Half Year Report JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts for the six months ended 30th September 2012

Transcription

1 2012 Half Year Report JPMorgan Japan Smaller Companies Trust plc Half Year Report & Accounts for the six months ended 30th September 2012

2 Features Contents About the Company 1 Half Year Performance 2 Chairman s Statement 3 Investment Managers Report Investment Review 6 List of Investments 9 Sector Analysis Accounts 10 Income Statement 11 Reconciliation of Movements in Shareholders Funds 12 Balance Sheet 13 Cash Flow Statement 14 Notes to the Accounts Shareholder Information 16 Interim Management Report 17 Subscription Shares 18 Glossary of Terms and Definitions 21 Information about the Company Objective Long term capital growth through investment in small and medium sized Japanese companies. Investment Policies - To maintain a portfolio almost wholly invested in Japan. - To restrict the Company s Japanese investment universe to all quoted companies excluding the largest 200 measured by market capitalisation. - To utilise borrowings to enhance shareholder returns. - To operate a gearing policy for the Company within a range of 90% to 120% invested. - To invest no more than 15% of gross assets in other UK listed investment companies (including investment trusts). Benchmark S&P/Citigroup Japan Extended Market Index (Total Return Net) in sterling terms. Comparison of the Company s performance is made with the benchmark as stated. Capital Structure At 30th September 2012, the Company s share capital comprised 39,489,818 Ordinary shares of 10p each, of which 260,500 were held in Treasury and 7,198,978 Subscription shares of 1p each. Management Company The Company employs JF Asset Management Limited ( JFAM ) to manage its assets and JPMorgan Asset Management (UK) Limited ( JPMAM ) as Secretary.

3 Half Year Performance 0.8% Portfolio total return net of fees and expenses 1,2 +1.1% 6.1% Diluted return on net assets 1,3 Benchmark return 4 7.5% Return to Ordinary shareholders 1 Financial Data 30th September 31st March % change Shareholders funds ( 000) 65,053 65, Ordinary shares in issue 6 39,229,318 39,421,401 Net asset value per Ordinary share 165.8p 167.1p 0.8 Diluted net asset value per Ordinary share p 164.0p +1.1 Ordinary share price 136.0p 147.0p 7.5 Ordinary share price discount to diluted net asset value per Ordinary share 18.0% 10.4% Subscription share price 5.5p 20.0p Subscription shares in issue 7,198,978 7,232,395 Japanese Smaller Companies Returns (returns for the six months ended 30th September 2012) % JPM JSCT diluted 1,2, Peer Group 8 Benchmark 4 A glossary of terms and definitions is provided on page18. Jasdaq 9 1 Source: J.P. Morgan. 2 Return on net assets calculated using the undiluted net asset value. 3 The diluted net asset value per Ordinary share assumes that all outstanding dilutive Subscription shares were converted into Ordinary shares at the period end and any shares held in Treasury at the period end were reissued in accordance with the Board s policy on the reissuance of Treasury shares. At 30th September 2012, the Subscription and Treasury shares have no dilutive effect, as the Ordinary share price was below the Subscriptions share conversion price and the Treasury shares will only be reissued at a premium to net asset value per share. 4 Source: Datastream. The Company s benchmark is the S&P/Citigroup Japan Extended Market Index (Total Return Net) in sterling terms. 5 A Unit comprises 5 Ordinary shares and 1 Subscription share. 6 Excludes 260,500 (31st March 2012: 35,000) shares held in Treasury. 7 JPMorgan Japan Smaller Companies Trust plc. 8 Source: Morningstar, Japanese smaller companies sector median. 9 Source: Bloomberg. TSE2 9 JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts

4 Chairman s Statement Performance The Japanese smaller companies market continued to be very challenging during the first half of our current financial year. Concern over the prospects for the global economy, the ongoing uncertainty surrounding the Eurozone, the recent US Presidential elections and the strength of the yen were all factors which weighed on sentiment. Positively, the Company outperformed its benchmark index, the S&P/Citigroup Japan Extended Market Index (total return net), with its undiluted net asset value falling by 0.8% compared to the benchmark s decline of 6.1%. The diluted total return on net assets, which assumes that all of the Subscription shares were exercised at the current rate of 174 pence per share, on the other hand, rose by 1.1%. Over the same period, the Company s Ordinary share price fell by 7.5%, reflecting the widening of the discount from 10.4% to 18.0%. Subsequent to the period end, the discount has tightened somewhat and, as at the time of writing, stood at 15.8%. In my year end statement, I highlighted the measures your Board had taken to address the poor performance delivered in recent years, not least the appointment of a new management team based in Tokyo. It is pleasing to see an immediate marked upturn in relative performance following these changes, albeit in a dull market, and the Board will continue to monitor progress carefully. A more detailed review of the Company's performance is given in the Investment Manager's report on pages 3 to 5. Gearing The Company has a 2.0 billion secured credit facility with Scotiabank Europe plc, which gives the Investment Managers the ability to gear tactically. During the six months to 30th September 2012, the Company s gearing ranged from net cash of 2% to5%geared. At the time of writing, the company was 1% net cash. Subscription Shares During the six months to 30th September 2012, the Company issued 33,417 new Ordinary shares following valid applications to exercise Subscription shares. At the time of writing, the Company s shares were trading at 136 pence per share, somewhat below the current exercise price of 174 pence per share. Further details of the Subscription shares can be found on page 17 of this report and on the Company s website at Outlook Our Managers remain cautious regarding the near term outlook for the Japanese economy, but are confident of continuing to identify companies with attractive positioning. The Portfolio is focused on high quality Japanese stocks with good earnings progression, strong balance sheets and, in many cases, exposure to the faster growing economies of Asia. We believe a Portfolio of such stocks offers considerable promise. Alan Clifton Chairman 19th November JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts 2012

5 Investment Managers Report Market review The Japanese market fell during the review period, and the return on S&P/Citigroup Japan Extended Market Index (Total Return Net) was 6.1% in sterling terms. Investors became increasingly risk averse as the outlook for both global and domestic economies deteriorated, the yen continued to strengthen against most other currencies and tensions rose between Japan and China over the disputed Senkaku Islands. Shoichi Mizusawa Nicholas Weindling During the three months to end June, the market focused on news emanating from Europe with elections in Greece and France, as well as soaring borrowing costs for Spain and Italy at centre stage. In addition, the economic outlook deteriorated for the US and China, the two largest economies in the world. Employment data in the US, bellweather for the health of the economy, showed that the pace of the recovery has been painfully slow. In China, the local Shanghai Composite index fell to a new post February 2009 low due to poor economic data and lack of decisive policy response. Although investor sentiment improved markedly in the July to September period, thanks to aggressive monetary easing in Europe, the US and Japan among other countries, the Japanese market failed to participate in the global rally. A stronger yen, rising tensions with China, the failure of the domestic economy to rebound strongly from the adverse shocks of the earthquake and tsunami, as well as the floods in Thailand that disrupted the supply chain for many Japanese exporters in 2011, are all to blame for the underperformance of Japan relative to other markets. Performance review The key focus of the Company s holdings was little changed Japanese companies that have an opportunity to grow in Asia and other emerging economies, those that are restructuring and those that are in structural growth niches within the domestic economy. We focus on companies and industries that are able to show sustained business expansion and that trade at attractive valuations. Typically the balance sheet is strong, operating margins are high, as are returns on assets and equity. Overall there is a very strong focus on business quality. Naohiro Ozawa Over the six months to September, the Company produced a return of 0.8% in sterling terms, while the return of the benchmark S&P/Citigroup Japan Extended Market Index (Total Return Net) was 6.1%. The outperformance over the benchmark is attributable largely to stock selection, although sector allocation also contributed positively. The positive contribution was achieved in a range of sectors, in each of which our focus on quality of earnings and quality of balance sheet helped produce superior returns than the broader market. The top contributors to the outperformance were Ship Healthcare Holdings which operates dispensing pharmacies and consulting services to hospitals, an online JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts

6 Investment Managers Report continued medical portal operator M3, Seven Bank which is an ATM network operator mainly through Seven Eleven convenience stores, Sho-Bond Holdings which specialises in the maintenance and repair of bridges and other social infrastructure, and Sysmex, a medical equipment company. All of them are core holdings whose medium-term growth potential is, we believe, not fully appreciated by the market. In addition, all of them have robust balance sheets and generate strong cash flow. On the other hand, our holdings in cyclical sectors, such as Daido Metal, Skymark Airlines and Eagle Industries, detracted from performance. With respect to sector allocation, our focus on quality of balance sheet and long-term, as opposed to cyclical, growth potential has resulted in an overweight stance in sectors such as healthcare and internet and a cautious stance towards materials, capital goods and technology. The Company was fully invested at the end of September and the turnover was less than 20% during the six months, down significantly from the same period a year ago. Outlook and portfolio strategy We believe that equity market volatility will remain high, due to uncertainties related to the outlook for the economy as well as policy risks around the world. It is our view that global economic growth will be subdued for a protracted period, and the risks are skewed to the downside due to deflationary forces arising from de-leveraging. The Bank of Japan does not appear to be prepared to engage itself in aggressive easing, nor is the government any closer than before to addressing the structural issues of budget deficit, declining working population and deflation. It is likely that there will be another general election before spring next year, and the consensus view is that the ruling Democratic Party of Japan will lose its majority and a new coalition government centred around the Liberal Democratic Party will succeed. Under such circumstances, we do not intend to change our strategy. In the last report, we wrote the following: There are many long-term trends in Japan, both positive and negative. 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 should be a strong competitive advantage in identifying long-term country, sector and stock specific themes. Although there are many macro-economic headwinds we are positive on the outlook for the Company s holdings in the long-term view. Indeed, the Japanese equity market has played out almost exactly as we anticipated above. Those companies that are expected to deliver long-term growth have generally performed strongly. On the other hand, companies that lack clear competitive advantage and companies whose balance sheets are highly geared, have seen their share prices fall significantly. 4 JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts 2012

7 Some of the themes that we have focused on include the internet, an ageing population in Japan and the rise of the middle class in emerging economies. Although we are cautious on the long-term trend for overall domestic demand, we believe we can identify clear winners and losers. The Portfolio comprises stocks which are well positioned to prosper, notwithstanding the challenges facing the Japanese economy. Shoichi Mizusawa Nicholas Weindling Naohiro Ozawa Investment Managers 19th November 2012 JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts

8 List of Investments at 30th September 2012 Valuation Total Assets Company Sector 000 % Don Quijote (7532) Retail Trade 2, CyberAgent (4751) Services 1, Seven Bank (8410) Banks 1, Musashi Seimitsu Industries (7220) Transportation Equipment 1, Nikkiso (6376) Precision Instruments 1, Itochu Techno Solutions (4739) Information & Communication 1, Ship Healthcare (3360) Wholesale Trade 1, Mitsubishi UFJ Lease & Finance (8593) Other Financing Business 1, IBJ Leasing (8425) Other Financing Business 1, Sysmex (6869) Electric Appliances 1, Suruga (8358) Banks 1, Yamato Kogyo (5444) Iron & Steel 1, Hitachi Transport System (9086) Land Transportation 1, Nissin Kogyo (7230) Transportation Equipment 1, Konami (9766) Information & Communication 1, M3 (2413) Services 1, Sho-Bond (1414) Construction 1, Message (2400) Services 1, Disco (6146) Machinery 1, Namco Bandai (7832) Other Products 1, Net One Systems (7518) Information & Communication 1, Unipres (5949) Transportation Equipment Raito Kogyo (1926) Construction Tokyu Livable (8879) Real Estate Industrial & Infrastructure REIT (3249) Real Estate ARCS (9948) Retail Trade Relo (8876) Real Estate Daiichikosho (7458) Services Aica Kogyo (4206) Chemicals Daido Metal (7245) Transportation Equipment Asahi Intecc (7747) Precision Instruments FP (7947) Chemicals POLA Orbis (4927) Chemicals Sumitomo Real Estate (8870) Real Estate Yokogawa Electric (6841) Electric Appliances JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts 2012

9 Valuation Total Assets Company Sector 000 % Fuji Seal International (7864) Other Products Aeon Delight (9787) Services Kakaku (2371) Services Glory (6457) Machinery Anritsu (6754) Electric Appliances H.I.S. (9603) Services Nifco (7988) Chemicals Kanamoto (9678) Services Ain Pharmaciez (9627) Retail Trade SUGI (7649) Retail Trade Kansai Paint (4613) Chemicals Nihon M&A Center (2127) Services Miraca (4544) Services Misumi (9962) Wholesale Trade Capcom (9697) Information & Communication MonotaRO (3064) Retail Trade JIN (3046) Precision Instruments Autobacs (9832) Wholesale Trade Yamatake (6845) Electric Appliances Toyo Suisan Kaisha (2875) Foods Taiheiyo Cement (5233) Glass & Ceramics Products Trancom (9058) Warehouse & Harbour Transportation Nabtesco (6268) Machinery Eagle Industry (6486) Machinery GMO Payment Gateway (3769) Information & Communication Cosmos Pharmaceutical (3349) Retail Trade OKI Electric (6703) Electric Appliances F.C.C. (7296) Transportation Equipment Asahi (3333) Retail Trade Neturen (5976) Metal Products United Technology (2146) Services Sanrio (8136) Wholesale Trade Haseko (1808) Construction JP (2749) Services Skymark Airlines (9204) Air Transportation JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts

10 List of Investments continued at 30th September 2012 Valuation Total Assets Company Sector 000 % Tomoe Engineering (6309) Machinery Lifenet (7157) Insurance D Matrix (7777) Pharmaceutical Calbee (2229) Foods Okinawa Cellular (9436) Information & Communication Aichi (6345) Machinery Sosei (4565) Pharmaceutical Arealink (8914) Real Estate Sumitomo Pipe & Tube (5457) Iron & Steel Medical System Network (4350) Retail Trade Teikoku Electric (6333) Machinery Leopalace (8848) Real Estate Success (6065) Services Net current assets 1 5, Total assets less current liabilities 69, The portfolio comprises entirely equity investments. 1 The net current assets percentage of 7.9% includes the value of the long term loan. Actual net assets were 793,000 or 1.1%. 8 JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts 2012

11 Sector Analysis at 30th September 2012 at 31st March 2012 Portfolio Benchmark Portfolio Benchmark % 1 % % 1 % Services Retail Trade Information & Communication Transportation Equipment Electric Appliances Machinery Real Estate Chemicals Wholesale Trade Banks Precision Instruments Other Financing Business Construction Other Products Iron & Steel Land Transportation Foods Pharmaceuticals Glass & Ceramics Products Warehouse & Harbour Transportation Metal Products Air Transportation Insurance Electric Power & Gas Fishery Agriculture & Forestry Marine Transportation Mining Nonferrous Metals Oil & Coal Pulp & Paper Rubber Products Securities & Commodity Futures Textiles & Apparels Net current assets/(liabilities) (5.1) Total Based on total assets less current liabilities of 65.0m (31st March 2012: 65.9m). 2 The net current assets percentage of 7.9% includes the value of the long term loan. Actual net assets were 793,000 or 1.1%. JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts

12 Income Statement for the six months ended 30th September 2012 (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30th September th September st March 2012 Revenue Capital Total Revenue Capital Total Revenue Capital Total (Losses)/gains on investments held at fair value through profit or loss (478) (478) 4,495 4, Net foreign currency losses (91) (91) (441) (441) (411) (411) Income from investments ,295 1,295 Other interest receivable and similar income 1 1 Gross return/(loss) 636 (569) ,054 4,609 1, ,821 Management fee (349) (349) (494) (494) (873) (873) Other administrative expenses (188) (188) (188) (188) (372) (372) Net return/(loss) on ordinary activities before finance costs and taxation 99 (569) (470) (127) 4,054 3, Finance costs (49) (49) (97) (97) (124) (124) Net return/(loss) on ordinary activities before taxation 50 (569) (519) (224) 4,054 3,830 (73) Taxation (45) (45) (39) (39) (91) (91) Net return/(loss) on ordinary activities after taxation 5 (569) (564) (263) 4,054 3,791 (164) Return/(loss) per Ordinary share (note 3) undiluted 0.01p (1.44)p (1.43)p (0.67)p 10.27p 9.60p (0.42)p 1.33p 0.91p diluted 0.01p (1.51)p (1.50)p (0.67)p 10.32p 9.65p (0.42)p 1.34p 0.92p All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. 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. 10 JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts 2012

13 Reconciliation of Movements in Shareholders Funds Called up Capital Six months ended share Share Other redemption Capital Revenue 30th September 2012 capital premium reserve reserve reserves reserve Total (Unaudited) At 31st March , ,775 1,836 (243,203) (12,263) 65,878 Repurchase of shares held in Treasury (310) (310) Issue of Ordinary shares on exercise of Subscription shares Net (loss)/return on ordinary activities (569) 5 (564) At 30th September , ,465 1,836 (243,772) (12,258) 65,053 Called up Capital Six months ended share Share Other redemption Capital Revenue 30th September 2011 capital premium reserve reserve reserves reserve Total (Unaudited) At 31st March , ,823 1,794 (243,728) (12,099) 65,558 Cancellation of shares held in Treasury (42) 42 Issue of Ordinary shares on exercise of Subscription shares 6 6 Net return/(loss) on ordinary activities 4,054 (263) 3,791 At 30th September , ,823 1,836 (239,674) (12,362) 69,355 Called up Capital Year ended share Share Other redemption Capital Revenue 31st March 2012 capital premium reserve reserve reserves reserve Total (Audited) At 31st March , ,823 1,794 (243,728) (12,099) 65,558 Repurchase of shares into Treasury (48) (48) Cancellation of shares in Treasury (42) 42 Issue of Ordinary shares on exercise of Subscription shares Net return/(loss) on ordinary activities 525 (164) 361 At 31st March , ,775 1,836 (243,203) (12,263) 65,878 JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts

14 Balance Sheet at 30th September 2012 (Unaudited) (Unaudited) (Audited) 30th September th September st March Fixed assets Investments held at fair value through profit or loss 64,330 66,263 69,273 Current assets Debtors 493 1,432 1,490 Cash and short term deposits 5,073 10, ,566 11,737 2,044 Creditors: amounts falling due within one year (67) (8,645) (5,439) Net current assets/(liabilities) 5,499 3,092 (3,395) Total assets less current liabilities 69,829 69,355 65,878 Creditors: amounts falling due after more than one year (4,776) Net assets 65,053 69,355 65,878 Capital and reserves Called up share capital 4,020 4,016 4,017 Share premium Other reserve 314, , ,775 Capital redemption reserve 1,836 1,836 1,836 Capital reserves (243,772) (239,674) (243,203) Revenue reserve (12,258) (12,362) (12,263) Total equity shareholders funds 65,053 69,355 65,878 Net asset value per Ordinary share (note 4) undiluted 165.8p 175.8p 167.1p diluted 165.8p 171.3p 164.0p The Company s registration number is JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts 2012

15 Cash Flow Statement for the six months ended 30th September 2012 (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30th September th September st March Net cash inflow/(outflow) from operating activities (note 5) 190 (1) (59) Net cash outflow from return on investments and servicing of finance (53) (101) (125) Net cash inflow from capital expenditure and financial investment 4,521 10,294 2,325 Net cash outflow from financing (261) (6,233) (7,928) Increase/(decrease) in cash in the period 4,397 3,959 (5,787) Reconciliation of net cash flow to movement in net funds/debt Net cash movement 4,397 3,959 (5,787) Net loans repaid 6,239 7,887 Exchange movements (91) (441) (411) Movement in net funds in the period 4,306 9,757 1,689 Net debt at the beginning of the period (4,009) (5,698) (5,698) Net funds/(debt) at the end of the period 297 4,059 (4,009) Represented by: Cash and short term deposits 5,073 10, Debt falling due after more than one year (4,776) (6,246) (4,563) Net funds/(debt) at the end of the period 297 4,059 (4,009) JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts

16 Notes to the Accounts for the six months ended 30th September Financial statements The information contained within the Financial Statements in this half year report has not been audited or reviewed by the Company s auditors. The figures and financial information for the year ended 31st March 2012 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act Accounting policies The accounts have been prepared in accordance with 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 issued in January All of the Company s operations are of a continuing nature. The accounting policies applied in these half year accounts are consistent with those applied in the accounts for the year ended 31st March Return/(loss) per Ordinary share (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30th September th September st March Return/(loss) per Ordinary share is based on the following: Revenue return/(loss) 5 (263) (164) Capital (loss)/return (569) 4, Total (loss)/return (564) 3, Weighted average number of Ordinary shares in issue during the period used for the purpose of the basic (undiluted) calculation 39,379,850 39,455,653 39,446,389 Weighted average number of Ordinary shares in issue during the period used for the purpose of the diluted calculation 37,514,172 39,267,442 39,134,213 Basic (undiluted) Revenue return/(loss) per Ordinary share 0.01p (0.67)p (0.42)p Capital (loss)/return per Ordinary share (1.44)p 10.27p 1.33p Total (loss)/return per Ordinary share (1.43)p 9.60p 0.91p Diluted Revenue return/(loss) per Ordinary share 0.01p (0.67)p (0.42)p Capital (loss)/return per Ordinary share (1.51)p 10.32p 1.34p Total (loss)/return per Ordinary share (1.50)p 9.65p 0.92p The diluted return/(loss) per Ordinary share represents the return/(loss) on ordinary activities after taxation for the period divided by the weighted average number of Ordinary shares in issue during the period, as adjusted in accordance with the requirements of Financial Reporting Standard 22 Earnings per share. 14 JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts 2012

17 4. Net asset value per Ordinary share (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30th September th September st March 2012 Undiluted Ordinary shareholders funds ( 000) 65,053 69,355 65,878 Number of Ordinary shares in issue 39,229,318 39,456,287 39,421,401 Net asset value per Ordinary share 165.8p 175.8p 167.1p Diluted Ordinary shareholders funds assuming exercise of dilutive Subscription shares and reissuance of any Treasury shares ( 000) 65,053 79,987 76,510 Number of potential Ordinary shares in issue 39,229,318 46,688,796 46,653,796 Net asset value per Ordinary share 165.8p 171.3p 164.0p The diluted net asset value per Ordinary share assumes that all outstanding dilutive Subscription shares were converted into Ordinary shares at the period end and any shares held in Treasury at the period end were reissued in accordance with the Board s policy on the reissuance of Treasury shares. At 30th September 2012, the Subscription and Treasury shares have no dilutive effect, as the Ordinary share price was below the Subscriptions share conversion price and the Treasury shares will only be reissued at a premium to net asset value per share. 5. Reconciliation of net loss/(return) on ordinary activities before finance costs and taxation to net cash inflow/(outflow) from operating activities (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30th September th September st March Total (loss)/return on ordinary activities before finance costs and taxation (470) 3, Less capital loss/(return) before finance costs and taxation 569 (4,054) (525) Decrease/(increase) in accrued income (66) Decrease in other debtors (Decrease)/increase in other creditors (30) (37) 38 Overseas withholding tax (45) (39) (91) Net cash inflow/outflow from operating activities 190 (1) (59) JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts

18 Interim Management Report The Company is required to make the following disclosures in its half year report. Principal Risks and Uncertainties The principal risks and uncertainties faced by the Company fall into the following broad categories: investment and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational; foreign currency; and financial (including credit risk). Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 31st March Directors Responsibilities The Board of Directors confirms that, to the best of its knowledge: (i) the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the Accounting Standards Board s Statement Half-Yearly Financial Reports ; and (ii) the interim management report includes a fair review of the information required by DTR 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules. Related Parties Transactions During the first six months of the current 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 period. For and on behalf of the Board Alan Clifton Chairman 19th November JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts 2012

19 Subscription Shares On 5th March 2009 the Company issued Subscription shares as a bonus issue to the Ordinary shareholders on the basis of one Subscription share for every five Ordinary shares held. Each Subscription share confers the right (but not the obligation) to subscribe for one Ordinary share on any business day during the period from 1st April 2009 to 31st March 2014, after which the rights on the Subscription shares will lapse. For the purposes of UK taxation, the issue of Subscription shares is treated as a reorganisation of the Company s share capital. Whereas such reorganisations do not trigger a chargeable disposal for the purposes of the taxation of capital gains, they do require shareholders to reallocate the base costs of their Ordinary shares between Ordinary shares and Subscription shares received. At the close of business on 5th March 2009 the middle market prices of the Company s Ordinary shares and Subscription shares were as follows: Ordinary shares: p Subscription shares: 7p Future exercise prices of the Subscription shares have been determined as follows: If exercised between 1st April 2012 and 31st March pence. Notice of the exercise of the Subscription share rights may be given at any time from 1st April 2009 until 31st March 2014 and the Ordinary shares arising on conversion will be issued within ten business days of the first business day of the calendar month following the month in which the relevant notices are received by the registrars. For further details on how to exercise the Subscription share rights please refer to the Company s website at or contact the Secretary on Accordingly an individual investor who on 5th March 2009 held five Ordinary shares (or a multiple thereof) would have received a bonus issue of one Subscription share (or the relevant multiple thereof) and would apportion the base cost of such holding 98.64% to the five Ordinary shares and 1.36% to the Subscription shares. JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts

20 Glossary of Terms and Definitions Unit Return to Shareholders Increase or decrease in the mid-market price of a Unit over the period. A Unit comprises 5 Ordinary shares and 1 Subscription share. Return to Ordinary Shareholders Increase or decrease in the mid-market price of an Ordinary share over the period. Undiluted Return on Net Assets Increase or decrease in the undiluted net asset value per Ordinary share over the period. Diluted Return on Net Assets Increase or decrease in the diluted net asset value per Ordinary share (as defined below) over the period. (Loss)/Return Per Ordinary Share The undiluted (loss)/return per Ordinary share represents the (loss)/ return on ordinary activities after taxation divided by the weighted average number of Ordinary shares in issue during the period. The diluted (loss)/return per Ordinary share represents the (loss)/return on ordinary activities after taxation divided by the weighted average number of Ordinary shares in issue during the period as adjusted in accordance with the requirements of Financial Reporting Standard 22 Earnings per share. Diluted Net Asset Value ( NAV ) per Ordinary Share The diluted NAV per Ordinary share assuming that all outstanding dilutive Subscription shares were converted into Ordinary shares at the period end and any shares held in Treasury at the period end were reissued in accordance with the Board s policy on the reissuance of Treasury shares. Benchmark Return Total return on the benchmark, on a mid-market value to mid-market value basis, assuming that all dividends received were reinvested in the shares of the underlying companies at the time the shares were quoted ex-dividend. The benchmark is a recognised index of stocks which should not be taken as wholly representative of the Company s investment universe. The Company s investment strategy does not follow or track this index and consequently, there may be some divergence between the Company s performance and that of the benchmark. Ordinary Share Price Discount to Diluted Net Asset Value (NAV) Per Ordinary Share If the share price of an investment trust is lower than the diluted NAV per share, the Company s shares are said to be trading at a discount. The discount is shown as a percentage of the diluted NAV per share. The opposite of a discount is a premium. It is more common for an investment trust s shares to trade at a discount than at a premium. 18 JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts 2012

21 Information about the Company Financial Calendar Financial year end 31st March Final results announced June Half year end 30th September Half year results announced November Interim Management Statements announced July and January Subscription share exercise dates 1st April 2009 to 31st March 2014 Annual General Meeting July/August History The Company and its predecessor, JF Fledgeling Japan Limited, have been investing in Japanese smaller companies since In early 2000, JF Fledgeling Japan Limited was placed into voluntary liquidation and JPMorgan Fleming Japanese Smaller Companies Investment Trust was incorporated and took over its assets and undertakings. Dealings on the new Company began on the London Stock Exchange on 11th April The Company changed its name to JPMorgan Japan Smaller Companies Trust plc in July Directors Alan Clifton (Chairman) John Gibbon Bernard Grigsby Chris Russell Robert White Company Numbers Company registration number: Ordinary Shares London Stock Exchange Sedol number: ISIN: GB Bloomberg ticker: JPS LN Subscription Shares London Stock Exchange Sedol number: B3Q7DL7 ISIN: GB00B3Q70L73 Bloomberg ticker: JPSS Market Information The Company s net asset value ( NAV ) is published daily, via the London Stock Exchange. The Company s Ordinary shares are listed on the London Stock Exchange and are quoted daily in the Financial Times, The Times, The Daily Telegraph, The Scotsman, The Independent and on the J.P. Morgan website at where the Ordinary share price is updated every fifteen minutes during trading hours. The Company s Subscription share price is listed on the London Stock Exchange and quoted daily in the Financial Times and on the J.P. Morgan website at where the Subscription share price is updated every fifteen minutes during trading hours. Website A member of the AIC Share Transactions The Company s shares may be dealt in directly through a stockbroker or professional adviser acting on an investor s behalf. They may also be purchased and held through the J.P. Morgan Investment Account, J.P. Morgan ISA and J.P. Morgan SIPP. These products are all available on the online wealth manager service, J.P. Morgan WealthManager+ available at Manager JF Asset Management Limited. Company Secretary JPMorgan Asset Management (UK) Limited Company s Registered Office Finsbury Dials 20 Finsbury Street London EC2Y 9AQ Telephone number: For company secretarial and administrative matters, please contact Andrew Norman. Custodian JPMorgan Chase Bank, N.A. 25 Bank Street Canary Wharf London E14 5JP Registrars Equiniti Limited Reference 2093 Aspect House Spencer Road Lancing West Sussex BN99 6DA Telephone: Notifications of changes of address and enquiries regarding share certificates or dividend cheques should be made in writing to the Registrar quoting reference Registered shareholders can obtain further details on individual holdings on the internet by visiting Independent Auditor Deloitte LLP Chartered Accountants and Statutory Auditor Stonecutter Court 1 Stonecutter Street London EC4A 4TR Savings Product Administrators For queries on the J.P. Morgan Investment Account, J.P. Morgan ISA and J.P. Morgan SIPP, see contact details on the back cover of this report. JPMorgan Japan Smaller Companies Trust plc. Half Year Report & Accounts

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