JPMorgan Japanese IT JFJ Annual Financial Report

  JPMorgan Japanese IT (JFJ) - Annual Financial Report

RNS Number : 0841R
JPMorgan Japanese Inv. Trust PLC
14 November 2012







       The Directors of JPMorgan Japanese Investment Trust plc announce

        the Company's results for the year ended 30^th September 2012.


Chairman's Statement

It is a year since I wrote about the devastating effects and resulting
challenges of the terrible earthquake and tsunami in Eastern Japan that
occurred in March 2011. The Japanese people have continued to work hard to
rebuild and re-establish those businesses and communities which were severely
affected. Progress has been extremely encouraging and reflects the ability of
Japanese society to cooperate for the good of the country as a whole.

Later in this report the Investment Manager details some of the political and
macroeconomic challenges ahead of which shareholders need to be aware. Against
this backdrop however, the Board and Investment Manager continue to believe
that investment opportunities remain in Japan.

Investment Performance

In the year to 30th September 2012, although the Company saw a decline in net
assets of 2.1% in sterling terms, the portfolio did outperform by 3.2%
compared with the Tokyo Stock Exchange First Section (TOPIX) Index (our
benchmark), which declined by 5.3%. The returns are calculated on a total
return basis in sterling terms and were impacted by the movement in the
yen/sterling rate from yen 120.1 at the beginning of the year to yen 125.6 at
its conclusion.

The share price of your Company declined by 5.4% during the year assuming the
reinvestment of the dividend, virtually in line with the benchmark. This
movement in share price reflected both the decline in net assets and the
increase in the level of the discount of the share price against the net asset
value per share from 14.3% to 17.5%.

Revenue and Dividends

The Company's revenue position has continued to strengthen with earnings per
share for the full year rising to 4.1p (2011: 3.49p). The Board proposes,
subject to shareholders' approval at the Annual General Meeting, to pay a
final dividend of 3.65p per share (2011: 3.3p) on 21st December 2012 to
shareholders on the register at the close of business on 30th November 2012
(ex-dividend date 28th November 2012). This will be an increase of 10.6%. As
previously explained, the dividend streams from Japan depend on the
construction of the portfolio at any particular point in time and this year's
dividend level is therefore not indicative of future dividend payments.
However, your Board has noted that many of the companies in which the
portfolio is invested are becoming more progressive in their dividend


The Board of Directors sets the overall strategic gearing policy and
guidelines, reviewing these at each meeting. The Investment Manager then
manages the gearing within these agreed levels. On 30th September 2012, the
Company had a gearing level of 7%. The management of gearing has been active
during the year with the level having ranged between a geared position of 9%
and a net cash position of 2% and the level of gearing at the end of the
financial year reflected the confidence of the Investment Manager in the
individual companies held in the portfolio.

Investment Manager

The Company's objective is to provide shareholders with capital growth from a
portfolio of investments in Japanese companies and, in spite of a negative
return overall in the latest year, your Investment Manager did achieve
outperformance against our benchmark, principally through good stock selection
and sector allocation. These results can be seen from the performance
attribution data shown in the annual report.

Board of Directors

Andrew Fleming and Keith Percy are retiring by rotation and, being eligible,
are seeking reappointment at this year's Annual General Meeting. Having served
as Directors for more than nine years, David Pearson and I also retire and
will seek reappointment. The Board does not believe that length of service in
itself should disqualify a Director from seeking reappointment and, in
proposing our reappointment, it has taken into account the ongoing
requirements of the UK Corporate Governance Code, including the need to
refresh the Board and its Committees. Andrew, Keith and David bring a wealth
of experience to the Board and I have no hesitation in recommending their

The Directors' fees have remained unchanged for two years and it has therefore
been decided to increase them by £2,500 per Director per annum. This results
in fees per annum of £32,500 for me as Chairman, £27,500 for the Chairman of
the Audit Committee and £22,500 for each other Director.

Authority to Repurchase the Company's Shares

At last year's Annual General Meeting, shareholders granted the Directors'
authority to repurchase up to 14.99% of the Company's shares but the Company
did not use this authority during the year (2011: 140,000 shares repurchased).
The Directors continue to believe, however, that the power to repurchase
shares is of ongoing benefit to shareholders and therefore propose that the
authority be renewed for a further period. Share repurchases continue to be a
useful tool for decreasing discount volatility and this approach will be used
when considered to be appropriate by the Board.

Annual General Meeting

This year's Annual General Meeting will be held on 20th December 2012 at 2.00
p.m. at Holborn Bars, 138-142 Holborn, London EC1N 2NQ. As in previous years,
in addition to the formal part of the meeting, there will be a presentation
from the Investment Manager who will answer questions on the portfolio and
performance. There will also be an opportunity to meet the Board, the
Investment Manager and representatives of JPMorgan Asset Management after the
meeting. I look forward to welcoming as many of you as possible to this

If you have any detailed or technical questions, it would be helpful if you
could raise these in advance of the meeting with the Company Secretary at
Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ. Alternatively, questions
may be submitted via the Company's website (
Shareholders who are unable to attend the Annual General Meeting are
encouraged to use their proxy votes. Proxy votes may be lodged electronically,
whether shares are held through CREST or in certificate form, and full details
are set out on the form of proxy.


Economic conditions throughout the developed world continue to be challenging
and Japan is no exception to this. However, as reflected in the Investment
Manager's Report, new industries are appearing as the economy matures while,
within existing industries, there is increasing differentiation between
companies. These changes give your Board confidence that many investment
opportunities remain available for your portfolio in the future.

Jeremy Paulson-Ellis


13^th November 2012

Investment Manager's Report

In the 12 months ended 30th September 2012 the benchmark Topix index fell 5.3%
in sterling terms. The Company's net assets fell 2.1%. The Japanese economy
continued to recover from last year's earthquake but concerns over the global
economy, the outlook for the eurozone and the continuing strength of the yen
weighed on the market. Overall, we believe that the outlook for Japanese
companies is mixed but that this environment provides us with the opportunity
to invest in undervalued franchises with excellent long term growth prospects.

Economy, Currency and Politics

As with last year, concerns over the strength of the global economy and the
outlook for the eurozone dominated for much of the year. The Japanese economy
continued to recover post the devastating March 2011 earthquake, although many
companies suffered an additional setback when production facilities in
Thailand were hit by floods. The Bank of Japan, like other central banks, took
unconventional measures, but actions were much less aggressive and as such the
yen remained strong. China-Japan relations soured at the end of the period
with an escalation in the longstanding dispute over the Senkaku Islands. Some
Japanese products have been boycotted and sales of cars by Japanese companies
have fallen substantially. The backdrop of likely forthcoming leadership
changes in both countries has made it hard to find a quick resolution. The
long term consequences of this are still unclear but China is Japan's largest
trading partner so we are monitoring events closely.

In politics the ruling Democratic Party of Japan ('DPJ') succeeded in passing
a law that should see the consumption tax hiked in 2014. This is, arguably,
the first substantial piece of legislation passed in several years by any
Japanese government. However, it is also an unpopular measure and the DPJ's
approval ratings have continued to fall. It is likely that there will be an
election in the near future and the opposition Liberal Democratic Party may
return to power. It recently elected former Prime Minister Shinzo Abe as its
leader. One new party, the Japan Restoration Party, was also established by
the current Mayor of Osaka, Toru Hashimoto. He is young and charismatic and
may be able to bring about some change. He is opposed to the restart of
Japan's nuclear reactors, something that resonates with many voters. Indeed,
we continue to believe that Japan's long term energy policy has fundamentally
shifted and that the biggest beneficiary will be liquefied natural gas.

Performance Review and Future Strategy

The Company outperformed the index by 3.2% over the year, continuing the trend
over the last few years. The top contributors included FamilyMart, a
convenience store operator that is expanding into Asia, and Namco Bandai, a
toy and computer game company that is making better use of its valuable
intellectual property. The detractors included Konami and Gree. These stocks
were hit by increased government regulation of the nascent mobile phone gaming
market. We do not believe that the long term investment case for these
companies has substantially changed - in general people will play more games
on mobile devices and less on traditional consoles.

There are strong structural trends in the Japanese market, both positive and
negative. These trends provide the basic framework for how we think about
companies overall. All of the themes we discussed in last year's annual report
remain in place, namely companies expanding in Asia, those prioritising
shareholder returns, those in structural growth markets, such as online
shopping and gaming, and company specific opportunities such as LIXIL
(previously called JS Group), a top manufacturer of bathrooms, kitchens and
window frames.

One example of how we use themes to our advantage is the ageing population. It
is highly likely the Japanese population will fall from 127 million today to
around 95 million in 2050. This dynamic may make the outlook difficult for
some companies. However, we can take advantage of this trend in a number of
ways. Benesse and Message are leading nursing home and sheltered housing
providers. These markets are still in the early stages of growth as
historically elderly Japanese would live with their children. Unicharm is the
dominant maker of adult nappies - the adult nappy market will be larger than
that for babies in the next few years. Sugi Holdings is the number one
operator of dispensing pharmacies. As the population ages we expect the
quantity of drugs prescribed to increase along with the number of visits to
pharmacies. We also expect to see consolidation in many industries as the
owners of small companies gradually retire. This underpins our investment case
in Nihon M&A Center. Companies relating to this theme make up close to 10% of
the portfolio.

Similarly, we are very aware of the problems facing certain Japanese
industries and companies. For example, 20 years ago Japanese consumer
electronics companies such as Sony, Panasonic and Sharp were global leaders
with very valuable brands. Now, their products have become commoditised and
they have been surpassed by low-cost manufacturers in Taiwan, Korea and China.
Even in areas where market shares remain high, technology changes are working
against them. Thus, even though Sony remains the number one maker of
camcorders, the market is shrinking as people take more videos on their mobile
phones. We have no exposure to this sector. Furthermore, we are aware that a
similar fate could befall other companies and keenly watch overseas
competition and market developments in traditional areas of Japanese strength
such as autos and machinery. In this respect the knowledge and insight of our
investment teams spread across the Asian region is vitally important.
Companies expanding in Asia form roughly 50% of the portfolio; those
prioritising shareholder returns roughly 20%; online shopping and gaming well
over 15%.

We have also continued with our bias towards companies with strong balance
sheets. With a lacklustre global economic backdrop, only those companies with
top competitive positions and the robust balance sheets with which to invest
for the future will succeed. It is noteworthy that most of the major equity
financings this year came from companies that had also financed in 2009.


We believe that the differences between those companies that will succeed and
those that will not are set to become ever greater. Our local presence on the
ground in Tokyo is a strong competitive advantage in identifying long term
country, sector and stock specific themes. Valuations remain compelling, with
the market still trading at the low end of historical ranges despite notable
improvements in corporate governance, higher exposure to growing Asian markets
and a more aggressive pursuit of profit than has been the case in the past.
Through continued focus on these beneficiaries of secular trends, at a low
valuation, we believe that the outlook for our holdings remains attractive.

Nicholas Weindling

Investment Manager

13^th November 2012

Directors' Report

Principal Risks

With the assistance of the Manager, JPMorgan Asset Management (UK) Limited
('JPMAM'), the Board has drawn up a risk matrix, which identifies the key
risks to the Company. These key risks fall broadly under the following

• Investment Underperformance: An inappropriate investment strategy, for
example asset allocation, the level of gearing or the degree of portfolio
risk, could lead to underperformance against the Company's benchmark index and
peer companies, resulting in the Company's shares trading on a wider discount.
The Board manages these risks by diversification of investments and through a
set of investment restrictions and guidelines which are monitored and reported
by the Manager. JPMAM provides the Directors with timely and accurate
management information, including performance data and attribution analyses,
revenue estimates, liquidity reports and shareholder analyses. The Board
monitors the implementation and results of the investment process with the
Investment Manager, who attends all Board meetings, and reviews data which
show statistical measures of the Company's risk profile. The Investment
Manager employs the Company's gearing tactically, within a strategic range set
by the Board. The Board holds a separate meeting devoted to strategy each

• Market: Market risk arises from uncertainty about the future prices of
the Company's investments. It represents the potential loss the Company might
suffer through holding investments in the face of negative market movements.
The Board considers asset allocation, stock selection and levels of gearing on
a regular basis and has set investment restrictions and guidelines which are
monitored and reported on by JPMAM. The Board monitors the implementation and
results of the Investment process with the Investment Manager.

• Political, Economic and Governance: Administrative risks, such as the
imposition of restrictions on the free movement of capital. These risks are
discussed by the Board on a regular basis.

• Loss of Investment Team or Investment Manager: A sudden departure of the
investment manager or several members of the investment management team could
result in a short term deterioration in investment performance. The Manager
takes steps to reduce the likelihood of such an event by ensuring appropriate
succession planning and the adoption of a team based approach, as well as
special efforts to retain key personnel.

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

• Change of Corporate Control of the Manager: The Board holds regular
meetings with senior representatives of JPMAM in order to obtain assurance
that the Manager continues to demonstrate a high degree of commitment to its
investment trusts business through the provision of significant resources.

• Accounting, Legal and Regulatory: In order to qualify as an investment
trust, the Company must comply with Section 1158 of the Corporation Tax Act
2010 ('Section 1158'). Details of the Company's approval are given under
'Business of the Company' in the annual report. Should the Company breach
Section 1158, it may lose investment trust status and, as a consequence, gains
within the Company's portfolio would be subject to Capital Gains Tax. The
Section 1158 qualification criteria are continually monitored by JPMAM and the
results reported to the Board each month. The Company must also comply with
the provisions of the Companies Act 2006 and, since its shares are listed on
the London Stock Exchange, the UKLA Listing Rules and Disclosure and
Transparency Rules ('DTRs'). A breach of the Companies Act could result in the
Company and/or the Directors being fined or the subject of criminal
proceedings. Breach of the UKLA Listing Rules or DTRs could result in the
Company's shares being suspended from listing which in turn would breach
Section 1158. The Board relies on the services of its Company Secretary,
JPMAM, and its professional advisers to ensure compliance with the Companies
Act, the UKLA Listing Rules and DTRs.

• Corporate Governance and Shareholder Relations: Details of the Company's
compliance with Corporate Governance best practice, including information on
relations with shareholders, are set out in the Corporate Governance Statement
in the annual report.

• Operational: Disruption to, or failure of, JPMAM's accounting, dealing
or payments systems or the custodian's records may prevent accurate reporting
and monitoring of the Company's financial position. Details of how the Board
monitors the services provided by JPMAM and its associates and the key
elements designed to provide effective internal control are included within
the Risk Management and Internal Control section of the Corporate Governance
Statement in the annual report.

• Financial: The financial risks faced by the Company include market risk,
liquidity risk and credit risk. Further details are disclosed in note 22 in
the annual report.

Related Parties Transactions

During the financial year, no transactions with related parties have taken
place which have materially affected the financial position or the performance
of the Company during the year.

Statement of Directors' Responsibilities

The Directors each confirm to the best of their knowledge that:

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

• the Directors' 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 it faces.

For and on behalf of the Board

Jeremy Paulson-Ellis


13^th November 2012

Income Statement

for the year ended 30th September 2012

                                       2012                     2011
                             Revenue  Capital    Total Revenue Capital   Total
                               £'000    £'000    £'000   £'000   £'000   £'000
(Losses)/gains on
investments held at fair
value through profit or
loss                               - (11,574) (11,574)       -  11,029  11,029
Net foreign currency               -      141      141       - (1,260) (1,260)
Income from investments        8,121        -    8,121   7,321       -   7,321
Other interest receivable          -        -        -       2       -       2
and similar income
Gross return/(loss)            8,121 (11,433)  (3,312)   7,323   9,769  17,092
Management fee                 (368)  (1,475)  (1,843)   (449) (1,795) (2,244)
Other administrative           (479)        -    (479)   (522)       -   (522)
Net return/(loss) on
ordinary activities before
finance costs and taxation     7,274 (12,908)  (5,634)   6,352   7,974  14,326
Finance costs                   (93)    (371)    (464)   (210)   (840) (1,050)
Net return/(loss) on           7,181 (13,279)  (6,098)   6,142   7,134  13,276
ordinary activities before
Taxation                       (569)        -    (569)   (512)       -   (512)
Net return/(loss) on           6,612 (13,279)  (6,667)   5,630   7,134  12,764
ordinary activities after
Return/(loss) per share        4.10p  (8.23)p  (4.13)p   3.49p   4.42p   7.91p
(note 3)

Details of dividends paid and proposed are given in note 2 below.

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. The Total column represents all the information that is required to
be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL').
For this reason a STRGL has not been presented.

Reconciliation of Movements in Shareholders' Funds

                         Called up            Capital
                             share   Other redemption  Capital Revenue
                           capital reserve    reserve reserves reserve   Total
                             £'000   £'000      £'000    £'000   £'000   £'000
At 30th September 2010      40,365 166,791      8,597   84,386   5,967 306,106
Repurchase and                (35)       -         35    (229)       -   (229)
cancellation of the
Company's own shares
Net return on ordinary           -       -          -    7,134   5,630  12,764
Dividends appropriated           -       -          -        - (4,517) (4,517)
in the year
At 30th September 2011      40,330 166,791      8,632   91,291   7,080 314,124
Net (loss)/return on             -       -          - (13,279)   6,612 (6,667)
ordinary activities
Dividends appropriated           -       -          -        - (5,323) (5,323)
in the year
At 30th September 2012      40,330 166,791      8,632   78,012   8,369 302,134

Balance Sheet

at 30th September 2012

                                                             2012     2011
                                                            £'000    £'000
Fixed assets
Investments held at fair value through profit or loss     324,227  312,150
Current assets
Debtors                                                     9,850    5,727
Cash and short term deposits                                4,796   11,329
                                                           14,646   17,056
Creditors: amounts falling due within one year           (36,739)  (2,590)
Net current (liabilities)/assets                         (22,093)   14,466
Total assets less current liabilities                     302,134  326,616
Creditors: amounts falling due after more than one year         - (12,492)
Net assets                                                302,134  314,124
Capital and reserves
Called up share capital                                    40,330   40,330
Other reserve                                             166,791  166,791
Capital redemption reserve                                  8,632    8,632
Capital reserves                                           78,012   91,291
Revenue reserve                                             8,369    7,080
Total equity shareholders' funds                          302,134  314,124
Net asset value per share (note 4)                         187.3p   194.7p

Company registration number: 223583

Cash Flow Statement

for the year ended 30th September 2012

                                                                2012      2011
                                                               £'000     £'000
Net cash inflow from operating activities                      4,795     3,729
Returns on investments and servicing of finance
Interest paid                                                  (476)   (1,033)
Capital expenditure and financial investment
Purchases of investments                                   (121,148) (156,837)
Sales of investments                                          96,134   155,730
Other capital charges                                            (5)       (3)
Net cash outflow from capital expenditure and financial     (25,019)   (1,110)
Dividend paid                                                (5,323)   (4,517)
Net cash outflow before financing                           (26,023)   (2,931)
Net drawdown of loans                                         20,587     9,456
Repurchase and cancellation of the Company's own shares            -     (229)
Net cash inflow from financing                                20,587     9,227
(Decrease)/increase in cash and cash equivalents             (5,436)     6,296

Notes to the Accounts

for the year ended 30th September 2012

1. Accounting policies

(a) Basis of accounting

 The accounts are prepared in accordance with the Companies Act 2006,
United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the
Statement of Recommended Practice 'Financial Statements of Investment Trust
Companies and Venture Capital Trusts' (the 'SORP') issued by the AIC in
January 2009. They have also been prepared on the assumption that approval as
an investment trust will continue to be granted.

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

 The financial statements for the Company comprise the Income Statement,
the Reconciliation of Movements in Shareholders' Funds, the Balance Sheet, the
Cash Flow Statement and the Notes to the Accounts.

The accounts have been prepared on a going concern basis.

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

2. Dividend

(a) Dividends paid and proposed

                                            2012  2011
                                           £'000 £'000
 Dividend paid
 2011 final dividend of 3.3p (2010: 2.8p)  5,323 4,517
 Dividend proposed
 2012 final dividend of 3.65p (2011: 3.3p) 5,888 5,323

 The final dividend proposed in respect of the year ended 30th September
2012 is subject to approval at the forthcoming Annual General Meeting. In
accordance with the accounting policy of the Company, this dividend will be
reflected in the accounts for the year ending 30th September 2013.

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

 The proposed dividend of £5,888,000 (2011: £5,323,000) is the amount on
which the requirements of Section 1158 are considered. The revenue available
for distribution by way of dividend is £6,612,000 (2011: £5,630,000).

3. Return/(loss) per share

 The revenue return per share is based on the revenue earnings
attributable to the ordinary shares of £6,612,000 (2011: £5,630,000) and on
the weighted average number of shares in issue throughout the year of
161,318,078 (2011: 161,334,188).

 The capital loss per share is based on the capital loss attributable to
the ordinary shares of £13,279,000 (2011 return: £7,134,000) and on the
weighted average number of shares in issue throughout the year of 161,318,078
(2011: 161,334,188).

 The total loss per share is based on the total loss attributable to the
ordinary shares of £6,667,000 (2011 return: £12,764,000) and on the weighted
average number of shares in issue throughout the year of 161,318,078 (2011:

4. Net asset value per share

 The net asset value per share is based on the net assets attributable to
the ordinary shareholders of £302,134,000 (2011: £314,124,000) and on the
161,318,078 (2011: 161,318,078) shares in issue at the year end.

5.  Status of preliminary announcement


The  figures   and   financial   information   for   2011are   extractedfrom 
thepublishedAnnual Report and  Accountsforthe year  ended 30^th  September 
2011and do not constitute  the statutory accountsfor that  year.TheAnnual 
Report and  Accountshasbeen  delivered to  the  Registrar of  Companies  and 
included theReport of theIndependent Auditor  which was unqualified and  did 
not contain a statement under either  section 498(2) or section 498(3) of  the 
Companies Act 2006.


The figures and financial  information for 2012are  extractedfromtheAnnual 
Report  andAccountsfor  the  yearended  30^th  September  2012and  do  not 
constitutethestatutory    accountsfor    the    year.TheAnnual    Report 
andFinancial   StatementsincludetheReport   of   theIndependent   Auditor 
whichisunqualified   anddoesnot   contain   a   statement   under   either 
section498(2)or section498(3) of the Companies Act2006. TheAnnual  Report 
andAccountswill be delivered to the Registrar of Companies in due course.

Neither the contents of the Company's website nor the contents of any  website 
accessible from hyperlinks on the Company's website (or any other website)  is 
incorporated into, or forms part of, this announcement.



A copy of the annual report will shortly be submitted to the National  Storage 
Mechanism and will be available for inspection at

The annual report will also shortly  be available on the Company's website  at where up to date  information on the Company,  including 
daily NAV and share prices, factsheets  and portfolio information can also  be 

For further information please contact:

Rebecca Burtonwood

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 6000

14^th November 2012

                     This information is provided by RNS
           The company news service from the London Stock Exchange


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