REG - JPMorgan Japanese IT - Annual Financial Report
06/12/2023 07:00
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RNS Number : 7920V JPMorgan Japanese Inv. Trust PLC 06 December 2023
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN JAPANESE INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED 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 ¥10 billion revolving
credit facility with Industrial and Commercial Bank of China Limited, London
Branch, which is in addition to the existing ¥5 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 ¥600 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 risk Description Mitigating activities 30th September 2023
Investment Management and Performance
Underperformance Poor implementation of the investment strategy, for example as to thematic The Board manages these risks by monitoring the Investment Managers é
exposure, sector allocation, stock selection, undue concentration of holdings, diversification of investments and through its investment restrictions and
factor risk exposure or the degree of total portfolio risk, may lead to guidelines, which are monitored and reported on by the Manager. The Investment
underperformance against the Company's benchmark index and peer companies. Manager provides the Directors with timely and accurate management
information, including performance data and attribution analyses, revenue
A widening of the discount could result in loss of value for shareholders. 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 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 Economic Risk Market risk arises from uncertainty about the future prices of the Company's The Board believes that shareholders expect that the Company will and should é
investments, which might result from political, economic, fiscal, monetary, be fairly fully invested in Japanese equities at all times. The Board
regulatory or climate change, including the impact from energy shocks, therefore would normally only seek to mitigate market risk through guidelines
recessions or wars. It represents the potential loss the Company might suffer on gearing given to the Investment Manager. The Board receives regular reports
through holding investments in the face of negative market movements. The from the Investment Manager's strategists and Investment Managers regarding
Board considers thematic and factor risks, stock selection and levels of market outlook and gives the Investment Mangers discretion regarding
gearing on a regular basis and has set investment restrictions and guidelines acceptable levels of gearing and/or cash. Currently the Company's gearing
which are monitored and reported on by the Manager. policy is to operate within a range of 5% net cash to 20% geared.
A part of this risk is Currency risk which arises from currency volatility The majority of the Company's assets, liabilities and income are denominated
and/or significant currency movements, principally in the yen:sterling rate. 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 and 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 21 on page 89 in the Annual Report and Financial Statements.
Loss of Investment Team or Investment Manager A sudden departure of an Investment Manager or several members of the The Board seeks assurance that the Manager takes steps to reduce the risk è
investment management team could result in a short term deterioration in arising from such an event by ensuring appropriate succession planning and the
investment performance. 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.
Operational Risks
Outsourcing Disruption to, or failure of, the Manager's accounting, dealing or payments Details of how the Board monitors the services provided by JPM and its è
systems or the Depositary or Custodian's records may prevent accurate associates and the key elements designed to provide effective risk management
reporting and monitoring of the Company's financial position or a and internal control are included within the Risk Management and Internal
misappropriation of assets. Controls section of the Corporate Governance Statement on pages 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, in all guises, is regarded as at least as The Company benefits directly and/or indirectly from all elements of è
important as more traditional physical threats to business continuity and JPMorgan's Cyber Security programme. The information technology controls
security. around physical security of JPMorgan's 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 and Regulatory Compliance The Company must also comply with the provisions of the Companies Act 2006 The Board relies on the services of its Company Secretary, the Manager and its è
and, since its shares are listed on the London Stock Exchange, the UKLA professional advisers to ensure compliance with the Companies Act 2006, the
Listing Rules and Disclosure Guidance and Transparency Rules ('DTRs'). UKLA Listing Rules, DTRs, MAR and AIFMD. Details of the Company's compliance
A breach of the Companies Act could result in the Company and/or the with Corporate Governance best practice, are set out in the Corporate
Directors being fined or the subject of criminal proceedings. Breach of the Governance Statement on pages 56 to 62 of the Annual Report and Financial
UKLA Listing Rules or DTRs could result in the Company's shares being Statements.
suspended from listing which in turn would breach Section 1158.
The Section 1158 qualification criteria are continually monitored by the
In order to qualify as an investment trust, the Company must comply with Manager and the results reported to the Board each month.
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 become one of the most critical issues confronting The Board receives ESG reports from the Manager on the portfolio and the way é
companies and their investors. Climate change can have a significant impact on ESG considerations are integrated into the investment decision-making, so as
the business models, sustainability and even viability of individual to mitigate risk at the level of stock selection and portfolio construction.
companies, whole sectors and even asset classes. As extreme weather events become more common, the Manager is increasingly
focussed on assessing the impact on investee companies. 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 risk Description Mitigating activities 30th September 2023
Specific to Japan
Natural Disasters Although natural disasters anywhere in the world could impact individual The Manager reports on Business Continuity Plans ('BCPs') and other mitigation é
companies, the Board believes the largest such impact could arise from an plans in place for itself and other key service providers. BCPs plans are
earthquake causing general economic damage to Japan and to the operations of regularly tested and applied, including split teams, relocations and limiting
specific companies in the portfolio. The Japanese government believes there is access to/meetings with third parties. The Manager discusses BCPs with
a 70% probability of an earthquake, registering a magnitude seven on the investee companies.
Richter Scale, hitting Tokyo over the next 30 years.
Global
Social Dislocation & Conflict Social dislocation/civil unrest/war around the world may threaten global The Manager's market strategists are available for the Board and can discuss é
economic growth and, consequently, companies in the portfolio. market trends. External consultants and experts can be accessed by 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 Intelligence (AI) While AI might be a great opportunity and force for good, there may also be an The Board will work with the Manager to monitor developments concerning AI as è
increasing risk to business and society more widely. AI has become a its use evolves and consider how it might threaten the Company's activities,
powerful tool with the potential to disrupt and even to harm. The use of AI which may, for example, include a heightened threat to cybersecurity. The
could be a significant disrupter to business processes and whole companies Board will work closely with the Manager in identifying these threats and, in
leading to added uncertainty in corporate valuations. addition, monitor the strategies of our service providers. Furthermore, the
Company's investment process includes consideration of technological
advancement 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 £4,498,000 (2022: £5,124,000) of
which £nil (2022: £nil) was outstanding at the year end.
Included in administration expenses in note 6 on page 82 are safe custody fees
amounting to £104,000 (2022: £74,000) payable to JPMorgan Chase Bank, N.A.,
of which £36,000 (2022: £nil) 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 £2,000 (2022:
£2,000) of which £nil (2022: £nil) was outstanding at the year end.
Handling charges on dealing transactions amounting to £2,000 (2022: £5,000)
were payable to JPMorgan Chase Bank N.A. during the year of which £1,000
(2022: £2,000) was outstanding at the year end.
At the year end, total cash of £2,141,000 (2022: £27,974,000) was held with
JPMorgan Chase. A net amount of interest of £2,000 (2022: £nil) was
receivable by the Company during the year from JPMorgan Chase of which £nil
(2022: £nil) was outstanding at the year end.
Stock lending income amounting to £524,000 (2022: £682,000) was receivable
by the Company during the year. JPMAM commissions in respect of such
transactions amounted to £58,000 (2022: £76,000).
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
£'000 £'000 £'000 £'000 £'000 £'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 up Capital
share redemption Other Capital Revenue
capital reserve(1) reserve(1) reserve(1) reserve(1) Total
£'000 £'000 £'000 £'000 £'000 £'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
£'000 £'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 £77,851,000 (2022: £167,908,000) that are on loan under
securities lending arrangements.
STATEMENT OF CASH FLOWS
For the year ended 30th September 2023
2023 2022(1)
£'000 £'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 (33,592) 418,203
loss
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
£'000 £'000 £'000 £'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
£'000 £'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 6.5p (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 £11,428,000 (2022:
£11,686,000). The revenue reserve after payment of the final dividend will
amount to £10,610,000 .
2023 2022
£'000 £'000
Final dividend proposed of 6.5p (2022: 6.2p) per share 9,804 9,546
3. Return/(loss) per share
2023 2022
£'000 £'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
£'000 pence £'000 pence
Net asset value - debt at par 755,471 500.9 730,374 472.1
Add: amortised cost of ¥13 billion senior secured
loan notes 71,059 47.1 79,986 51.7
Less: Fair value of ¥13 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
(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 (http://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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