Final Results
19 Septiembre 2000 - 2:00AM
UK Regulatory
RNS Number:1252R
Henderson Japanese Smlr Cos Tst PLC
19 September 2000
HENDERSON JAPANESE SMALLER COMPANIES TRUST PLC
Unaudited Preliminary Results for the year ended 31 July 2000
Financial Highlights
31 July 31 July Change
2000 1999
Total net assets (#'000) 53,337 76,556 -30.3%
Net asset value per:
Ordinary share 64.6p 76.5p -15.6%
Mid-market price per:
Ordinary share 52.0p 63.3p -17.9%
Warrant 5.25p 13.8p -62.0%
Tokyo Stock Exchange
(sterling adjusted)
First Section Index +11.3%
Second Section Index +14.9%
Extracts from the Chairman's Statement
Results
In the year to 31 July 2000, net asset value per ordinary
share fell by 15.6%, while in sterling terms the Tokyo Stock
Exchange Second Section Index rose 14.9% and the First Section
Index rose by 11.3%. The Company's revenue account showed a
loss after tax of #411,000 as all expenses are applied to the
revenue account. The Board does not recommend the payment of a
dividend.
Commentary
These results are particularly disappointing against a
background of some improvement in the fundamentals of the
Japanese economy and a continuation, for the first eight
months of our financial year at least, of the rise in both
Sections (but in particular the Second Section) of the Tokyo
Stock Exchange which had begun in October 1998.
HENDERSON JAPANESE SMALLER COMPANIES TRUST PLC
Unaudited Preliminary Results for the year ended 31 July 2000
As mentioned in my interim statement in March, a noteworthy
feature of the performance of the Second Section Index was its
concentration on a very limited number of growth stocks with
big market capitalisation, connected in the main with the "New
Japan" of telecommunications and information technology. While
those shares prospered, the majority of smaller company share
prices moved sideways, with those of the very small companies
continuing to underperform. When the internet share "bubble"
deflated in the US in the second quarter of 2000, Japanese
technology-related shares followed suit. Subsequently the
Japanese market consolidated at lower levels, and the very
small companies were beneficiaries.
These developments were particularly unhelpful to this Trust's
portfolio. The Trust's underperformance has been attributable
to the overweight of the micro-portfolio (companies in the
bottom 5% of the market) as well as to a value-driven
investment style leading to insufficient exposure to growth
stocks. Although your Board's policy has been to redress those
imbalances, such portfolio re-orientation takes time. The
micro-portfolio is fairly illiquid and the valuations of many
growth stocks into which we would have liked to move were
already looking unattractively high.
Nevertheless, your Board has judged it right to persevere with
the rebalancing exercise where the opportunities presented
themselves, although this was complicated by the need to
provide liquidity from the portfolio to finance share
repurchases.
An important change took place in February when responsibility
for the day-to-day management of the Trust was concentrated in
Henderson Investors' Tokyo team, led by Yuji Tsukagoshi. The
portfolio reconstruction that followed led to a reduction in
the micro-portfolio from 35% of the total at 31 July 1999 to
some 26% at 31 August 2000. The number of stocks in the
portfolio has been reduced from 106 at 31 July 1999 to 71
currently. The manager has succeeded in investing in a number
of growth companies at reasonable prices following the second
quarter market adjustment.
Such restructuring has involved some short-term costs,
reflected in the disappointing figures reported above. But
measuring the Trust's performance against both the Second
Section Index and our peer group since the changes instituted
in March 2000, the situation has begun to improve. In the five
months from the end of March to the end of August the net
asset value per share of the Trust outperformed the TSE 2
Index by 2.2%. In comparison with five other investment trusts
concentrating on Japanese smaller companies this Trust's
performance over the three months to 31 August placed it
first, and over the past six months to the same date second.
The Board continues to monitor the position very closely.
Another factor affecting the Trust's performance has been the
25% hedge against our yen currency exposure taken out in the
autumn of 1998. This has now been terminated. We have thus
been able to obtain the full benefit of the yen's appreciation
against sterling since the closure of the hedge in April.
HENDERSON JAPANESE SMALLER COMPANIES TRUST PLC
Unaudited Preliminary Results for the year ended 31 July 2000
The Discount
Following the approval given by shareholders at last year's Annual
General Meeting for the repurchase of up to 15,003,322 shares, an
active repurchase programme has been implemented. At an
Extraordinary General Meeting in March 2000 approval was given for
the purchase of a further 13,801,933 shares. As at 18 September
2000, 19,470,000 of the Trust's shares had been repurchased,
resulting in an increase in Net Asset Value of #2,928,189 (3.63p
per share for existing shareholders). The effect on the discount
has been less obvious. For most of the year, it has continued in a
range of 17-22%; at 31 July 2000, it was 19.5%, while the average
of peer Japanese smaller company trusts was just under 15%. The
average size-weighted discount for all investment trusts at that
date was 13%.
While the enhancement to net asset value is clear and it must be
hoped that the number of loose holders of the Trust's shares has
been significantly reduced, the liquidity of the Trust's shares has
been reduced by a fifth. The Board will continue to exercise its
judgement of where shareholders' interests lie in carrying out
further share repurchases.
Management Fee
The Board has recently agreed in principle modifications to the
management fee payable to Henderson Investors Limited. The base
management fee has been reduced from 1 February 2000 from 1% per
annum to 0.75% per annum. In addition, a performance fee has been
introduced. This will be 15% of any outperformance of the Trust's
assets when compared with the performance of the TSE 2 Index, but
this will be subject to an upper limit of 0.25% per annum of
adjusted net assets until the Trust's underperformance in previous
years has been made good. Thus, until this performance target has
been achieved, the fee earned can be no greater than under the
previous arrangement. Thereafter the performance fee is subject to
an annual cap of 5% of the Trust's adjusted net assets.
New Corporate Broker
The Board has appointed Hoare Govett Limited as corporate broker to
the Trust in place of Credit Suisse First Boston de Zoete & Bevan
Limited, who resigned on their withdrawal from the investment trust
sector.
Prospects
Cyclical recovery of the Japanese economy now appears to be taking
place, with capital expenditure rising after a sharp recovery in
industrial production. The key to sustained growth is likely to be
an improvement in consumption. A rise in real wages and a falling
savings ratio suggests that this may be imminent. Corporate
restructuring will, however, continue to weigh on the economy as a
whole. Whilst at the company level restructuring is long overdue
and beneficial to profitability, at the macro-economic level it
will suppress demand, mainly through its negative impact on
employment. Nevertheless, corporate profitability should increase
as a percentage of GDP. The economy remains in an early stage of
recovery and hence vulnerable to a "hard landing" in the US or to
excessive fiscal or monetary tightening on the part of the
authorities. In this context, the lowering of both corporate and
personal taxes is to be welcomed.
HENDERSON JAPANESE SMALLER COMPANIES TRUST PLC
Unaudited Preliminary Results for the year ended 31 July 2000
This economic background, more supportive than for some time,
should be accompanied by solid demand for equities, arising partly
from reinvestment in the equity market of some proportion of
maturing long-dated postal savings deposits, partly from the
introduction of defined contribution pension schemes in the course
of the forthcoming fiscal year. The introduction of stock option
schemes and the implementation of share repurchase programmes are
also encouraging signs of the gradual development of an equity
culture in Japan. In these circumstances a moderate level of
gearing is being maintained.
In the light of the fundamental technology-related changes taking
place in the global economy, your Board believes that the new
growth-oriented investment style is an appropriate one, which
should improve future performance.
HENDERSON JAPANESE SMALLER COMPANIES TRUST PLC
Unaudited Preliminary Results for the year ended 31 July 2000
Statement of Total Return (incorporating the revenue account)
for the year ended 31 July 2000
Year ended 31 July 2000 Year ended 31 July 1999
Revenue Capital Total Revenue Capital Total
#'000 #'000 #'000 #'000 #'000 #'000
Total capital - (11,375) (11,375) - 34,008 34,008
(losses)/gains from
investments
Income from fixed asset 684 - 684 758 - 758
investments
Other interest receivable 64 - 64 31 - 31
and similar income
------- ------- ------- ------- ------- -------
Gross revenue and capital 748 (11,375) (10,627) 789 34,008 34,797
(losses)/gains
Management fee (635) - (635) (545) - (545)
Other administrative (243) - (243) (180) - (180)
expenses
------- ------- ------- ------- ------- -------
Net (loss)/gain on
ordinary activities
before interest (130) (11,375) (11,505) 64 34,008 34,072
payable and taxation
Interest payable (178) - (178) (97) - (97)
------- ------- ------- ------- ------- -------
Net (loss)/gain on
ordinary activities
before taxation (308) (11,375)(11,683) (33) 34,008 33,975
Taxation on net return on (103) - (103) (114) - (114)
ordinary activities
------- ------- ------- ------- ------- -------
Net (loss)/gain on
ordinary activities after
taxation (411) (11,375) (11,786) (147) 34,008 33,861
====== ====== ====== ====== ====== ======
(Loss)/return per (0.44)p (12.11)p (12.55)p(0.15)p 33.98p 33.83p
ordinary share - basic
====== ====== ====== ====== ====== ======
The revenue columns of this statement represent the revenue
accounts of the Company.
HENDERSON JAPANESE SMALLER COMPANIES TRUST PLC
Unaudited Preliminary Results for the year ended 31 July 2000
Summary of Net Assets
at 31 July 2000
31 July 31 July
2000 1999
#'000 #'000
Investments at market value 59,090 83,718
Net current liabilities (2,402) (7,162)
----------- -----------
Total assets less current 56,688 76,556
liabilities
Creditors : amounts falling due (3,351) -
after more than one year
----------- -----------
Net assets attributable to the 53,337 76,556
ordinary shares
======= =======
Number of ordinary shares in issue 82,619,272 100,088,872
Net asset value per ordinary share 64.6p 76.5p
Notes :
1. Dividend
The directors do not recommend payment of a dividend for
the year.
2. (Loss)/return per ordinary share
Basic revenue loss per ordinary share is based on the net
loss on ordinary activities after taxation of #411,000
(1999: loss of #147,000) and on the number of ordinary
shares of 93,916,160 in issue during the year (1999:
100,088,872).
Basic capital return per ordinary share is based on a net
capital loss of #11,375,000 (1999: gain of #34,008,000)
and on the number of ordinary shares of 93,916,160 in
issue during the year (1999: 100,088,872).
The warrants in issue during the year do not have a
dilutive effect on returns per share.
3. Preliminary Figures
The preliminary figures for the year ended 31 July 2000
have been extracted from the latest accounts and do not
constitute statutory accounts as defined by section 240 of
the Companies Act 1985. These accounts have not yet been
delivered to the Registrar of Companies, nor have the
auditors yet reported on them.
HENDERSON JAPANESE SMALLER COMPANIES TRUST PLC
Unaudited Preliminary Results for the year ended 31 July 2000
4. 1999 Accounts
The figures and financial information for the year ended
31 July 1999 are an extract from the latest published
accounts of the Company and do not constitute the
statutory accounts for that year. Those accounts have
been delivered to the Registrar of Companies and included
the report of the auditors which was unqualified and did
not contain a statement either under Section 237(2) or
237(3) of the Companies Act 1985.
5. Annual General Meeting
The annual report and accounts will be posted to
shareholders in October 2000 and copies will be available
from the Secretary at the Company's Registered Office,
3 Finsbury Avenue, London EC2M 2PA. The Annual General
Meeting will be held on 13 November 2000 at 12 noon.
For further information please contact :
Anthony Loehnis
Henderson Japanese Smaller Companies Trust plc
Telephone : 020 7925 1144
Stephen Westwood
Henderson Investors
Telephone : 020 7477 5517
Vicki Staveacre
Henderson Press Office
Telephone : 020 7410 4222
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