TIDMCCJI
RNS Number : 6969N
CC Japan Income & Growth Trust PLC
22 January 2019
CC JAPAN INCOME & GROWTH TRUST PLC
LEI: 549300FZANMYIORK1K98
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
INVESTMENT OBJECTIVE
The investment objective of the Company is to provide
Shareholders with dividend income combined with capital growth,
mainly through investment in equities listed or quoted in
Japan.
FINANCIAL INFORMATION
At At
31 October 31 October
2018 2017
-------------------------------------------- ------------- -------------
Net assets (millions) GBP190.9 GBP130.1
-------------------------------------------- ------------- -------------
Net asset value ("NAV") per Ordinary Share
("Share") 148.6p 146.0p
------------------------------------------------ ------------- -------------
Share price(1) 153.0p 152.0p
------------------------------------------------ ------------- -------------
Share price premium
to NAV(2) 3.0% 4.1%
--------------------------------------------- ------------- -------------
(1) Measured on a cum income basis
(2) This is an Alternative Performance Measure ('APM')
PERFORMANCE SUMMARY
For the year For the year
to to
31 October 31 October
2018 2017
-------------------------------------------- ------------- -------------
% change(1) % change(1)
-------------------------------------------- ------------- -------------
NAV total return per
share(2) +4.1% +20.7%
--------------------------------------------- ------------- -------------
Share price total
return(2) +2.8% +27.2%
--------------------------------------------- ------------- -------------
Topix index total
return -0.4% +10.1%
--------------------------------------------- ------------- -------------
(1) Total returns are stated in GBP sterling, including
dividends reinvested.
(2) These are APMs. Definitions of these and other APMs used
in this Annual Report, together with how these measures have
been calculated are disclosed in the Annual Report.
Source: Bloomberg
Chairman's Statement
Performance
I am pleased to present the results for the Company's third
annual report. Over the financial year to 31 October 2018, and
measured by total return, the Net Asset Value ("NAV") increased by
4.1%, while the share price rose by 2.8% over the year whereas the
Tokyo Stock Price Index ("Topix"), measured in sterling terms, fell
by 0.4%. The total return includes dividends paid during the
financial year. Since listing on the London Stock Exchange in
December 2015 and until the recent financial year end, the share
price total return and the NAV total return were 57.3% and 57.2%
respectively, comparing favourably with a Topix total return of
48.5% measured in sterling terms over that period.
Although the Topix was flat over the financial year, the
performance conceals considerable turbulence in world stock
markets. As at 18 January 2019, the Topix has, in fact, in yen
total return terms, declined by nearly 17% from the high reached on
23 January 2018, including a 5% fall since our financial year end.
Most of the decline relates to the deterioration of global
liquidity with tightening of monetary and interest rate policy led
by the US Federal Reserve followed by the European Central Bank.
Other factors include President Trump's trade and containment
policies towards China, geopolitical concerns, not least in the
Pacific theatre, the impact of algorithmic stock trading and some
evidence of slowing global economic growth.
Growth of the Company and Share Issuance
The Board is committed to growing the size of the Company
consistent with the aims of achieving scale, spreading costs over a
larger shareholder base and capturing the growing income
opportunity that our Investment Manager has so presciently
identified in the Japanese corporate sector. The Company's share
price has continued to trade at a premium to underlying NAV,
reflecting investor demand which has, in turn, accommodated the
share issuance programme, approved by shareholders at a General
Meeting held in December 2017 and implemented by the publication of
the Tri Partite Prospectus and Supplementary Prospectus in January
2018. The Initial Issue raised gross proceeds of GBP32.9 million
with 19,986,048 shares issued at 164.5p per share on 29 January
2018. Subsequently, a further 19,297,571 shares were issued by a
series of "tap" issues up to the Company's financial year end,
raising further gross proceeds of approximately GBP30.4 million. As
a consequence, the Company has expanded its asset base from GBP66.5
million at launch in 2015 to GBP190.9 million as at 31 October
2018. The Board believes that this endorses an investment strategy
that has traction at a time when foreigners have been wholesale
sellers of the Japanese stock market throughout 2018.
On 11 January 2019, notice of a General Meeting to be held on 4
February 2019 together with a Circular was sent to Shareholders
seeking authority to issue an additional 16,932,556 shares non
pre-emptively. Since this authority will, in turn, if granted,
expire at this year's Annual General Meeting, the Board is seeking
to renew the authority to allot securities non pre-emptively at
that time. Please see Resolutions 12 and 13, to be tabled, as shown
in the Notice of the Annual General Meeting.
The Company was promoted to the FTSE All-Share Index in June
2018.
Income
There is a clear trend of Japanese company boards responding to
the benefits of delivering rising income distributions to their
shareholders by way of rising dividends, payout ratios and buy
backs as part of a growing appreciation of the benefits of managing
excess capital on balance sheets encouraged by Stewardship and
Corporate Governance Codes. As a result, our revenue account
continues to prosper and the Board is recommending a final dividend
of 2.50p per share, which will be payable to Shareholders on the
register at the close of business on 1 February 2019, subject to
Shareholders' approval at the Annual General Meeting. Together with
an interim payment of 1.25p per share, this represents an increase
of 8.7% in the full year dividend to 3.75p per share compared to
3.45p per share paid last year.
Gearing & Hedging
I would like to remind shareholders that structural gearing
equivalent to 20% of shareholders' funds is an integral part of the
investment process. This is enacted by establishing a CFD (Contract
For Difference) position equivalent to one fifth of each individual
holding. This has the benefit of providing the Company with
significant additional income from the CFD holding of shares, to
which the Company is entitled, as well the expected long term
capital appreciation of the underlying holdings. This may lead to
greater short term volatility. The Board could in exceptional
circumstances reduce or eliminate the structural gearing. However,
the policy is a key component of our investment strategy, which the
Board continues to believe should enhance returns for investors
over time.
It should also be noted that, as indicated in the investment
policy, the Company does not intend to hedge its underlying
currency exposure to investments denominated in yen, although the
Investment Manager and the Board review the policy. Hedging the yen
exposure may look attractive from time to time but it is expensive
to execute and seldom works. The Board has no current intention of
implementing currency hedging. Being unhedged gives the portfolio
and its income stream a direct exposure to the yen / sterling
exchange rate.
Composition of the Board
The Board was pleased to announce the appointment of Kate
Cornish-Bowden as a non-executive director in September 2018.
Having worked in senior roles in the investment management industry
for a number of years, she brings a strong knowledge of Japanese
equities as well as more recent experience as a non-executive
director. I am sure she will make a significant contribution to the
Company.
Market Developments
Improved corporate governance in Japan remains one of the most
important successes of the Japanese Prime Minister's ongoing growth
strategy and reform programme widely referred to as "Abenomics".
The Corporate Governance Code was first implemented in March 2015
and subsequent revisions were announced in June 2018. These
revisions incorporated greater disclosure requirements for
cross-shareholdings, more transparent procedures for the
appointment of a CEO and disclosing their responsibilities as well
as further information disclosure on business strategy and
Environmental, Social and Governance ("ESG") issues. The importance
of this Code has been highlighted by the recent alleged misconduct
at Nissan Motor regarding compliance with the Code's principles of
determining compensation for its executives. The negative headlines
associated with this story reinforce the need for further adherence
to the principles promoted by the Code. Our Investment Manager
continues to engage regularly with companies to ensure that the
importance of higher standards of corporate governance and regard
for shareholders are at the forefront of managerial decision
making.
Continuation Vote
The Investment Manager has achieved very solid investment
returns over the initial three years of the Company's life. The
Board remains confident of the outlook for the portfolio and
constituent income growth and consequently has no hesitation in
recommending that Shareholders vote in favour of the resolution for
the Company's continuation to be tabled, as stipulated by the
Company's Articles of Association, at the forthcoming Annual
General Meeting.
Outlook
The immediate economic prospects for Japan are heavily dependent
on the dynamics of the global economy. This has not changed in
recent years. The greatest dependence is on the US economy both
through its direct trading relationship and also the secondary
impact on international trade. China, as Japan's largest trading
partner also has an important influence on the business
performance, supply chains and investor perception of Japan and
many individual companies.
The domestic economy has benefited from not only global economic
recovery but also, notably from Abenomics. Prime Minister Abe
recently won an unprecedented third term as leader of the ruling
Liberal Democratic Party which leaves him set to remain as Prime
Minister until 2021 and thereby to become modern Japan's longest
serving elected leader. This political stability is in stark
contrast to Japan's own recent history and the current
international stage. Notwithstanding tensions over the Korean
peninsula, Russian meddling in the Kuril islands, China's expanding
footprint in the South China Sea and throughout the Pacific, the
domestic political backdrop should be considered positive for
Japanese equities. As signs emerge of an end to deflation, the
focus of debate has shifted to how and when the Bank of Japan
removes its easy monetary policy. However, the main topic for the
Government in 2019 may be the looming proposal to introduce a
consumption tax hike in October 2019. The Prime Minister has been a
strong advocate of an increase from 8% to 10% and time will tell
whether other policy initiatives expected to soften its impact will
be successful in averting the downturns that have followed previous
adjustments to the consumption tax. For instance, the 2020 Olympics
should provide some additional stimulus.
The Investment Manager determines portfolio composition through
a rigorous analysis of the attributes of individual companies. The
credentials of the investment strategy depend on the continued
delivery of returns to shareholders growing over an extended
period. The vicissitudes of economic cycles may come and go, but
the improvement of shareholder returns has been very visible during
the recent economic expansion in Japan. While there has been a
sustained rise in dividends and share buybacks, perhaps the most
pertinent change in attitudes in Japan has been a metamorphosis in
Japanese corporate culture to focus on the stability of dividends
available to shareholders.
Harry Wells
21 January 2019
INVESTMENT MANAGER'S REPORT
Performance Review
The portfolio has produced a positive return over the year to 31
October 2018 with the net asset value (NAV) per ordinary share
rising from 146.0p per share to 148.6p per share. In addition, the
Company paid total dividends of 3.55p per share during the year
giving a total return of 4.1%.
Although the mandate is unconstrained by any index, this
represents outperformance of the Topix Total Return Index over the
reporting timeframe. Performance has been primarily derived from
the strong returns of individual companies rather than any
overriding factor although we believe that the favourable
shareholder return characteristics of companies identified by the
strategy have been an important consideration. Selected holdings in
the mid and small cap segments of the market have again made
positive contributions and it is worth reiterating the qualities of
companies positioned in these segments of the market where it is
frequently the case that management are shareholders themselves and
hence share a more robust understanding of the responsibilities to
minority shareholders such as ourselves.
The top contributors to performance are all good examples of
opportunities identified outside the large cap. sector and also
highlight the diverse range of opportunities that we are able to
identify as the environment for shareholder return continues to
improve. Katitas, which is the leading supplier of refurbished
houses in Japan, was the largest single contributor. This company
was relisted after a period in the hands of private equity and
returned to the stock market as a considerably more focused and
better run business with an attractive shareholder return policy.
Hikari Tsushin, a service provider for domestic SMEs, Yamada
Consulting, a business succession planning consultancy, Kakaku.com,
which operates Japan's leading online restaurant service, and
Shoei, the world's leading manufacturer of premium motorcycle
helmets, all produced significant positive returns. After a period
of weakness during 2017, it was pleasing to see the holdings in the
real estate investment trusts ("REITs") make positive contributions
again. Most notably, Invesco Office REIT, which has been at the
forefront of shareholder engagement and was the first REIT in Japan
to announce a share buy back. The performance of Noevir, one of the
top contributors in the previous year, was somewhat disappointing
and particularly so given the extremely favourable return to
shareholders during the year with the company announcing a full
dividend increase from Y150 to Y180 per share (+20%
year-on-year).
We believe that our investment process allows us to identify the
companies that offer the best shareholder return characteristics.
In addition to the example of Noevir, Mitsubishi UFJ Holdings paid
a substantially higher than anticipated dividend of Y22 instead of
Y20. Shoei, Amada, Daiwa House and Hikari Tsushin have also
increased their projected payment for the full year. Buybacks
announced include NTT (Y150 billion or 1.57% of shares in issue),
Daiwa House (Y10 billion or 0.4%), MUFG (Y100 billion, 1.52%),
Toyota (Y250 billion or 1.44%) and Amada (Y10 billion or 2.73%). We
are extremely pleased with these increased shareholder returns,
having identified these opportunities through our analysis and
company visit programme.
Current Positioning
While equity markets may be volatile, the investment policy
remains consistent. It seeks to identify companies with attractive
shareholder return policies that complement the underlying business
growth. The long average holding period tends to reflect the
stability and progression of shareholder returns expected. However,
there are two reasons for selling a position. The first is a
fundamental change in the outlook for the company and by
implication the projected returns to shareholders. The second is
valuation. There are times when a share price exceeds the company's
potential to deliver growth of the dividend, in particular, to an
acceptable level in a reasonable time frame.
For instance, one sector where the outlook has changed is
telecommunications and in particular for the mobile operators.
Early in the year Chief Cabinet Secretary Suga made politically
motivated criticisms of the mobile communications industry claiming
that mobile phone pricing in Japan is too high. Although this has
been a recurring theme of the current administration, it is not a
fully regulated industry and the Government has no control over the
prices of mobile services. However, leading operator NTT DoCoMo
recently announced sweeping price cuts eerily similar to the levels
suggested by the Chief Cabinet Secretary. Due to fears that the
prospects for earnings growth and dividend growth in the near term
are greatly diminished for all companies in the sector, we sold out
of the positions in both NTT DoCoMo and KDDI.
The re-rating of small cap stocks in Japan from late 2017 has
presented a challenge as valuations of many companies whose
fundamentals remained strong became much less attractive after
share price appreciation. Holdings such as Solasto (medical
industry outsourcing), Katitas (housing refurbishment), Trust Tech
and Technopro (both engineering outsourcing) have also been
sold.
New positions have been established in Secom (security
services), Park24 (parking services), SBI Holdings (financial
services), Sho-Bond (highway repair), Avant (financial industry
software) and Mitsubishi Corp (a leading trading company). We
remain encouraged by the diversity of opportunities that exist as
this enhances the stability of the income received by the
Company.
Outlook
Aggregate distributions from Japanese companies are set to
achieve another all-time high in the fiscal year ending March 2019.
Despite this very apparent improvement in recent years, the
potential for further positive developments is evident from the
steady rise in cash accumulated on corporate balance sheets and the
high dividend cover in Japan. We are also encouraged by the
flexible approach to share buybacks promoted by many corporate
leaders as an important component in their efforts to boost capital
efficiency. As a result we believe that these steady improvements
are set to continue regardless of the near term economic trends and
these positive trends will continue to be more broadly recognised
by both domestic and international investors.
Richard Aston
Coupland Cardiff Asset Management LLP
21 January 2019
PRINCIPAL RISKS AND UNCERTAINTIES
Together with the issues discussed in the Chairman's Statement
and the Investment Manager's Report, the Board considers that the
principal risks and uncertainties faced by the Company fall into
the following main categories:
(i) Market risks
Economic conditions
Changes in economic conditions in Japan (for example, interest
rates and rates of inflation, industry conditions, competition,
political and diplomatic events and other factors) and in the
countries in which the Company's investee companies operate could
substantially and adversely affect the Company's prospects.
Sectoral diversification
The Company has no limits on the amount it may invest in any
sector. This may lead to the Company having significant
concentrated exposure to portfolio companies in certain business
sectors from time to time.
Concentration of investments in any one sector may result in
greater volatility in the value of the Company's investments and
consequently its NAV and may materially and adversely affect the
performance of the Company and returns to shareholders.
Unquoted companies
The Company may invest in unquoted companies from time to time.
Such investments, by their nature, involve a higher degree of
valuation and performance uncertainties and liquidity risks than
investments in listed and quoted securities and they may be more
difficult to realise.
The Company currently holds no unquoted companies.
Management of risks
The Company is invested in a diversified portfolio of
investments.
The Company's investment policy states that no single holding
(including any derivative instrument) will represent more than 10%
of the Company's Gross Assets at the time of investment and, when
fully invested, the portfolio is expected to have between 30 to 40
holdings although there is no guarantee that this will be the case
and it may contain a lesser or greater number of holdings at any
time.
A maximum of 10% of the Company's Gross Assets at the time of
investment may be invested in unquoted or untraded companies at
time of investment.
Whilst the Company does not have a benchmark, the Board measures
performance for reference purposes against the Topix Index. The
Board also monitors performance relative to the Company's peer
group over a range of periods, taking into account the differing
investment policies and objectives.
(ii) Corporate governance and internal control risks (includes
cyber security)
The Board has contractually delegated to external agencies the
management of the investment portfolio, the custodial services
(which include the safeguarding of the assets), the registration
services and the accounting and company secretarial
requirements.
The main risk areas arising from the above contracts relate to
allocation of the Company's assets by the Investment Manager, and
the performance of administrative, registration and custodial
services. These could lead to various consequences including the
loss of the Company's assets, inadequate returns to Shareholders
and loss of investment trust status. Cyber security risks could
lead to breaches of confidentiality, loss of data records and
inability to make investment decisions.
Management of risks
Each of the above contracts was entered into after full and
proper consideration of the quality and cost of services offered,
including the financial control systems in operation in so far as
they relate to the affairs of the Company. All of the above
services are subject to ongoing oversight of the Board and the
performance of the principal service providers is reviewed on a
regular basis. The Board monitors key personnel risks as part of
its oversight of the Investment Manager. The Company's key service
providers report periodically to the Board on their procedures to
mitigate cyber security risks.
(iii) Regulatory risks
Breaches of Section 1158 of the Corporation Tax Act could result
in loss of investment trust status. Loss of investment trust status
would lead to the Company being subject to tax on any gains on the
disposal of its investments. Breaches of the FCA's rules applicable
to listed entities could result in financial penalties or
suspension of trading of the Company's shares on the London Stock
Exchange. Breaches of the Companies Act 2006, The Financial
Services and Markets Act, The Alternative Investment Fund Managers'
Directive, Accounting Standards, The General Data Protection
Regulation, The Listing Rules, Disclosure and Transparency Rules
and Prospectus Rules could result in financial penalties or legal
proceedings against the Company or its Directors. Failure of the
Investment Manager to meet its regulatory obligations could have
adverse consequences on the Company.
Management of risks
The Company has contracted out relevant services to
appropriately qualified professionals. The Investment Manager
reports on regulatory matters to the Board on a quarterly basis.
The assessment of regulatory risks forms part of the Board's risk
assessment programme.
(iv) Financial risks
The Company's investment activities expose it to a variety of
financial risks which include foreign currency risk and interest
rate risk. The Company's portfolio income from dividends is
received in Japanese yen but the Company's dividend payable to
shareholders is payable in Sterling.
Management of risks
The Company converts its dividends received into sterling upon
receipt. Further details of financial risks and the management of
those risks are disclosed in note 17 to the accounts.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable laws and
regulations.
Company law requires the Directors to prepare accounts 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, including FRS 102 The
Financial Reporting Standard applicable to the UK and Republic of
Ireland and applicable law. Under company law, the Directors must
not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company as at the end of the year and of the net return for the
year. In preparing these accounts, the Directors are required
to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and estimates, which are reasonable and
prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the accounts; and
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and which disclose with reasonable accuracy at any
time the financial position of the Company and enable them to
ensure that the accounts 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 Company's website at
www.ccjapanincomeandgrowthtrust.com, which is maintained by the
Company's Investment Manager. The work carried out by the auditors
does not involve consideration of the maintenance and integrity of
these websites and, accordingly, the auditors accept no
responsibility for any changes that have occurred to the accounts
since being initially presented on the website. Legislation in the
United Kingdom governing the preparation and dissemination of
nancial statements may differ from legislation in other
jurisdictions.
Directors' confirmation statement
The Directors each confirm to the best of their knowledge
that:
(a) the accounts, prepared in accordance with applicable
accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit of the Company; and
(b) this Annual Report includes a fair review of the development
and performance of the business and position of the Company,
together with a description of the principal risks and
uncertainties that it faces.
Having taken advice from the Audit and Risk Committee, the
Directors consider that the Annual Report and financial statements
taken as a whole is fair, balanced and understandable and provides
the information necessary for Shareholders to assess the Company's
performance, business model and strategy.
For and on behalf of the Board
Harry Wells
Director
21 January 2019
INCOME STATEMENT
For the year ended 31 October 2018
Year ended 31 October Year ended 31 October
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- --------- -------- -------- -------- --------
(Losses)/gains on investments
held at fair value - (1,769)* (1,769) - 18,540 18,540
Income 6,693 - 6,693 4,361 - 4,361
Investment management
fee (262) (1,046) (1,308) (162) (647) (809)
Other expenses (597) - (597) (417) - (417)
Return on ordinary activities
before finance costs and
taxation 5,834 (2,815) 3,019 3,782 17,893 21,675
Finance costs (48) (138) (186) (47) (84) (131)
Return on ordinary activities
before taxation 5,786 (2,953) 2,833 3,735 17,809 21,544
Taxation (669) - (669) (371) - (371)
Return on ordinary activities
after taxation 5,117 (2,953) 2,164 3,364 17,809 21,173
-------------------------------- -------- --------- -------- -------- --------
Return per Ordinary Share 4.55p (2.62)p 1.93p 4.06p 21.47p 25.53p
-------------------------------- -------- --------- -------- -------- -------- --------
*This figure includes currency gains of GBP28,000.
The total column of the Income Statement is the profit and loss account
of the Company. All revenue and capital items in the above statement
derive from continuing operations.
Both the supplementary revenue and capital columns are both prepared
under guidance from the Association of Investment Companies. There is
no other comprehensive income and therefore the return for the year
is also the total comprehensive income for the year.
STATEMENT OF FINANCIAL POSITION
At 31 October 2018
31 October 2018 31 October 2017
GBP'000 GBP'000
------------------------------------------ ----------------- ----------------
Fixed assets
Investments at fair value through
profit or loss 189,419 129,211
------------------------------------------- ----------------- ----------------
Current assets
Cash 1,633 -
Cash collateral paid in respect
of contracts for difference ("CFDs") 689 71
Amounts due in respect of CFDs 1,001 4,931
Other debtors 2,811 1,427
6,134 6,429
------------------------------------------ ----------------- ----------------
Creditors: amounts falling due within
one year
Bank overdraft - (863)
Amounts payable in respect of CFDs (4,413) (662)
Other creditors (225) (3,970)
(4,638) (5,495)
------------------------------------------ ----------------- ----------------
Net current assets 1,496 934
------------------------------------------- ----------------- ----------------
Net assets 190,915 130,145
------------------------------------------- ----------------- ----------------
Capital and reserves
Share capital 1,285 892
Share premium 89,911 28,111
Special reserve 64,671 64,671
Capital reserve
-Revaluation gains on investment
held at year end 15,157 23,187
-Other capital reserve 15,775 10,698
Revenue reserve 4,116 2,586
Total Shareholders' funds 190,915 130,145
------------------------------------------- ----------------- ----------------
NAV per share - Ordinary Shares
(pence) 148.63p 145.95p
------------------------------------------- ----------------- ----------------
Approved by the Board of Directors and authorised for issue on 21 January
2019 and signed on its behalf by:
Harry Wells
Director
CC Japan Income & Growth Trust plc is incorporated in England and Wales
with registration number 9845783.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 October 2018
Share Share Special Capital Revenue
capital premium reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- --------- --------- --------- --------- --------
Balance at 1 November
2018 892 28,111 64,671 33,885 2,586 130,145
Return on ordinary
activities after taxation - - - (2,953) 5,117 2,164
Dividends paid - - - - (3,587) (3,587)
Issue of Ordinary Shares 393 62,980 - - - 63,373
Ordinary share issue
costs - (1,180) - - - (1,180)
Balance at 31 October
2018 1,285 89,911 64,671 30,932 4,116 190,915
----------------------------- --------- --------- --------- --------- --------- --------
For the year ended 31 October 2017
Share Share Special Capital Revenue
capital premium reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- --------- --------- --------- --------- --------
Balance at 1 November
2017 792 14,761 64,671 16,076 1,785 98,085
Return on ordinary
activities after taxation - - - 17,809 3,364 21,173
Dividends paid - - - - (2,563) (2,563)
Issue of Ordinary Shares 100 13,507 - - - 13,607
Ordinary share issue
costs - (157) - - - (157)
Balance at 31 October
2017 892 28,111 64,671 33,885 2,586 130,145
----------------------------- --------- --------- --------- --------- --------- --------
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 OCTOBER 2018
Year ended Year ended
31 October 31 October
2018 2017
GBP'000 GBP'000
-------------------------------------------- ------------ ------------
Operating activities cash flows
Return on ordinary activities before
finance costs and taxation* 3,019 21,675
Adjustment for:
Gains on investments (123) (12,926)
CFD transactions 7,060 (4,150)
Increase in other debtors (973) (634)
Increase/(decrease) in other creditors 69 (8)
Tax withheld on overseas income (669) (371)
-------------------------------------------- ------------ ------------
Net cash flow from operating activities 8,383 3,586
-------------------------------------------- ------------ ------------
Investing activities cash flow
Purchases of investments (91,089) (49,350)
Proceeds from sales of investments 26,784 33,282
Net cash flow used in non-derivative
investing activities (64,305) (16,068)
-------------------------------------------- ------------ ------------
Financing activities cash flows
Issue of Ordinary Share capital 63,373 13,607
Payment of Ordinary Share issue costs (1,180) (178)
Equity dividends paid (3,587) (2,563)
Finance costs paid (188) (120)
Net cash flow from financing activities 58,418 10,746
Increase/(decrease) in cash and cash
equivalents 2,496 (1,736)
------------ ------------
Cash and cash equivalents at the beginning
of the year (863) 873
Cash and cash equivalents at the end
of the year 1,633 (863)
-------------------------------------------- ------------ ------------
* Cash inflow from dividends was GBP5,719,000 (2017:
GBP3,728,000).
NOTES TO THE ACCOUNTS
1. GENERAL INFORMATION
CC Japan Income & Growth Trust plc (the "Company") was incorporated
in England and Wales on 28 October 2015 with registered number 9845783,
as a closed-ended investment company. The Company commenced its operations
on 15 December 2015. The Company intends to carry on business as an
investment trust within the meaning of Chapter 4 of Part 24 of the Corporation
Tax Act 2010.
The Company's investment objective is to provide Shareholders with dividend
income combined with capital growth, mainly through investment in equities
listed or quoted in Japan.
The Company's shares were admitted to the Official List of the UK Listing
Authority with a premium listing on 15 December 2015. On the same day,
trading of the Ordinary Shares commenced on the London Stock Exchange.
The Company's registered office is Mermaid House, 2 Puddle Dock, London,
EC4V 3DB.
2. ACCOUNTING POLICIES
The principal accounting policies followed by the Company are set out
below:
(a) Basis of accounting
The financial statements have been prepared in accordance with FRS 102
("the Financial Reporting Standard applicable in the UK and Republic
of Ireland" issued by the Financial Reporting Council) and with the
Statement of Recommended Practice "Financial Statements of Investment
Trust Companies and Venture Capital Trusts" (issued in November 2014
and updated in February 2018). The financial statements have been prepared
on the historical cost basis except for the modification to a fair value
basis for certain financial instruments as specified in the accounting
policies below.
They have also been prepared on the assumption that approval as an investment
trust will continue to be granted. The financial statements have been
prepared on a going concern basis.
The financial statements have been presented in GBP sterling (GBP),
which is also the functional currency since the Company predominantly
operates in the UK.
(b) Investments
As the Company's business is investing in financial assets with a view
to profiting from their total return in the form of increases in fair
value, financial assets are designated as held at fair value through
profit or loss in accordance with FRS 102 Section 11: 'Basic Financial
Instruments', and Section 12: 'Other Financial Instruments'. The Company
manages and evaluates the performance of these investments on a fair
value basis in accordance with its investment strategy, and information
about the investments is provided on this basis to the Board of Directors.
Upon initial recognition investments are designated by the Company "at
fair value through profit or loss". They are accounted for on the date
they are traded and are included initially at fair value which is taken
to be their cost. Subsequently investments are valued at fair value
which is the bid market price for listed investments.
Changes in the fair value of investments held at fair value through
profit or loss and gains or losses on disposal are included in the capital
column of the income statement within "gains on investments held at
fair value".
(c) Derivatives
Derivatives which comprise of CFDs are held at fair value by reference
to the underlying market value of the corresponding security. Gains
or losses on these derivative transactions are recognised in the Income
Statement. They are recognised as capital and are shown in the capital
column of the Income Statement if they are of a capital nature, and
are recognised as revenue and shown in the revenue column of the Income
Statement if they are of a revenue nature. To the extent that any gains
or losses are of a mixed revenue and capital nature, they are apportioned
between revenue and capital accordingly.
(d) Foreign currency
Transactions denominated in foreign currencies including dividends are
translated into sterling at actual exchange rates as at the date of
the transaction. Assets and liabilities denominated in foreign currencies
at the year end are reported at the rates of exchange prevailing at
the year end. Foreign exchange movements on investments and derivatives
are included in the Income Statement within gains on investments. Any
other gain or loss is included as an exchange gain or loss to capital
or revenue in the Income Statement as appropriate.
(e) Income
Investment income has been accounted for on an ex-dividend basis or
when the Company's right to the income is established. Special dividends
are credited to capital or revenue in the Income Statement, according
to the circumstances surrounding the payment of the dividend. Overseas
dividends are included gross of withholding tax recoverable.
Interest receivable on deposits is accounted for on an accruals basis.
(f) Dividend payable
Interim dividends are recognised when the Company pays the dividend.
Final dividends are recognised in the period in which they are declared
by the Directors and approved by the shareholders.
(g) Expenses
All expenses are accounted for on an accruals basis and are charged
as follows:
-- the basic investment management fee is charged 20% to revenue and
80% to capital;
-- CFD finance costs are charged 20% to revenue and 80% to capital;
-- investment transactions costs are allocated to capital; and
-- other expenses are charged wholly to revenue.
(h) Taxation
The tax expense represents the sum of the tax currently payable and
deferred tax. The tax currently payable is based on the taxable profit
for the year. Taxable profit differs from net profit as reported in
the income statement because it excludes items of income or expenses
that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Company's liability
for current tax is calculated using tax rates that were applicable at
the financial reporting date.
Where expenses are allocated between capital and revenue any tax relief
in respect of the expenses is allocated between capital and revenue
returns on the marginal basis using the Company's effective rate of
corporation taxation for the accounting period.
Deferred taxation is recognised in respect of all timing differences
that have originated but not reversed at the financial reporting date,
where transactions or events that result in an obligation to pay more
tax in the future or right to pay less tax in the future have occurred
at the financial reporting date. This is subject to deferred tax assets
only being recognised if it is considered more likely than not that
there will be suitable profits from which the future reversal of the
timing differences can be deducted. Deferred tax assets and liabilities
are measured at the rates applicable to the legal jurisdictions in which
they arise.
(i) Other receivables and other payables
Other receivables and other payables do not carry any interest and are
short term in nature and are accordingly stated at their nominal value.
(j) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being that of an Investment Trust as explained in
note 1.
(k) Estimates and assumptions
The preparation of financial statements requires the Directors to make
estimates and assumptions that affect items reported in the Statement
of financial position and Income Statement and the disclosure of contingent
assets and liabilities at the date of the financial statements. Although
these estimates are based on management's best knowledge of current
facts, circumstances and, to some extent, future events and actions,
the Company's actual results may ultimately differ from those estimates,
possibly significantly.
There have not been any instances requiring any significant estimates
or judgements in the year.
(l) Cash and cash equivalents
Cash comprises cash and demand deposits. Cash equivalents, include bank
overdrafts, and short term, highly liquid investments that are readily
convertible to known amounts of cash, are subject to insignificant risks
of changes in value, and are held for the purpose of meeting short-term
cash commitments rather than for investment or other purposes.
3. INVESTMENTS
(a) Summary of valuation
As at 31 October As at 31 October
2018 2017
GBP'000 GBP'000
---------------------------------------------------- ----------------- -----------------
Investments listed on a recognised overseas
investment exchange 189,419 129,211
---------------------------------------------------- ----------------- -----------------
189,419 129,211
---------------------------------------------------- ----------------- -----------------
(b) Movements
In the year ended 31 October 2018
2018 2017
GBP'000 GBP'000
---------------------------------------------------- ----------------- -----------------
Book cost at the beginning of the year 106,024 80,069
Revaluation gains on investments held at beginning
of the year 23,187 16,569
----------------- -----------------
Valuation at beginning of the year 129,211 96,638
---------------------------------------------------- ----------------- -----------------
Purchases at cost 87,277 53,061
Sales:
- proceeds (27,192) (33,282)
- Gains on investment holdings sold during
the year 8,153 6,176
Movements in revaluation (losses)/gains on
investments at end of the year (8,030) 6,618
----------------- -----------------
Valuation at end of the year 189,419 129,211
---------------------------------------------------- ----------------- -----------------
Book cost at end of the year 174,262 106,024
Revaluation gains on investment held at end
of the year 15,157 23,187
----------------- -----------------
Valuation at end of the year 189,419 129,211
---------------------------------------------------- ----------------- -----------------
Transaction costs on investment purchases for the year ended 31 October
2018 amounted to GBP62,000 (2017: GBP54,000) and on investment sales
for the year amounted to GBP17,000 (2017: GBP36,000).
(c) Gains on investments
Year ended
Year ended 31 31 October
October 2018 2017
GBP'000 GBP'000
---------------------------------------------------- ----------------- -----------------
Gains on non derivative investment holdings
sold during the year 8,153 6,176
Movements in revaluation (losses)/gains on
non derivative investment holdings held at
the year end (8,030) 6,618
Other capital gains 10 132
Total gains on non derivative investments
held at fair value 133 12,926
---------------------------------------------------- ----------------- -----------------
Realised gains on CFD assets and liabilities 1,510 668
Unrealised CFD gain in prior year 4,269 970
Movements on CFD assets (7,681) 3,976
-----------------
Total (losses)/gains on investments held at
fair value through profit or loss (1,769) 18,540
---------------------------------------------------- ----------------- -----------------
4. INCOME
Year ended 31 Year ended 31
October 2018 October 2017
GBP'000 GBP'000
----------------------------------- ------------------- --------------
Income from investments:
Overseas dividends 6,693 4,361
----------------------------------- ------------------- --------------
6,693 4,361
----------------------------------- ------------------- --------------
Overseas dividend income is translated into sterling
on receipt.
5. INVESTMENT MANAGEMENT FEE
Year ended 31 Year ended 31
October 2018 October 2017
GBP'000 GBP'000
---------------------------------------- ------------------- ------------------
Basic fee:
20% charged to revenue 262 162
80% charged to capital 1,046 647
------------------- ------------------
1,308 809
---------------------------------------- ------------------- ------------------
The Company's Investment Manager is Coupland Cardiff Asset Management
LLP. 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.
6. OTHER EXPENSES
Year ended 31 Year ended 31
October 2018* October 2017
GBP'000 GBP'000
----------------------------------- --------------- --------------
Secretarial services 48 55
Administration and other expenses 371 223
Auditor's remuneration
* statutory 30 34
* non-audit 30 -
Directors' fees 118 105
--------------- --------------
597 417
----------------------------------- --------------- --------------
*Excluding VAT where applicable (2017: Including VAT where
applicable)
7. FINANCE COSTS
Year ended 31 Year ended 31
October 2018 October 2017
GBP'000 GBP'000
----------------------------------------- -------------- --------------
Interest paid 13 25
CFD finance cost and structuring fee
- 20% charged to income 34 20
Structure fees - 20% charged to income 1 2
-------------- --------------
48 47
----------------------------------------- -------------- --------------
CFD finance cost and structuring fee
- 80% charged to capital 134 77
Structure fees - 80% charged to capital 4 7
-------------- --------------
138 84
----------------------------------------- -------------- --------------
Total finance costs 186 131
----------------------------------------- -------------- --------------
8. TAXATION
Year ended 31 October Year ended 31 October
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- -------- -------- -------- --------
(a) Analysis of tax charge
in the year:
Overseas withholding tax 669 - 669 371 - 371
-------- -------- -------- -------- --------
Total tax charge for the year
(see note 8 (b)) 669 - 669 371 - 371
----------------------------------- -------- -------- -------- -------- -------- --------
(b) Factors affecting the tax charge for the year:
The Company's effective tax rate for the year is 19.00% (2017: 19.41%),
with the standard rate of corporation tax in the UK for a large company
currently at 19.00% (2017: 19.00%).
The differences are explained
below.
Year ended 31 October Year ended 31 October
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- -------- -------- -------- --------
Total return before taxation 5,786 (2,953) 2,833 3,735 17,809 21,544
----------------------------------- -------- -------- -------- -------- -------- --------
UK corporation tax at 19.00%
(2017: 19.41%) 1,099 (561) 538 725 3,457 4,182
Effects of:
Overseas withholding tax suffered 669 - 669 371 - 371
Non-taxable overseas dividends (1,272) - (1,272) (734) - (734)
Capital gains not subject
to tax - 336 336 - (3,599) (3,599)
Finance costs 10 26 36 9 16 25
Movement in unutilised management
expenses 163 199 362 - 126 126
Total tax charge 669 - 669 371 - 371
----------------------------------- -------- -------- -------- -------- -------- --------
The Company is not liable to tax on capital gains due to its status as
an investment trust. The company has an unrecognised deferred tax asset
of GBP341,000 (2017: GBP177,000) based on the long term prospective corporation
tax rate of 17%. This asset has accumulated because deductible expenses
exceeded taxable income for the year ended 31 October 2018. No asset
has been recognised in the accounts because, given the composition of
the Company's portfolio, it is not likely that these expenses will be
utilised in the foreseeable future.
9. DIVID
(i). Dividends paid during the financial year
Year ended Year ended
31 October 31 October
2018 GBP'000 2017 GBP'000
Final dividend - year ended 31 October
2016 of 2.00p - 1,583
--------------------------------------------------------- ------------------ ---------- --------------
Second interim - year ended 31 October
2017 of 2.30p 2,051 -
--------------------------------------------------------- ------------------ ---------- --------------
Interim - year ended 31 October 2018 of
1.25p (2017: 1.15p) 1,536 980
Total 3,587 2,563
------------------------------------------ ------------- ------------------ ---------- --------------
(ii). The dividend relating to the year ended 31 October 2018, which
is the basis on which the requirements of Section 1159 of the Corporation
Tax Act 2010 are considered is detailed below:
Year ended 31 October Year ended 31 October
2018 2017
Pence per Pence per
Ordinary share GBP'000 Ordinary share GBP'000
----------------------------- ------------------ ----------------- ------------------ ---------------
Interim dividend - Paid 1.25p 1,536 1.15p 980
Second interim dividend - - 2.30p 2,051
Final dividend - payable* 2.50p 3,230 - -
------------------ ----------------- ------------------ ---------------
3.75p 4,766 3.45p 3,031
----------------------------- ------------------ ----------------- ------------------ ---------------
*Not included as a liability in the year end accounts.
The Directors have declared a final dividend for the financial year
ended 31 October 2018 of 2.50p per Ordinary Share. The dividend will
be paid on 19 March 2019 to Shareholders on the register at the close
of business on 1 February 2019.
10. DEBTORS
As at 31 October As at 31 October
2018 2017
GBP'000 GBP'000
-------------------------------- ----------------- -----------------
Amounts due in respect of CFDs 1,001 4,931
Accrued income 2,392 1,415
Sales for settlement 408 -
Prepayments 11 12
----------------- -----------------
3,812 6,358
-------------------------------- ----------------- -----------------
11. CREDITORS
As at 31 October As at 31 October
2018 2017
GBP'000 GBP'000
-------------------------------------- ----------------- -----------------
Amounts falling due within one year:
Purchases for future settlement - 3,812
Amounts payable in respect of CFDs 4,413 662
Accrued finance costs 7 9
Accrued expenses 218 149
-------------------------------------- ----------------- -----------------
4,638 4,632
-------------------------------------- ----------------- -----------------
12. SHARE CAPITAL
Share capital represents the nominal value of shares that have been
issued. The share premium includes any premiums received on issue of
share capital. Any transaction costs associated with the issuing of
shares are deducted from share premium.
As at 31 As at 31 As at 31 As at 31
October October October October
2018 2018 2017 2017
No of shares GBP'000 No of shares GBP'000
---------------------------------- -------------- ---------- ------------- ---------
Allotted, issued & fully paid:
Ordinary Shares of 1p
Opening balance 89,168,162 892 79,160,162 792
Ordinary Shares of 1p issued 39,283,619 393 10,008,000 100
-------------- ------------- ---------
Closing balance 128,451,781 1,285 89,168,162 892
---------------------------------- -------------- ---------- ------------- ---------
During the year under review, 39,283,619 (2017: 10,008,000) Ordinary
Shares of 1p each were issued. The issue prices ranged from 150.9p to
169.0p (2017: 125.7p to 149.3p) and the total amount raised was GBP63,373,000
(2017: GBP13,607,000).
Since the year end, the Company has issued a further 750,000 Ordinary
Shares, with 129,201,781 Ordinary Shares in issue as at 21 January 2019.
13. FINANCIAL COMMITMENTS
As at 31 October 2018 there were no commitments in respect of unpaid
calls and underwritings (2017: nil).
14. RETURN PER ORDINARY SHARE
Total return per Ordinary Share is based on the return on ordinary activities,
including income, for the year after taxation of GBP2,164,000 (2017:
GBP21,173,000).
Based on the weighted average number of Ordinary Shares in issue for
the year to 31 October 2018 of 112,507,653 (2017: 82,937,053), the returns
per share were as follows:
As at 31 October 2018 As at 31 October 2017
Revenue Capital Total Revenue Capital Total
Return per Ordinary
Share 4.55p (2.62)p 1.93p 4.06p 21.47p 25.53p
-------------------------- ---------- ---------- -------- --------- --------- --------
15. NET ASSET VALUE PER SHARE
Total Shareholders' funds and the net asset value ("NAV") per share
attributable to the Ordinary Shareholders at the year end calculated
in accordance with the Articles of Association were as follows:
As at 31 October As at 31 October
2018 2017
Net Asset Value (GBP'000) 190,915 130,415
---------------------------------- ------------------- ------------------
Ordinary Shares in issue 128,451,781 89,168,162
---------------------------------- ------------------- ------------------
NAV per Ordinary Share 148.63p 145.95p
---------------------------------- ------------------- ------------------
16. RELATED PARTY TRANSACTIONS
Transactions with the Investment Manager and the Alternative Investment
Fund Investment Manager ("AIFM")
The Company provides additional information concerning its relationship
with the Investment Manager and AIFM, Coupland Cardiff Asset Management
LLP. The fees for the period are disclosed in note 5 and amounts outstanding
at the year ended 31 October 2018 were GBP123,000 (2017: GBP79,000).
Research purchasing agreement
MiFID II treats investment research provided by brokers and independent
research providers as a form of
"inducement" to investment managers and requires research to be paid
for separately from execution costs. In the past, the costs of broker
research were primarily borne by the Company as part of execution costs
through dealing commissions paid to brokers. With effect from 3 January
2018, this practice has changed, as brokers subject to MiFID II are
now required to price, and charge for, research separately from execution
costs. Equally, the new rules require the Investment Manager, as an
investment manager, to ensure that the research costs borne by the Company
are paid for through a designated research payment account ("RPA") funded
by direct research charges to the Investment Manager's clients, including
the Company.
The research charge for the period from 1 January 2018 to 31 December
2018 was approximately GBP34,000 which was in line with the agreed budget.
The estimated research charge for the period from 1 January 2019 to
31 December 2019, as budgeted by the Investment Manager, is approximately
GBP30,000.
Directors' fees and shareholdings
The Directors' fees and shareholdings are disclosed in the Directors'
Remuneration Implementation Report.
17. FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory
accounts. The financial information is derived from the statutory
accounts, which will be delivered to the registrar of companies and
will be put forward for approval at the Company's Annual General
Meeting. The statutory accounts for the period ended 31 October
2017 have been delivered to the registrar of companies. The
auditors have reported on the accounts for the year ended 31
October 2018 and the year ended 31 October 2017, their reports were
unqualified and did not include a statement under Section 498(2) or
(3) of the Companies Act 2006.
The Annual Report for the year ended 31 October 2018 was
approved on 21 January 2019. It will be made available on the
Company's website at www.ccjapanincomeandgrowthtrust.com
The Annual Report will be submitted to the National Storage
Mechanism and will shortly be available for inspection at:
http://www.morningstar.co.uk/uk/NSM
This announcement contains regulated information under the
Disclosure Rules and Transparency Rules of the FCA.
18. ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 12 March 2019 at 12
noon at the offices of Stephenson Harwood LLP, 1 Finsbury Circus,
London, EC2M 7SH.
22 January 2019
Secretary and registered office:
PraxisIFM Fund Services (UK) Limited
Mermaid House
2 Puddle Dock
London
EC4V 3DB
For further information contact:
Anthony Lee / Ciara McKillop
PraxisIFM Fund Services (UK) Limited
Tel: 020 7653 9690
END
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Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEFFUFFUSEEF
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