REG - JPMorgan Japanese IT - Annual Financial Report
16/12/2024 07:00
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RNS Number : 1235Q JPMorgan Japanese Inv. Trust PLC 16 December 2024
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN JAPANESE INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2024
Legal Entity Identifier: 549300JZW3TSSO464R15
Information disclosed in accordance with the DTR 4.1.3
HIGHLIGHTS
Net Asset Value (NAV) Growth: The total return on net asset value with debt at
fair value increased by +24.2% comfortably outperforming the benchmark* return
of +10.3%. Share price total return was +22.4%.
The Company has outperformed over five and ten years to 30th September 2024,
with an annualised five-year NAV with debt at fair value total return of +5.5%
compared with +5.1% for the benchmark* and an annualised ten year NAV with
debt at fair value total return of +10.5% compared with +8.4% for the
benchmark.
Discount management and share repurchases: The company repurchased a total of
7,680,000 shares (5.4% of shares in issue) during the financial year (2023:
3,870,000 shares).
Dividend Growth: The board proposes to pay a final dividend of 6.75p per share
(2023: 6.50p). This increase in dividend follows last year's +4.8% increase.
*The Company's benchmark is the TOPIX index expressed in sterling terms.
Key Developments (following the year-end)
Combination with JPMorgan Japan Small Cap Growth & Income plc (JSGI)):
Successfully completed the combination with JPMorgan Small Cap on 25th October
2024, resulting in a post combination Company with approximately £1 billion
of net assets, giving it a leadership position within the Japanese investment
trust sector.
Reduction in ongoing cost ratio: Following the combination, the Company will
benefit from a new, highly competitive fee arrangement and the Ongoing Cost
Ratio is expected to be significantly lower, estimated to be around 0.62% for
the period to 30th September 2025, as compared with 0.73% for the period to
30th September 2024.
Stephen Cohen, Chairman, commented:
"It is an exciting time for investors in Japanese equities. The corporate
reforms and other structural
changes such as the spread of digitalisation currently unfolding in Japan are
all positive for the
economy and for equity markets. It is also encouraging that these developments
still have much
further to run. At the same time, reflecting a possible end to deflationary
pressures, the Bank of Japan
has just begun to raise interest rates, wages seem to be increasing and there
has been some pickup
in reported inflation. All this, plus reasonable market valuations, suggest
that the Japanese market's
recent strong run could well continue"
"We believe the Company is in capable hands and well positioned to capture
the opportunities offered by the
Japanese market. We look forward to another year of progress."
Nicholas Weindling and Miyako Urabe, Portfolio Managers, commented:
"The transformation underway in Japan has, in our view, only just begun. The
Japanese market has had a very strong run over the past 18 months, and this
combination of corporate governance reforms, structural transformation and
appealing valuations should help sustain and encourage investors' appetite for
Japan stocks. It will also generate many exciting investment opportunities,
regardless of the economic backdrop."
"We believe that our experienced team, based on the ground in Tokyo, means we
are ideally placed to
identify these opportunities and capitalise on them. There are many good
reasons for our optimism regarding the Japanese market, and hence the
long-term prospects of the portfolio's holdings. We are therefore confident of
the Company's ability to continue delivering capital growth, and
outperformance, to shareholders over the long term."
CHAIRMAN'S STATEMENT
I am pleased to present the Annual Report of our Company for the year ended
30th September 2024 and to note our significant outperformance. The Company
delivered a +24.2% total return on net asset value (in sterling terms), with
debt calculated at fair value, meaningfully outpacing the benchmark index
(TOPIX), which recorded a +10.3% return (also in sterling terms). The
Investment Manager's Report sets out the reasons for this outperformance, part
of which reflects their success in capturing the benefits of some of the
recent corporate reforms.
Japanese equity markets rose strongly during the financial year and both the
Nikkei 225 and the TOPIX, our Company's benchmark, finally both hit all-time
highs in July, almost 35 years after their previous peaks.
The most positive influence on Japanese equities over the past year has been
the authorities' ongoing efforts to promote corporate reform, which has
enhanced shareholder returns thanks to higher dividends, share buybacks and
better capital allocation. Not surprisingly this captured the attention of
foreign investors, who reduced their underweighting in Japanese stocks.
As the Report also notes, while three year returns still lag the benchmark, I
am delighted that the long-term returns, over ten years, now show an
annualised outperformance of 2.1%.
Since the end of the financial year, as of 9th December 2024, the Company's
net asset value has increased by 5.5%, while its share price has risen by
3.1%. In comparison, the TOPIX index has returned +2.6% over the same period.
The returns from the strong domestic market performance and our outperformance
were unfortunately reduced in sterling terms by the weakness in the yen which
declined by 5.1% vs sterling over the financial year. The policy of the
Company remains not to hedge the currency exposure.
The Investment Managers' Report below also discusses the investment rationale
behind recent portfolio activity and the outlook in more detail.
Combination with JPMorgan Japan Small Cap Growth & Income plc
Following the year-end, on 25th October 2024, the Company successfully
completed the combination with JPMorgan Japan Small Cap Growth & Income
plc ('JSGI'). The transaction was well received by shareholders and the wider
market, as both groups seemed to recognise the logic of creating a larger,
more liquid investment trust, managed by the same team in Tokyo. This
combination creates an investment trust with greater market presence and
greater liquidity.
Your Company post combination has net assets of approximately £1 billion,
giving it a leadership position within Japanese investment trusts, a testament
to the Company's ability to attract and retain substantial investor interest
in a competitive market. Post combination the Company will also benefit from a
new, highly competitive fee arrangement and the Ongoing Cost Ratio is expected
to be significantly lower, estimated to be around 0.62% for the period to 30th
September 2025, as compared with 0.73% for the period to 30th September 2024.
In line with best practice, the Board proposed and the shareholders approved
an amendment to the articles of association of the Company for a continuation
vote to be held every five years, starting with the annual general meeting in
2029.
The Company continues to offer the same unconstrained all-cap Japanese equity
strategy and to benefit from the expertise of its Tokyo-based portfolio
managers, Nicholas Weindling and Miyako Urabe.
The portfolio transition went smoothly and the portfolio continued to
outperform the benchmark during the transition period. I would like to extend
my sincere gratitude to JP Morgan Asset Management ('JPMAM'), especially our
investment management team, and all our advisors for their dedication and hard
work in bringing this combination to a successful and smooth outcome.
I am delighted to welcome our new shareholders from JSGI and to express deep
appreciation to our continuing shareholders for their unwavering support
throughout this transaction. The Prospectus for the transaction was sent to
you in September 2024 with a detailed explanation of the combination. You can
also access a copy on the Company's website at
https://am.jpmorgan.com/content/dam/jpm-am-aem/emea/gb/en/regulatory/investor-disclosuredocument/jfj-circular-and-prospectus-240919.pdf
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 gearing within the agreed limits
of 5% net cash to 20% geared in normal market conditions. As at
30th September 2024, gearing was equivalent to 10.5% (2023: 13.7%) of net
assets. At the time of writing this report, the gearing had increased to
14.0%.
As mentioned in the 2024 Half Year Report, it was decided not to renew the
loan with Mizuho Bank Ltd, and this was repaid by the Company. Along with the
short-term revolving facility of JPY 10 billion with Industrial and
Commercial Bank of China Limited, London Branch, the Company also has
long-term fixed rate debt in place. Further details are provided in the full
2024 Annual Report (available on the Company's website). The Company has, post
year-end, started using Contracts for Difference (CFDs) as an alternative
means of implementing gearing.
Revenues and Dividends
Income received during the year ended 30th September 2024 fell this year, with
earnings per share for the full year of 7.37p (2023: 7.46p). This small
decrease is a result of lower income received from portfolio companies and
from stock lending.
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 22nd January 2025, to pay a final
dividend of 6.75p per share (2023: 6.50p) on 12th February 2025 to
shareholders on the register at the close of business on 27th December 2024
(ex-dividend date 24th December 2024). This increase in dividend follows last
year's 4.8% increase.
As part of the combination with JSGI, we undertook to review JFJ's dividend
policy, including speaking with our major shareholders (many of whom were also
shareholders in JSGI). The Company's investment objective is to seek capital
growth from a portfolio of investment in Japanese companies. It invests
primarily in growth companies which often have relatively low dividend yields,
not least because they are likely to reinvest excess cash in their businesses
and/or buy back their shares rather than increase dividends. At present, the
Company pays out the majority of revenue available each year as a final
dividend. Having now completed its review of the Company's dividend policy,
the Board has concluded that the Company's dividend policy should remain
unchanged. The Board hopes to increase the dividend year on year, as has been
possible since 2020.
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 robust and disciplined investment process the team employs, and the
resultant strong long-term performance. Since 2020, this commitment has been
manifested in increased expenditure on marketing and a series of targeted
buybacks.
To this end, during the past financial year, a total of 7,680,000 shares (5.4%
of shares in issue) were repurchased (2023: 3,870,000 shares).
As at 30th September 2024, the discount was 10.2%, compared to the level of
8.8% at which it closed the previous year. Over the past financial year, the
discount ranged from 14.0% to a premium of 1.5% and the average discount was
9.0%. This compares with the previous financial year, when the discount ranged
from 1.2% to 11.3% and the average discount was 7.4%.
Since the end of the current review period, the Board has repurchased a
further 1,700,000 shares, and the discount stood at 13.4% as at 12th December
2024.
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
As detailed in the Investment Manager's ESG Report in the full 2024 Annual
Report, financially material ESG considerations are integrated into their
investment process. The Board shares the Investment Manager's view of the
importance of considering financially material ESG factors when making
investments for the long term, and the necessity of continued engagement with
investee companies over the duration of the investment.
Further information on JPMAM's ESG process and engagement activities is set
out in the ESG Report in the JPMAM 2023 Investment Stewardship Report, which
can be accessed at
https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/sustainable-investing/investmentstewardship-report.pdf
Change of Registrar
Following a competitive tender process, the Company transferred the management
of its share register from Equiniti Financial Services Limited to
Computershare Investor Services PLC ('Computershare'), with effect from 3rd
June 2024.
A notification letter from Computershare was sent to all registered
shareholders advising of this change. The letter included an invitation to
shareholders to create an online account which will provide access to the
details of their shareholdings and an opportunity to participate in the
Company's Dividend Reinvestment Plan (DRIP). Please visit
www.investorcentre.co.uk. for further information.
Board Composition and Appointment
The Board continues to manage its succession planning. As mentioned
previously, at the end of the Company's Annual General Meeting ('AGM') held in
January 2024, Christopher Samuel retired as Chairman, after serving the
Company for nine years, and I assumed the role of Chairman.
Sally Duckworth took over as Chair of the Audit & Risk Committee, my
previous role, from the conclusion of the 2024 AGM. As previously reported in
the Company's 2023 Annual Report, George Olcott, who is based in Japan, will
be retiring from the Board following the Annual General Meeting in January
2026 and I will be stepping down from the Board the following year in 2027.
The Board has started the recruitment process to seek to appoint a new
Non-Executive Director based in Japan. Further updates will be provided in due
course.
As previously announced, following the combination with JSGI, Thomas Walker,
previously a non-executive director of JSGI since 2019, was appointed as
a non-executive Director of the Company with effect from 25th October 2024.
More information on the Directors can be found in the full 2024 Annual Report.
The Board supports the annual re-election for all Directors, as recommended by
the AIC Code of Corporate Governance. In compliance with this, all Directors
will stand for appointment or re-appointment at the forthcoming AGM.
Board Diversity
The Board has long recognised the value and importance of diversity in the
boardroom. The recommendations of the FTSE Women Leaders Review, which form
part of the UK 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 has complied with these guidelines for some
years now - and that the Board currently has over 40% female representation.
More information showing the gender and ethnic composition of the Board is
shown in a table in the full 2024 Annual Report.
Annual General Meeting and Shareholder Contact
The Company's Annual General Meeting (AGM) will be held on Wednesday,
22nd January 2025 at 12.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP.
We 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 JPMAM 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 in the full 2024 Annual Report.
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 available in the full 2024 Annual Report.
Outlook
It is an exciting time for investors in Japanese equities. The corporate
reforms and other structural changes such as the spread of digitalisation
currently unfolding in Japan are all positive for the economy and for equity
markets. It is also encouraging that these developments still have much
further to run. At the same time, reflecting a possible end to deflationary
pressures, the Bank of Japan has just begun to raise interest rates, wages
seem to be increasing and there has been some pickup in reported inflation.
All this, plus reasonable market valuations, suggest that the Japanese
market's recent strong run could well continue, and the Investment Manager's
Report below covers this Outlook in more detail.
UK shareholders may have further cause for optimism in that the yen has now
fallen a long way and could well stabilise around these levels. It is however
also my duty to remind shareholders that, while we are optimistic about the
outlook for Japan and have a high level of confidence in both the Portfolio
Managers, there will likely be periods of underperformance.
All of us on the Board would like to extend our gratitude to our investment
management team for their dedication and expertise, which have been
instrumental in achieving this year's results. We believe the Company is in
capable hands and well positioned to capture the opportunities offered by the
Japanese market. We look forward to another year of progress.
Finally, on behalf of the Board, I would again like to thank you, our
shareholders, as ever, for your continued strong support.
Stephen Cohen
Chairman
INVESTMENT MANAGER'S REPORT
Performance
We are very pleased to report that the strong absolute and relative
performance we saw in the first half of the financial year continued into the
second half. For the year ended 30th September 2024, the Company's total
return NAV with debt at fair value was +24.2% in sterling terms, outpacing the
benchmark return of +10.3% by +13.9%, in sterling terms.
We focus on quality and growth stocks, yet the strong returns realised over
the past year were achieved during a period when Japanese value stocks in
general - unlike their US counterparts - outperformed the growth and quality
names we prefer for most of the period. We attribute this achievement to three
factors. Firstly, we increased our focus on companies embracing governance
change and improving the efficiency of their balance sheets. Secondly, the
last two months of the financial year did finally see a change in the style
environment away from value names, in favour of more growth-oriented stocks,
when the yen began to appreciate. Thirdly, ASICS, the specialist running shoe
manufacturer, made a significant contribution to returns over the period.
The robust returns registered over the past year have boosted the Company's
performance over the long term. The annualised NAV total return with debt at
fair value over the three year period was -4.4%, versus the benchmark return
of +2.9%. However, the long-term absolute and relative performance has
strengthened. In the ten years to end September 2024, the Company made an
annualised NAV total return of +10.5%, ahead of the benchmark return of +8.4%.
Performance attribution
Year ended 30th September 2024
% %
Contributions to total returns
Benchmark return 10.3
Stock selection 11.8
Currency -0.2
Gearing/Cash 2.4
Investment Manager contribution 14.0
Portfolio return(A) 24.3
Management fee and other expenses -0.7
Share Buy-Back 0.5
Other effects -0.2
Return on net asset value - with debt at par value(A) 24.1
Impact of fair value of debt 0.1
Return on net asset value - with debt at fair value(A) 24.2
Return on share price(A) 22.4
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 in the full 2024 Annual Report.
Economic and market background
The Japanese market has returned to the limelight over the past 18 months,
after a long period of being unloved and under-owned by international
investors. The Company's benchmark, the TOPIX, delivered a total return of
12.8% during calendar year 2023, and has continued to rise this year, reaching
a record high in July 2024. Japan's bellwether Nikkei 225 also hit a fresh
all-time high in the same month. Much of the inflows have apparently come from
global equity portfolio managers increasing their allocation to Japan. They
buy a relatively small number of the larger cap stocks so the market rally has
been quite focused in this area.
The main reason for these gains is global investors' positive reaction to
corporate governance reforms and shareholder friendly policies currently
underway in Japan. The authorities are encouraging businesses to improve the
transparency and independence of their boards, and to raise shareholder
returns by returning their large cash reserves to shareholders, in the form of
higher dividend payments and share buybacks. At the same time, shareholder
activism is increasing, and Japanese pension funds have been publicising their
voting positions on corporate actions - actions which enhance market
information for all participants.
Investors have also welcomed signs of improvement in Japan's domestic economy,
after years of stagnation and deflation. Most significantly, the spring wage
negotiations, known as the shunto, agreed a 5.3% wage increase, the highest in
33 years and substantially ahead of the rate of inflation, which is currently
running at 3.0% pa. This rise in real wages may boost consumer sentiment and
support domestic demand.
On the monetary policy front, the Bank of Japan (BoJ) has begun to raise
interest rates for the first time in 17 years. This is partly an effort to
stabilise the yen, as its depreciation is driving up the cost of essential
imports like energy and food, which, in turn, is eroding consumer confidence.
The BoJ has lifted rates twice since March 2024 and the key policy rate now
stands at 0.25%. However, monetary settings are still relatively loose, as the
central bank remains committed to bolstering liquidity and stimulating growth,
and this should be positive for the market in the near term.
The divergence between interest rates in Japan and the US and other major
economies remains significant even after the BoJ's recent hikes and the US
Federal Reserve's rate cuts, and this gap has seen the yen weaken dramatically
over the past two years. Although the yen strengthened somewhat since the
BoJ's second rate hike in late July this year, which was followed weeks later
by a larger than expected rate cut by the Fed, it remains near multi-year lows
versus the USD. Japanese exporters such as automakers and industrials have
benefited accordingly, although the yen's partial recovery in September saw
market leadership switch away from exporters, towards other areas of the
market, including domestic sectors such as retail and services.
We believe that private equity investors are increasingly active in Japanese
businesses. One important development that may be encouraging this trend has
been the establishment last year of Japan's takeover code, which is intended
to spur industry consolidation and boost competitiveness. The code also
ensures the market is now informed of all such bids, which helps draw
attention to undervalued companies and could foster competition for assets
amongst competing bidders.
Two of the Company's portfolio holdings have been impacted by these
developments. One holding, Benefit One, a provider of staffing and employment
services and benefits, was subject to a hostile takeover by a very traditional
life insurance Japanese company, a highly unusual occurrence in Japan. Of even
greater significance, another holding, Seven & I Holdings, the world's
largest operator of convenience stores, is currently the subject of a bid from
its global rival, Canada's Alimentation Couche-Tard, which operates Circle K
convenience stores. We believe this transaction will have long-lasting
consequences. We have never seen inbound M&A on this scale. The bid means
that we can now start to consider other possible Japanese candidates for
M&A activity by overseas investors, particularly in cases where the
potential target is trading at a discount to its global peers, as is the case
with many Japanese companies.
Japanese equity markets experienced a bout of volatility in August, sparked by
the BoJ's policy action and associated hawkish commentary on the potential for
further hikes, combined with a run of weaker than expected US economic data.
The fall was exacerbated by a partial unwind of the yen carry trade, in which
investors borrow cheap yen to buy overseas assets. The market has since
regained most of those losses.
On the political front, in September Shigeru Ishiba became Prime Minister
following the resignation of Mr Kishida, whose popularity had fallen
precipitously. Kishida's demise was partly the result of a scandal in the
ruling Liberal Democratic Party ('LDP'), as well as growing dissatisfaction
within the electorate about deteriorating living standards, as yen weakness
has raised the price of key imports such as food and energy. However, this
change of leadership is unlikely to have a significant impact on policy
direction. Although the LDP suffered significant losses in the October
election, we still expect Mr. Ishiba to maintain all the key policies of his
predecessor.
Elsewhere in the region, the Chinese authorities, in response to economic
weakness and deflation, announced a major stimulus package in September, which
sparked a significant rally in the Chinese market. We hold some companies that
should benefit from an uptick in Chinese consumption, including ASICS, Fast
Retailing, owner of the Uniqlo clothing brand and Shimano, a supplier of
bicycle parts, amongst others. However, generally we remain cautious about
companies that compete against local Chinese businesses.
Portfolio Themes
The portfolio is constructed entirely on a stock-by-stock basis as we seek out
the best, most attractive companies, regardless of the economic cycle.
Nonetheless, many portfolio holdings offer exposure to key structural themes
that should drive growth over the medium term. These companies are also
well-placed to take advantage of recent developments in the corporate
governance landscape. While they are outstanding businesses poised to compound
earnings growth for many years, they often have sub-optimal capital allocation
policies which have, historically, encouraged high cash balances and cross
shareholdings. Unwinding these creates scope for significant improvements in
shareholder returns.
Another theme is digitisation and the adoption of technological innovation.
Japan remains well behind most other advanced economies in areas such as
online shopping, digital services and cloud computing, and this leaves 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% which remains much lower than in China, the UK, South Korea or
the US. In addition, many companies across the economy still use inefficient
internally developed software systems which will need to change as the
developers of these bespoke systems retire. OBIC, a leading provider of IT
services for small and mid-sized companies, is one business benefiting from
the standardisation of business software. It 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 to encourage it to improve its capital
allocation.
De-globalisation is another trend gathering momentum. The pandemic, and
subsequent events such as widespread supply chain shortages, the conflict in
Ukraine and simmering Sino/US geo-political tensions, have increased
companies' desire to move production nearer to end customers, including to
Japan. For example, TSMC, the Taiwanese semiconductor producer, is building
plants in Japan. Our portfolio holding in Japan Material, which installs and
services infrastructure for semiconductor factories, is benefitting. 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 specialists, several of
which are held in our portfolio, including Keyence. This long-held Premium
rated company not only has a dominant market share and high profitability, but
also significant potential for improved shareholder returns.
Japan is home to many global leading consumer brands such as Fast Retailing
and computer games companies such as Sony and Nintendo. As in other sectors,
we can find companies that combine long-term structural growth with
significant potential from improved governance. Nintendo, which owns some of
the sector's most valuable 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 commands more than 75% of the market in bike parts, will benefit from
the surge in popularity of cycling as an alternative to driving. The company
also holds close to a quarter of its market cap in net cash.
Japan also hosts many world-leading hardware technology companies, some of
which are dominant in their niche markets. One such example is Quality-rated
chip tester Advantest. Chip testing used to be a fragmented market with many
competitors, but it has become a duopoly over time, with Advantest winning
considerable market share. One of its key customers is Nvidia, the US producer
of the most advanced chips. Similarly, Premium-rated and long held HOYA is the
leading global manufacturer of glass substrate for hard disk drives.
While exposure to key structural themes underpins the investment case for many
portfolio holdings, other portfolio companies have very specific drivers.
Secom is Japan's number one security company. Following a change in management
last year, we saw the company undertake its first share buyback for over 20
years, accompanied by a price hike. Elsewhere, there are substantial
opportunities in small stocks which generally have low levels of sell-side
(investment bank analyst) coverage. One such example within the medical
technology field is Osaka Soda, which is the leading global supplier of a key
ingredient in anti-obesity drugs, yet it is has a low level of analyst
coverage. We expect Osaka Soda's profits to grow rapidly due to the huge
popularity of these drugs. This company is also making improvements to its
balance sheet structure, to improve capital efficiency. It has a strong net
cash position, so it is likely to deliver the same improvements in shareholder
returns we are seeing across the market.
Significant contributors and detractors to performance
The most significant contributors to returns over the financial year ended
30th September 2024 included several stocks we rate as Quality and one Premium
rated name. The Quality-rated names included ASICS, a leading brand of running
shoes. This business experienced a difficult period between 2016 and 2020,
when it attempted to compete with Nike and Adidas in the market for casual
trainers. However, more recently it has delivered strong results following its
decision to focus on its core, specialist, running shoe product. Another key
contributor, Hitachi, is a Quality rated conglomerate that is a major supplier
of cabling for power grids, as well as other businesses. The company has
dramatically changed its business portfolio over the last few years and
several of its businesses are global market leaders in their respective
fields. Its results remain strong. The shares of Tokio Marine, a Quality-rated
non-life insurer, benefited after management announced a plan to speed up the
sale of its shareholdings in other companies and distribute the proceeds to
shareholders. Performance was also enhanced by gains in Recruit, a provider of
human resources technology and other business solutions. This Premium-rated
business continued to do well, thanks in large part to its ownership of the
world's largest job search website. The company also announced a Y600 billion
(US$4 billion) buyback programme, which will boost shareholder returns. Itochu
is a Standard rated import/export conglomerate trading in a variety of goods.
Like other significant contributors to performance, its share price has been
supported over the past year by continued strong results and improving
shareholder returns.
The main detractors from performance over the period included Nakanishi,
Japan's leading dental equipment producer. This Quality-rated business
recently acquired DCI, a maker of dental chairs, but DCI's performance since
acquisition has been weaker than expected. Japan Material is both an installer
of infrastructure for semiconductor factories, and a provider of after sales
servicing. This makes the company a convenient, 'one-stop shop' for its
clientele. The company is Quality-rated but earnings growth has slowed as the
business invests for the future. OBIC, a Premium-rated IT services business,
saw its shares de-rate over the year, unjustifiably in our view, as we see no
deterioration in the investment case and management continues to execute well.
Daikin, which produces air conditioners, is Quality-rated. However, demand has
been weaker than expected in China and the United States. Additionally, the
European take-up of heat pumps has been slower than forecast. This recent
disappointing performance prompted us to close this position. Our decision not
to own Standard-rated Mitsubishi Heavy Industries also detracted from returns.
The shares performed well following the Japanese government's announcement of
plans to increase defence spending, one of the company's key exposures.
Portfolio activity
Corporate governance reforms, including business re-organisation, are
increasing the number of companies we may, in future, deem to be Premium- or
Quality-rated, and this has created many more opportunities for us to invest
in the kind of businesses we favour. Over the past year we added several new
stocks to the portfolio. The most significant acquisitions included:
- Advantest - This Quality-rated business is the global leader in
semiconductor chip testing. Demand from its key customer, Nvidia, and other
major clients, is driving earnings growth.
- Softbank Group - The group listed its Quality-rated subsidiary ARM, a
chipmaker, in the US last year. This has greatly improved visibility regarding
the value of the whole group, which in our assessment is trading at a wide,
and appealing, discount to NAV.
- Kao - During the past year, this leading, Quality-rated maker of
consumer goods announced a plan to improve profitability, including focusing
on a smaller number of brands. We believe this plan is likely to be effective
in lifting performance.
- Suzuki Motor - This Standard-rated business trades at a big discount to
the value of its stake in Maruti Suzuki, India's leading car manufacturer.
Furthermore, Suzuki has a very strong balance sheet, and we believe there is
potential to substantially improve capital allocation.
- Denso - Denso is one of the world's top auto component makers, focused
on hybrid and electric vehicles, as well as advanced driving systems. The
company is significantly reducing its cross-shareholdings and improving its
capital allocation. We upgraded the strategic classification to Quality and
bought the shares at an attractive valuation.
In the last six months we also established new positions in Kinden, an
electrical engineering company, Lifedrink, which bottles soft drinks to be
sold as own-label products, Toei Animation, a creator of anime content,
Nichias, a supplier of thermal insulation, whose new president is focused on
profitability, and Yamato Kogyo, a steelmaker. All these acquisitions were
motivated by the prospect of improving shareholder returns, attractive
valuations and appealing growth characteristics.
These purchases were funded by the sale of several holdings including Daikin,
mentioned above, and Nippon Telegraph and Telephone. We sold this
Standard-rated stock due to worsening competitive dynamics in the telecom
industry. In the last six months we also exited Zozo, an internet retailer,
Ibiden, which makes electronic and ceramic parts, and several other names due
to deterioration in their investment cases, better opportunities elsewhere, or
high valuations. We also trimmed a position in Sony, a Quality-rated gaming
and consumer electronics company, to fund the purchase of Advantest. We took
some profits on ASICS and Recruit after their strong share price rises.
It is worth noting that, as highlighted in the Chairman's Statement, since the
financial year end, we introduced CFDs into the portfolio. This move aims to
enhance our gearing strategy by making it more efficient and cost-effective.
Portfolio Characteristics
30th September 2024 30th September 2023
JFJ Index JFJ Index
Forward Price to Earning Ratio(1)
(12 months forward) 21x 14x 20x 14x
Return on Equity(1) 12.0% 9.0% 12.4% 9.0%
Operating Margin(1) 18.0% 13.0% 20.0% 13.0%
Active Share(1) 86.0% 92.0%
Gearing 10.5% 13.7%
(12-month (12-month
average 12.3%) average 12.7%)
Turnover (annualised)(1) 32.0% 22.0%
(1) Term is defined in the Glossary of Terms and Alternative
Performance Measures in the full 2024 Annual Report. The figures above are
calculated on the Company's portfolio of investments.
On 24th October 2024, the Company's combination with JSGI was concluded,
together with an agreed transfer of assets. This process went very smoothly.
There were 25 stocks which were common to both companies and we continue to
hold these within JFJ adding an additional 7 stocks from JSGI.
Outlook
The transformation underway in Japan has, in our view, only just begun. The
gains to be realised from corporate governance reforms and other structural
changes will be much more significant than those we have seen to date. The
most important positive influence on the outlook for Japanese equities remains
the ongoing reform of the corporate sector. With the encouragement of the
government, regulators and shareholders, Japanese companies are adopting ever
higher standards of independence and transparency and implementing best
practices in their capital allocation decisions. Shareholder returns are
increasing due to the resultant share buybacks and higher dividends, and we
expect dividend payout ratios to continue to rise. These developments have the
potential to lift the whole market, including the Company's holdings, to a
higher valuation.
But there are several other reasons to be positive about the outlook for
Japanese equities. For one, Japan is at a very early stage in the digitisation
process compared to the rest of the world, and this, combined with the trend
towards industrial automation, has the potential to help drive significant
growth and/or productivity gains over the medium term. Deglobalisation, the
transition to renewable energy and developments in medical technology are also
contributing to rapid structural change - an ideal environment for the
dynamic, quality businesses we want to own.
Japan's labour market is also changing. Increasing wages is one indicator of
the extremely tight conditions in this market, and the supply of labour is set
to contract further as the country's aging workforce retires. However, this
situation has one major potential upside. Traditionally, Japan's labour market
has been characterised by a rigid mentality. But there are now signs that the
high demand for labour is making workers bolder in their employment choices,
with many more inclined to change jobs in pursuit of higher income. If this
trend gains further traction, the resulting improvement in labour market
flexibility should have a favourable effect on overall productivity and the
long-term future of Japan's corporate sector.
Increased demand from foreign investors also looks set to provide further
support for the market. Many global investors are underweight Japanese
equities. However, they are beginning to recognise the opportunities on offer
in this market, especially since valuations, while not cheap, are still
relatively attractive. At the end of September 2024, the market was priced at
14x earnings on a forward price to earnings basis and at 1.5x book value (in
trailing price to book terms). With inflation now positive, and an enhanced
Nippon Investment Savings Account (NISA) providing a greater incentive to
invest, there are also signs that domestic retail investors are taking more
interest in their home market.
Now that the BoJ has begun to raise rates, the yen has risen slightly from its
mid-year lows of around 160 yen to the US dollar, and 200 yen to the pound.
While the yen is still undoubtedly weak on an historical basis, and therefore
potentially attractive, the recent victory by Donald Trump in the
US election may yet cause the US dollar to strengthen further, as tariffs on
imports may mean US inflation is higher and interest rates remain relatively
elevated.
So, even though the Japanese market has had a very strong run over the past 18
months, this combination of corporate governance reforms, structural
transformation and appealing valuations should help sustain and encourage
investors' appetite for Japan stocks. It will also generate many exciting
investment opportunities, regardless of the economic backdrop.
We believe that our experienced team, based on the ground in Tokyo, means we
are ideally placed to identify these opportunities, and capitalise on them.
Japan is one of the world's three largest equity markets. It is very deep,
broad and liquid. Yet, large areas of the market have relatively low levels of
sell-side analyst coverage. This leaves the way open for locally based
investors such as us to identify potential winners that most other investors
simply miss. Furthermore, in addition to our extensive Tokyo-based team, we
also benefit from our global team of investment professionals, who help us
identify new trends and opportunities, as well as confirm investment themes
and competitive positioning.
In summary, there are many good reasons for our optimism regarding the
Japanese market, and hence the long-term prospects of the portfolio's
holdings. We are therefore confident of the Company's ability to continue
delivering capital growth, and outperformance, to shareholders over the long
term.
Thank you for your ongoing support.
Nicholas Weindling
Miyako Urabe
Investment Managers
PRINCIPAL AND EMERGING RISKS
The Directors confirm that they have carried out a robust assessment of the
principal and emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or liquidity. With
the assistance of the Manager, the Audit & Risk 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 Board, via the Audit
& Risk Committee, to put in place procedures to identify and manage
emerging risks. Emerging risks, which are not deemed to represent an immediate
threat, are considered by Audit & Risk Committee as they come into view
and are incorporated into the existing review of the Company's risk register.
The key principal risks identified are summarised below. The Board does not
believe that there are any new emerging risks facing the Company at present.
Movement in risk
status in year to
Principal risk Description Mitigating activities 30th September 2024
Market Volatility and External Factors Equities are sensitive to external factors, both national and global, Manager employs a strategy of portfolio diversification and continuously ã
including inter alia geopolitical tensions, economic conditions, inflation, monitors these external influences. The Manager reviews portfolio exposure and
fiscal and monetary policies, regulatory shifts, pandemics, conflicts and makes necessary adjustments to align with market conditions. The Board
climate-related events. regularly reviews reports from the Manager on market conditions, outlook, and
portfolio risk assessments. It ensures that the Manager's portfolio
positioning aligns with the agreed strategy, particularly concerning risks.
Poor Strategy Selection Poor strategy selection may result in suboptimal portfolio performance, The Manager conducts stress-testing and detailed analysis of proposed â
misalignment with shareholder expectations, and an inability to meet the strategies to ensure their long-term viability. The portfolio is regularly
Company's objectives. It may expose the Company to inappropriate levels of benchmarked against peers and indices to assess performance, and the Manager
risk, underperformance against benchmarks, reduced income, and erosion of monitors demand for competing strategies. The strategy is continuously adapted
capital. in response to market trends and macroeconomic conditions. The Board
periodically reviews the investment strategy and engages in detailed
discussions with the Manager to ensure alignment with objectives. It also
ensures transparent communication of strategy rationale and goals to
shareholders.
Poor Execution of Strategy Ineffective implementation of the investment strategy may lead to poor The Manager employs an experienced investment management team with expertise â
performance, misalignment with objectives, and loss of shareholder confidence. in Japanese growth stocks. The Manager carefully monitors investment
Execution issues can stem from poor stock selection, failure to adapt to processes, the success of investment decisions, and performance analytics. The
market conditions, or operational inefficiencies. Board regularly reviews portfolio activity and performance, supported by
detailed analytics, to ensure effective strategy execution.
Discount Widening and Lack of Investor Demand A widening discount between the Company's NAV and its share price, caused by The Manager meets with the Company's major shareholders and provides an ã
lack of interest in the asset class, lack of interest in the strategy, poor extensive range of investor materials. Broker feedback is obtained to
performance or poor communications. Can lead to pressure from value player understand shareholder views. Nationwide presentations are conducted to raise
shareholders for action or cause other large shareholders to disinvest. the Company's profile and attract new investors. The Board meets with major
shareholders to address concerns and gather insights, sets buyback policies,
and engages with the Manager to discuss potential changes to strategy, the
portfolio management team, and the investment process. Marketing practices and
plans are regularly reviewed to ensure robust engagement with investors.
Liquidity Risks Significant inflows or outflows from OEICs and other open-ended funds within The Manager actively monitors the liquidity of the strategy and conducts ä
the strategy may affect the Investment Manager's ability to maintain regular capacity reviews to manage inflows and outflows smoothly. The Manager
consistent investment across the strategy, leading to liquidity challenges or ensures alignment with liquidity thresholds and maintains an appropriate
influencing the share price of cross-held assets. allocation to liquid assets. The Board receives regular updates on assets
under management (AUM) and liquidity in Board and Audit Committee packs.
Gearing and Loan Covenants Risks Gearing amplifies both gains and losses, increasing financial risk during The Manager makes investment decisions within the gearing parameters set by â
market downturns. Breaching loan covenants, such as maintaining specific the Board and uses robust monitoring systems, including gearing summaries and
gearing limits or asset coverage ratios, could result in penalties, forced monthly Investment Risk Governance (IRG) reports for Board review. A mix of
repayment, or reputational damage. Using CFDs introduces risks such as lenders and financing mechanisms, such as loans and contracts for difference
amplified losses due to leverage, counterparty default risks since CFDs rely (CFDs), is utilised to reduce dependency and improve financial flexibility.
on the financial stability of brokers, and potential liquidity challenges The Manager regularly stress-tests the portfolio to assess covenant compliance
during market stress, which can make it difficult to close or adjust under adverse conditions. The Board reviews gearing levels, covenant
positions. compliance, and associated risks at each meeting, and ensures all loan
agreements and covenants are reviewed by lawyers before approval.
Change in Portfolio Manager A change in Portfolio Manager may lead to changes in the Company's portfolio Manager to ensure there is a contingency plan for sudden departures or â
composition, risk profile, and overall investment approach, potentially illnesses of key personnel to ensure smooth operations. The Company has
affecting returns. The market's perception of the Portfolio Manager change broader strengths, such as the wider investment team, investment philosophy,
could influence the Company's valuation. track record, and governance, to reduce dependence on individual leaders.
Additionally, the Board to ensure a Tokyo-based director should maintain a
close relationship with the lead portfolio manager through regular meetings,
while the Chairman stays in touch with the Head of the JPMAM Tokyo
Investment team.
Administrative, Regulatory, Legal, and Accounting Risks Non-compliance with regulations, administrative errors, accounting The Manager maintains up-to-date expertise on regulatory requirements through â
inaccuracies, or legal challenges could disrupt operations and damage investor regular attendance at industry forums and close links with the Association of
confidence. Investment Companies (AIC). Manager reviews third-party service providers to
ensure compliance with security and governance standards. The Board oversees a
robust compliance framework and performs annual reviews of audit and
compliance functions, staying informed of regulatory and legal developments to
ensure proactive oversight of the Manager's practices.
Cybercrime and Data Security Risks The Manager is exposed to cyberattacks, including hacking, phishing, malware, The Manager has an Information Security Program in place to safeguard client â
and DDoS attacks, which may compromise sensitive data or disrupt operations. and company data. Regular penetration testing, system updates, and staff
training on cybersecurity risks are conducted. A comprehensive incident
response plan is maintained to minimise the impact of cyberattacks. The Board
receives regular updates on the Manager's cybersecurity strategy and receives
annual attestation from key third-party service providers, ensuring
cybersecurity risks and mitigation strategies are part of the risk management
framework.
Natural Disasters and Climate Change Risks Natural disasters such as earthquakes, typhoons, and climate-related events The Manager provides an annual update to the Board on Business Continuity â
can disrupt operations at portfolio companies, damage infrastructure, or halt Plans (BCPs) and the approach to those of critical service providers. BCPs are
production, leading to reduced profitability or insolvencies. The Company regularly tested and applied, including split teams, relocation strategies,
itself may also face operational challenges during such events. and third-party risk management. Discussions with investee companies ensure
preparedness for disruptions. The Board monitors climate-related risks in the
portfolio and ensures the Manager adapts strategies to align with evolving
regulations and market conditions. The resilience of the Company's operations
to natural disaster risks is assessed as part of the annual Internal Audit
meeting in Japan.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES.
Details of the Investment Management Agreement are set out in the Directors'
Report in the full 2024 Annual Report. The management fee payable to the
Manager for the year was £4,726,000 (2023: £4,498,000) of which £nil (2023:
£nil) was outstanding at the year end.
Included in administration expenses in note 6 in the full 2024 Annual Report
are safe custody fees amounting to £87,000 (2023: £104,000) payable to
JPMorgan Chase Bank, N.A., of which £23,000 (2023: £36,000) was outstanding
at the year end.
The Manager may carry out some of its dealing transactions through group
subsidiaries. These transactions are carried out at arm's length. The
commission payable to JPMorgan Securities for the year was £nil (2023:
£2,000) of which £nil (2023: £nil) was outstanding at the year end.
Handling charges on dealing transactions amounting to £9,000 (2023: £2,000)
were payable to JPMorgan Chase Bank N.A. during the year of which £1,000
(2023: £1,000) was outstanding at the year end.
At the year end, total cash of £23,497,000 (2023: £2,141,000) was held with
JPMorgan Chase Bank N.A. A net amount of interest of £2,000 (2023: £2,000)
was receivable by the Company during the year from JPMorgan Chase Bank N.A of
which £nil (2023: £nil) was outstanding at the year end.
Stock lending income amounting to £363,000 (2023: £524,000) was receivable
by the Company during the year. Commissions payable to the lending agent,
JPMorgan Chase Bank, N.A., in respect of such transactions amounted to
£40,000 (2023: £58,000).
Full details of Directors' remuneration and shareholdings can be found in the
full 2024 Annual Report and in note 6 in the full 2024 Annual Report.
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 in the 2024 Annual
Report 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.
For and on behalf of the Board
Stephen Cohen
Chairman
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30th September 2024
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on total investments held at fair value
through profit or loss(1) - 160,568 160,568 - 33,592 33,592
Net foreign currency gains(2) - 5,954 5,954 - 12,918 12,918
Income from investments 13,664 100 13,764 14,180 135 14,315
Other interest receivable and similar income 365 - 365 526 - 526
Gross return 14,029 166,622 180,651 14,706 46,645 61,351
Management fee (473) (4,253) (4,726) (450) (4,048) (4,498)
Other administrative expenses (1,225) - (1,225) (1,276) - (1,276)
Net return before finance costs and taxation 12,331 162,369 174,700 12,980 42,597 55,577
Finance costs (159) (1,430) (1,589) (134) (1,202) (1,336)
Net return before taxation 12,172 160,939 173,111 12,846 41,395 54,241
Taxation (1,368) (5) (1,373) (1,418) - (1,418)
Net return after taxation 10,804 160,934 171,738 11,428 41,395 52,823
Return per share 7.37p 109.82p 117.19p 7.46p 27.03p 34.49p
(1) Includes foreign currency gains or losses on investments.
(2) 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 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 2022 40,312 8,650 166,791 496,089 18,532 730,374
Repurchase of shares into Treasury - - - (18,180) - (18,180)
Net return after taxation - - - 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
Repurchase of shares into Treasury - - - (38,949) - (38,949)
Net return after taxation - - - 160,934 10,804 171,738
Dividend paid in the year (note 2) - - - - (9,657) (9,657)
At 30th September 2024 40,312 8,650 166,791 641,289 21,561 878,603
(1) See footnote to note 16 in the full 2024 Annual Report.
STATEMENT OF FINANCIAL POSITION
At 30th September 2024
2024 2023(1)
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss(1) 881,405 781,438
Investments on loan(1) 89,022 77,851
Total investments held at fair value through profit or loss 970,427 859,289
Current assets
Debtors 5,422 12,967
Cash at bank 23,497 2,141
28,919 15,108
Current liabilities
Creditors: amounts falling due within one year (53,269) (47,867)
Net current liabilities (24,350) (32,759)
Total assets less current liabilities 946,077 826,530
Creditors: amounts falling due after more than one year (67,474) (71,059)
Net assets 878,603 755,471
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 641,289 519,304
Revenue reserve 21,561 20,414
Total equity shareholders' funds 878,603 755,471
Net asset value per share 613.8p 500.9p
(1) Prior year comparatives have been restated as explained further in
note 1(a).
STATEMENT OF CASH FLOWS
For the year ended 30th September 2024
2024 2023
£'000 £'000
Cash flows from operating activities
Net profit before finance costs and taxation 174,700 55,577
Adjustment for:
Net gains on total investments held at fair value through profit or loss (160,568) (33,592)
Net foreign currency gains (5,954) (12,918)
Dividend income (13,764) (14,315)
Interest income (2) (2)
Realised gain/(loss) on foreign exchange transactions 466 (695)
Decrease in other debtors 1 -
Increase in accrued expenses 65 77
Net cash outflow from operations before dividends and interest (5,056) (5,868)
Dividends received 12,167 12,885
Interest received 2 2
Net cash inflow from operating activities 7,113 7,019
Purchases of investments (293,845) (190,000)
Sales of investments 341,969 183,372
Net cash inflow/(outflow) from investing activities 48,124 (6,628)
Dividends paid (9,657) (9,546)
Repurchase of shares into Treasury (38,393) (18,180)
Repayment of bank loan (26,023) (9,225)
Drawdown of bank loan 41,637 12,014
Interest paid (1,402) (1,287)
Net cash outflow from financing activities (33,838) (26,224)
Increase/(decrease) in cash and cash equivalents 21,399 (25,833)
Cash and cash equivalents at start of year 2,141 27,974
Exchange movements (43) -
Cash and cash equivalents at end of year 23,497 2,141
Cash and cash equivalents consist of:
Cash at bank 23,497 2,141
Total 23,497 2,141
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30th September 2024
1. Accounting policies
(a) Basis of preparation
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 policies applied in these financial statements are consistent with those
applied in the preceding year.
The investment disclosures in the Statement of Financial Position previously
included the value of Investments on loan within the value of Investments held
at fair value through profit or loss are £89,022,000 (2023: £77,851,000). In
the current year, the value of Investments on loan has been disclosed
separately and the prior year comparatives restated on the same basis. These
changes in presentation have no impact on the Company's net assets or
Statement of Comprehensive Income or the Cash Flows.
Going Concern
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 December 2025 which
is at least 12 months from the date of approval of these Financial Statements.
In forming this opinion, the Directors have considered direct and indirect
impact of the ongoing conflict between Ukraine and Russia and the Middle East
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. The disclosures on long term
viability and going concern in the full 2024 Annual Report.
In preparing these financial statements the Directors have considered the
impact of climate change risk as a principal risk as set out in the 2024
Annual Report 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.
2. Dividends
(a) Dividends paid and proposed
2024 2023
Pence £'000 Pence £'000
Dividends paid
Final dividend in respect of prior year 6.50 9,657 6.20 9,546
Dividend proposed
Final dividend proposed in respect of current year 6.75 11,125 6.50 9,804
All dividends paid and proposed in the year have been funded from the revenue
reserve.
The final dividend proposed in respect of the year ended 30th September 2023
amounted to £9,804,000. However, the amount paid amounted to £9,657,000 due
to ordinary shares repurchased after the balance sheet date but prior to the
record date.
The dividend proposed in respect of the year ended 30th September 2024 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 2025.
The amount payable reflects the enlarged ordinary shares in issue following
the Combination with JSGI, post year end, and may change if ordinary shares
are repurchased or issued up until the dividend's record date.
(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 dividends
declared in respect of the financial year, shown below.
2024 2023
Pence £'000 Pence £'000
Final dividend proposed 6.75 11,125 6.50 9,804
The revenue available for distribution by way of dividend for the year is
£10,804,000 (2023: £11,428,000). The revenue reserve after payment of the
final dividend will amount to £10,436,000 (2023: £10,610,000).
3. Return per share
The Revenue, Capital and Total return shown below, is the Net return after
taxation in the Statement of Comprehensive Income in the full 2024 Annual
Report.
2024 2023
£'000 £'000
Revenue return 10,804 11,428
Capital return 160,934 41,395
Total return 171,738 52,823
Weighted average number of shares in issue during the year 146,544,521 153,121,747
Revenue return per share 7.37p 7.46p
Capital return per share 109.82p 27.03p
Total return per share 117.19p 34.49p
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 143,152,089 (2023: 150,832,089) Ordinary shares in issue at the year-end
(excluding Treasury shares).
2024 2023
Net asset value attributable Net asset value attributable
£'000 pence £'000 pence
Net asset value - debt at par 878,603 613.8 755,471 500.9
Add: amortised cost of ¥13 billion senior secured loan notes 67,474 47.1 71,059 47.1
Less: Fair value of ¥13 billion senior secured
loan notes (59,622) (41.7) (65,128) (43.2)
Net asset value - debt at fair value 886,455 619.2 761,402 504.8
Status of results announcement
2024 Financial Information
The figures and financial information for 2024 are extracted from the Annual
Report and Financial Statements for the year ended 30th September 2024 and do
not constitute the statutory accounts for that 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 2024 Annual Report will be
delivered to the Register of Companies in due course.
2023 Financial Information
The figures and financial information for 2023 are extracted from the
published 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 have 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.
JPMORGAN FUNDS LIMITED
13th December 2024
For further information, please contact:
Priyanka Vijay Anand
For and on behalf of
JPMorgan Funds Limited
Telephone: 0800 20 40 20 or or +44 1268 44 44 70
E-mail: invtrusts.cosec@jpmorgan.com
ENDS
A copy of the 2024 Annual Report will shortly be submitted to the FCA's
National Storage Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
The 2024Annual Report will shortly be available 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 in formation can also be found.
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