REG - JPMorgan Japanese IT - Annual Financial Report

RNS Number : 0264M JPMorgan Japanese Inv. Trust PLC 18 December 2025 LONDON STOCK EXCHANGE ANNOUNCEMENTJPMORGAN JAPANESE INVESTMENT TRUST PLCFINAL RESULTS FOR THE YEAR ENDED 30TH SEPTEMBER 2025Legal Entity Identifier: 549300JZW3TSSO464R15Information disclosed in accordance with the DTR 4.1.3CHAIRMAN'S STATEMENTOur Company has delivered robust growth in Total Return Net Asset Value (NAV), measured with debt at fair valueA, of +25.0% decisively ahead of the benchmark's +16.9% return. This outperformance is a testament to our investment team's ability to identify and capitalise on opportunities, even as Value stocks continued to outperform the Quality and Growth stocks usually favoured by the Portfolio Managers. Their focus on companies which are enthusiastically embracing corporate reforms and benefiting accordingly, boosted relative returns. So did the Portfolio Managers' decision to increase exposure to new growth areas, notably defence. The Portfolio Managers' stock-picking and use of gearing further amplified returns, against a backdrop of favourable macro conditions, including structural reform, corporate modernisation, and a strengthening domestic economy. The Topix and Nikkei indices closed the Company's financial year at highs, despite a pick-up in politically-inspired volatility during the period, because corporate reforms are driving improved shareholder returns.The past year's strong performance enhances the Company's longer term track record. The Company's average annualised NAV total returnA over three years was +18.8%, compared to the benchmark's +13.9%. Performance still lags the benchmark over five years, due mainly to the sensitivity of portfolio holdings to global increases in interest rates during 2021 and 2022, but over ten years, our annualised NAV total returnA is +11.4%, ahead of the benchmark's +9.5% outcome.The Company's combination with the JPMorgan Small Cap Growth & Income Trust plc ('JSGI'), completed in October 2024, has further strengthened our market presence and liquidity. Our net assets now stand at approximately £1.2 billion, and our fee structure is even more competitive. At the same time our team has been strengthened with the addition of Xuming Tao as a co-manager of the Company, working alongside the existing team of Nicholas and Miyako. Xuming has been a member of the Japanese equity team at JPMAM in Tokyo since 2019 and was a co-manager of JSGI.The Investment Manager's Report sets out details of recent performance and portfolio activity and discusses the outlook for 2026.GearingThe Board of Directors believes that gearing can be beneficial to performance. It sets the overall strategic gearing policy and guidelines and reviews these at each Board meeting. The Portfolio Managers then manage the gearing within the agreed limits of 5% net cash to 20% geared in normal market conditions. During the review period, gearing ranged from 6.1% to 16.6%, with an average of 13.1%. As at 30th September 2025, gearing was equivalent to 13.5% of net assets, a level that reflects the Portfolio Managers' confidence in the outlook for the Japanese market. At the time of writing this report, the gearing had increased to 14.2%.The Board believes it is prudent for the Company's gearing capacity to be funded from a mix of sources. The Company's gearing strategy is implemented via the use of two forms of gearing, low-cost long-term fixed rate debt, with an average coupon rate of 1.1%, and the use of Contracts for Difference ('CFDs'). The short-term revolving facility of JPY 10 billion with ICBC Limited, London Branch was terminated during the year, as it was no longer required. More details can be found in the Annual Report of the Company which is available on the Company's website.The Company has been using CFDs since 2024. They are a flexible, low-cost, capital efficient alternative to loan facilities and therefore offer considerable advantages to the Portfolio Managers. These instruments are a form of financial derivative which allow investors to gain exposure to stock price movements without actually owning the individual shares. As such, CFDs provide the investor with leveraged exposure to the underlying asset. The Board closely monitors the use and cost effectiveness of this form of gearing.Discount Management and Share BuybacksThe Board actively and closely monitors the discount to NAV at which the Company's shares trade. We recognise that a competitive discount with low volatility is very important for maintaining investor confidence and ensuring the attractiveness of our shares in the market.Our current buyback policy has played an important role in managing the discount. We remain focused on ensuring that our discount remains competitive with industry and sector equivalent trusts. In addition, we are committed to dampening the volatility of the discount, which we view as a key factor both in supporting existing shareholders and attracting new investors. The Board, after consultation with our advisors and our largest shareholders, who are supportive of these conclusions, has decided to maintain the current policy and approach.The Board remains dedicated to enhancing shareholder value, through a combination of strong, long term investment performance with effective promotion of the Company. We believe these efforts, along with our disciplined buyback policy, will continue to support the objectives set out above.During the financial year ended 30th September 2025, the Company bought back 5,538,996 shares into Treasury at a total cost of £33,156,000. These buybacks were executed at an average discount of approximately 11.3% to NAV, resulting in an immediate increase in NAV per share for remaining shareholders. As at 30th September 2025, the Company held 23,634,985 shares in Treasury, representing 12.8% of the total shares in issue. The total shares in issue stood at 184,613,188, with 160,978,203 ordinary shares in issue excluding those held in Treasury. Since the end of the financial year the Company has bought back a further 1,650,000 shares into Treasury.Share buybacks are only undertaken at a discount to NAV, ensuring value accretion for continuing shareholders. Shares held in Treasury may be re-sold at a premium to NAV, providing flexibility in capital management.Revenues and DividendsIncome received during the year continued to rise, supported by strong balance sheets and dividend growth among portfolio companies. The Board's policy remains to pay out the majority of available revenue and subject to shareholders' approval at the Annual General Meeting to be held on 22nd January 2026, the Board proposes to pay a final dividend of 8.70p per share (2024: 6.75p) on 12th February 2026 to shareholders on the register at the close of business on 30th December 2025 (ex-dividend date 29th December 2025). This increase in the dividend follows last year's 3.8% increase.Japanese companies' dividend payouts and payout ratios have increased meaningfully in recent years, supported by improved corporate governance, stronger balance sheets, and a growing focus on shareholder returns. While this upward trend is encouraging, it should not be assumed that current levels of dividend income from portfolio holdings will remain constant. So, while the Board hopes to be able to increase the dividend again in the coming year, as it has done every year since 2020, this will be dependent on portfolio revenue.The Company's investment objective is to seek capital growth from a portfolio of investment in Japanese companies. Our Portfolio Managers are unconstrained by the requirement to achieve a certain level of income, and this allows them to select the 'best' stocks, rather than those that fit a specific income requirement. At present, the Company pays out the majority of revenue available each year as a final dividend.Board Succession PlanningAs mentioned in the Company's last Annual Report, George Olcott, who is based in Japan, will be retiring from the Board following the Annual General Meeting ('AGM') in January 2026. The Board has long benefited from having a director resident in Japan and hence, as George approached the end of his term, the Board sought another Japan resident director to replace him. As announced on 3rd June 2025, Takashi Maruyama was appointed to the Board as a Non-Executive Director with effect from 1st October 2025. Takashi is the former Managing Executive Officer and Chief Investment Officer (CIO) of Asset Management One Co., Ltd., one of Japan's largest asset management firms with over US$ 500 billion in assets under management. He held this role from April 2022 until March 2025 and brings with him more than three decades of experience in the global investment management industry. For more details please see the full Annual Report of the Company. My fellow Directors and I thank George for his many and significant contributions to the Company.In line with the Company's commitment to good governance and Board continuity, the Board confirms that I will remain as Chair until the conclusion of the Annual General Meeting in January 2027, at which point I will step down. Following a thorough succession planning process, the Board intends to appoint Sally Duckworth, the current Audit & Risk Committee Chair, as the Board Chair, on my departure. Sally brings extensive experience in investment management, governance and Board leadership. In light of these changes, it is intended that Anna Dingley will take over the role of Remuneration Committee Chair with effect from the conclusion of the Company's AGM in 2026 and Thomas Walker will be appointed as the Audit & Risk Committee Chair with effect from the Company's AGM in 2027.Following my departure, the Board will comprise six Directors. In the Board's view, the optimum board size for the Company is five Directors, and it intends to return to this number over time as other Directors retire. The Board confirms its ongoing commitment to diversity and independence in line with regulatory and best practice standards.Environmental, Social and Governance ('ESG')As detailed in the Investment Manager's Process included in the full Annual Report of the Company, financially material ESG considerations are integrated into its investment process. The Board shares the Investment Manager's view of the importance of considering financially material ESG factors when making investments for the long term, and the necessity of ongoing engagement with investee companies over the duration of the investment.Further information on JPMAM's ESG process and engagement activities is set out in the ESG Report in the JPMAM 2024 Investment Stewardship Report, which can be accessed athttps://www.jpmorganchase.com/content/dam/jpmorganchase/documents/about/jpmc-sustainability-report-2024.pdfAnnual General MeetingThe Company's Annual General Meeting will be held on Thursday, 22nd January 2026 at 12.30 p.m. at 60 Victoria Embankment, London EC4Y 0JP.Shareholders are invited to join us in person for the Company's Annual General Meeting, to hear from the Portfolio Managers. Their presentation will be followed by a question-and-answer session. This will be followed by a lunch which would provide shareholders with an opportunity to meet the Board and the Portfolio Managers. For shareholders who wish to follow the Annual General Meeting proceedings but choose not to attend, we will be able to welcome you through conferencing software. Details on how to register, together with access details, will be available on the Company's website: www.jpmjapanese.co.uk or by contacting the Company Secretary at jpmam.investment.trusts@jpmorgan.com.As is best practice, all voting on the resolutions will be conducted by poll. Please note that shareholders viewing the meeting via conferencing software will not be able to vote in the poll. We therefore encourage all shareholders, and particularly those who cannot attend in person, to exercise their votes in advance of the meeting by completing and submitting their proxy. Your Board encourages all shareholders to support the resolutions proposed at the Annual General Meeting.If there are any changes to the above Annual General Meeting arrangements, the Company will update shareholders through the Company's website and an announcement on the London Stock Exchange.Stay InformedThe Company delivers email updates with regular news and views, as well as the latest performance. If you have not already signed up to receive these communications and you wish to do so, you can opt by scanning the QR code on this page or via https://web.gim.jpmorgan.com/emea_investment_trust_subscription/welcome?targetFund=JFJOutlookThe corporate reforms which began ten years ago are still gathering momentum and lifting shareholder returns. The Board shares the Portfolio Managers' conviction that this transformation of Japan's corporate landscape will continue to accelerate. These reforms are also likely to fuel growing international interest and encourage foreign investors to reduce their longstanding underweight to this market.The Portfolio Managers are supported in their search for such companies by a large, experienced team based in Japan. The team's on-the-ground presence and deep local insight enable them to capitalise on the evolution of Japan's equity market and economy. As ever, there are risks, such as the longer-term effects of US tariffs and the increasing competitiveness of China. Nonetheless, we are confident that the Company is well positioned to take full advantage of the major changes afoot in Japan and to keep delivering long-term capital growth and investment outperformance.On behalf of the Board, I would like to thank our shareholders for their support.Stephen CohenChairman INVESTMENT MANAGER'S REPORTPerformance in Sterling TermsYour Company achieved strong positive returns and outperformance of the benchmark over the financial year ended 30th September 2025. Returns were muted in the first half of the year, but performance gained momentum in the second half, so that for the year as a whole, the portfolio returned +25.0% in net asset value (with debt at fair value) A terms, decisively ahead of the benchmark return of +16.9%.This performance further enhanced the Company's longer-term performance track record. The cumulative NAV total returnA with debt at fair value over the three-year period to end September 2025 was +67.8%, compared to a benchmark return of +47.8% on the same basis. While NAV total returns of +21.0% over the five-year period lagged the benchmark return of +46.7%, over the ten-year period, the Company's cumulative NAV return was +194.6%, ahead of the equivalent benchmark return of +147.5%.Economic and market backgroundIn common with other major markets, the past year has been a volatile one for Japanese equities due in large part to anxieties generated by US trade policies. These concerns peaked in March and April this year. However, both the Topix and Nikkei indices managed to claw back related losses subsequently and closed the financial year at all-time highs. Performance for UK investors was undermined to a degree by yen weakness but returns were still strong.Investors have good reason to be worried about US tariffs. They are negative because: (1) they directly impact companies selling in the US; (2) they may cause global growth to slow; and (3) excess Chinese capacity may flood into other markets, affecting the profitability of locally based businesses. However, on the positive side, Japan was one of the first countries to reach a trade agreement with the US, at a rate that was significantly lower than first suggested.Performance attributionYear ended 30th September 2025%%Contributions to total returnsBenchmark return16.9 Stock selection5.3 Currency0.1 Gearing/Cash2.6Investment Manager contribution8.0Portfolio returnA24.9 Management fee and other expenses(0.5) Share buy backs0.4Other effects(0.1)Return on net asset value - with debt at par valueA24.8 Impact of fair value of debt0.2Return on net asset value - with debt at fair valueA25.0Return on share priceA24.9Source: Morningstar/J.P.Morgan. All figures are on a total return basis.Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.A Alternative Performance Measure ('APM').A glossary of terms and APMs is provided in the full Annual Report of the Company.Another notable feature of the past year was the ongoing style rotation, which began in 2021. Your Company's investment style focuses on Premium and Quality companies (defined in the glossary of terms in the full Annual Report), rather than Value stocks, as we believe these will deliver the best long-term performance. However, the chart above shows that Japan's Value companies have significantly outperformed Growth companies every year since 2021. This contrasts with the United States, where AI-related stocks and other Growth companies continue to drive market returns.The Company's strong relative performance, despite a headwind for our investment style, is particularly encouraging. This reflects our focus on companies that are actively transforming their business portfolios and strengthening their balance sheets to improve capital efficiency and enhance shareholder returns. Many of these holdings are on the path to our definition of 'quality', even if they do not yet exhibit all the characteristics we typically seek. Long-dormant areas such as defence have started to perform well and we continue to benefit from growth in technology sectors as they benefit from the expansion of artificial intelligence ('AI'). Our ability to identify attractive opportunities in these emerging growth segments is supported by the breadth and experience of our Japanese analyst team.On the political front, the past year saw a General Election in October 2024 and Upper House elections in July 2025. The Liberal Democratic Party (LDP), which has dominated Japanese politics in the post war period, suffered significant losses in both polls and no longer holds a majority in either chamber. This triggered a vote for a new party leader. In October 2025, Sanae Takaichi was elected leader of the LDP and subsequently became Japan's first female prime minister. She is a key proponent of improving governance and corporate structures, and as such we expect this trend to persist in the foreseeable future. On fiscal policy, Takaichi is likely to support targeted government spending to boost growth while keeping debt tolerance in mind. On monetary policy, she is expected to maintain a cooperative stance with the Bank of Japan's stimulus measures, balancing support for the economy with careful management of inflation and financial stability.The key issue underpinning voter dissatisfaction with the LDP is continued inflation, particularly food price rises. However, in response to rising prices and tight labour market conditions, wages have begun to increase after decades of stagnation. The annual Shunto spring negotiation saw an increase of over 5% for the second successive year. These increases should help support real income growth and ease voter disquiet, given that they are significantly ahead of inflation, as shown in the charts provided in the full Annual Report of the Company.Higher inflation may also encourage individuals to reduce their significant exposure to cash and deposits, in favour of higher-yielding assets such as equities and investment products.In response to price and wage pressures, the Bank of Japan (BoJ) ended its negative interest policy in early 2025, marking a significant shift after years of ultra loose policy. The official short-term policy rate is currently 0.5%. We see policy normalisation as positive but the BoJ will need to judge the pace of change carefully.Although Japanese monetary policy is moving in a different direction to the majority of countries, the yen has not appreciated significantly. Indeed, the yen weakened following Takaichi's appointment, due to uncertainty about her fiscal policies.Portfolio themesThe portfolio is constructed entirely on a stock-by-stock basis as we seek out the most attractive companies, regardless of the economic cycle. Nonetheless, many portfolio holdings offer exposure to key structural themes that should drive growth over the medium term. Foremost among these themes is the drive to improve corporate governance, by reducing cash balances and cross-shareholdings and increasing shareholder returns. The following charts illustrate the growing pace of corporate reform, evident in rising dividends and buy backs, increasing shareholder activism and declining cross-shareholdings. There has also been a surge in unsolicited takeover bids. The Company has been a beneficiary of the surge in unsolicited takeover bids: a private equity company bought precision equipment maker Topcon, and Mitsubishi UFJ acquired robo-advisor Wealthnavi.Tangible improvements seen in corporate governanceJFJ holds several companies that stand to benefit directly from the accelerating adoption of AI, automation, and digital transformation across Japan's economy. A key holding, Advantest, supplies the advanced semiconductor and testing equipment essential for AI chip production, while Keyence provides high-precision sensors and machine-vision systems that underpin factory automation. Hitachi is leveraging AI to enhance industrial efficiency and smart manufacturing, and Hoya contributes through its dominance in optical components used in imaging and semiconductor processes. Meanwhile, firms like Nomura Research Institute support digital strategy and AI integration across corporate Japan. Together, these holdings position the Company to capture value from Japan's deep industrial base as it modernises through AI-enabled technologies, making the portfolio a well-balanced play on the country's evolving role in the global AI supply chain.De-globalisation is another trend gathering momentum. The pandemic, and subsequent events such as widespread supply chain shortages, the conflict in Ukraine and simmering Sino/US geo-political tensions, have increased companies' desire to move production nearer to end customers, including to Japan. For example, TSMC, the Taiwanese semiconductor producer, is building plants in Japan. Our portfolio holding in Japan Material, which installs and services infrastructure for semiconductor factories, is benefitting.Japan is also home to many global leading consumer brands such as Fast Retailing and computer games companies such as Sony and Nintendo. As in other sectors, we can find companies that combine long-term structural growth with significant potential from improved governance. Nintendo, which owns some of the sector's most valuable intellectual property, with characters such as Super Mario and Pokemon, has roughly a quarter of its market cap in net cash and could do much to improve shareholder returns.Another theme is digitisation and the adoption of technological innovation. Japan remains well behind most other advanced economies in areas such as online shopping, digital services and cloud computing and this leaves plenty of scope for such trends to continue developing over coming years and driving growth in many portfolio holdings. Japan hosts many world-leading hardware technology companies, some of which are dominant in their niche markets. One such example is Advantest, a Quality-rated semiconductor chip tester which has been a significant contributor to returns over the past year. Chip testing used to be a fragmented market with many competitors, but it has become a duopoly over time, with Advantest winning considerable market share. One of its key customers is Nvidia, the US producer of the most advanced chips.We have added one new theme over the past year - defence. Like the UK and many European countries, Japan has begun to spend a larger proportion of its GDP on defence, in response to the escalation in concerns about Russia's expansionary ambitions. Some of this government spending is being directed to domestic Japanese contractors, including IHI, a heavy engineering conglomerate, and software company NEC. We added both these names to the portfolio during the past year, and we expect these businesses to see sustained sales growth and rising margins over time.Significant contributors and detractors In fact, along with Advantest, IHI was one of the most significant contributors to returns over the past year. The market has welcomed the company's aggressive restructuring efforts. It is now focused on its core, high-quality aero engineering business. Another key contributor was Mitsui E&S, a maritime engine and equipment supplier that was another new addition to the portfolio during the year. This company is also restructuring to concentrate on ship engines, a business that generates strong recurring revenues from ongoing maintenance contracts, and port cranes, where it has begun to win contracts in the US. Rakuten Bank, Japan's largest online bank also supported performance. It reported strong results and growth in its customer base. Rakuten is the only Japanese bank we rate as Quality. Each of these names contributed well over 100bps to returns over the year.The three main detractors from returns over this period were Keyence, Japan Exchange and Tokyo Electron, although only Keyence detracted more than 100bps. Keyence is a Premium-rated maker of sensors used in factory automation. Its latest results far exceeded those of its peers, but the stock nonetheless came under sustained downward pressure over the period. Japan Exchange, the operator of the Japanese stock exchange, is Quality-rated, but its results have been slightly weaker than expected. Tokyo Electron, a Quality-rated maker of semiconductor production equipment, reported weak results in China. We maintained our holdings in Keyence and Japan Exchange but closed our position in Tokyo Electron.Portfolio activityAs we noted in our Half-Year Report, corporate governance reforms, including business re-organisations, are increasing the number of companies we may, in future, deem to be Premium- or Quality-rated, and this is significantly expanding our investment universe. Over the past year, we made several acquisitions, although portfolio turnover, at an annualised rate of 42%, was in line with the long-term average.In addition to our acquisitions of IHI, NEC and Mitsui E&S, discussed above, the most significant new positions over the past year included Mitsubishi UFJ Financial Group. We expect this company to benefit from higher Japanese interest rates, and from continued progress with its efforts to unwind its strategic shareholdings. Its performance is being further boosted by its 24% holding in Morgan Stanley, a Quality-rated US bank which is performing well. Other new additions included retailer Ryohin Keikaku, the operator of global brand Muji stores, which is restructuring to improve profitability, and construction company Taisei, which is improving its balance sheet efficiency. We also opened positions in Modec which operates production, storage and offloading vessels used in ultra deep-sea oil drilling, and leading online brokerage SBI Holdings, and we added to our existing position in consumer electronics and gaming giant Sony. Its execution has been improving, and the company continues to rationalise its operations, with the recent listing of its financial services business. Sony's valuation is undemanding, considering the market-leading position of its entertainment assets.Aside from the sale of Tokyo Electron, we closed our position in Shin-Etsu Chemical due to our concerns about rising competition from other producers of silicon wafers. We also exited auto parts producer Denso, and electronic components supplier Murata due to the risk of weakness in their end markets. We took profits by trimming our position in industrial conglomerate Hitachi, following its strong performance over the past two years. This company has dramatically changed its business portfolio over the last few years. It is a major supplier of power grid cables, which are in demand as energy suppliers around the world upgrade their infrastructure to facilitate rising electricity usage. Several of Hitachi's other businesses are also global market leaders in their respective fields.Portfolio Characteristics30th September 202530th September 202430th September 2023JFJIndexJFJIndexJFJIndexForward Price to Earning Ratio1(12 months forward)19x15x21x14x20x14xReturn on Equity112.1%8.7%12.0%9.0%12.4%9.0%Operating Margin118.3%14.0%18.0%13.0%20.0%13.0%Active Share187.0%86.0%92.0%Gearing14.0%10.5%13.7%(12-month(12-month(12-monthaverage 13.0%)average 12.3%)average 12.7%)Turnover (annualised) 142.6%32.0%22.0%OutlookWhile the market has performed strongly over the past two and a half years, we believe the transformation underway in Japan is still in its early stages. The full impact of corporate governance reforms has yet to be realised, and these shifts should continue to support dividend payouts and RoE levels. While other Asian markets have been following Japan's lead in adopting corporate reforms, the scope of Japan's efforts is unique. In our view, this trend is now entering a new phase in which the rationalisation of companies' business portfolios may lead to long-term improvement in profitability levels that will be a significant market driver for the foreseeable future.There are, however, several additional sources of optimism that make the Japanese market particularly exciting at this juncture. Structural trends such as de-globalisation, supply-chain reshoring, the modernisation of defence capabilities, and accelerating digitisation are opening new avenues for growth. These shifts are creating fertile ground for exactly the kind of high-quality, innovative companies that we own, particularly in technology, automation, semiconductors and AI-enabled industries. At the same time, international investor interest is rising. Valuations remain attractive relative to global peers, with Japanese equities still trading at a meaningful discount to the US despite the progress already made. Shareholder activism is also gaining momentum, with M&A activity, especially unsolicited bids, increasing, injecting further dynamism into the market.The domestic backdrop is equally encouraging. Japan is decisively moving out of deflation and wage growth is outpacing inflation. Sustained inflation may also increase investors' risk appetite, encouraging them to reduce their significant cash exposure in favour of higher-yielding assets. The government is encouraging this with schemes such as NISA (Japan's equivalent of the UK tax-efficient Individual Savings Account (ISA).Naturally, risks remain. The Bank of Japan must ensure that inflation stabilises at desirable levels, particularly if yen weakness persists. Rising US trade barriers present a potential drag on global growth and could strain geopolitical relationships. However, it is important to keep these risks in perspective. Japanese corporates generally possess strong balance sheets, disciplined cost structures, and operational resilience, which position them well to navigate periods of volatility. Importantly, such volatility often allows us to initiate or add to positions in exceptional businesses at more attractive valuations.Our Tokyo-based investment team is exceptionally well-placed to capture these opportunities. We have deep, locally-based analytical resources, which enable us to uncover insights and opportunities that are often overlooked by the broader market. Against this backdrop of structural reform, technological innovation and improving domestic fundamentals, we remain confident in the Company's ability to continue delivering capital growth and sustained outperformance for shareholders over the long term. We look forward to reporting on our progress as this exciting transformation continues to unfold.Thank you for your support.Nicholas WeindlingMiyako UrabeXuming TaoPortfolio Managers PRINCIPAL AND EMERGING RISKSThe Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. With the assistance of the Manager, the Audit & Risk Committee has drawn up a risk matrix, which identifies the key risks to the Company. These are reviewed and noted by the Board. The risks identified and the broad categories in which they fall, and the ways in which they are managed or mitigated are summarised below. The AIC Code of Corporate Governance requires the Board, via the Audit & Risk Committee, to put in place procedures to identify and manage emerging risks. Emerging risks, which are not deemed to represent an immediate threat, are considered by Audit & Risk Committee as they come into view and are incorporated into the existing review of the Company's risk register.The key principal risks identified are summarised below. The Board does not believe that there are any new emerging risks facing the Company at present.Principal riskDescriptionMitigating activitiesChange in risk statusduringthe yearMarket and geopoliticalMarket Volatility and External FactorsEquities are sensitive to external factors, both national and global, including inter alia geopolitical tensions, economic conditions, inflation, fiscal and monetary policies, regulatory shifts, pandemics, conflicts and climate-related events.Manager employs a strategy of portfolio diversification and continuously monitors these external influences. The Manager reviews portfolio exposure and makes necessary adjustments to align with market conditions. The Board regularly reviews reports from the Manager on market conditions, outlook, and portfolio risk assessments. It ensures that the Manager's portfolio positioning aligns with the agreed strategy, particularly concerning risks.ãInvestment and StrategyPoor Strategy SelectionPoor strategy selection may result in suboptimal portfolio performance, misalignment with shareholder expectations, and an inability to meet the Company's objectives. It may expose the Company to inappropriate levels of risk, underperformance against benchmarks, reduced income, and erosion of capital.The Manager conducts stress-testing and detailed analysis of proposed strategies to ensure their long-term viability. The portfolio is regularly benchmarked against peers and indices to assess performance, and the Manager monitors demand for competing strategies. The strategy is continuously adapted in response to market trends and macroeconomic conditions. The Board periodically reviews the investment strategy and engages in detailed discussions with the Manager to ensure alignment with objectives. It also ensures transparent communication of strategy rationale and goals to shareholders.áâPoor Execution of StrategyIneffective implementation of the investment strategy may lead to poor performance, misalignment with objectives, and loss of shareholder confidence. Execution issues can stem from poor stock selection, failure to adapt to market conditions, or operational inefficiencies.The Manager employs an experienced investment management team with expertise in Japanese growth stocks. The Manager carefully monitors investment processes, the success of investment decisions, and performance analytics. The Board regularly reviews portfolio activity and performance, supported by detailed analytics, to ensure effective strategy execution.áâDiscount Widening and Lack of Investor DemandA widening discount between the Company's NAV and its share price, caused by lack of interest in the asset class, lack of interest in the strategy, poor performance or poor communications. Can lead to pressure from value player shareholders for action or cause other large shareholders to disinvest.The Manager meets with the Company's major shareholders and provides an extensive range of investor materials. Broker feedback is obtained to understand shareholder views. Nationwide presentations are conducted to raise the Company's profile and attract new investors. The Board meets with major shareholders to address concerns and gather insights, sets buyback policies, and engages with the Manager to discuss potential changes to strategy, the portfolio management team, and the investment process. Marketing practices and plans are regularly reviewed to ensure robust engagement with investors.áâLiquidity RisksSignificant inflows or outflows from OEICs and other open-ended funds within the strategy may affect the Investment Manager's ability to maintain consistent investment across the strategy, leading to liquidity challenges or influencing the share price of cross-held assets.The Manager actively monitors the liquidity of the strategy and conducts regular capacity reviews to manage inflows and outflows smoothly. The Manager ensures alignment with liquidity thresholds and maintains an appropriate allocation to liquid assets. The Board receives regular updates on assets under management (AUM) and liquidity in Board and Audit Committee packs.áâGearing and Loan Covenants RisksGearing amplifies both gains and losses, increasing financial risk during market downturns. Breaching loan covenants, such as maintaining specific gearing limits or asset coverage ratios, could result in penalties, forced repayment, or reputational damage. Using CFDs introduces risks such as amplified losses due to leverage, counterparty default risks since CFDs rely on the financial stability of brokers, and potential liquidity challenges during market stress, which can make it difficult to close or adjust positions.The Manager makes investment decisions within the gearing parameters set by the Board and uses robust monitoring systems, including gearing summaries and monthly Investment Risk Governance (IRG) reports for Board review. A mix of lenders and financing mechanisms, such as loans and contracts for difference (CFDs), is utilised to reduce dependency and improve financial flexibility. The Manager regularly stress-tests the portfolio to assess covenant compliance under adverse conditions. The Board reviews gearing levels, covenant compliance, and associated risks at each meeting, and ensures all loan agreements and covenants are reviewed by lawyers before approval.áâChange in Portfolio ManagerA change in Portfolio Manager may lead to changes in the Company's portfolio composition, risk profile, and overall investment approach, potentially affecting returns. The market's perception of the Portfolio Manager change could influence the Company's valuation.Manager to ensure there is a contingency plan for sudden departures or illnesses of key personnel to ensure smooth operations. The Company has broader strengths, such as the wider investment team, investment philosophy, track record, and governance, to reduce dependence on individual leaders. Additionally, the Board ensures that there is a Tokyo-based director who should maintain a close relationship with the lead portfolio manager, while the Chairman stays in touch with the Head of the JPMAM Tokyo Investment team.áâAdministrative RisksAdmini-strative, Regulatory, Legal, and Accounting RisksNon-compliance with regulations, administrative errors, accounting inaccuracies, or legal challenges could disrupt operations and damage investor confidence.The Manager maintains up-to-date expertise on regulatory requirements through regular attendance at industry forums and close links with the Association of Investment Companies (AIC). Manager reviews third-party service providers to ensure compliance with security and governance standards. The Board oversees a robust compliance framework and performs annual reviews of audit and compliance functions, staying informed of regulatory and legal developments to ensure proactive oversight of the Manager's practices.áâCyber securityCybercrime and Data Security Risks The Manager is exposed to cyberattacks, including hacking, ransomware, phishing, malware, and DDoS attacks, which may compromise sensitive data or disrupt operations. The Manager has an Information Security Program in place to safeguard client and company data. Regular penetration testing, system updates, and staff training on cybersecurity risks are conducted. A comprehensive incident response plan is maintained to minimise the impact of cyberattacks. The Board receives regular updates on the Manager's cybersecurity strategy and receives annual attestation from key third-party service providers, ensuring cybersecurity risks and mitigation strategies are part of the risk management framework.The Portfolio Managers address topics such as the risk of cyber incidents faced by portfolio companies during meetings with company management.ãNatural DisastersNatural Disasters and Climate Change RisksNatural disasters such as earthquakes, typhoons, and climate-related events can disrupt operations at portfolio companies, damage infrastructure, or halt production, leading to reduced profitability or insolvencies. The Company itself may also face operational challenges during such events.The Manager provides an annual update to the Board on Business Continuity Plans (BCPs) and the approach to those of critical service providers. BCPs are regularly tested and applied, including split teams, relocation strategies, and third-party risk management. Discussions with investee companies ensure preparedness for disruptions. The Board monitors climate-related risks in the portfolio and ensures the Manager adapts strategies to align with evolving regulations and market conditions. The resilience of the Company's operations to natural disaster risks is assessed as part of the annual Internal Audit meeting in Japan.ãChange Keyã Heightened áâ Stable ä ReducedTRANSACTIONS WITH THE MANAGER AND RELATED PARTIES.Details of the Investment Management Agreement are set out in the Directors' Report in the full Annual Report of the Company, which is available on the Company's website. The management fee payable to the Manager for the year was £3,574,000 (2024: £4,726,000) of which £nil (2024: £nil) was outstanding at the year end.Included in administration expenses in note 6 are safe custody fees amounting to £104,000 (2024: £87,000) payable to JPMorgan Chase Bank, N.A., of which £17,000 (2024: £23,000) was outstanding at the year end.The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities for the year was £1,000 (2024: £nil) of which £nil (2024: £nil) was outstanding at the year end.Other capital charges (handling charges) on dealing transactions amounting to £8,000 (2024: £9,000) were payable to JPMorgan Chase Bank N.A. during the year of which £1,000 (2024: £1,000) was outstanding at the year end.At the year end, total cash of £58,286,000 (2024: £23,497,000) was held with JPMorgan Chase Bank N.A. A net amount of interest of £10,000 (2024: £2,000) was receivable by the Company during the year from JPMorgan Chase Bank N.A of which £nil (2024: £nil) was outstanding at the year end.Stock lending income amounting to £246,000 (2024: £363,000) was receivable by the Company during the year. Commissions payable to the lending agent, JPMorgan Chase Bank, N.A., in respect of such transactions amounted to £27,000 (2024: £40,000).Full details of Directors' remuneration and shareholdings can be found in the full Annual Report of the Company and in note 6 .STATEMENT OF DIRECTORS' RESPONSIBILITIESThe Directors are responsible for preparing the Annual Report & Financial Statements in accordance with applicable law and regulations.Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the Annual Report & Financial Statements in accordance with United Kingdom generally accepted accounting practice (United Kingdom Accounting Standards) including FRS 102 'The Financial Reporting Standards applicable in the UK and Republic of Ireland' and applicable laws. Under company law, the Directors must not approve the Annual Report & Financial Statements unless they are satisfied that, taken as a whole, Annual Report & Financial Statements are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In order to provide these confirmations, and in preparing these Annual Report & Financial Statements, the Directors are required to:• select suitable accounting policies and then apply them consistently;• make judgements and accounting estimates that are reasonable and prudent;• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business;and the Directors confirm that they have done so.The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.The accounts are published on the www.jpmjapanese.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report, Strategic Report, Statement of Corporate Governance and Directors' Remuneration Report that comply with that law and those regulations.Each of the Directors, whose names and functions are listed in the full Annual Report of the Company, confirms that, to the best of their knowledge:• the financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, and applicable law), (United Kingdom Generally Accepted Accounting Practice) give a true and fair view of the assets, liabilities, financial position and net return or loss of the Company; and• the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.The Board confirms that it is satisfied that the annual report and financial statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.For and on behalf of the BoardStephen CohenChairmanSTATEMENT OF COMPREHENSIVE INCOMEFor the year ended 30th September 202520252024RevenueCapitalTotalRevenueCapitalTotal£'000£'000£'000£'000£'000£'000Gains on investments held at fair value through profit or loss-190,198190,198-160,568160,568Gains on derivative financial instruments-36,16536,165---Foreign currency exchange gains-3,3173,317-5,9545,954Income from investments17,9706418,03413,66410013,764Income from derivative financial instruments1,889-1,889---Other interest receivable and similar income256-256365-365Gross return20,115229,744249,85914,029166,622180,651Management fee(357)(3,217)(3,574)(473)(4,253)(4,726)Other administrative expenses(1,332)-(1,332)(1,225)-(1,225)Net return before finance costs and taxation18,426226,527244,95312,331162,369174,700Finance costs(176)(1,581)(1,757)(159)(1,430)(1,589)Net return before taxation18,250224,946243,19612,172160,939173,111Taxation(1,797)-(1,797)(1,368)(5)(1,373)Net return after taxation16,453224,946241,39910,804160,934171,738Return per ordinary share10.15p138.75p148.90p7.37p109.82p117.19pAll revenue and capital items in the above statement derive from continuing operations. During the year ended 30th September 2025, the Company acquired the assets of JPMorgan Japan Small Cap Growth & Income plc (JSGI) following a scheme of reconstruction. No other operations were acquired or discontinued in the year.The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. Net return after taxation represents the profit or loss for the year and also total comprehensive income/(expense).STATEMENT OF CHANGES IN EQUITYCalled upShareCapitalsharepremiumredemptionOtherCapitalRevenuecapitalaccountreservereservereservereserveTotal£'000£'000£'000£'000£'000£'000£'000At 30th September 2023 40,312-8,650166,791 519,30420,414755,471Buyback of ordinary shares into Treasury----(38,949)-(38,949)Net return after taxation----160,93410,804171,738Dividend paid in the year (note 2)-----(9,657)(9,657)At 30th September 202440,312-8,650166,791641,28921,561878,603Buyback of ordinary shares into Treasury----(33,156)-(33,156)Issue of ordinary shares in respect of the combination with JSGI15,841138,713----144,554Costs in relation to issue of Ordinary shares-(164)----(164)Net return after taxation----224,94616,453241,399Dividend paid in the year (note 2)-----(11,112)(11,112)At 30th September 202546,153138,5498,650166,791833,07926,9021,220,1241 During the year ended 30th September 2025, the Company acquired the assets of JPMorgan Japan Small Cap Growth & Income plc (JSGI), following a scheme of reconstruction ('Combination').STATEMENT OF FINANCIAL POSITIONAt 30th September 202520252024£'000£'000Fixed assetsInvestments held at fair value through profit or loss1,042,303881,405Investments on loan held at fair value through profit or loss174,11589,022Total investments held at fair value through profit or loss1,216,418970,427Current assetsDerivative financial assets7,952-Debtors7,0715,422Cash at bank58,28623,49773,30928,919Current liabilitiesCreditors: amounts falling due within one year(1,450)(53,269)Derivative financial liabilities(3,020)-Net current assets/(liabilities)68,839(24,350)Total assets less current liabilities1,285,257946,077Creditors: amounts falling due after more than one year(65,133)(67,474)Net assets1,220,124878,603Capital and reservesCalled up share capital146,15340,312Share premium account1138,549-Capital redemption reserve8,6508,650Other reserve166,791166,791Capital reserves833,079641,289Revenue reserve26,90221,561Total equity shareholders' funds1,220,124878,603Net asset value per ordinary share757.9p613.8p1 During the year ended 30th September 2025, the Company issued ordinary shares in exchange for the assets acquired of JPMorgan Japan Small Cap Growth & Income plc (JSGI), following a scheme of reconstruction ('Combination'), see note 16b of the full Annual Report for further information.STATEMENT OF CASH FLOWSFor the year ended 30th September 202520252024£'000£'000Cash flows from operating activitiesNet return before finance costs and taxation244,953174,700Adjustment for: Net gains on total investments held at fair value through profit or loss(190,198)(160,568) Net gains on derivative financial instruments(36,165)- Foreign currency exchange gains(3,317)(5,954) Dividend income(18,034)(13,764) Interest and stock lending income(256)(2) Income from derivative financial instruments(1,889)-Realised (loss)/gain on foreign exchange transactions(454)466Decrease in other debtors241Increase in accrued expenses1365Net cash outflow from operations before dividends and interest(5,323)(5,056)Dividends received16,78612,167Interest and stock lending income received2562Net cash inflow from operating activities11,7197,113Purchases of investments(380,539)(293,845)Sales of investments463,846341,969Net settlement of derivative financial instruments31,233-Income from derivative financial instruments received1,102-Interest paid on CFDs(584)-Costs paid in respect of the combination with JSGI(882)-Net cash inflow from investing activities114,17648,124Dividends paid(11,112)(9,657)Net cash acquired following the combination with JSGI5,895-Costs in relation to issue of Ordinary shares(164)-Buyback of ordinary shares into Treasury(33,712)(38,393)Repayment of bank loan(50,958)(26,023)Drawdown of bank loan-41,637Interest paid(1,305)(1,402)Net cash outflow from financing activities (91,356)(33,838)Increase in cash and cash equivalents34,53921,399Cash and cash equivalents at start of year23,4972,141Foreign currency exchange movements250(43)Cash and cash equivalents at end of year58,28623,497Cash and cash equivalents consist of:Cash at bank58,28623,497Total58,28623,497NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30th September 20251. Accounting policies(a) Basis of preparationThe financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in July 2022. All of the Company's operations are of a continuing nature. The policies applied in these financial statements are consistent with those applied in the preceding year with the addition of accounting policies in respect of Contracts for Difference (CFDs).Issue of Shares Pursuant to a Scheme of Reconstruction of JPMorgan Japan Small Cap Growth & Income plc (JSGI) with the Company (the 'Combination')On 25th October 2024, the Company issued new Ordinary shares to shareholders of JSGI in consideration for the receipt by the Company of assets pursuant to the Combination. The Directors have considered the substance of the assets and activities of JSGI, determining whether these represent the acquisition of a business. The acquisition is not judged to be an acquisition of a business, and therefore has not been treated as a 'business combination'. Rather, the cost to acquire the assets of JSGI has been allocated between the acquired identifiable assets and liabilities based on their relative fair values on the acquisition date without attributing any amount to goodwill or to deferred taxes. Investments, cash and other assets were transferred from JSGI. All assets were acquired at their fair value. The value of the assets received, in exchange for shares issued by the Company, have been recognised in share capital and share premium, as shown in the Statement of Changes in Equity. Direct costs in respect of the shares issued have been recognised in share premium, whereas other professional costs in relation to the Combination have been recognised as transaction costs included within gains and losses on investments held at fair value through profit or loss.Going Concern The financial statements have been prepared on a going concern basis. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence up to 31st December 2026 which is at least 12 months from the date of approval of these Financial Statements. In forming this opinion, the Directors have considered heightened market volatility and growing geopolitical risk to include the various ongoing conflicts around the world, but does not believe the Company's going concern status is affected. The Company's assets, the vast majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly under all stress test scenarios reviewed by the Board. In making their assessment, the Directors have also reviewed gearing levels and compliance with covenants, income and expense projections and the liquidity of the investment portfolio, and considered the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience in light of disruption. The disclosures on long term viability and going concern on in the full Annual Report form part of these financial statements.In preparing these financial statements the Directors have considered the impact of climate change risk as a principal risk and have concluded that there was no further impact of climate change to be taken into account as the investments are valued based on market pricing, which incorporates market participants view of climate risk.2. Dividends(a) Dividends paid and proposed20252024 Pence£'000 Pence£'000Dividends paidFinal dividend in respect of prior year6.7511,1126.509,657Dividend proposedFinal dividend proposed in respect of current year8.7013,8626.7511,125All dividends paid and proposed in the year have been funded from the revenue reserve.The final dividend proposed in respect of the year ended 30th September 2024 amounted to £11,125,000. However, the amount paid amounted to £11,112,000 due to ordinary shares bought back after the balance sheet date but prior to the record date.The dividend proposed in respect of the year ended 30th September 2025 is subject to shareholder approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 30th September 2026.(b) Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year, shown below.20252024 Pence£'000 Pence£'000Final dividend proposed8.7013,8626.7511,125Total dividends for Section 1158 purposes8.7013,8626.7511,125The revenue available for distribution by way of dividend for the year is £16,453,000 (2024: £10,804,000). The revenue reserve after payment of the final dividend will amount to £13,040,000 (2024: £10,436,000).3. Return per ordinary shareThe Revenue, Capital and Total return shown below, is the Net return after taxation in the Statement of Comprehensive Income.20252024£'000£'000Revenue return16,45310,804Capital return224,946160,934Total return241,399171,738Weighted average number of shares in issue during the year162,120,253146,544,521Revenue return per ordinary share10.15p7.37pCapital return per ordinary share138.75p109.82pTotal return per ordinary share148.90p117.19pThe total return per ordinary share represents both basic and diluted return per ordinary share as the Company has no dilutive shares.4. Net asset value per ordinary shareThe net asset value per ordinary share and the net asset value attributable to the Ordinary shares at the year-end are shown below. These were calculated using 160,978,203 (2024: 143,152,089) ordinary shares in issue at the year-end (excluding Treasury shares).20252024Net asset value attributableNet asset value attributable £'000 pence £'000 penceNet asset value - debt at par1,220,124757.9878,603613.8¥13 billion senior secured loan notes: Add: amortised cost65,13340.567,47447.1 Less: fair value(51,895)(32.2)(59,622)(41.7)Net asset value - debt at fair value 1,233,362766.2886,455619.2JPMORGAN FUNDS LIMITED17th December 2025For further information, please contact:Priyanka Vijay AnandFor and on behalf ofJPMorgan Funds LimitedTelephone: 0800 204020 or +44 1268 44 44 70E-mail: jpmam.investment.trusts@jpmorgan.comNeither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.ENDSA copy of the full Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanismThe Annual Report will also shortly be available on the Company's website at www.jpmjapanese.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be foundThis information is provided by RNS, the news service of the London Stock Exchange. 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