Company Announcements

CC JAPAN INCOME & GROWTH TRUST PLC

HALF-YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 30 APRIL 2019

INVESTMENT OBJECTIVE, FINANCIAL INFORMATION AND PERFORMANCE SUMMARY

CHAIRMAN'S STATEMENT

During the six months to 30 April 2019, as measured by total return in sterling, the share price fell by 4.5% while the Net Asset Value ("NAV") fell by 0.3%. This included last year's 2.5p per share final dividend paid in March 2019.  The Topix Index total return in sterling over the period was -0.5%. However, these interim results disguise a volatile period with a sharp sell off in world markets followed by a sharp recovery.  The Topix Total Return Index in sterling fell by 13.0% in the last quarter of 2018 and rebounded by more than 6.4% in the first four months of 2019. 

Foreigners remain net sellers of Japanese equities despite some signs of improving economic data and continued commitment by the Bank of Japan to keep interest rates low for an extended period of time.  The gyrations in global markets, including Japan, were to a large extent determined by market fears of tightening US monetary policy giving way to expectations of a much more benign interest rate and liquidity outlook. The international appetite for Japanese equities is hampered by the deterioration of US-China relations. 

Growth of the Company

Since launch in December 2015, the share price measured by total return in sterling terms, has risen by 54.3% while the NAV per share has increased by 56.7% outperforming the Topix Total Return Index which has returned 44.9% over the same period.  The shares have generally traded at a premium over the life of the Company which has seen growth of the Company through investment performance and further share issuance. The Shares have traded at a discount at times during the period under review as the Shares adjusted during turbulent market conditions.

The issued share capital of the company has more than doubled from 66.5 million ordinary shares at launch to over 134.7 million ordinary shares currently in issue.  This includes the 6,278,829 ordinary shares issued in the six months under review, raising a total of £8.6 million including the £7.6 million raised through the Placing completed on 14 February 2019.

The Board remains committed to growing the size of the Company and sharing the economies of scale with shareholders. The Board remains confident of the investment mandate and our Investment Manager's ability to execute it through achieving total returns with an income bias; a strategy that continues to appear well placed to exploit investment opportunities in Japan.

Interim dividend

The portfolio continues to generate a healthy and growing revenue stream. The Board has declared an interim dividend of 1.40p per Ordinary Share in respect of the six months ended 30 April 2019, which will be paid on 31 July 2019 to shareholders who appear on the register at 5 July 2019 with an ex-dividend date of 4 July 2019.  This represents a 12% increase over last year's interim dividend.

Outlook- Reiwa Gengko

The recent accession of Emperor Naruhito on 1 May 2019 to succeed his father, Emperor Akihito, ushers in the Reiwa era, meaning "beautiful harmony" and a timely reminder of the favourable economic outlook for Japan where GDP came in above expectations at an annualised 2.1% in the first quarter of 2019.  Interest rates should remain close to zero.  Investor enthusiasm for Japan may be rekindled by a number of catalysts not least the 2020 Tokyo Olympics, this autumn's Rugby World Cup, the licensing introduction of casinos and, looking further ahead, the World Expo planned for 2025. These events should support domestic demand and continued growth in tourism. The sleeping policeman in the road remains the planned increase in Government Sales Tax from 8 to 10% in October 2019, although there is speculation that this could be deferred.

After a mixed corporate earnings season, earnings guidance is more conservative than usual for the current Japanese financial year to the end of March 2020. Demand may have peaked but actual results should exceed guidance. Forecasts are naturally depressed by despondence over the continued US-China trade war and mounting protectionist pressures.  The strongest earnings guidance derives from the domestic economy. It is not all gloom. For the first 4 months of 2019, share buy backs are running 125% ahead of last year, while our Investment Manager's expectations of dividend distributions and pay-out ratios remain robust. This underlines the prospects for improving returns on equity ("ROE") in Japan, which have doubled to 10%, taking the market as a whole, from an average of only 5% in 2010 and yet market valuations have not rerated. The trend in ROE arises from inexorable improvements in corporate governance, spurred by increased activist intervention, encouraging better capital management and generating better returns to shareholders.

This all neatly fits our investment objective and these positive developments allow our Investment Manager to continue to execute the Company's strategy with some confidence.

The risks to the investment case in Japan largely reside in the uncertainty and instability of a range of international developments.  Any resolution or rapprochement in US-China relations would be very positive for the Japanese market.

Keeping in touch

I would encourage you to keep in touch by looking at the company's website www.ccjapanincomeandgrowthtrust.com for regular updates, including the investment manager's monthly factsheet which provides commentary on Japan and the portfolio.   

Harry Wells

Chairman

24 June 2019

INVESTMENT MANAGER'S REPORT

Performance Review

The NAV per Share of the Company fell from 148.63p to 145.36p in the six month period to 30 April 2019. During the period, the Company paid a dividend of 2.5p per share. The resulting total return was modestly ahead of the Topix Total Return Index for the six months under review.   

Equity markets worldwide have been impacted by geopolitical tensions and evidence of slowing economic trends which have had a significant influence on investor sentiment towards Japanese equities, individual stocks and sectors. The Topix index fell particularly sharply in the month of December 2018 as concerns intensified but, it has made a steady recovery in the first few months of 2019.  The volatility in individual stocks has reflected this overall pattern with some of the weakest performers in the latter part of last year performing well year to date. 

The share prices of cosmetic manufacturers Pola Orbis and Noevir notably fell in the second half of 2018. These companies are perceived as long term beneficiaries of demand from non-Japanese consumers both in local countries and from inbound visitors to Japan.  However, the slowdown in the Chinese economy and changes in tourist spending patterns resulted in significant share price weakness. This is despite both companies delivering enhanced shareholder returns, with Pola Orbis announcing a special dividend of Y36 for the coming financial year and Noevir paying a higher than projected dividend for the last financial year. We believe that these announcements have supported the recovery in the share prices so far this year.  Similarly, Amada Holdings (metal forming machinery) and Shoei, (motorcycle helmets) generated a strong positive contribution reversing previous weakness. 

In the face of slowing economic data, Central Banks worldwide have made clear statements on monetary policy and this has impacted on expectations for global interest rates. The Bank of Japan downgraded its outlook for the economy in the near term, highlighting the impact of weakening exports.  Monetary policy remains unchanged.  The European Central Bank also cut its economic forecast for the year while the US Federal Reserve will now likely refrain from raising interest rates for the rest of the year, which represents a notable U-turn from previous expectations. This has resulted in clear performance trends for financial companies such as banks, whose ability to generate returns has been compromised by a flat yield curve and real estate investment trusts (REITs) which benefit from low interest rates. Consequently, Invesco Office REIT, Japan Hotel REIT and Invincible Investment were again among the top contributors during the last six months whilst Resona Bank and Mitsubishi UFJ were amongst the worst. However, there is clear evidence that these banks are focused on improving their shareholder returns as each has announced planned share buybacks and maintained their respective dividends.

Current Positioning

The investment strategy seeks to identify companies that offer progressive shareholder return policies through economic cycles, focusing on those that are committed to at least maintain their dividend if operational performance suffers a temporary slowdown. 

The £7.6m raised in February 2019 via the placing of new shares was invested selectively across existing holdings benefitting from weak share prices after the market sell off in the fourth quarter of 2018. These include Shin-Etsu Chemical, Invesco Office J-REIT and Sumitomo Mitsui Financial Group all of whom have subsequently improved their projected returns for the 2018 fiscal year (ending in March 2019).  The position in Nomura, a facility design operator, has been reduced after strong performance. The entire holding in Oracle Japan has been sold following results and a company meeting which revealed disappointing progress in governance reform from the new management team. 

Outlook

The relevance of shareholder return policies that offer sustainable dividends will be clear if the current concerns over an economic slowdown are realised.  We believe that this subtle shift away from a payment based on a simple pay-out ratio has been the most significant change in recent years.  Its importance will become increasingly apparent to investors throughout an economic cycle. 

Total shareholder returns, incorporating dividends and share buybacks, are expected to exceed Y15trn (approximately $140bn) in fiscal year 2018.  This establishes a new annual record for Japan and represents a doubling over the past five years.  The total dividends for all listed companies are expected to reach Y10.7trn, up 15% from the previous year, while the value of share buybacks is expected to rise 57% to Y4.6trn. 

The sharp rise in buybacks after two consecutive years of decline is confirmation of the 'flexible' approach to repurchasing shares detailed by most companies in their shareholder return policies.  The equity market weakness during 2018 has provided the opportunity for management to acquire shares at substantially lower prices and clearly represents a prudent approach aimed at rewarding shareholders and also improving capital efficiency. 

We believe that a more stable Japanese dividend environment than in the past, combined with the strong justification for managing buybacks on a flexible basis, will be beneficial for investors in Japan for the short and medium term. 

Coupland Cardiff Asset Management LLP

24 June 2019

TOP TEN SECTORS AND HOLDINGS

AS AT 30 April 2019

TOP 10 SECTORS

TOP 10 HOLDINGS

TOP TEN SECTORS AND HOLDINGS continued

TOP TEN CONTRACTS FOR DIFFERENCE (CFDs)

AS AT 30 APRIL 2019

INTERIM MANAGEMENT REPORT

The Directors are required to provide an Interim Management Report in accordance with the FCA's Disclosure Guidance and Transparency Rules and consider that the Chairman's Statement and the Investment Manager's Report in this Half-yearly report, which provides details of the important events which have occurred during the period and their impact on the financial statements.  The following statements on related party transactions, going concern and the Directors' Responsibility Statement below, together constitute the Interim Management Report for the Company for the six months ended 30 April 2019.

RISKS AND UNCERTAINTIES

The principal risks and uncertainties to the Company are detailed in the Company's most recent Annual Report for the year ended 31 October 2018 which can be found on the Company's website at www.ccjapanincomeandgrowthtrust.com. The principal risks and uncertainties facing the Company were unchanged during the period under review and the Board are of the opinion that they will continue to remain unchanged for the forthcoming six month period.  The principal risks and uncertainties facing the Company are as follows:

·    market risks including: risks associated with the economy, sectoral diversification and exposure to unquoted companies, 

·    corporate governance and internal control risks - including cyber crime;

·    Regulatory risks; and

·    Financial risks

RELATED PARTY TRANSACTIONS

The Company's Investment Manager is Coupland Cardiff Asset Management LLP. Coupland Cardiff Asset Management LLP is considered a related party under the Listing Rules. The Investment Manager is entitled to receive a management fee payable monthly in arrears and is at the rate of one-twelfth of 0.75% of Net Asset Value per calendar month. There is no performance fee payable to the Investment Manager. Details of the investment management fees paid during the six month period to 30 April 2019 can be found in note 5 below.  There have been no changes to the related party transactions that could have a material effect on the financial position or performance of the Company since the year ended 31 October 2018.

GOING CONCERN

The Board has a reasonable expectation that the Company has adequate resources to continue in operational existence for at least the following twelve month period from the date of this document. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows. The Company's net assets as at 30 April 2019 were £195.8 million (30 April 2018: £181.6 million). As at 30 April 2019 the Company held £194.4 million (30 April 2018: £177.5 million) in quoted investments and had cash of £2.6 million (30 April 2018: £2.1 million). In addition, as at 30 April 2019 the Company had gross exposure to Contracts for Difference of £38.9 million (30 April 2018: £35.0 million).The total expenses (excluding finance costs and taxation) for the six months ended 30 April 2019 were £0.9 million (30 April 2018: £0.9 million).

DIRECTORS' STATEMENT OF RESPONSIBILITY FOR THE HALF-YEARLY REPORT

The Directors confirm to the best of their knowledge that:

•             The condensed set of financial statements contained within the Half-yearly financial report has been prepared in accordance with FRS 104 Interim Financial Reporting.

•             The interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FCA's Disclosure Guidance and Transparency Rules.

Harry Wells

Chairman

For and on behalf of the Board of Directors

24 June 2019

The notes below form part of these financial statements.

The notes below form part of these interim financial statements.

HOME MEMBER STATE

For the purposes of the FCA's Disclosure and Transparency Rules the Company's Home Member State is the United Kingdom.

GLOSSARY

CORPORATE INFORMATION

* Registered in England no. 9845783