Company Announcements

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2020

Legal Entity Identifier: 549300JZW3TSSO464R15

Information disclosed in accordance with the DTR 4.1.3

CHAIRMAN'S STATEMENT

Investment Performance

The year to 30th September has been dominated by the COVID-19 pandemic. I would therefore like to start by repeating the comments I made in the Half Year Report and thank all at JP Morgan Asset Management, and in particular Nicholas, Miyako and the teams in Tokyo and London that support your Company, for their excellent work during a very challenging period.

COVID-19 has led to a year of turmoil in markets across the globe. The performance of the Company's benchmark, the Tokyo Stock Exchange First Section Index ('TOPIX'), over the year has been no exception and reflects this volatility; by late March it had fallen by almost 30% from its prior peak in mid December 2019 although it ended up relatively flat for the year in local currency terms, and slightly up in sterling terms.

Against this challenging backdrop, I am delighted to report that in the year to 30th September 2020 the Company's return on net assets, with debt calculated at fair value¹, was +35.0%, representing a remarkable outperformance of the benchmark which returned only +2.0%. In addition, the discount of the share price to Net Asset Value, with debt calculated at fair value ('NAV'), narrowed, from 11.4% to 7.0%, resulting in a total return to shareholders for the year of +41.8%. All returns include dividends paid and are in sterling terms.

It was also pleasing to see how your Company performed in the February/March sell off when the value of the Company's portfolio fell by about 23%, a fall about half of that experienced by other leading trusts in the sector.

This continued strong performance has resulted in a three, five and ten year cumulative NAV outperformance of the TOPIX of +49.1%, +74.7% and +168.2% respectively. In addition, as of 30th September 2020, the Company was the best performing trust of the Association of Investment Companies ('AIC') Japan peer group over each of one, three and five years. I am pleased to report that the Company's new financial year has continued to deliver strong performance returns, with the Company's NAV increasing by +11.7% in the two months ended 30th November 2020, compared to the benchmark increase of 5.8% over the same period.

These achievements have been increasingly recognised by many commentators and analysts. Thus, your Company now not only has the highest Morningstar Analyst rating (of Silver) and the highest Morningstar Sustainability rating (of 5 Globes) amongst Japanese Investment Trusts, but has also recently won Citywire's award for the 'Best Japanese Equities Trust'.

This stellar performance coincides with the 10th anniversary of Nicholas Weindling becoming the Manager of your Company. On behalf of the Board and all Shareholders, I would like to thank Nicholas for all his efforts over this period as well as congratulate both Nicholas and his co-manager, Miyako Urabe, for these excellent results in extremely challenging markets. Moreover, I would like to thank them for their continuing efforts to meet Investors and explain the many attractions of your Company. This is another crucial and important aspect of their role as we seek to ensure the discount to NAV at which the Company's shares trade is commensurate with these investment achievements.

At a time of strong investment performance, it is worth repeating the comments I made in last year's report that, given the Manager's high conviction, unconstrained approach focused on finding the best investment ideas in Japan (from which they create a portfolio of quality stocks with strong future growth prospects) there will, from time to time, be periods of underperformance.

The Investment Managers' Report below reviews in greater detail the markets, the Managers' investment approach, the resulting investment performance, the investment rationale for many of the stocks in which the Company is invested as well as providing details of the stocks that have contributed and detracted most from performance.

Gearing

The Manager continues to use gearing to enhance portfolio performance and your Board remains supportive of this strategy. The Board sets the gearing strategy, policy and guidelines which are reviewed at each Board meeting and the Investment Managers then manage the gearing within the agreed levels.

The gearing levels remained unchanged, so that in normal market conditions the gearing continued to be within the range of 5% net cash to 20% geared. Gearing as at 30th September 2020 was equivalent to 14.8% of net assets, having averaged 14.3% over the course of the year, and has greatly assisted performance returns.

Revenue and Dividends

Income received during the year fell slightly year-on-year, with earnings per share for the full year of 5.21p (2019: 5.52p). This reduction in income is marginal when compared with the dramatic reduction in income being experienced by investors in UK Equities and reflects both the fact that Japanese companies often have stronger balance sheets than many of their international counterparts and the changes underway in Japan on governance that brings with it an increased focus on shareholder returns.

The Board's dividend policy is to pay out the majority of the revenue available each year. With this in mind, and having not increased the dividend since 2017, the Board has determined to increase this year's dividend by 2% despite the marginal fall in income. We hope to continue increasing the dividend going forward. The Board therefore proposes, subject to shareholders' approval at the Annual General Meeting, to pay a final dividend of 5.1p per share (2019: 5.0p) on 26th January 2021 to shareholders on the register at the close of business on 29th December 2020 (ex-dividend date 24th December 2020).

Premium/Discount Management

The Board monitors the discount to NAV at which the Company's shares trade and believes that, over the long term, for the Company's shares to trade close to NAV the focus has to remain on consistent, strong investment performance over the key one, three and five year timeframes, combined with effective marketing and promotion of the Company.

In this exceptional year, very few investment trusts, regardless of performance, asset class or investment approach, were immune from discount volatility as the COVID-19 pandemic took hold and impacted stock markets around the globe. Your Company was no exception as its discount widened to 17.8% as at 31st March 2020, having averaged 9% over the Company's financial year ended 30th September 2019.

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. With a strong investment team, a strong process and excellent performance, a narrower and more stable discount has been an increasingly important area of focus for the Board.

The Board has restated its commitment over the long run to seeking a stable discount or premium commensurate with investors' appetite for Japanese equities and the Company's various attractions, not least the quality of the investment team and the investment process, and the strong long term performance these have delivered. This commitment has resulted this year in both increased marketing spend and, for the first time in seven years, a series of targeted buybacks.

Therefore, on the back of these efforts, I am pleased to report a significant narrowing of the Company's discount over the second half of the Company's year, with the shares trading at a 7.0% discount to NAV as at 30th September 2020. Since the year end, the discount has narrowed further and averaged 4.4% over the two months to 30th November 2020.

Environmental, Social and Governance Considerations

As detailed in the Investment Managers' report, Environmental, Social and Governance ('ESG') considerations are fully integrated into the Investment Managers' investment process. The Board shares the Investment Managers' view of the importance of ESG factors when making investments for the long term and of the necessity of continued engagement with investee companies throughout the duration of the investment. Further information on the Manager's ESG process and engagement is set out in the ESG Report on pages 15 to 19 of the Company's Annual Report & Financial Statements for the year ended 30th September 2020 ('2020 Annual Report').

COVID-19 and the Company's Key Service Providers

The Board is pleased to report that since the onset of the pandemic the Manager and the Company's other service providers have been able to adjust their business models to accommodate the working from home requirements with limited disruption.

The Board has received assurances that the Company's operations, including the management of the portfolio and the maintenance of a strong controls environment, have continued as normal with no issues being identified.

This is no small achievement and I would therefore like to take this opportunity to thank not only the Manager but all the Company's service providers for their efforts to ensure that there has been no reduction in the support or service your Company has received during a challenging period.

The Board

The Board continues to ensure that it has the appropriate balance of skills and knowledge as well as having regard to the AIC Code of Corporate Governance and other appropriate guidance concerning board composition and succession. The chart on page 40 of the 2020 Annual Report sets out the tenure of Directors.

The appointment, on 17th July 2020, of Yoko Dochi, a Japanese national, further increases the Board's diversity of skills, experience and background. Ms Dochi brings over 30 years of senior executive experience at some of Japan's leading companies in the automobile, technology and the financial sectors. She is a former investment banker at the World Bank and the Bank of Tokyo and, until recently, was Global Head of Investor Relations at Softbank Group Corp. Prior to that she was Head of Global Treasury and Investor Relations at Toyota Motor Europe. I am delighted to welcome Yoko to the Board and I have no doubt she will make an invaluable contribution.

The increased size of the Board means we now meet the Hampton-Alexander recommendations and are better placed to manage our succession plans. Because of this and to ensure that the Company can continue to attract quality candidates to the Board, the Directors are recommending that the aggregate maximum level of fees payable to Directors be increased from £200,000 to £250,000, a level that was last increased in 2016.

The Board is also taking the opportunity to seek approval for the Articles to be amended to reflect best practice in relation to untraced shareholders and, in particular, to clarify that the consideration, if any, received by the Company upon the sale of any shares pursuant to the untraced shareholder or share forfeiture provisions, will belong to the Company. For full details please refer to page 37 and the Notice of Meeting from page 85 of the 2020 Annual Report.

Annual General Meeting and Shareholder Contact

The Company's Annual General Meeting will be held on Thursday, 14th January 2021 at 12.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP.

Despite the very encouraging news on the roll out of a vaccine, due to the COVID-19 restriction tiers in place at the time of writing and ongoing public health concerns which are not likely to abate until well into 2021, the Board has reluctantly decided to limit attendance at the Annual General Meeting in person to Directors, their proxies and representatives from JPMorgan. This will ensure a quorum is in place and that the formal business of the Company will be able to proceed.

The Board is aware that many shareholders look forward to hearing the views of the Investment Managers and may have questions for the Investment Managers and the Board. Accordingly, the Annual General Meeting will be accompanied by a webinar, to include a presentation from Nicholas Weindling, and followed by a live question and answer session. Shareholders are invited to join the webinar and address any questions they have either by submitting questions during the webinar or in advance by writing to the Company Secretary at the address on page 93 or via email to invtrusts.cosec@jpmorgan.com. Details on how to register for this event can be found on the Company's website, or by writing to the Company Secretary.

As shareholders will not be able to attend the Annual General Meeting, the Board strongly encourages all shareholders to exercise their votes by completing and returning their proxy forms in accordance with the notes to the Notice of Meeting on pages 86 to 88 of the 2020 Annual Report.

If there are any changes to the arrangements for the Annual General Meeting, the Company will update shareholders through the Company's website and, if appropriate, through an announcement on the London Stock Exchange. The Board would like to thank shareholders for their understanding and co-operation at this difficult time. We very much hope that you and your families remain safe and well and look forward to meeting you at a future Annual General Meeting.

Outlook

It appears that many Asian countries have weathered the COVID-19 storm better than the rest of the world; however, notwithstanding good news on vaccines, the future of this pathogen remains uncertain and volatility could well persist for the foreseeable future. Against this backdrop, the Investment Managers have set out their views on the outlook for markets and your Company below.

1 The AIC has recommended that investment trusts with long-term fixed rate debt in place prepare a measure of their NAV that values this debt at 'fair value' rather than using their par value. This reflects the fact that the economic value of this leverage may differ materially from the par or accounting value of the debt instrument and the belief that this value may be of interest to shareholders and potential investors. Accordingly, the Board has chosen to use this measurement when reporting NAV returns within the Company's financial reports going forward; this is in line with the basis of the NAV released to the LSE every business day. For completeness of information and full disclosure, NAV returns with debt valued at par can also be found throughout the report. Full details of the valuation methodology used to prepare the fair value of the Company's senior secured loan notes are provided in the footnotes on page 5 and in the Alternative Performance Measures section on page 89 on the 2020 Annual Report.

Christopher Samuel

Chairman                                                                                                                               

9th December 2020

INVESTMENT MANAGERS' REPORT

Background

The year to 30th September 2020 was marked by extraordinary market turmoil, both globally and within Japan, with COVID-19 the year's defining feature.

In October 2019, the global economic outlook appeared to be improving somewhat, with equity markets gaining ground after months dominated by trade disputes, stagnant economic growth and plummeting corporate profits. Within Japan, the economy had been hit by weaker global demand for its exports, whilst a rise in Japanese sales tax on nearly all goods and services, which had become effective in October, was expected to dampen the domestic economy and broader business confidence in the short term. There were, however, glimmers of hope that the general direction of travel for the Japanese economy was positive.

The outbreak of the COVID-19 pandemic in early 2020 changed everything. First and foremost a human tragedy, the pandemic precipitated severe and instant economic weakness across the world. Industrial activity was curtailed in many territories and consumer demand weakened as normal daily life was severely restricted. Japan did not escape unscathed as it too fell into deep recession, its economy experiencing a record slump in the second quarter of 2020. The pandemic also suppressed international travel, with tourist visitor numbers to Japan collapsing and the Tokyo 2020 Olympics pushed back to 2021.

By March and April 2020, businesses across corporate Japan were assessing their chances of survival with sales channels completely shuttered. A state of emergency was rolled out across the country in April, but was then lifted at the end of May, once new daily COVID-19 infection levels had been brought down. Despite Japan's high population density and, globally, the highest percentage of older people, Japan has been relatively unscathed so far, in terms of infection and death rates.

While Japanese companies typically have extremely strong balance sheets, with some 55% of non-financial companies having net cash balances, which meant most were in a relatively robust position to survive the initial COVID-19 shock, they did begin to recognise the need to consider the long-term consequences of the pandemic.

In some respects Japan has been a global laggard, for instance its widespread use of physical ink stamps to certify business and personal documents, the continuing use of fax machines, low penetration rates for online retail and continuing very high cash usage in retail. COVID-19 also highlighted how ill-equipped Japanese businesses were to allow their employees to work from home as they had failed to invest in the necessary IT infrastructure to support this. The pandemic has accelerated structural changes that were already under way, which then received further support coming from an unexpected change of leadership in Japan's government.

On 16th September 2020, the Japanese parliament approved Yoshihide Suga as the country's new Prime Minister. This followed the resignation of Shinzo Abe, who stepped down on deteriorating health grounds. Suga was formerly chief cabinet secretary within Abe's government and his policies are closely aligned to those of his predecessor, so his appointment was generally welcomed. He starts his leadership with high approval ratings and an expectation that he will follow the policies of Abe.

One positive point of differentiation between Suga and his predecessor relates to digitalisation across government and the corporate world. The new PM is spearheading a digital revolution in Japan, which he considers crucial to speeding up recovery to pre-pandemic levels and improving Japanese competitiveness.

Reflecting on the last ten years, we believe that real and permanent change has been and remains underway in Japan. Corporate governance will continue to improve following the kickstart given by the Abe administration; real returns to shareholders can rise further; and digital transformation is being embraced by many. This provides Japanese equities with longer term attractions relative to some other global markets and our conversations with investors over the last 12 months suggest that others are recognising this. These changes are widespread, but not uniform across the market; so careful research and stock selection will continue to be important.

Our Investment Philosophy and Process

Your Company focuses on individual stocks, so we aim to invest in innovative companies in growing industries that can demonstrate a significant competitive advantage, free cashflow, strong balance sheets and excellent management teams. There are many great companies with strong prospects in Japan, but they are not the familiar names you might expect; the likes of car producers and consumer electronics manufacturers remain under significant pressure and it is less well-known companies with forward-thinking business models that are now gaining traction. If we do not like a stock we do not own it, so our portfolio differs materially from the TOPIX; we believe the broad index is home to many companies that are structurally impaired and we wish to avoid, no matter how prominent they are.

We seek to invest in the best Japanese companies regardless of their size and are happy to take advantage of the Company's closed ended structure to hold mid and smaller sized companies. We are seeing these opportunities increase, due to the emergence of disruptor companies with strong future growth prospects.

Our ability to find attractive investments is enhanced by the fact that we have an extremely well-resourced investment team in Tokyo that can identify attractive investment themes and companies. There is very little research coverage of the Japanese market, particularly for mid- and smaller-sized companies, so being here 'on the ground' helps us uncover opportunities that are not that well known and may be overlooked. This has been increasingly important with the imposition of travel restrictions to Japan as a result of the pandemic.

Portfolio Themes

In building the Company's investment portfolio we have identified a number of key themes that underlie much of our stock selection. We believe these themes will be long term resilient sources of return for Japanese companies for years to come. The extent to which an individual company is a beneficiary of one or more of these themes adds to the attractions of the company. The themes to which the portfolio is exposed have not changed during the review period. As at 30th September 2020 the portfolio breakdown by theme was as follows:

How we rate companies we consider for investment

We are looking for companies in growing industries that can demonstrate strong balance sheets, free cash flow, a significant competitive advantage and excellent management teams. We also consider Governance issues, as well as potential risks arising from Environmental and Social considerations. A combination of desk-based research and company meetings contribute to our company ratings.

Our research allows us to assign a strategic classification to each company. The highest rating is 'Premium' followed by 'Quality' and then 'Trading'. Only around 20% of Japanese firms get a Premium or Quality rating from us whereas around 90% of the companies we hold in our portfolio achieve it. We do not buy a company where the short-term valuation looks low unless it has a strong long-term growth outlook.

This process means that we are automatically incorporating Environmental, Social and Governance ('ESG') considerations into our strategic and valuation analysis of individual companies and into our investment decisions. See pages 15 to 19 of the 2020 Annual Report for more details.

COVID-19 is driving and accelerating change in Japan as it embarks on its digital revolution and, looking ahead, we expect to see industry consolidation and productivity growth through trends such as adoption of more flexible working practices and better use of information technologies. Already, our holdings in OBIC and Bengo4.com look set to benefit from digitalisation, whilst Tokyo Electron and HOYA are expected to gain from increases in data traffic.

Performance

Against this complex backdrop, the Company delivered very strong absolute and relative performance over the year to 30th September 2020. The Company's return on net assets with debt at fair value was +35.0%, significantly outperforming its benchmark, the TOPIX Index, which rose by 2.0%. The value of the Company's shares rose by +41.8%. All returns include dividends paid and are in sterling terms.

The Company can use borrowing to gear the portfolio within a range of 5% net cash to 20% geared in normal market conditions. Over the review period, gearing averaged 10.4% and ended the year at 14.8% (30th September 2019: 13.1%). Our gearing level reflects our conviction, and the fact that we have identified sufficiently good bottom-up opportunities to invest in innovative Japanese companies over the year rather than any macro view.

PERFORMANCE ATTRIBUTION

YEAR ENDED 30TH SEPTEMBER 2020

Source: J.P. Morgan/Morningstar.

All figures are on a total return basis.

Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.

Portfolio Activity

We believe that opportunity comes from long-term thinking, so we look for companies with long growth horizons, which means that we are always planning 5 to 10 years ahead when considering the portfolio's composition. COVID-19 has highlighted that fundamentally strong, forward-thinking companies could benefit from the structural growth opportunities that are present in Japan.

Given our long-term strategy of investing in 'New Japan', it was no surprise that when crisis hit this year we were already invested in companies driving change in Japan; businesses that have not only been able to weather market turmoil but are emerging stronger than before. Many of these stocks have since increased substantially in value. Just as significantly, we were not invested in the stocks that have been most negatively impacted this year - so we did not hold the likes of printer/copier businesses, department stores and banks. As a result, our positioning has been beneficial both in respect of the stocks we have chosen and those we have avoided.

Our focus on quality meant that the portfolio was resilient amidst the unexpected economic stresses of the pandemic. Nevertheless, March and April's market sell-off led to us to make some changes to the portfolio. Annualised portfolio turnover for the year was 38%. This is an increase from last year and mostly reflects changes made as the COVID-19 situation worsened and we grasped the opportunity to upgrade the overall quality of the portfolio.

Purchases

We took advantage of market weakness to invest in certain premium and quality companies that we admired but where valuations had hitherto been prohibitively high. These included Tokyo Electron, a highly profitable manufacturer of semiconductor production equipment with a very strong balance sheet and which holds the largest market share across a range of its products. We also added Nomura Research Institute, Japan's leading consultancy and systems integrator, to our portfolio. It was founded in 1965 and will benefit as companies are forced to upgrade their systems.

More recently, we have been looking at smaller companies that have gained traction because of what has happened this year. These include new investments in less-well-known companies like Base (a Tokyo start-up e-commerce platform for smaller businesses, similar to Canada's Shopify) and Medley. The latter was established in 2009 and is mainly engaged in online healthcare provision, so very much a pandemic-themed choice. Before COVID-19, online medical consultations were forbidden by law in Japan; this restriction was relaxed during the state of emergency, causing Medley shares to rally. We also invested in the online insurance business Lifenet which is benefitting from rising demand for its online products and services.

Other significant purchases over the year included HOYA, Terumo and Z Holdings. HOYA is a global business across the fields of healthcare and information technology, and a leading manufacturer of specialised glass products such as HDD memory disks and mask blanks. Terumo is a global leader in medical technology that is increasing its profitability by withdrawing from low margin products. Z Holdings operates as internet search engine 'Yahoo! JAPAN' and also engages in media activities including search-linked and display advertising. Through its acquisition of Line, the number one messaging app in Japan, and its leading position in mobile payments it is looking to create a dominant ecosystem. We also increased our investment in healthcare operator and specialist in the 'in vitro' diagnostics field, Sysmex.

Sales

We reduced our holding of FAST RETAILING (owner of the UNIQLO brand) to fund other ideas; however, it remains a large and significant position. We reduced our position in cloud-based manual management platform Grace Technology, to realise profits. We also reduced our investment in personal care brand Kao, as its share price fell reflecting declining sales and increased competition.

Over the course of the year, we sold financial services group SBI as we were unconvinced by its project to build a fourth mega bank in Japan via acquisitions. We sold Suzuki because although it is dominant in India, with over 50% market share, we believe that country will eventually face the same issues as car markets all over the world. Towards the end of the reporting period, we also sold Shiseido and Softbank, as explained in the next section.

Significant Contributors and Detractors to performance

Over the year to 30th September 2020 the Company outperformed the TOPIX index by 33.0%. At the sector level, the largest positive contributions to portfolio performance came from being overweight the Services and Information & Communication sectors.

Stock selection was strong across the board, delivering over 32% of outperformance. The top five contributors to performance were:

1.  M3

We have held this stock since 2011. The company's core business enables pharmaceutical companies to reduce their marketing expenses by promoting their products online. M3's goal is to change medicine by 'making full use of the power of the internet'. The shares continued to perform extremely strongly on the back of M3's medical platform business and the growing trend for IT utilisation in healthcare. M3's service includes online doctor consultations, removing the need for in-person visits, which became particularly pertinent in 2020.

2.  MonotaRO

This leading online retailer for industrial supply products benefited from a surge in during the pandemic.

3.  Nihon M&A Center

Nihon is Japan's largest merger & acquisition service provider, specialising in small- and medium-sized enterprises (SMEs). Its business results, announced in May, were robust and ahead of expectations, a beneficiary of Japan's shrinking population and the need for family-owned SMEs businesses to merge with others in order to survive. 

4.  Bengo4.com

The stock has been a major beneficiary of Japan's accelerating digitalisation trend, with government policy providing support for eSignatures. In addition, 'stay at home' measures forced a review of traditional office practices, propelling firms into the 21st century.

5.  Keyence

Our largest holding, we have held Keyence, a global leader in manufacturing sensors used for factory automation since 2011. It has one of the highest growth rates and operating margins among automation companies, with overseas sales increasing dramatically. We believe the company has strong growth prospects for many years to come, since factory automation is likely to be a long-term trend and Keyence has a dominant and increasing market share.

The only detractors to performance with an impact of greater than 0.5% were:

1.  Shiseido, the cosmetics company, was hit badly by the significant fall in consumer demand and the closure of key outlets such as airport duty free stores, following the outbreak of COVID-19. However, the main reason we exited our position was increasing competition from Chinese companies.

2.  SoftBank is one of Japan's largest publicly traded companies and owner of stakes in many energy, financial and technology companies. After a record plunge in its share price in March, SoftBank shares subsequently climbed to new highs over the remainder of the review period and, with question marks over future strategy, we took the opportunity to sell our entire holding. The stock price rose further after our exit which is why our zero-exposure was a performance detractor.

3.  Tokio Marine Holdings is Japan's oldest insurance company and number one non-life insurer. Profits decreased following a turbulent year shaken by natural disasters, COVID-19 and its aftermath and we sold our position to fund other ideas.

4.  Nidec Corporation is a manufacturer of electric motors found in hard disk drives and other automobiles and other appliances and we exited our Nidec holding after repeated downgrades in its earnings forecasts. The company is increasingly exposed to the automotive industry, which faces many structural challenges.

Long-term thinking

We focus on making long-term investments. At the year end the portfolio comprised 65 different stocks, compared to over 2,000 in the Company's benchmark. 25 stocks, representing 61% of the portfolio, have been held continuously for more than three years; 14 stocks, representing 34% of the portfolio, have been held continuously for more than five years.

Outlook

COVID-19 has cast a huge shadow over the global economy, with a 'second wave' resurgence in infections affecting many countries at the time of writing. Whilst the Japanese equity market has been one of the world's strongest this year, we acknowledge that it is more cyclical than other developed markets and can therefore commensurately be more impacted by global economic developments, both positively and negatively.

Whatever challenges lie ahead, Japanese companies remain relatively well positioned with their robust net cash balance sheets. This is even more true for your Company's holdings. The companies we have invested in have strong structural growth outlooks and we are positive about their prospects on a long-term basis. We believe they are well positioned to benefit from future trends, many of which COVID-19 and government policy may well accelerate.

It is our job to uncover quality companies that have a competitive advantage and can generate significant returns; our presence 'on the ground' in Tokyo is a significant advantage in this respect. We also benefit from our colleagues globally sharing ideas of where to research next. Regardless of the result of the recent US election, China-US trade tension and the pandemic most of the areas we favour are still likely to see following winds and we retain our focus on bottom up opportunities.

Even though the Company has delivered very strong returns this year, we still believe that the long-term outlook for the stocks we own is materially better than for those that we don't own. The portfolio differs substantially from the benchmark index, so there will be times when our relative performance suffers. However, we are confident that, over the long term, our positioning should deliver better returns than the benchmark and will continue to reward patient investors wishing to invest in the next generation of Japanese ideas.

Nicholas Weindling

Miyako Urabe

Investment Managers                                                                                                              

9th December 2020

PRINCIPAL AND EMERGING RISKS

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. With the assistance of JPMF, the Audit Committee has drawn up a risk matrix, which identifies the key risks to the Company. These are reviewed and noted by the Board. The risks identified and the broad categories in which they fall, and the ways in which they are managed or mitigated are summarised below. The AIC Code of Corporate Governance requires the Audit Committee, for the first time this year, to put in place procedures to identify emerging risks. The key emerging risks identified are also summarised below. The Board believes the COVID-19 pandemic and Brexit to be existing risks, rather than emerging risks and regards the risks arising from COVID-19 to be in the category of Market and Economic Risk and/or Outsourcing Risk.

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors' Report on page 35 of the 2020 Annual Report. The management fee payable to the Manager for the year was £4,865,000 (2019: £4,401,000) of which £nil (2019: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 64 of the 2020 Annual Report are safe custody fees amounting to £112,000 (2019: £96,000) payable to JPMorgan Chase Bank, N.A., of which £21,000 (2019: £18,000) 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 £1,000 (2019: £1,000) of which £nil (2019: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £5,000 (2019: £5,000) were payable to JPMorgan Chase Bank N.A. during the year of which £nil (2019: £1,000) was outstanding at the year end.

At the year end, total cash of £3,806,000 (2019: £3,073,000) was held with JPMorgan Chase. A net amount of interest of £nil (2019: £nil) was receivable by the Company during the year from JPMorgan Chase of which £nil (2019: £nil) was outstanding at the year end.

Stock lending income amounting to £1,428,000 (2019: £1,140,000) was receivable by the Company during the year. JPMAM commissions in respect of such transactions amounted to £159,000 (2019: £141,000).

Full details of Directors' remuneration and shareholdings can be found on pages 46 and 47 and in note 6 on page 64 of the 2020 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 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 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 financial statements, the Directors are required to:

•   select suitable accounting policies and then apply them consistently;

•   make judgements and accounting estimates that are reasonable and prudent;

•   state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•   prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the www.jpmjapanese.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report, Strategic Report, Statement of Corporate Governance and Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed on page 34 of the 2020 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 and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period.

For and on behalf of the Board

Christopher Samuel

Chairman

9th December 2020

STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30th september 2020

¹ Foreign currency gains/(losses) are due to Yen denominated loan notes and bank loans.

All revenue and capital items in the above statement derive from continuing operations.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. Net return/(loss) after taxation represents the profit or loss for the year and also total comprehensive income/(expense). 

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30TH SEPTEMBER 2020

¹ This reserve is distributable. The amount that is distributable is not necessarily the full amount as disclosed in these financial statements of £13,750,000 as at 30th September 2020. This reserve may be used to fund distributions to investors.

STATEMENT OF FINANCIAL POSITION

at 30th september 2020

STATEMENT OF CASH FLOWS

For the year ended 30TH September 2020

NOTES TO THE FINANCIAL STATEMENTS

1.       Accounting policies

          Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in October 2019.

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

The financial statements have been prepared on a going concern basis. In forming this opinion, the directors have considered any potential impact of the COVID-19 pandemic 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 particularly in light of COVID-19.

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

2.       Return/(loss) per share

3.       Dividends

(a)     Dividends paid and proposed

All dividends paid and proposed in the year are and will be funded from the revenue reserve.

The dividend proposed in respect of the year ended 30th September 2020 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 2021.

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

The requirements of Section 1158 are considered on the basis of the dividend proposed in respect of the financial year, shown below. The revenue available for distribution by way of dividend for the year is £8,390,000 (2019: £8,904,000). The revenue reserve after payment of the final dividend will amount to £5,598,000.

4.       Net asset value per share

5.     Status of results announcement

2019 Financial Information

The figures and financial information for 2019 are extracted from the Annual Report and Accounts for the year ended 30th September 2019 and do not constitute the statutory accounts for the year. The Annual Report and Accounts include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Register of Companies in due course.

2020 Financial Information

The figures and financial information for 2020 are extracted from the published Annual Report and Accounts for the year ended 30th September 2020 and do not constitute the statutory accounts for that year. The Annual Report and Accounts has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

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

9th December 2020

For further information:

Alison Vincent,

JPMorgan Funds Limited

020 7742 4000

ENDS

A copy of the 2020 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

The 2020 Annual Report will shortly be available on the Company's website at www.jpmjapanese.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN FUNDS LIMITED