executive Director with effect from 1st
October 2023. Lord Kestenbaum has over two decades of private and
public markets investing experience across asset classes. He is a
non-executive Director of Windmill Hill Asset Management, and an
adviser to a range of interests associated with the Rothschild
family. Until 2022, he was the Chief Operating Officer at RIT
Capital Partners, the publicly quoted investment trust. He was born
and spent his early childhood in Japan and has therefore taken an
active interest in the country, its companies and markets
throughout his professional career.
The Board supports annual re-election for all Directors, as
recommended by the AIC Code of Corporate Governance. In compliance
with this, all Directors, excluding myself, will stand for
re-appointment at the forthcoming AGM.
Board Diversity
The Board is conscious of the increased focus on diversity and
recognises the value and importance of diversity in the boardroom.
The recommendations of the FTSE Women Leaders Review, which form
part of the Listing Rules, set targets for FTSE 350 companies to
have 40% female representation, up from 33%. The recommendations
also stipulate that a woman occupies the role of either Chair or
Senior Independent Director. I am pleased to report that the
Company complies with these guidelines - the Board currently has
over 40% female representation and, on my retirement, this will
increase to 50% - and in the absence of any unforeseen
circumstances, it will continue to remain compliant.
More information showing the gender and ethnic composition of
the Board is shown in a table on page 57 of the Annual Report and
Financial Statements.
Annual General Meeting and Shareholder Contact
The Company's Annual General Meeting (AGM) will be held on
Thursday, 11th January 2024 at 12.30 p.m. at 60 Victoria
Embankment, London EC4Y 0JP.
We are delighted that this year we will once again be able to
invite shareholders to join us in person for the Company's AGM, to
hear from the Portfolio Managers. Their presentation will be
followed by a question-and-answer session. Shareholders wishing to
follow the AGM proceedings but choosing not to attend in person,
will be able to view proceedings live and ask questions (but not
vote) through conferencing software. Details on how to register,
together with access details, will be available shortly on the
Company's website at www.jpmjapanese.co.uk, or by contacting the
Company Secretary at invtrusts.cosec@jpmorgan.com.
My fellow Board members, representatives of JPMorgan and I look
forward to the opportunity to meet and speak with shareholders
after the formalities of the meeting have been concluded.
Shareholders who are unable to attend the AGM are strongly
encouraged to submit their proxy votes in advance of the meeting,
so they are registered and recorded at the AGM. Proxy votes can be
lodged in advance of the AGM either by post or electronically,
detailed instructions are included in the Notes to the Notice of
Annual General Meeting on pages 101 to 104 of the Annual Report and
Financial Statements.
If there are any changes to these arrangements for the AGM, the
Company will update shareholders via the Company's website, and, if
appropriate, through an announcement on the London Stock
Exchange.
Stay Informed
The Company delivers email updates with regular news and views,
as well as the latest performance. If you have not already signed
up to receive these communications and you wish to do so, you can
opt in via
https://web.gim.jpmorgan.com/emea_investment_trust_subscription/welcome?targetFund=JFJ
or by scanning the QR code in the Annual Report and Financial
Statements.
Outlook
The Board is encouraged by the improvements in the Japanese
economy and equity market sentiment over the past year, and shares
the Portfolio Managers' optimism about the country's longer-term
prospects. We are particularly gratified that corporate governance
reforms appear to be gathering momentum, as this has the potential
to significantly enhance shareholder returns across the entire
market. The Board remains confident in the Portfolio Managers'
focus on quality and growth, and their research-driven,
unconstrained approach to stock selection.
I have very much enjoyed my time on the Company's Board as a
Director, Chair of the Audit Committee and most recently as
Chairman and so, as I step down, I would like to thank
shareholders, Board colleagues, our Portfolio Managers Nicholas
Weindling and Miyako Urabe, and of course everyone else at JPMAM
and across all our other service providers for their support over
the last nine years. I know that under the Company's new Chairman,
Stephen Cohen, and my other Board colleagues, the Company will
continue to be very well served.
Finally, as usual, on behalf of the Board, can I thank you, our
shareholders, for your continued strong support.
Christopher Samuel
Chairman 5th December 2023
INVESTMENT MANAGERS' REPORT
Performance
Over the twelve months to 30th September 2023, the Company
returned +8.0% on a net asset basis (in GBP), compared to its
benchmark, the TOPIX index, which returned +14.7%. Over the three
years to end September 2023, the Company recorded an annualised
decline of 8.0%, versus the average benchmark return of +4.4% pa.
However, long term absolute and relative performance remains
positive; over the ten years to September 2023, the Company
returned +7.6% on an annualised basis, ahead of the benchmark
return of +7.5%.
We use an unconstrained investment approach which seeks the very
best ideas, with excellent growth prospects. This means the
portfolio has a bias towards quality and growth companies, which
inevitably leads to poor performance at times, as it has done over
the last three years. This performance is disappointing to us.
However, we stress that it is the result of the same focus,
particularly on quality and growth, that has helped us achieve much
stronger performance over the longer-term.
Compared to the US market, the Japanese market has been
particularly unusual over the last year, as it has been very driven
by lower quality value stocks. The chart on page 12 of the Annual
Report and Financial Statements illustrates the recent
outperformance of poorer quality stocks, relative to previous
periods, while showing how the highest quality companies we favour
have lagged.
There are several reasons for this:
(a) Monetary policy divergence between Japan and the US has
caused the yen to weaken, boosting the profits of some low-quality
export cyclicals;
(b) Expectations of a gradual tightening in Japanese monetary
policy have improved the outlook for financial companies, another
cyclical sector characterised by intense competition and
commoditised product offerings; and
(c) A perception, incorrect in our view, that the recent and
ongoing improvements in corporate governance will only help
companies trading on a price/book valuation of less than 1. On the
contrary, in our assessment, the Tokyo Stock Exchange wants all
companies to improve their corporate valuations. As we note
elsewhere in our report, the most important consideration in our
investment process is how companies compound earnings over the
longer term. However, the Company's holdings, which are mostly
rated as Premium and Quality, are positioned to benefit from these
reforms and many have already begun the process of restructuring
and returning cash to shareholders.
Performance attribution
Year ended 30th September 2023
% %
---------------------------------------------- ------ -----
Contributions to total returns
---------------------------------------------- ------ -----
Benchmark return 14.7
---------------------------------------------- ------ -----
Stock selection -10.7
---------------------------------------------- ------ -----
Currency 0.0
---------------------------------------------- ------ -----
Gearing/Cash 3.9
---------------------------------------------- ------ -----
Investment Manager contribution -6.8
---------------------------------------------- ------ -----
Portfolio return(A) 7.9
---------------------------------------------- ------ -----
Management fee and other expenses -0.7
---------------------------------------------- ------ -----
Share Buy-Back 0.2
---------------------------------------------- ------ -----
Other effects -0.5
---------------------------------------------- ------ -----
Return on net assets - Debt at par value(A) 7.4
---------------------------------------------- ------ -----
Impact of fair value of debt 0.6
---------------------------------------------- ------ -----
Return on net assets - Debt at fair value(A) 8.0
---------------------------------------------- ------ -----
Return to shareholders(A) 6.4
---------------------------------------------- ------ -----
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.
(A) Alternative Performance Measure ('APM').
A glossary of terms and APMs is provided on pages 105 and 106 of
the Annual Report and Financial Statements.
Economic and market background
The reforms underway in Japan's corporate sector are not the
only positive recent development in the Japanese market. The
economy has been on an improving trend since the government lifted
its strict border controls in October 2022 and removed the last
pandemic related restrictions earlier this year. Since then,
tourist numbers have risen very sharply. This activity is
benefiting a broad array of tourism and hospitality businesses.
There are also signs of a very welcome shift in Japan's labour
market. The country has labour shortages in many fields due to its
aging population. Yet historically, companies have been resistant
to raising wages to attract and retain workers, and Japanese wages
barely increased for 30 years.
However, this is beginning to change. Recent wage increases have
been significant and broad-based. For example, NTT, a telecoms
company, has raised starting salaries by 14%, and JGC, which
designs, constructs and maintains industrial facilities, has
increased its base salary by 10%.
Although Japanese inflation remains relatively low in absolute
terms and relative to other countries, it is noteworthy that
inflation is the highest for decades at around 3%. The Bank of
Japan (BoJ) response has been muted so far and it continues to
pursue a negative interest rate policy although there have been
some recent tweaks to yield curve control. It is possible that we
see further shifts in policy and this may, in turn, have
implications for the Japanese yen which has been weak against major
currencies over the last year.
After a long period during which Japanese equities have been
unloved and under-owned by global investors, Japan's improving
fundamentals have begun to attract attention. The stock market has
reached multi-decade highs and outperformed global markets over the
year ended 30th September 2023 - the MSCI ACWI and the S&P 500
both rose by c 11.0% over the period in GBP terms, compared to the
TOPIX index's 14.7% rise. One of the most welcome aspects of this
market rebound is that it has been driven in part by foreign
investors.
Portfolio themes
Investment Trust Portfolio Themes
The portfolio is constructed entirely on a stock-by-stock basis
as we seek out the best, most attractive companies. Nonetheless,
certain themes underpin our investment decisions. These companies
are also well-placed to take advantage of shifts in the corporate
governance landscape as, although they are outstanding businesses
poised to compound earnings growth for many years, they often have
sub-optimal capital allocation policies.
Japan remains well behind most other advanced economies in areas
such as online shopping and cloud computing leaving plenty of scope
for such trends to continue developing over coming years. For
example, the penetration of e-commerce within the Japanese retail
market is just over 10% and remains much lower than in China, the
UK, South Korea or the US. Portfolio holdings such as Zozo, Japan's
number one online apparel retailer, and Monotaro, a top-ranked
business-to-business (B2B) e-commerce company, are well placed to
benefit. Meanwhile, many companies still use inefficient internally
developed software systems which will need to change as employees
retire. OBIC, which is a leading provider of software for small and
mid-sized companies, has operating margins over 60%. It also has a
significant and growing net cash position as well as a portfolio of
shareholdings, which are depressing its return on equity. We are
engaging with the company on these topics to generate
improvement.
Deglobalisation is another trend gathering momentum. The
pandemic, and subsequent events such as widespread supply chain
shortages, the conflict in Ukraine and simmering US/China
geo-political tensions, have increased companies' desire to move
production nearer to end customers. With wage inflation now an
issue in the US and other markets, businesses establishing new
production plants and warehouses have a stronger incentive to
incorporate factory automation into these facilities wherever
feasible. Japan is fortunate to be home to some of the world's
leading automation companies, of which the Company holds several,
including Keyence and SMC. Both of these long-held Premium rated
companies not only have dominant shares and high profitability but
also significant potential for improved shareholder returns. For
example, since the son of the founder took the helm at SMC, we have
already seen a step up in shareholder returns and an important
change in auditor. However, with over Yen600 billion in net cash
and shareholdings in over twenty companies there is still much more
the company can do.
Japan is a country with few natural resources and there is a
clear need to shift its energy mix away from a heavy reliance on
imported fossil fuels. Our portfolio includes shares in Japan's
leading solar energy REIT (Canadian Solar Infrastructure) and in
several companies that help reduce energy usage, such as Daikin,
which produces energy-efficient air conditioners. JGC, which
constructs liquid natural gas (LNG) production plants, has a net
cash position equivalent to 60% of its market capitalisation. It
announced a significant share buyback programme earlier in the year
but can clearly do far more to improve its capital efficiency.
Meanwhile, Hitachi, which is the global leader in cables used for
transmitting renewable energy, has made huge strides in corporate
governance reducing the number of listed subsidiaries from nine to
zero. With a resolute focus on free cash flow, we expect more
emphasis on shareholder return from now on.
Japan is home to many global leading consumer brands such as
Fast Retailing (operator of the Uniqlo clothing brand) and computer
games companies such as Sony and Nintendo. Once again, we can find
companies that combine long-term structural growth with significant
potential from improved governance. Nintendo, which owns some of
the world's strongest intellectual property, with characters such
as Super Mario and Pokemon, has roughly a quarter of its market cap
in net cash and could do much more in terms of shareholder returns.
Meanwhile, Shimano, which has over 75% market share in gears for
bicycles and will therefore benefit from a long-term trend of more
people cycling, also has close to a quarter of its market cap in
net cash. We are engaging with the company to improve its capital
efficiency.
One feature of the Japanese market is the relatively low level
of sell side analyst coverage. One relatively recent purchase in
the medical technology field is Osaka Soda which has the global
number one position in an ingredient for anti-obesity drugs and is
covered by just one analyst from a large investment bank. We expect
profits to grow rapidly due to the uptake of these drugs but also
think there will be a significant shift in shareholder returns as
the company already has a strong net cash balance sheet.
There are many companies in Japan that are well positioned to
compound earnings growth over many years often regardless of the
economic cycle. We can own these companies which, as illustrated
above, are also very well placed to benefit from the corporate
governance changes that we see. There is no need to sacrifice
business quality to find such opportunities. Indeed, the companies
which have the businesses with the best long-term outlooks are
often the same as those with the strongest but most inefficient
balance sheets.
Portfolio Characteristics
Over the last two years, the characteristics of the portfolio
have changed due to movements in share prices and companies that we
have bought and sold such as our purchase of Tokyo Marine, Nippon
Telegraph & Telephone, Hitachi and ITOCHU.
This can be seen both in the types of companies invested,
comparing the themes as at 30th September 2023 with those from 30th
September 2021, and also in the portfolio metrics:
30th September 2023 30th September 2021
JFJ Index JFJ Index
-------------------------------- --------------- ------ --------------- ------
Forward Price to Earning Ratio
(12 months forward) 20x 14x 36x 15x
-------------------------------- --------------- ------ --------------- ------
Return on Equity* 12.4% 9% 13.5% 8.7%
-------------------------------- --------------- ------ --------------- ------
Operating Margin 20% 13% 22% 12%
-------------------------------- --------------- ------ --------------- ------
Active Share 92 93
-------------------------------- --------------- ------ --------------- ------
Gearing 13.9% 12.7%
(12-month (12-month
average 12.7%) average 14.0%)
-------------------------------- --------------- ------ --------------- ------
Turnover (annualised) 22% 19%
-------------------------------- --------------- ------ --------------- ------
*Return on Equity is a financial ratio which shows how much net
income a company generates per dollar of invested capital. It helps
investors understand how efficiently a firm uses its money to
generate profit. The numbers shown above is a weighted average
number for the companies included in the Company's portfolio and
the companies included in TOPIX.
Significant contributors and detractors to performance
Top Contributors
The largest contributors to returns over the 12-month review
period included ASICS, which manufactures and distributes sporting
goods and equipment. The company is Quality rated. The company is
continuing to deliver strong results thanks to its decision to
refocus on its core product, running shoes, following a difficult
period between 2016 and 2020 when it attempted to compete with Nike
and Adidas in casual trainers (sneakers). ITOCHU, a trading
conglomerate operating in a variety of sectors including textiles,
fashion and machinery, also boosted returns. It is rated Standard.
Companies in the wholesale trade sector performed well both because
of enhanced shareholder returns, and because Warren Buffett
announced stakes in the five major companies within the sector.
Financial stocks performed well in general, and Tokio Marine, a
Quality rated insurance company, has been enhancing its returns to
shareholders, which has benefited the share price. Capcom, a
Quality rated gaming and multi-media company, continued to post
consistent results from its key game software franchises, including
Monster Hunter and Resident Evil. Hitachi, an industrial
conglomerate focused on digital systems, green energy, metals,
construction and automotives, has dramatically changed its business
portfolio over the last few years and now owns several businesses
which are global leaders in their sectors. Results remain strong.
The company is Standard rated.
Top Detractors
The major detractors from performance over the period included
Monotaro, Japan's top B2B e-commerce company. It is rated Premium.
The company's share price fell due to a slowing sales growth. We
retain our view that the business has a long growth runway, but we
reduced the position over the year. Our decision not to hold the
Standard rated Mitsubishi UFJ Financial Group also detracted from
returns. As mentioned above, banks and other financial names
performed well on expectations that monetary policy will eventually
be tightened, a move that would boost earnings after a long period
of negative interest rates. Nihon M&A Center is Japan's leading
provider of mergers and acquisitions related services. It has been
dogged by concerns about increased competition from new entrants to
the sector. We downgraded the stock's strategic classification to
Quality accordingly and have since closed the position. The shares
of Premium rated Nomura Research Institute, a consultancy that
advises companies in their digital strategy, de-rated despite the
company's favourable long-term outlook and its good execution. We
see no change in the investment case and continue to hold the
stock. Benefit One, a Premium rated name, specialises in providing
fringe benefits for employees. During the pandemic the company's
earnings, and share price, rose sharply as it organised
vaccinations for its clients' employees, but the share price has
since declined as earnings return to pre-pandemic levels.
Portfolio Activity - New Purchases
The ongoing improvements in corporate governance have put many
more companies on the path towards becoming the kind of quality
businesses that fit our investment criteria. This is a very
exciting development for us, as it means we are seeing many more
investment opportunities. One such example is the conglomerate =,
which has dramatically reduced its business portfolio, so that it
now only holds several world-leading businesses, and no listed
subsidiaries, down from nine previously. We have also opened a
position in Secom, Japan's largest provider of security
systems.
Secom has substantial net cash which has been depressing
returns. However, the company recently announced its first price
increase in over 20 years and two buybacks, its first for almost 15
years. This led us to upgrade Secom's strategic classification and
purchase the shares in anticipation of significantly enhanced
shareholder returns. We also added the standard rated T&D
Holdings, a leading life insurance provider, for the same
reason.
Other new names include Seven & I Holdings. This standard
rated company is the largest operator of convenience stores in
Japan, under the 7/11 brand. Domestically, the company operates in
a three-player oligopoly characterised by high profitability and
strong free cash flow. The company is also the market leader in the
US's much more fragmented market, where there is an opportunity for
it to gain market share. Additionally, the company has started to
restructure its non-core businesses in Japan - a process that we
hope will continue. Japan Material is a provider of infrastructure
services to semiconductor factories. The company is a major
beneficiary of the deglobalisation trend intended to shorten,
diversify and secure supply chains by relocating semiconductor
manufacturing inside Japan. We also opened a position in Unicharm,
a leading manufacturer of consumer goods such as adult diapers,
feminine hygiene products and pet care items.
Portfolio Activity - Largest Disposals
These purchases above were funded by the outright sale of
several holdings whose investment cases had deteriorated, including
Nihon M&A Center (see above). We disposed of our positions in
Nippon Prologis REIT, a Standard rated company, on concerns of
increasing supply in the warehousing industry, and in JSR, a
Quality rated specialist chemicals producer operating in the
plastics, digital solutions and life sciences industries. Having
aggressively restructured to focus on chemicals used in the
production of semiconductors, JSR is about to be acquired by the
government-led Japan Investment Corporation. With limited upside
potential following the bid, we opted to sell. The bulk of the
value in Digital Garage, an IT services company focusing on payment
platforms, derives from its 20% stake in Kakaku.com, an
internet-based provider of product and service reviews. However,
Kakaku has been struggling to grow, so we sold this Standard rated
name. Misumi, which focuses on factory automation, tools and
components, is facing increasing competition, particularly from its
Chinese rival, Yiheda, which prompted a downgrade in its strategic
classification to Quality. We subsequently closed the position. We
also sold CyberAgent, an internet advertiser, as the path to
profitability for its digital television service became
increasingly unclear, and we sold Oriental Land, the operator of
Tokyo Disneyland, and M3, an online information service for
doctors, on valuation grounds.
The net effect of these purchases and sales is that the
portfolio trades on a significantly lower multiple than over the
last three years, at under 20x earnings versus over 30x at the
peak. Meanwhile, its quality and growth characteristics are
unchanged, with the portfolio generating an ROE almost 38% higher
than the market.
Outlook
Recent developments in the Japanese economy and corporate sector
have reinforced our optimism about the market's medium to long term
prospects. Economic activity is strengthening and encouraging wage
trends will be supported by the structurally tight labour market.
Wage growth should help end Japan's long period of damaging and
seemingly intractable deflation and have a positive impact on
consumption and the overall economy. The BoJ will welcome these
developments, so, unlike in other major markets, investors need not
be overly concerned about aggressive monetary tightening. As
discussed above, Japan is also undergoing a major technological
transformation as businesses and government increase their efforts
to digitise and automate their operations. This will lay the base
for significant growth and productivity gains over the medium term
and provide a supportive environment for the dynamic, quality
businesses in which we invest.
In addition, while we continue to face some headwinds, and we
cannot say how long these will last, the spread between value and
growth has narrowed and is no longer at extreme levels.
However, for us, the improvements in corporate governance are
the most important reason to be excited about the outlook for
Japanese equities. This trend is looking increasingly structural in
nature, and we are seeing signs that the trend is accelerating. If
we are correct, there is potential for the whole market, including
the Company's portfolio holdings, to move to a higher
valuation.
The value of the local currency is another key consideration for
foreign investors, and there is cause for some optimism on this
front too. The Economist's Big Mac Index suggests it is 43%
undervalued and the table below provides further illustrations of
disparities between prices in the UK and Japan. Although we do not
know when the yen's weakness will unwind, any reversal should be
beneficial for GBP-denominated investors.
The Japanese market offers many exciting investment
opportunities for those prepared to seek them out. The market is
deep, broad and liquid, with over 3,000 listed stocks. Yet it is
under-researched by buy and sell side analysts - over 50% of the
stocks have no sell-side coverage, versus the US market where 50%
of companies are scrutinised by 20 or more sell-side analysts. In
addition, most sell-side analysts who do cover Japan focus on the
short term. For example, only two sell-side analysts publish 5-year
forecasts for Toyota. This is a great environment for
well-resourced, locally based teams such as JPMorgan's to identify
interesting companies that are overlooked by other managers.
And although the stock market has reached multi-decade highs,
valuations are still compelling when compared to other markets. The
Japanese market is still trading at 14x earnings (on a forward PE
basis) and at 1.4x book value (trailing PB) - valuations which
still appear to reflect past perceptions of the market, rather than
the opportunities that lie ahead.
For all these reasons, we believe our optimism about the
Japanese market is well-founded, and we are confident about the
long-term prospects of our portfolio holdings. But we are not
complacent. We will continue our search for companies capable of
thriving regardless of the near-term macroeconomic environment.
Most importantly, we remain convinced that our investment approach
will ensure the Company continues to deliver outright gains and
outperformance for shareholders over the long term.
We thank you for your ongoing support.
Nicholas Weindling
Miyako Urabe
Investment Managers 5th December 2023
PRINCIPAL AND EMERGING 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. With the assistance of JPMF, the Audit
Committee has drawn up a risk matrix, which identifies the key
risks to the Company. These are reviewed and noted by the Board.
The risks identified and the broad categories in which they fall,
and the ways in which they are managed or mitigated are summarised
below. The AIC Code of Corporate Governance requires the Audit
Committee to put in place procedures to identify emerging risks.
Emerging risks, which are not deemed to represent an immediate
threat, are considered by Audit Committee as they come into view
and are incorporated into the existing review of the Company's risk
register. However, since emerging risks are likely to be more
dynamic in nature, they are considered on a more frequent basis,
through the remit of Board when the Audit Committee does not meet.
The key principal and emerging risks identified are summarised
below.
Movement in
risk
status in year
to
Principal Description Mitigating activities 30th September
risk 2023
-------------------------------- -------------------------------------- ---------------
Investment Management and Performance
Underperformance Poor implementation The Board manages these risks é
of the investment by monitoring the Investment
strategy, for example Managers diversification
as to thematic exposure, of investments and through
sector allocation, its investment restrictions
stock selection, undue and guidelines, which are
concentration of holdings, monitored and reported on
factor risk exposure by the Manager. The Investment
or the degree of total Manager provides the Directors
portfolio risk, may with timely and accurate
lead to underperformance management information, including
against the Company's performance data and attribution
benchmark index and analyses, revenue estimates,
peer companies. liquidity reports and shareholder
A widening of the analyses. The Board monitors
discount could result the implementation and results
in loss of value for of the investment process
shareholders. with the Investment Managers,
at least one of whom attends
all appropriate Board meetings,
and reviews data which show
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.
The Board monitors the level
of both the absolute and
sector relative premium/discount
at which the shares trade.
The Board reviews both sales
and marketing activity and
sector relative performance,
which it believes are the
primary drivers of the relative
discount level. In addition,
the Company has authority
to buy back its existing
shares to enhance the NAV
per share for remaining shareholders
when deemed appropriate.
-------------------------------- -------------------------------------- ---------------
Market and Market risk arises The Board believes that shareholders é
Economic from uncertainty about expect that the Company will
Risk the future prices and should be fairly fully
of the Company's investments, invested in Japanese equities
which might result at all times. The Board therefore
from political, economic, would normally only seek
fiscal, monetary, to mitigate market risk through
regulatory or climate guidelines on gearing given
change, including to the Investment Manager.
the impact from energy The Board receives regular
shocks, recessions reports from the Investment
or wars. It represents Manager's strategists and
the potential loss Investment Managers regarding
the Company might market outlook and gives
suffer through holding the Investment Mangers discretion
investments in the regarding acceptable levels
face of negative market of gearing and/or cash. Currently
movements. The Board the Company's gearing policy
considers thematic is to operate within a range
and factor risks, of 5% net cash to 20% geared.
stock selection and The majority of the Company's
levels of gearing assets, liabilities and income
on a regular basis are denominated in yen rather
and has set investment than in the Company's functional
restrictions and guidelines currency of sterling (in
which are monitored which it reports). As a result,
and reported on by movements in the yen:sterling
the Manager. exchange rate may affect
A part of this risk the sterling value of those
is Currency risk which items and therefore impact
arises from currency on reported results and/or
volatility and/or financial position and there
significant currency is an inherent risk from
movements, principally these exchange rate movements.
in the yen:sterling It is the Company's policy
rate. not to undertake foreign
currency hedging. Further
details about the foreign
currency risk may be found
in note 21 on page 89 in
the Annual Report and Financial
Statements.
-------------------------------- -------------------------------------- ---------------
Loss of Investment A sudden departure The Board seeks assurance è
Team or Investment of an Investment Manager that the Manager takes steps
Manager or several members to reduce the risk arising
of the investment from such an event by ensuring
management team could appropriate succession planning
result in a short and the adoption of a team
term deterioration based approach, as well as
in investment performance. special efforts to retain
key personnel. The Board
engages with the senior management
of the Manager in order to
mitigate this risk.
-------------------------------- -------------------------------------- ---------------
Operational Risks
Outsourcing Disruption to, or Details of how the Board è
failure of, the Manager's monitors the services provided
accounting, dealing by JPM and its associates
or payments systems and the key elements designed
or the Depositary to provide effective risk
or Custodian's records management and internal control
may prevent accurate are included within the Risk
reporting and monitoring Management and Internal Controls
of the Company's financial section of the Corporate
position or a misappropriation Governance Statement on pages
of assets. 56 to 62 of the Annual Report
and Financial Statements.
The Manager has a comprehensive
business continuity plan
which facilitates continued
operation of the business
in the event of a service
disruption.
-------------------------------- -------------------------------------- ---------------
Cyber Crime The threat of cyber-attack, The Company benefits directly è
in all guises, is and/or indirectly from all
regarded as at least elements of JPMorgan's Cyber
as important as more Security programme. The information
traditional physical technology controls around
threats to business physical security of JPMorgan's
continuity and security. data centres, security of
its networks and security
of its trading applications,
are tested by independent
auditors and reported every
six months against the AAF
Standard.
-------------------------------- -------------------------------------- ---------------
Corporate Governance
Statutory The Company must also The Board relies on the services è
and Regulatory comply with the provisions of its Company Secretary,
Compliance of the Companies Act the Manager and its professional
2006 and, since its advisers to ensure compliance
shares are listed with the Companies Act 2006,
on the London Stock the UKLA Listing Rules, DTRs,
Exchange, the UKLA MAR and AIFMD. Details of
Listing Rules and the Company's compliance
Disclosure Guidance with Corporate Governance
and Transparency Rules best practice, are set out
('DTRs'). A breach in the Corporate Governance
of the Companies Act Statement on pages 56 to
could result in the 62 of the Annual Report and
Company and/or the Financial Statements.
Directors being fined The Section 1158 qualification
or the subject of criteria are continually
criminal proceedings. monitored by the Manager
Breach of the UKLA and the results reported
Listing Rules or DTRs to the Board each month.
could result in the
Company's shares being
suspended from listing
which in turn would
breach Section 1158.
In order to qualify
as an investment trust,
the Company must comply
with Section 1158
of the Corporation
Tax Act 2010 ('Section
1158'). 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.
-------------------------------- -------------------------------------- ---------------
Environmental
Climate Change Climate change has The Board receives ESG reports é
become one of the from the Manager on the portfolio
most critical issues and the way ESG considerations
confronting companies are integrated into the investment
and their investors. decision-making, so as to
Climate change can mitigate risk at the level
have a significant of stock selection and portfolio
impact on the business construction. As extreme
models, sustainability weather events become more
and even viability common, the Manager is increasingly
of individual companies, focussed on assessing the
whole sectors and impact on investee companies.
even asset classes. In addition, the resilience
and Business Continuity Plans
('BCP') will come under more
focus.
The Board has considered
the risk of climate risk
on the investment portfolio
of the Company and it is
built in the market prices.
-------------------------------- -------------------------------------- ---------------
Movement in
risk
status in year
to
Emerging Description Mitigating activities 30th September
risk 2023
-------------------------------- -------------------------------------- ---------------
Specific to Japan
Natural Disasters Although natural disasters The Manager reports on Business é
anywhere in the world Continuity Plans ('BCPs')
could impact individual and other mitigation plans
companies, the Board in place for itself and other
believes the largest key service providers. BCPs
such impact could plans are regularly tested
arise from an earthquake and applied, including split
causing general economic teams, relocations and limiting
damage to Japan and access to/meetings with third
to the operations parties. The Manager discusses
of specific companies BCPs with investee companies.
in the portfolio.
The Japanese government
believes there is
a 70% probability
of an earthquake,
registering a magnitude
seven on the Richter
Scale, hitting Tokyo
over the next 30 years.
-------------------------------- -------------------------------------- ---------------
Global
Social Dislocation Social dislocation/civil The Manager's market strategists é
& Conflict unrest/war around are available for the Board
the world may threaten and can discuss market trends.
global economic growth External consultants and
and, consequently, experts can be accessed by
companies in the portfolio. the Board. The Board can,
with shareholder approval,
look to amend the investment
policy and objectives of
the Company to gain exposure
to or mitigate the risks
arising from geopolitical
instability although this
is limited if it is truly
global.
-------------------------------- -------------------------------------- ---------------
Artificial While AI might be The Board will work with è
Intelligence a great opportunity the Manager to monitor developments
(AI) and force for good, concerning AI as its use
there may also be evolves and consider how
an increasing risk it might threaten the Company's
to business and society activities, which may, for
more widely. AI has example, include a heightened
become a powerful threat to cybersecurity.
tool with the potential The Board will work closely
to disrupt and even with the Manager in identifying
to harm. The use of these threats and, in addition,
AI could be a significant monitor the strategies of
disrupter to business our service providers. Furthermore,
processes and whole the Company's investment
companies leading process includes consideration
to added uncertainty of technological advancement
in corporate valuations. and the resultant potential
to disrupt both individual
companies and the wider markets.
-------------------------------- -------------------------------------- ---------------
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES.
Details of the management contract are set out in the Directors'
Report on page 49 of the Annual Report and Financial Statements.
The management fee payable to the Manager for the year was
GBP4,498,000 (2022: GBP5,124,000) of which GBPnil (2022: GBPnil)
was outstanding at the year end.
Included in administration expenses in note 6 on page 82 are
safe custody fees amounting to GBP104,000 (2022: GBP74,000) payable
to JPMorgan Chase Bank, N.A., of which GBP36,000 (2022: GBPnil) 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 GBP2,000 (2022: GBP2,000) of which GBPnil (2022: GBPnil)
was outstanding at the year end.
Handling charges on dealing transactions amounting to GBP2,000
(2022: GBP5,000) were payable to JPMorgan Chase Bank N.A. during
the year of which GBP1,000 (2022: GBP2,000) was outstanding at the
year end.
At the year end, total cash of GBP2,141,000 (2022:
GBP27,974,000) was held with JPMorgan Chase. A net amount of
interest of GBP2,000 (2022: GBPnil) was receivable by the Company
during the year from JPMorgan Chase of which GBPnil (2022: GBPnil)
was outstanding at the year end.
Stock lending income amounting to GBP524,000 (2022: GBP682,000)
was receivable by the Company during the year. JPMAM commissions in
respect of such transactions amounted to GBP58,000 (2022:
GBP76,000).
Full details of Directors' remuneration and shareholdings can be
found on pages 54 and 55 and in note 6 on page 82 of the Annual
Report and Financial Statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
& 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 Annual Report & 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 Annual Report & Financial
Statements unless they are satisfied that, taken as a whole, Annual
Report & Financial Statements 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 Annual Report & 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 on
pages 47 and 48 of 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
Christopher Samuel
Chairman
5th December 2023
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30th September 2023
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------- --------- -------- --------- ---------- -----------
Gains/(losses) on investments
held at fair value
through profit or loss - 33,592 33,592 - (418,203) (418,203)
Net foreign currency gains(1) - 12,918 12,918 - 8,328 8,328
Income from investments 14,180 135 14,315 14,016 - 14,016
Other interest receivable
and similar income 526 - 526 682 - 682
------------------------------- --------- --------- -------- --------- ---------- -----------
Gross return/(loss) 14,706 46,645 61,351 14,698 (409,875) (395,177)
Management fee (450) (4,048) (4,498) (512) (4,612) (5,124)
Other administrative expenses (1,276) - (1,276) (959) - (959)
------------------------------- --------- --------- -------- --------- ---------- -----------
Net return/(loss) before
finance costs and taxation 12,980 42,597 55,577 13,227 (414,487) (401,260)
Finance costs (134) (1,202) (1,336) (141) (1,272) (1,413)
------------------------------- --------- --------- -------- --------- ---------- -----------
Net return/(loss) before
taxation 12,846 41,395 54,241 13,086 (415,759) (402,673)
Taxation (1,418) - (1,418) (1,400) - (1,400)
------------------------------- --------- --------- -------- --------- ---------- -----------
Net return/(loss) after
taxation 11,428 41,395 52,823 11,686 (415,759) (404,073)
------------------------------- --------- --------- -------- --------- ---------- -----------
Return/(loss) per share 7.46p 27.03p 34.49p 7.48p (266.28)p (258.80)p
(1) Foreign currency gains are due to Yen denominated loan notes and bank loans.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
in the year.
The 'Total' column of this statement is the profit and loss
account of the Company and the 'Revenue' and 'Capital' columns
represent supplementary information prepared under guidance issued
by the Association of Investment Companies.
Net return/(loss) after taxation represents the profit or loss
for the year and also total comprehensive income/(expense).
STATEMENT OF CHANGES IN EQUITY
Called Capital
up
share redemption Other Capital Revenue
capital reserve(1) reserve(1) reserve(1) reserve(1) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- ----------- ----------- ----------- ----------- -----------
At 30th September 2021 40,312 8,650 166,791 923,650 15,141 1,154,544
Repurchase of shares into
Treasury - - - (11,802) - (11,802)
Net (loss)/return - - - (415,759) 11,686 (404,073)
Dividend paid in the year
(note 2) - - - - (8,295) (8,295)
--------------------------- -------- ----------- ----------- ----------- ----------- -----------
At 30th September 2022 40,312 8,650 166,791 496,089 18,532 730,374
Repurchase of shares into
Treasury - - - (18,180) - (18,180)
Net return - - - 41,395 11,428 52,823
Dividend paid in the year
(note 2) - - - - (9,546) (9,546)
--------------------------- -------- ----------- ----------- ----------- ----------- -----------
At 30th September 2023 40,312 8,650 166,791 519,304 20,414 755,471
--------------------------- -------- ----------- ----------- ----------- ----------- -----------
(1) See footnote to note 16 on page 86 of the Annual Report & Financial Statements.
STATEMENT OF FINANCIAL POSITION
At 30th September 2023
2023 2022
GBP'000 GBP'000
------------------------------------------------------- --------- ----------
Fixed assets
Investments held at fair value through profit or loss 859,289 815,789
------------------------------------------------------- --------- ----------
Current assets
Debtors 12,967 7,161
Cash and cash equivalents 2,141 27,974
------------------------------------------------------- --------- ----------
15,108 35,135
Current liabilities
Creditors: amounts falling due within one year (47,867) (9,619)
------------------------------------------------------- --------- ----------
Net current (liabilities)/assets (32,759) 25,516
------------------------------------------------------- --------- ----------
Total assets less current liabilities 826,530 841,305
Creditors: amounts falling due after more than one
year (71,059) (110,931)
------------------------------------------------------- --------- ----------
Net assets 755,471 730,374
------------------------------------------------------- --------- ----------
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 519,304 496,089
Revenue reserve 20,414 18,532
------------------------------------------------------- --------- ----------
Total shareholders' funds 755,471 730,374
------------------------------------------------------- --------- ----------
Net asset value per share 500.9p 472.1p
Included in the investments held at fair valuation through
profit or loss are investments of GBP77,851,000 (2022:
GBP167,908,000) that are on loan under securities lending
arrangements.
STATEMENT OF CASH FLOWS
For the year ended 30th September 2023
2023 2022(1)
GBP'000 GBP'000
------------------------------------------------------ ----------- -----------
Cash flows from operating activities
Net profit/(loss) before finance costs and taxation 55,577 (401,260)
Adjustment for:
Net (gains)/losses on investments held at fair value
through profit or loss (33,592) 418,203
Net foreign currency gains (12,918) (8,328)
Dividend income (14,315) (14,016)
Interest income (2) -
Realised loss on foreign exchange transactions (695) (1,215)
Increase in accrued income and other debtors - (19)
Increase/(decrease) in accrued expenses 77 (29)
------------------------------------------------------ ----------- -----------
Net cash outflow from operations before dividends
and interest (5,868) (6,664)
------------------------------------------------------ ----------- -----------
Dividends received 12,885 10,967
Interest received 2 -
------------------------------------------------------ ----------- -----------
Net cash inflow from operating activities 7,019 4,303
------------------------------------------------------ ----------- -----------
Purchases of investments (190,000) (176,268)
Sales of investments 183,372 242,438
------------------------------------------------------ ----------- -----------
Net cash (outflow)/inflow from investing activities (6,628) 66,170
------------------------------------------------------ ----------- -----------
Dividends paid (9,546) (8,295)
Repurchase of shares into Treasury (18,180) (11,820)
Repayment of bank loan (9,225) (60,364)
Drawdown of bank loan 12,014 30,979
Interest paid (1,287) (1,390)
------------------------------------------------------ ----------- -----------
Net cash outflow from financing activities (26,224) (50,890)
------------------------------------------------------ ----------- -----------
(Decrease)/increase in cash and cash equivalents (25,833) 19,583
------------------------------------------------------ ----------- -----------
Cash and cash equivalents at start of year 27,974 8,299
Exchange movements - 92
------------------------------------------------------ ----------- -----------
Cash and cash equivalents at end of year 2,141 27,974
------------------------------------------------------ ----------- -----------
Cash and cash equivalents consist of:
Cash and short term deposits 2,141 27,974
------------------------------------------------------ ----------- -----------
Total 2,141 27,974
------------------------------------------------------ ----------- -----------
(1) The presentation of the Cash Flow Statement, as permitted
under FRS 102, has been changed so as to present the reconciliation
of 'net return/(loss) before finance costs and taxation' to 'net
cash inflow from operating activities' on the face of the Cash Flow
Statement. Previously, this was shown by way of note. Interest paid
has also been reclassified to financing activities, previously
shown under operating activities, as this relates to the loans
drawn down.
Analysis of change in net debt
As at Other As at
30th September non-cash 30th September
2022 Cash flows movements 2023
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------------- ----------- ---------- ---------------
Cash and cash equivalents:
Cash and cash equivalents 27,974 (25,833) - 2,141
---------------------------- --------------- ----------- ---------- ---------------
27,974 (25,833) - 2,141
Borrowings
Debt due within one year (40,228) (2,789) 4,584 (38,433)
Debt due after one year (79,986) - 8,927 (71,059)
---------------------------- --------------- ----------- ---------- ---------------
(120,214) (2,789) 13,511 (109,492)
---------------------------- --------------- ----------- ---------- ---------------
Net debt (92,240) (28,622) 13,511 (107,351)
---------------------------- --------------- ----------- ---------- ---------------
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30th September 2023
1. Accounting policies
(a) 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 July 2022.
All of the Company's operations are of a continuing nature.
The financial statements have been prepared on a going concern
basis. The Directors have a reasonable expectation that the Company
has adequate resources to continue in operational existence up to
31st January 2025 which is at least 12 months from the date of
approval of these Financial Statements. In making their assessment
the Directors have reviewed income and expense projections,
reviewed the liquidity of the investment portfolio and considered
the Company's ability to meet liabilities as they fall due. In
forming this opinion, the directors have considered direct and
indirect impact of the ongoing conflict between Ukraine and Russia
and more recently between Israel and Palestine on the going concern
and viability of the Company. In making their assessment, the
Directors have reviewed income and expense projections and the
liquidity of the investment portfolio, and considered the
mitigation measures which key service providers, including the
Manager, have in place to maintain operational resilience in light
of disruption from pandemics. The disclosures on long term
viability and going concern on pages 45 and 63 of the Directors'
Report form part of these financial statements.
In preparing these financial statements the Directors have
considered the impact of climate change risk as a principal and as
an emerging risk as set out on page 41 of the Annual Report and
Financial Statements and have concluded that there was no further
impact of climate change to be taken into account as the
investments are valued based on market pricing, which incorporates
market participants view of climate risk.
The policies applied in these financial statements are
consistent with those applied in the preceding year.
2. Dividends
(a) Dividends paid and proposed
2023 2022
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Dividends paid
2022 final dividend paid of 6.2p (2021: 5.3p) per
share 9,546 8,295
---------------------------------------------------- -------- --------
Dividend proposed
2023 final dividend proposed of 6.5 p (2022: 6.2p)
per share 9,804 9,546
---------------------------------------------------- -------- --------
All dividends paid and proposed in the year are and will be
funded from the revenue reserve.
The dividend proposed in respect of the year ended 30th
September 2023 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
2024.
(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 GBP11,428,000 (2022: GBP11,686,000). The revenue
reserve after payment of the final dividend will amount to GBP
10,610,000 .
2023 2022
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Final dividend proposed of 6.5 p (2022: 6.2p) per
share 9,804 9,546
--------------------------------------------------- -------- --------
3. Return/(loss) per share
2023 2022
GBP'000 GBP'000
--------------------------------------------------- ------------ ------------
Revenue return 11,428 11,686
Capital return/(loss) 41,395 (415,759)
--------------------------------------------------- ------------ ------------
Total return/(loss) 52,823 (404,073)
--------------------------------------------------- ------------ ------------
Weighted average number of shares in issue during
the year 153,121,747 156,138,247
Revenue return per share 7.46p 7.48p
Capital return/(loss) per share 27.03p (266.28)p
--------------------------------------------------- ------------ ------------
Total return/(loss) per share 34.49p (258.80)p
--------------------------------------------------- ------------ ------------
The total return per share represents both basic and diluted
return per share as the Company has no dilutive shares.
4. Net asset value per share
The net asset value per Ordinary share and the net asset value
attributable to the Ordinary shares at the year end are shown
below. These were calculated using 150,832,089 (2022: 154,702,089)
Ordinary shares in issue at the year end (excluding Treasury
shares).
2023 2022
Net asset value attributable Net asset value attributable
GBP'000 pence GBP'000 pence
-------------------------------------- ----------------- ------------ ---------------- -------------
Net asset value - debt at par 755,471 500.9 730,374 472.1
Add: amortised cost of Yen13 billion
senior secured
loan notes 71,059 47.1 79,986 51.7
Less: Fair value of Yen13 billion
senior secured
loan notes (65,128) (43.2) (78,278) (50.6)
-------------------------------------- ----------------- ------------ ---------------- -------------
Net asset value - debt at fair
value 761,402 504.8 732,082 473.2
-------------------------------------- ----------------- ------------ ---------------- -------------
5. Status of results announcement
2023 Financial Information
The figures and financial information for 2023 are extracted
from the Annual Report and Financial Statements for the year ended
30th September 2023 and do not constitute the statutory accounts
for the year. The Annual Report and Financial Statements include
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 and Financial
Statements will be delivered to the Registrar of Companies in due
course.
2022 Financial Information
The figures and financial information for 2022 are extracted
from the published Annual Report and Financial Statements for the
year ended 30th September 2022 and do not constitute the statutory
accounts for that year. The Annual Report and Financial Statements
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.
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.
5th December 2023
For further information, please contact:
Priyanka Vijay Anand
For and on behalf of
JPMorgan Funds Limited
0800 20 40 20 (or +44 1268 44 44 70)
ENDS
A copy of the Annual Report will be submitted to the National
Storage Mechanism and will be available shortly for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Annual Report will also be available shortly 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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END
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(END) Dow Jones Newswires
December 06, 2023 02:00 ET (07:00 GMT)
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