TIDMAJIT
RNS Number : 7045B
abrdn Japan Investment Trust plc
06 June 2023
ABRDN JAPAN INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
FOR THE YEARED 31 MARCH 2023
Performance Highlights
Net asset value total return(A) Topix Index total return
Figures to 31 March 2023 Figures to 31 March 2023
-4.4% +2.8%
Figures to 31 March 2022 -10.0% Figures to 31 March 2022 -2.7%
Return since 8 October 2013 Return since 8 October 2013
(change of mandate) +100.4% (change of mandate) +105.1%
Share price total return(A) Ongoing charges ratio(A)
Figures to 31 March 2023 Year to 31 March 2023
-10.0% 1.17%
Figures to 31 March 2022 -10.9% Year to 31 March 2022 1.00%
Return since 8 October 2013
(change of mandate) +85.8%
Discount to net asset value(A) Dividend per share
As at 31 March 2023 Year to 31 March 2023
16.4% 12.00p
As at 31 March 2022 11.0% Year to 31 March 2022 15.00p
(A) Alternative Performance Measure (see pages 86 to 88 of the 2023
Annual Report). Comparatives for the corresponding period can be also
be found on these pages.
Financial Calendar, Dividends and Highlights
Payment dates of dividends July 2023
December 2023
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Annual General Meeting (London) To be confirmed by separate notice
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Half year end 30 September 2023
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Expected announcement of results November 2023
for the six months ending 30 September
2023
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Financial year end 31 March 2024
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Expected announcement of results June 2024
for the year ending 31 March 2024
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Dividends
Rate Ex-dividend Record date Payment date
date
======================== ====== ============ ============ ============
Proposed second interim 7.00p 22 June 2023 23 June 2023 21 July 2023
dividend 2023
======================== ====== ============ ============ ============
Interim dividend 2023 5.00p 1 December 2 December 29 December
2022 2022 2022
======================== ====== ============ ============ ============
Total dividends 2023 12.00p
------------------------ ------ ------------ ------------ ------------
Final dividend 2022 9.00p 23 June 2022 24 June 2022 22 July 2022
======================== ====== ============ ============ ============
Interim dividend 2022 6.00p 2 December 3 December 30 December
2021 2021 2021
======================== ====== ============ ============ ============
Total dividends 2022 15.00p
------------------------ ------ ------------ ------------ ------------
Highlights
31 March 2023 31 March 2022 % change
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Total assets (as defined on page
101 of the 2023 Annual Report) GBP93,273,000 GBP100,564,000 -7.3
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Total equity shareholders' funds
(net assets) GBP82,954,000 GBP89,930,000 -7.8
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Market capitalisation GBP69,309,000 GBP80,043,000 -13.4
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Share price (mid market) 557.50p 635.00p -12.2
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Net asset value per Ordinary share 667.26p 713.43p -6.5
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Discount to net asset value(A) 16.4% 11.0%
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Net gearing(A) 12.3% 11.4%
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Operating costs
====================================== ============= ============== ========
Ongoing charges ratio(A) 1.17% 1.00%
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Earnings
====================================== ============= ============== ========
Total return per Ordinary share (33.72p) (81.70p)
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Revenue return per Ordinary share 7.11p 8.54p
====================================== ============= ============== ========
Dividends per Ordinary share(B) 12.00p 15.00p
====================================== ============= ============== ========
Revenue reserves (prior to payment GBP1,456,000 GBP1,631,000
of proposed second interim dividend)
-------------------------------------- ------------- -------------- --------
(A) Considered to be an Alternative Performance Measure. See pages
86 and 87 of the 2023 Annual Report for more information.
(B) The figure for dividends reflects the years in which they were
earned.
Chairman's Statement
Performance Record
The last year to 31 March 2023 was a difficult period for stock
markets globally, in particular for better quality growth stocks,
as well as the broader global economy. Japanese equities faced an
uphill struggle for much of the period with investors seemingly
overly focused on the macro at the expense of company fundamentals
which, for the most part, remain strong.
The Company's net asset value (NAV) total return for the year to
31 March 2023 was -4.4%, in sterling terms underperforming the
TOPIX Index, the Company's benchmark's gain of 2.8%. The Company's
Ordinary share price ended the year at 557.5p, down from 635.0p at
the start of the period, and the discount to NAV per Ordinary share
widened from 11.0% to 16.4%. Over one, three and five years to 31
March 2023 the Company's NAV total return has lagged the TOPIX
Index (in sterling terms) by 7.2% and 9.9% and 13.1% respectively;
and, since the change of mandate in October 2013, the Company's NAV
total return has lagged the TOPIX Index by 0.4% per annum in
sterling terms.
Every year the Company has a defined discount monitoring period,
being 90 days up to 31 March 2023 (the "Discount Monitoring
Period"). The average discount for this year's monitoring period
was 14.0%, above the target of 10.0% requiring a continuation vote
to be put to shareholders at the next Annual General Meeting
("AGM") or a general meeting held before the AGM.
The Board, while an enthusiastic supporter of the attractions of
Japan's equity markets for investment opportunities, has long been
mindful of the need for the Company to deliver consistent
competitive investment performance, increased scale, greater
liquidity and a more modest discount. Increased investment
resources, an enhanced dividend policy, more focused marketing and
a change of corporate broker are some of the strategies the Board
has employed in an attempt to address the challenges relating to
performance, scale, liquidity and the discount.
Strategic Review
Following consultation with a number of the Company's major
shareholders, the Board undertook a rigorous strategic review of
the opportunities in the Japan fund sector, to consider which
investment strategy would be best for shareholders while remaining
invested in the Japanese market. The Board considered solutions
among closed-end investment trusts, where greater liquidity and a
lower discount can reasonably be expected and where there is a
clear, focused and differentiated investment strategy which has
delivered strong performance.
The Board believes the strategic review demonstrated that the
case for taking advantage of the corporate governance changes in
Japan is more compelling than ever. Over recent decades, many
Japanese companies have accumulated significant cash reserves and
have reduced their reliance on debt financing. This has resulted in
many companies having excess capital and, consequently, generating
lower returns for equity investors. The Japanese authorities are
seeking to address this by implementing regulations to improve
governance and deliver improved returns to shareholders. The Board
is of the view that this provides a highly favourable background
for an active investment approach, particularly in smaller quoted
companies.
Proposed rollover into Nippon Active Value Fund plc ("NAVF")
As announced on 18 May 2023, the Board has agreed terms for a
proposed combination of the assets of the Company with the assets
of NAVF (the "Proposal"). NAVF is a top-performing UK investment
trust which targets attractive capital growth for its shareholders
through active engagement with a focused portfolio of small and
mid-cap quoted companies which have the majority of their
operations in, or revenue derived from, Japan and that have been
identified as being undervalued.
The proposed combination with NAVF is expected to improve the
enlarged fund's liquidity as well as spreading the fixed costs of
NAVF over a larger pool of assets. Following completion of the
Proposal, it is expected that a director of the Company will join
the Board of NAVF, taking the total number of directors of NAVF to
six. The Company has consulted with a number of its major
shareholders, together holding around 30% of the Company's issued
share capital, who have indicated support for the Proposal.
Implementation of the Proposal is subject to the approval, inter
alia, of the Company's shareholders as well as regulatory and tax
approvals and approval by the shareholders of NAVF. A circular
providing further details of the Proposal and convening general
meetings to seek the necessary shareholder approvals will be
published by the Company as soon as practicable. It is anticipated
that the Proposal, if approved, will be implemented in Q3 2023.
The Board believes that implementation of the Proposal is in the
best interest of shareholders as a whole and many shareholders will
wish to continue to be invested in the enlarged fund. The Board
would encourage them to roll over their interest into NAVF, as Sir
David Warren and I, being the members of the Board with shares in
the Company, intend to do with our holdings. Nevertheless, given
the proposed change of investment strategy represented by the
Proposal, the Board believes it is appropriate to offer
shareholders the opportunity to realise part, or potentially all,
of their investment in the Company via a cash exit for up to 25% of
the Company's shares in issue, at 2% discount to fair value ("FAV")
per share of the Company.
Japan Economic Background
One of the most significant developments domestically over the
year to 31 March 2023 was regarding the Bank of Japan (BoJ) and
monetary policy. Despite inflation creeping up to its highest level
in more than 30 years (albeit much lower than elsewhere), BoJ
Governor Haruhiko Kuroda stuck to his no-intervention policy for
much of the year, even in the face of an increasingly weak
currency; the yen fell to its lowest point against the US dollar in
more than 20 years. At the same time, the BoJ remained committed to
its policy of yield-curve control and restricting sales of 10-year
Japanese Government Bonds to ensure that yields stayed around
zero.
Towards the end of 2022, the BoJ relaxed its rules. And, with
Kuroda's retirement in April 2023, there are expectations that new
governor Kazuo Ueda will start to unpick some of the policies that
have been pushed through in previous years. If this happens, the
banking sector could start to become more profitable. Notably,
despite some profit-taking and news from the US regarding the
failure and subsequent buyout of Silicon Valley Bank, financials
were the best performing sector over the review period.
Prevailing global concerns - the ongoing Ukraine war, rising
inflation and disruption to supply chains - combined with domestic
worries, not least the weaker yen, weighed on the market. While
companies considered to be more sensitive to rising interest rates,
and the more 'defensive' sectors fared well, most other sectors
lost ground. The weaker yen was particularly damaging for the
margins of the better quality companies favoured by the Investment
Manager. Within the portfolio, this translated into weaker
performance for sectors including consumer discretionary,
communication services and real estate. The best relative
performance came from consumer staples and materials holdings. For
more detail on company-specific performance, see the Investment
Manager's Review on pages 12 to 13 of the 2023 Annual Report.
There are already signs of improving macroeconomic conditions.
The yen has bounced back from its October lows, there is general
consensus that interest rate rises that have hurt the global
economy should slow from here, while soaring inflation should
slowly start to moderate. Meanwhile, China's reopening is proving
to be a positive for the supply-chain issues that have beset many
Japanese businesses, where shortages of essential components, such
as semiconductors, have delayed production.
Dividend
The Company's revenue return per Ordinary share for the
financial year was 7.1p (2022 - 8.5p). An interim dividend of 5.0p
has already been declared and was paid to shareholders on 29
December 2022. The Board proposes a second interim dividend of
7.0p, making a total dividend of 12.0p (2022 - 15.0p) for the year
ended 31 March 2023. The dividend comprises 7.1p from revenue
return, 10.1p from revenue reserves and 1.9p from capital
reserves.
Gearing
The Company continued to make use of its capacity to gear
through its loan facilities provided by ING Bank. Earlier in the
year these were renewed with the Yen 1.3 billion fixed term loan
now expiring in January 2024 and the Yen 1.0 billion floating rate
facility now extended to expire in December 2024.
Environmental, Social & Corporate Governance ("ESG")
Corporate governance remains highly topical in Japan and this is
key to the Board's decision to recommend the Proposal given NAVF's
active investment strategy is well aligned with these trends. There
are signs of real progress in how Japanese companies seek to
improve shareholder returns. There is a strong focus on making
responsible use of capital, evident in the share buybacks that have
reached their highest level in 16 years. The Tokyo Stock Exchange
is also encouraging companies trading below book value to work to
raise valuations and has detailed how it wants listed companies to
become more aware of their cost of capital and stock price, to
encourage more sustainable growth and promote longer-term increases
in shareholder value.
External Service Providers
As usual, the Board has been monitoring costs generally and
service providers during the year, considering the best interests
of shareholders. This year, there have been some changes to service
providers as a result of these discussions.
As mentioned in the last Half Yearly Report, KPMG resigned as
the Company's external audit firm on 15 November 2022 following
discussions regarding increasing fees and the Board's completion of
a successful audit tender, which resulted in the appointment of
Johnston Carmichael LLP ("Johnston Carmichael") to undertake the
Company's audit for the year ended 31 March 2023. The appointment
of Johnston Carmichael as auditor is recommended by the Board to
shareholders at the Company's forthcoming Annual General Meeting
("AGM"). More information can be found in the Audit Committee
Report on pages 50 to 52 of the 2023 Annual Report.
The Board also undertook a review of the terms of the Registrar
during the year and, following careful consideration, determined
that it was in the best interests of the Company to change
Registrar. The transfer of services to Computershare was undertaken
successfully in February 2023. Contact details are on page 106 of
the 2023 Annual Report.
Annual General Meeting ("AGM")
Normally, the notice of the Company's AGM would accompany this
Annual Report and the AGM would take place in early July. As a
result of the average discount at which the Company's shares traded
throughout the discount monitoring period to 31 March 2023, the
Company is required to put a continuation resolution to
shareholders at or before the forthcoming AGM. The outcome of the
strategic review also requires that general meetings are convened
to seek necessary shareholder approvals for the Proposal. The Board
anticipates the continuation vote will be subsumed into the
business of these meetings, and the Company's AGM is likely to be
delayed accordingly. The Board will update shareholders on the
timings of all shareholder meetings once these are confirmed by
notice of meeting as usual and by RNS announcement.
Investment Manager's Review
Overview
Japanese shares fell initially but rebounded to finish the year
4.4% higher in Yen terms. Initial selling pressure came from fears
over high inflation and concerns that central bank overreactions,
particularly from the US Federal Reserve, would push economies into
recession. As the period progressed, investors became more
optimistic about the prospects for a recovery in global growth.
While the Bank of Japan ("BoJ") held interest rates unchanged, it
took steps to relax its market yield controls, a potential sign of
tightening to come now that Kazuo Ueda has taken over from Haruhiko
Kuroda as governor in April 2023.
There was a notable factor rotation within Japanese equities,
which impacted our investment style and also led to our stock
selection underperforming. This rotation also produced investment
opportunities, as we capitalised on pockets of mispricing to
identify new ideas and add to holdings which we deemed to be
oversold given their strong fundamentals. As long-term investors in
Japanese equities, we maintain our conviction that quality
companies will outperform over the long term. This is particularly
the case where there is inflation; price rises have been less
extreme in Japan than in many other developed economies, but we
have looked to invest in quality companies which have the ability
to pass cost increases on to their customers.
The technology sector also saw testing times. Many global
manufacturers struggled with high shipping costs and supply chain
issues, particularly through China's intense lockdowns. The
shortages were particularly acute in semiconductors, which in turn
limited output for many companies in the technology sector. Signs
of weakening end-demand also emerged amid a slowing global economy.
At this stage, however, there are good reasons for optimism. After
a difficult period at the end of 2022, China has now relaxed its
harsh Covid-19 restrictions; logistical bottlenecks are moving and
component shortages are easing: this bodes well for a consumer
recovery.
Environmental, social and governance
Within corporate Japan, one key theme of ESG engagement has been
the push to improve investor returns. In particular, the Tokyo
Stock Exchange is encouraging companies that trade at low
valuations to improve their capital efficiency, as it seeks to
create a more vibrant stock market.
This has been an ongoing point of engagement with many of our
portfolio companies; for instance, automotive lamp maker Koito
Manufacturing has been growing its business continuously and with
it, the amount of cash held on its balance sheet. As of December
2022, Koito held cash and cash equivalents that made up nearly 60%
of its book value. We have petitioned the company to move towards a
more independent board and improve its capital efficiency.
We have also been suggesting to the management of Japan Exchange
Group that they make a clear statement on what they consider to be
excess capital, and how they intend to use these funds. The company
has announced a share buyback, which we see as a positive step, but
we still see room for further improvement.
Across other areas, we reached out to endoscope maker Olympus to
discuss its disclosure on responsible marketing. We were encouraged
to learn that the company intends to set specific key performance
indicators and action plans for the issues that have been
identified internally and we will continue to track its progress in
this area. We also engaged with Seven & i regarding the
restructuring of its domestic businesses, a governance factor as it
concerns good use of capital on its balance sheet.
You can read more about our engagement efforts in our case study
on Keyence on page 34 of the 2023 Annual Report.
Portfolio Review
The Company's NAV fell by 4.4% in sterling total return terms
during the year to 31 March 2023, underperforming the benchmark's
(TOPIX Index) rise of 2.8%.
The Company's underperformance was primarily due to currency and
stock selection effects. Within the portfolio, industrial,
financial and healthcare stocks have generally detracted. However,
information technology, communication services and consumer staples
sectors have been positive for performance.
In terms of individual holdings, Ajinomoto performed well. The
seasonings manufacturer delivered consistently good results as it
grew its sales despite price increases. Semiconductor tester maker
Advantest also contributed to returns, owing to growing confidence
in the prospects for artificial intelligence ("AI"). Investors
expect increased use of AI will boost demand for high-performance
computing chips. AI marketing solution provider Appier Group was
another key contributor on the back of good results.
The biggest detractor from performance was ValueCommerce , which
was sold during the period. Its share price lagged on concerns that
its parent company was introducing competing online marketing
solutions . Electronic component maker Kohoku Kogyo reported weaker
earnings due to a rapid rise in metal prices, but the company
expects to pass this cost inflation on through price increases with
a time lag of a few months. In our view, Kohoku's pricing power
stems from a lack of competitors that can match its product quality
and cost leadership.
Portfolio Activity
Over the year we added stocks to the portfolio which we believe
offer good potential for upside in the current economic
environment. In the first six months, the initiations were across
various sectors. We invested in Seven & i , the convenience
shop chain which benefits from economies of scale and a strong
logistical advantage. The market is discounting the potential for
meaningful restructuring of its domestic businesses which we see as
an opportunity to add value. We also bought Olympus , the leader in
gastrointestinal endoscopes, which has grown market share by
investing in service centres and customer training. Another new
holding was system integrator Nomura Research Institute ("NRI"). We
believe Japanese corporate technology spend will remain firm, given
rising digitisation and digitalisation, and NRI has a track record
of providing high value-added solutions. We also introduced Katitas
, which buys properties at appealing discounts, then re-models them
into good quality homes for sale at affordable prices.
In the second half of the year, we initiated positions in
Suntory Beverage & Food , MUFJ , Hitachi and Internet
Initiative Japan . Suntory Beverage & Food owns many leading
soft drinks brands across the globe. The company offers attractive
exposure to resilient consumption trends in the soft-drinks market.
Its focus on the low-sugar, energy and health-conscious segments
has enabled the company to grow at a faster pace than the industry
generally. Under its current management, geographic expansion into
Vietnam and Thailand has proved successful and we see this as key
to its further growth. In its home market of Japan and in Europe,
price increases, product revamps and operational restructuring
support further growth in sales and margins.
MUFJ is the largest of the three mega-banks in Japan with
significant overseas operations that contribute a third of the
group's profits. Under the current management led by CEO, Hironori
Kamezawa, we believe that the company has become committed to a
more disciplined and shareholder friendly approach to capital
management. Its efforts to improve capital efficiency include the
sale of US-based Union Bank last year. At the same time, MUFJ
assesses new acquisitions based on stringent criteria. As the
company uses excess capital to maintain attractive shareholder
returns or fund growth initiatives, we believe that its share price
discount will gradually narrow.
At the broader industry level, we have previously been concerned
about the impact of the BoJ's policy. However, the recent
adjustment to the trading band for 10-year Japanese government
bonds showed the potential for policy changes to positively impact
the banking sector.
Hitachi is Japan's major industrial and engineering
conglomerate, covering a broad range of manufacturing and services
in power generation, defence systems, electronics, construction and
infrastructure, digital and other products. Over the past decade,
its restructuring has led to an expansion in margins and a
portfolio that is more resilient over differing business cycles. We
expect its profitability and growth to improve further, led by the
power-grid business that has world-leading technology for
power-loss reduction during transmission. Hitachi stands to benefit
from greater demand for renewable energy, as well as Lumada, an
Internet of Things ("IoT") platform, and digital product
engineering company GlobalLogic, which will capture rising
digitalisation demand for factories and infrastructure.
Internet Initiative Japan is one of two business-to-business
internet service providers remaining in Japan. The company is
uniquely positioned to capture the rising corporate demand for
bandwidth on the back of digital transformation needs. It can also
leverage on its network know-how to cross-sell other services such
as IoT, network security and system integration.
To fund these more attractive opportunities, we sold our
positions in electronics components supplier Murata Manufacturing
on concerns over an inventory correction affecting its earnings,
semiconductor maker Sanken Electric, and laboratory operator BML .
As we mentioned in the Half Yearly Report, this was a small holding
which had benefited from the rise in testing over the Covid-19
pandemic. With the impact of the pandemic waning, we saw more
limited potential for upside.
More recently, we sold Workman , over concerns that the
company's unwillingness to raise prices in spite of cost inflation
will lead to a deterioration in profitability and Heiwa Real Estate
, in view of limited further upside to shareholder returns.
ValueCommerce was another disposal. This company generates a large
portion of its profits from providing advertising solutions to
tenants on the e-commerce platforms of Z Holdings, which recently
introduced competing advertising solutions. Other sales included
Fukui Computer , which we sold due to concerns over a reduction in
government subsidies affecting demand, and Renesas Electronics ,
Nippon Sanso and Daifuku , in view of better opportunities
elsewhere.
Outlook
Looking ahead, there is cause for optimism. The macroeconomic
conditions that have hurt some of our holdings in the recent past
appear to be reversing: the yen has strengthened, inflationary
pressures are easing, and interest rate rises are moderating. While
there are still concerns that the market may be underestimating the
persistence of inflation, and that geopolitics could still lead to
sudden changes in the economic outlook, we believe that the
prospects for better run businesses in Japan should improve and,
over time, see them outperform. We remain true to our investment
philosophy: that investing in a group of well-run companies,
alongside increasing active engagement, will lead to better
outcomes for shareholders.
Kwok Chern-Yeh,
abrdn Japan Limited
5 June 2023
Overview of Strategy
Business Model
This report provides shareholders with details of the Company's
current business model and strategy as well as the principal risks
and challenges it faces.
The Company is an investment trust which seeks to deliver a
competitive return to its shareholders through the investment of
its funds in accordance with the investment policy as approved by
shareholders.
The Board appoints and oversees an investment manager, decides
the appropriate financial policies to manage the assets and
liabilities of the Company, ensures compliance with legal and
regulatory requirements and reports objectively to shareholders on
performance.
Investment Objective and Purpose
To achieve long-term capital growth principally through
investment in listed Japanese companies which are believed by the
Investment Manager to have above average prospects for growth.
The Board's strategy is represented by its investment policy,
financial policies, and risk management policies.
Investment Policy
The Company primarily invests in the shares of companies which
are listed in Japan. The portfolio is constructed through the
identification of individual companies of any market capitalisation
and in any business sector, which offer long-term growth
potential.
The portfolio is selected from the 3,800 listed stocks in Japan
and is actively managed to contain between 30 and 70 stocks which,
in the Manager's opinion, represent the best basis for producing
higher returns than those of the market as a whole in the long
term. There will therefore inevitably be periods in which the
Company's portfolio either outperforms or underperforms the market
as represented by the Company's benchmark.
The Board does not impose any restrictions on these shorter term
performance variations from the benchmark, nor any limits on the
concentration of stock or sector weightings within the portfolio,
except that no individual shareholding shall exceed 10% of the
Company's portfolio at the time of purchase, although market
movements may subsequently increase
this percentage.
The full text of the Company's investment policy is provided on
page 91 of the 2023 Annual Report.
Benchmark Index
Tokyo Stock Price Index, TOPIX (in Sterling terms)
Investment Approach
The Investment Manager's investment philosophy is that markets
are not always efficient. The Investment Manager's approach is
therefore that superior investment returns are attainable by
investing in companies with good fundamentals and above average
growth prospects that in the Investment Manager's opinion drive
share prices over the long-term. The Investment Manager follows a
bottom-up investment process based on a disciplined evaluation of
companies through active engagement, at least twice a year, with
management on performance including environmental, social and
governance issues by its fund managers who are based in Japan and
supported by the Manager's Asian investment team in Singapore. The
Manager estimates a company's worth in two stages; quality, defined
by reference to management, business focus, the balance sheet and
corporate governance; and then price, calculated by reference to
key financial ratios, the market, the peer group and business
prospects. Understanding a company's management and gauging its
experience is essential and no stock is bought without the fund
managers having first met management.
Stock selection is key in constructing a diversified portfolio
of companies with macroeconomic, political factors and benchmark
weightings being secondary.
Given the long-term fundamental investment philosophy, the
Manager expects to hold most companies in which the Company invests
for extended periods of time.
Financial Policies
The Board's main financial policies cover the management of
shareholder capital, risk management of the Company's assets and
liabilities, including currency risk, the use of gearing and the
reporting to shareholders of the Company's performance and
financial position.
Management of shareholder Capital
The Board's policy for the management of shareholder capital is
primarily to ensure its long term growth. This growth will reflect
both the Manager's investment performance and from time to time the
issue of shares, when sufficient demand exists to do this, without
diluting the value of existing shareholder capital.
The Board's dividend policy is to make distributions on a
semi-annual basis and currently consists of the Company's earnings
for the year, 3.0p per share released from the revenue reserves and
an amount from the distributable capital reserves.
The Board may authorise the buyback of shares in order to avoid
excessive variability in the discount and if, despite this, the
average discount exceeds 10% during the 90 day period preceding its
financial year end, the Board will offer shareholders the
opportunity to vote on the continuation of the Company at a general
meeting. The average discount for this year's monitoring period was
above the target, requiring a continuation vote to be put to
shareholders at the next Annual General Meeting ("AGM") or a
general meeting held before the AGM, to be confirmed in due
course.
Risk Management
The policy for risk management is primarily focused on the
investment risk in the portfolio using the Manager's risk
management systems and risk parameters, overseen by the Board.
Derivatives
The Company may use derivatives from time to time for the
purpose of mitigating risk in its investments. The performance of
the Company is subject to fluctuations in the Yen/GBP exchange
rate. The Company's exposure to Yen fluctuations is partially
offset by the natural hedge provided by any borrowing in Yen as
well as by investments in Japanese companies which have significant
sources of income from exports of goods or from non-Japanese
operations.
The wider corporate risks, including those arising from the
increasingly regulated and competitive marketplace, are managed
directly by the Board. The principal risks are more fully described
under the paragraph 'Principal Risks and Uncertainties'.
Use of Gearing
Gearing is the amount of borrowing used to increase the
Company's portfolio of investments in order to enhance returns when
and to the extent it is considered appropriate to do so or to
finance share buybacks when necessary. The level of borrowing under
the Company's investment policy is subject to a maximum of 25% of
net assets but will normally be set at a stable and lower level
than the maximum. The Board has currently established a gearing
level of around 10% of net assets although, with stock market
fluctuations, this may range between 5% and 15%.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a
material adverse effect on the Company and its business model,
financial position, performance and prospects.
The Board has in place a robust process to identify, assess and
monitor the principal risks and uncertainties facing the Company
and to identify and evaluate newly emerging risks, such as
geopolitical risk and cyber risk referenced in the table below. The
Company's risks are regularly assessed by the Audit Committee and
managed by the Board through the adoption of a risk matrix which
identifies the key risks for the Company, including emerging risks,
and covers strategy, investment management, operations,
shareholders, regulatory and financial obligations and third party
service providers. The principal risks and uncertainties facing the
Company, which have been identified by the Board, are described in
the table below, together with the mitigating actions.
Description Mitigating Action
======================================= =================================================
Market, Economic and Political An explanation of these risks and
Risk the management of them is included
The Company's assets consist in Note 16 to the Financial Statements
mainly of listed securities on pages 81 to 83 of the 2023 Annual
and the principal risks are Report. The risk is considered to
therefore market-related. have increased due to increased interest
This includes concerns about rates and inflation. The Board considers
stock market volatility caused the composition and diversification
by geopolitical instability, of the portfolio by industry, size
political change, economic and growth rates, as well as purchases
growth, interest rates, currency, and sales, at each meeting, and in
and other price risks, as monthly papers. Individual holdings
well as national or global are discussed with the Manager, as
crises that are harder to well as views by sector and industry.
predict and may cause major
market shocks
======================================= =================================================
Investment Strategy Risk The Board regularly reviews and monitors:
The Company and its investment the Company's investment objective,
objective may become unattractive policy and strategy; the portfolio
to investors, leading to reduced and its performance; longer term trends
returns for shareholders, in investor demand; and the performance
decreased demand for the Company's of the Manager in operating the investment
shares, reduced value of shareholder policy against the long-term objectives
funds and possible widening of the Company. If appropriate, the
of the share price discount Board can propose changes in the investment
to NAV. objective or undertake a strategic
review as it has done this year. The
risk increased during the year due
to the widening discount of the share
price to NAV.
======================================= =================================================
Investment Management Risk The Board relies on the Investment
Investment risk arises from Manager's skills and judgment to make
the Company's exposure to investment decisions based on research
variations of share prices and analysis of stocks and sectors.
within its portfolio in response The Board regularly monitors the investment
to individual company and performance of the portfolio and reviews
to wider Japanese or international holdings, purchases and sales on a
factors. Investment in a focussed monthly basis, as well as with the
portfolio of shares can lead Manager at Board meetings. The Board
to greater short-term changes regularly reviews performance data
in the portfolio's value than and attribution analysis and other
in a larger portfolio of stocks relevant factors and, were any underperformance
and these variations will seen as likely to be sustained, would
be amplified by the use of be able to take remedial measures,
gearing. Inappropriate investment such as a strategic review.
decisions may result in the
Company's underperformance
against the benchmark index
and peer group and a widening
of the
Company's discount.
======================================= =================================================
Operational Risk The Manager has extensive business
The Company relies on a number continuity procedures and contingency
of third-party service providers, arrangements to ensure that they are
principally the Manager, Registrar, able to continue to service their
Custodian and Depositary. clients. Third parties are subject
Major events or market developments, to risk-based reviews by the Manager.
including significant corporate The Board reviews reports on the operation
transactions, geopolitical and efficacy of the risk management
developments or global pandemic and control systems of the Manager
may impact the operations and other key third- party service
and services provided by third-party providers, including those relating
suppliers. to cyber security and cybercrime.
======================================= =================================================
Regulatory Risk The Board is active in ensuring that
The Company operates under it fully complies with all applicable
a complex regulatory environment. laws and regulation and is assisted
Serious breaches of regulations, by the Manager and other advisers
such as Section 1158 of the in doing this. The Board believes
Corporation Tax Act 2010, that, while the consequences of non-compliance
the UKLA Listing Rules, Companies can be severe, the control arrangements
Act 2006 and the Alternative it has put in place reduce the likelihood
Investment Fund Managers Directive of
could lead to a number of this happening.
detrimental outcomes and reputational
damage.
======================================= =================================================
Share Price and Discount Risk The price of the Company's shares
The principal risks described and its discount to NAV are not wholly
above can affect the movement within the Company's control, as both
of the Company's share price are subject to market volatility.
and in some cases have the The discount has widened during the
potential to increase the year. The Board has limited influence
discount in the market value over the discount, when deemed to
of the Company compared with be in the best interests of shareholders,
the NAV. through its ability to authorise the
buyback of existing shares up to a
limit agreed by shareholder resolution.
The share price, NAV and discount
are monitored daily by the Manager
and regularly reviewed by the Board.
If the average discount exceeds 10%
during the 90 day monitoring period
preceding the Company's financial
year end, the Board will offer shareholders
the opportunity to vote on the continuation
of the Company at a general meeting.
A continuation vote has been triggered
by the widening discount and, accordingly,
will be put to shareholders at the
forthcoming AGM.
======================================= =================================================
Leverage The maximum level of borrowing permitted
The Company may borrow money by the Company's investment policy
for investment purposes. If is 25% of net assets. All borrowing
investments fall in value, requires prior approval of the Board.
gearing has the effect of In order to manage the level of gearing,
magnifying the extent of this the Board has established a gearing
fall. level of around 10% of net assets
although, with stock market fluctuations,
this may range between 5% and 15%.
The Board regularly reviews the Company's
gearing levels and its compliance
with bank covenants.
======================================= =================================================
ESG Risks The Board supports the Manager's approach
There is a risk that the Manager's to integration of ESG in Equity investing,
integration of ESG in the including its active engagement with
investment process is not companies and analysis of ESG and
optimised, potentially leading risks associated with climate change.
to loss of value to the Company's The Board reviews ESG engagement by
portfolio. The Manager also the Manager on a quarterly basis,
monitors and responds to ESG and company research notes in the
and sustainability risks at board papers address and rate ESG
portfolio companies as they risks for all new investments.
evolve over time. This may
have a positive or negative
impact on performance.
======================================= =================================================
Promoting the Success of the Company
The Board is required to report on how it has discharged its
duties and responsibilities under section 172 of the Companies Act
2006 (the "s172 Statement"). Under section 172, the Directors have
a duty to promote the success of the Company for the benefit of its
members as a whole, taking into account the likely long term
consequences of decisions, the need to foster relationships with
the Company's stakeholders and the impact of the Company's
operations on the environment.
The Board comprises four independent non-executive Directors and
has no employees or customers in the traditional sense. As the
Company has no employees, the culture of the Company is embodied in
the Board of Directors. The Board seeks to promote a culture of
strong governance and to challenge, in a constructive and
respectful way, the Company's advisers and other stakeholders.
The Board's principal concern has been, and continues to be, the
interests of the Company's shareholders and potential
investors.
The Manager undertakes an annual programme of meetings with the
largest shareholders and investors and reports back to the Board on
issues raised at these meetings. The Investment Manager, who is
based in the Manager's Tokyo office, will attend such meetings. The
Board encourages all shareholders to attend and participate in the
Company's AGM and shareholders can contact the Directors via the
Company Secretary. Shareholders and investors can obtain up-to-date
information on the Company through its website and the Manager's
information services and have direct access to the Company through
the Manager's customer services team or the Company Secretary.
As an investment trust, a number of the Company's functions are
outsourced to third parties. The key outsourced function is the
provision of investment management services to the Manager and
other stakeholders support the Company by providing secretarial,
administration, depositary, custodial, banking and audit
services.
The Board undertakes a robust evaluation of the Manager,
including investment performance and responsible ownership, to
ensure that the Company's objective of providing sustainable income
and capital growth for its investors is met. The Board typically
visits the Manager's offices in Tokyo annually and last visited in
November 2022. This enables the Board to conduct face to face
meetings with the fund management and research teams. The portfolio
activities undertaken by the Manager on behalf of the Company can
be found in the Manager's Review and details of the Board's
relationship with the Manager and other third party providers,
including oversight, is provided in the Statement of Corporate
Governance (pages 44 to 49 of the 2023 Annual Report).
Whilst the Company's direct operations are limited, the Board
recognises the importance of considering the impact of the
Company's investment strategy and policy on the wider community and
the environment. The Board believes that its oversight of
environmental, social and governance ("ESG") matters is an
important part of its responsibility to stakeholders, and its
proper consideration aligns with the Company's objective to achieve
long-term capital growth. The Board's review of the Manager
includes an assessment of their approach to ESG integration in the
investment process. Further information can be found on pages 92 to
94 of the 2023 Annual Report.
During the year, the Board focused on the performance of the
Manager in achieving the Company's investment objective within an
appropriate risk framework. In addition to ensuring that the
Company's investment objective was being pursued, key decisions and
actions undertaken by the Directors during the financial year and
up to the date of this report have included:
- conducting an extensive review of investment strategies in the
Japan fund sector following the ongoing evaluation of the
performance of the Manager, and in view of the requirement to hold
a continuation vote under the articles of association. As a result
of this process, the Board has announced the agreement of heads of
terms for a proposed combination of the assets of the Company with
the assets of Nippon Active Value Fund plc.
- renewal of the Company's fixed-term loan facility which
matured in January 2023, in order to continue to take advantage of
the Company's investment structure to allow the use of gearing,
where appropriate, to enhance long-term total returns to
shareholders.
- the appointment of Johnston Carmichael LLP as the Company's
external auditor, following an early audit tender (more details can
be found on page 10 of the 2023 Annual Report).
- change of the Company's registrar following review of contract
provisions, specifically around data protection, and fees (new
contact details can be found on page 106 of the 2023 Annual
Report).
- the decision to pay an interim dividend of 5.0p per share and
a second interim dividend of 7.0p.
In summary, the Directors are cognisant of their duties under
section 172 and decisions made by the Board take into account the
interests of all of the Company's key stakeholders and reflect the
Board's belief that the long-term sustainable success of the
Company is linked directly to its key stakeholders.
Key Performance Indicators ("KPIs")
Performance is compared against the Company's benchmark, the
TOPIX Index in sterling terms, and its Peer Group. In view of the
Manager's style of investing, there can be, in the short-term,
considerable divergence from both comparators. The Board uses a
three year rolling performance for the following KPIs: total NAV
return against the benchmark index and share price total return
compared with the Peer Group. The KPI for the discount comparison
to its Peer Group is over one year. The Company's Ongoing Charges
Ratio ("OCR") is compared with the Peer Group, taking into account
its size, to ensure that total running costs remain
competitive.
Achievement
KPI of KPI
============================ ===========
NAV (total return) relative No
to the Company's benchmark
index (3 years) (A)
============================ ===========
Share price (total return) No
vs Peer Group (3 years) (A)
============================ ===========
Discount or premium of the No
share price to NAV vs Peer
Group on an annual average
(1 year) (A)
============================ ===========
OCR vs Peer Group (B) No
============================ ===========
(A) See page 22 of the 2023 Annual Report for details of key
performance indicator results.
(B) See page 87 of the 2023 Annual Report for details of the OCR
calculation.
Over the three year period to 31 March 2023, the Company
underperformed against all of the KPI's monitored by the Board.
Duration
The Company does not have a fixed life. However, under the
articles of association (the "Articles"), if, in the 90 days
preceding the Company's financial year-end (31 March), the Ordinary
shares have been trading, on average, at a discount in excess of
10% to the underlying NAV over the same period, notice will be
given of an ordinary resolution to be proposed at the following AGM
to approve the continuation of the Company. In the 90 days to 31
March 2023, the Ordinary shares traded at an average discount of
14.0% to the underlying NAV and therefore exceeded the 10% limit
defined in the Articles. A continuation vote is therefore required.
A notice confirming the date of the AGM will be sent in due course
together with details of General Meetings where resolutions will be
recommended relating to the Proposal.
Board Diversity
The Board recognises the importance of having a diverse group of
Directors with the appropriate mix of competencies and expertise to
allow the Board to fulfil its obligations. At 31 March 2023 there
were two male Directors and two female Directors, all of whom bring
a variety of knowledge, experience and skills and contribute
individually to the Board's performance. Further detail, including
the Board's first formal Diversity Statement, is provided on pages
45 to 46 of the 2023 Annual Report.
Employee, Environmental, Social & Human Rights Issues
The Company has no employees as it has delegated operational
management to the Manager. There are therefore no disclosures to be
made in respect of employees. Further information on the Manager's
approach to socially responsible investment can be found on pages
92 to 94 of the 2023 Annual Report.
Global Greenhouse Gas Emissions and Streamlined Energy and
Carbon
Reporting ("SECR")
All of the Company's activities are outsourced to third parties.
The Company therefore has no greenhouse gas emissions to report
from the operations of its business other than Directors' travel,
nor does it have responsibility for any other emissions producing
sources under the Companies Act 2006 (Strategic Report and
Directors' Reports) Regulations 2013. For the same reason as set
out above, the Company considers itself to be a low energy user
under the SECR regulations and therefore is not required to
disclose energy and carbon information.
Modern Slavery Act
Due to the nature of the Company's business, being a company
that does not offer goods and services to customers, the Board
considers that it is not within the scope of the Modern Slavery Act
2015 because it has no turnover. The Company is therefore not
required to make a slavery and human trafficking statement. In any
event, the Board considers the Company's supply chains, dealing
predominantly with professional advisers and service providers in
the financial services industry, to be low risk in relation to this
matter.
Viability Statement
The Company's business model is designed to deliver long term
capital growth to its shareholders through investment in readily
realisable stocks in the Japanese equity markets. Its plans are
therefore based on having no fixed or limited life provided the
global equity markets continue to operate normally.
The Board has assessed the Company's prospects over a three year
period, notwithstanding its announcement on 18 May 2023 of the
proposed combination with NAVF and the material uncertainty
identified in relation to this matter. The Board considers that
this period reflects a balance between looking out over a long-term
horizon and the inherent uncertainties of looking out further than
three years. In assessing the viability of the Company over the
review period the Directors have focused upon the following
factors:
- The requirement under the articles of association to hold a
continuation vote at the next AGM;
- The ongoing relevance of the Company's investment objective in
the current economic environment, considered via an extensive
strategic review;
- The Proposal arising from the strategic review, to combine the
assets of the Company with those of NAVF by means of a section 110
scheme of reconstruction, which is subject to shareholder and
regulatory approvals at the date of this Annual Report;
- The principal risks detailed in the strategic report on pages
16 to 17 of the 2023 Annual Report and the steps taken to mitigate
these risks;
- The liquidity of the Company's underlying portfolio, which is
invested in liquid and readily realisable securities;
- Recent stress testing has confirmed that shares can be easily
liquidated, despite continued uncertainty and a volatile economic
environment;
- The level of forecast revenue surplus generated by the Company
and its ability to achieve the dividend policy;
- The level of gearing is closely monitored by the Board.
Covenants are actively monitored and there is adequate headroom in
place; and
- The Company has a fixed term loan facility of JPY 1.3 billion
in place until January 2024 and a revolving loan facility of JPY
1.0 billion in place until December 2024. The Company has the
ability to renew or repay its gearing through proceeds from equity
sales.
Following the strategic review, the Board believes that the
Proposal will benefit shareholders and expects that the required
approvals will be received at a general meeting of the Company.
Should the Proposal not receive the necessary approval, or the
Continuation vote not be passed, the Board believes from the work
carried out during their review, that other attractive options
remain available for shareholders in the Japan sector which can be
pursued.
Accordingly, taking into account the Company's current position
and its prospects, and the potential impact of its principal risks
and uncertainties, the Directors have a reasonable expectation that
the Company will be able to continue in operation and meet its
liabilities as they fall due for a period of three years from the
date of this Report.
In making this assessment, the Board has considered that matters
such as significant economic or stock market volatility (including
the possibility of a greater than anticipated economic impact of
geopolitical developments), a substantial reduction in the
liquidity of the portfolio, or changes in investor sentiment, and
the outcome of the general meeting(s), could have an impact on its
assessment of the Company's prospects and viability in the
future.
The Strategic Report was approved by the Board of Directors and
signed on its behalf for abrdn Japan Investment Trust plc (formerly
named Aberdeen Japan Investment Trust plc) by:
Karen Brade,
Chairman
5 June 2023
Results
Key Performance Indicators
Return since
1 year 3 year 5 year 8 October
2013
return return return (change of
mandate)
================================== ======== ========= ======== ==============
Net asset value total
return(A) -4.4% +14.9% +6.5% +100.4%
================================== ======== ========= ======== ==============
Topix Index total return +2.8% +24.8% +19.5% +105.1%
================================== ======== ========= ======== ==============
Share price total return(A) -10.0% +8.5% +5.3% +85.8%
================================== ======== ========= ======== ==============
Peer Group share price
total return -6.4% +29.3% +6.5% +118.5%
---------------------------------- -------- --------- -------- --------------
Over period
since
Over Over Over 8 October
2013
1 year 3 years 5 years (change of
mandate)
================================== ======== ========= ======== ==============
Average discount - Company -14.5% -12.5% -12.1% -10.8%
================================== ======== ========= ======== ==============
Average discount - Peer
Group -9.6% -8.6% -7.5% -6.7%
---------------------------------- -------- --------- -------- --------------
(A) Considered to be an Alternative Performance Measure. See page
88 of the 2023 Annual Report for further details.
Source: abrdn plc, Lipper & Morningstar.
Peer group is the average of Baillie Gifford Japan, CC Japan Income
& Growth, Fidelity Japan, JP Morgan Japanese and Schroder Japan Growth.
Ten Year Financial Record
Year to 31 March 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
======================== ======= ====== ======= ====== ======= ======= ====== ======= ======= =======
Total revenue (GBP'000) 1,710 1,222 1,681 2,015 1,879 1,839 1,981 1,815 1,996 1,804
------------------------ ------- ------ ------- ------ ------- ------- ------ ------- ------- -------
Per share (p)
======================== ======= ====== ======= ====== ======= ======= ====== ======= ======= =======
Net revenue return 6.00 3.70 5.67 7.25 6.59 6.83 8.08 6.57 8.54 7.11
======================== ======= ====== ======= ====== ======= ======= ====== ======= ======= =======
Total return (30.91) 174.47 (36.18) 102.69 75.83 (70.63) 19.03 203.49 (81.70) (33.72)
======================== ======= ====== ======= ====== ======= ======= ====== ======= ======= =======
Dividends paid from
revenue reserves 4.50 2.60 4.20 6.00 5.20 5.40 11.00 9.50 11.50 10.10
======================== ======= ====== ======= ====== ======= ======= ====== ======= ======= =======
Dividends paid from
capital reserves - - - - - - 4.00 5.50 3.50 1.90
======================== ======= ====== ======= ====== ======= ======= ====== ======= ======= =======
Net asset value 377.94 547.91 511.29 611.41 682.31 607.89 617.09 807.66 713.43 667.26
------------------------ ------- ------ ------- ------ ------- ------- ------ ------- ------- -------
shareholders' funds
(GBP'000) 55,148 79,949 79,723 92,168 100,472 88,025 85,206 107,438 89,930 82,954
------------------------ ------- ------ ------- ------ ------- ------- ------ ------- ------- -------
Ten Largest Investments
As at 31 March 2023
4.6% Sony Corporation 4.0% Tokio Marine Holdings,
Total assets The electronics giant Total assets Inc.
has a dominant market Tokio Marine is the
share in image sensors most progressive of
and video games. The the three largest local
company has been able property and casualty
to leverage on these insurers. Of note is
and its other distinct its positive view on
businesses - particularly shareholder returns,
in music, TV and motion which we expect will
pictures - to collectively grow gradually as it
create greater value. makes further inroads
abroad that add value
to its business.
3.7% Keyence Corporation 3.2% Shin-Etsu Chemical Company
Total assets Keyence runs an efficient Total assets The Japanese maker of
direct sales organisation specialty chemicals
that develops and manufactures remains a global leader
sensors, vision systems, in the majority of its
barcode readers, and businesses: PVC, silicon
laser markers, amongst wafers, and silicones,
other factory automation amongst others. Over
equipment, across the the long term, the company
world. The company has been very prudent
has a cash generative in its use of capital.
business and is backed
by a strong balance
sheet and technological
expertise.
2.9% Advantest Corporation 2.9% Asahi Group Holdings
Total assets Advantest operates Total assets Japan's largest brewer
in a duopolistic market is well positioned to
of semiconductor testing achieve growth through
equipment. Demand is premiumisation, cost
expected to rise from synergies and cross-selling
increasingly complex across different brands
components and from and geographies. In
a wider range of applications, addition to its leading
including 5G networks. market share in Japan,
the company has a strong
presence in Europe and
Australia, a result
of acquisitions in recent
years.
2.8% Hitachi 2.8% Misumi Group
Total assets Hitachi is Japan's Total assets Misumi produces and
major industrial and distributes precision
engineering conglomerate. machinery parts and
Hitachi has gone through other automation equipment,
a restructuring over and it has successfully
the last decade, which extended its business
has led to an expansion model abroad in recent
in margins and a business years. We see its growth
portfolio that is more prospects underpinned
resilient to business by China and expansion
cycles. to new areas such as
logistics automation.
2.7% Nippon Paint Holdings 2.4% Toyota Motor Corporation
Total assets Company Total assets The automaker has continued
Nippon Paint is among to gain market share
the world's leading and post strong profitability,
paint companies. It despite a challenging
has a strong presence operating environment.
in decorative paints In the medium to longer
in Asia and Oceania, term, the company's
holding the top spot focus on research and
in both China and Australia. technology places it
It derives most of ahead of many peers
its earnings from the in the areas of autonomous
decorative paint market driving, connectivity,
in China. sharing and subscription
services, and electrification.
Investment Portfolio
As at 31 March 2023
========================== ================================== ========= ===========
Valuation Total
2023 investments
Company Sector GBP'000 %
========================== ================================== ========= ===========
Sony Corporation Leisure Goods 4,279 4.6
========================== ================================== ========= ===========
Tokio Marine Holdings,
Inc. Non-life Insurance 3,699 4.0
========================== ================================== ========= ===========
Electronic and Electrical
Keyence Corporation Equipment 3,484 3.8
========================== ================================== ========= ===========
Shin-Etsu Chemical
Company Chemicals 2,994 3.2
========================== ================================== ========= ===========
Technology Hardware and
Advantest Corporation Equipment 2,754 3.0
========================== ================================== ========= ===========
Asahi Group Holdings Beverages 2,734 2.9
========================== ================================== ========= ===========
Hitachi General Industrials 2,613 2.8
========================== ================================== ========= ===========
Misumi Group Industrial Engineering 2,589 2.8
========================== ================================== ========= ===========
Nippon Paint Holdings
Company General Industrials 2,511 2.7
========================== ================================== ========= ===========
Toyota Motor Corporation Automobiles and Parts 2,252 2.4
-------------------------- ---------------------------------- --------- -----------
Top ten investments 29,909 32.2
-------------------------------------------------------------- --------- -----------
Resorttrust Travel and Leisure 1,931 2.1
========================== ================================== ========= ===========
Technology Hardware and
Tokyo Electron Equipment 1,900 2.1
========================== ================================== ========= ===========
Telecommunications Service
KDDI Corporation Providers 1,862 2.0
========================== ================================== ========= ===========
Technology Hardware and
Ibiden Equipment 1,835 2.0
========================== ================================== ========= ===========
AGC General Industrials 1,801 1.9
========================== ================================== ========= ===========
Real Estate Investment
Tokyu Fudosan Holdings and Services 1,792 1.9
========================== ================================== ========= ===========
Mitsubishi UFJ Financial
Group Banks 1,781 1.9
========================== ================================== ========= ===========
Seven & I Holdings Retailers 1,757 1.9
========================== ================================== ========= ===========
Ajinomoto Food Producers 1,695 1.8
========================== ================================== ========= ===========
Welcia Holdings Personal Care, Drug and
Company Grocery Stores 1,673 1.8
-------------------------- ---------------------------------- --------- -----------
Top twenty investments 47,936 51.6
-------------------------------------------------------------- --------- -----------
Daiichi Sankyo Pharmaceuticals and Biotechnology 1,657 1.8
========================== ================================== ========= ===========
Medical Equipment and
Olympus Corporation Services 1,639 1.8
========================== ================================== ========= ===========
Daikin Industries Construction and Materials 1,623 1.7
========================== ================================== ========= ===========
Nomura Research Software and Computer
Institute Services 1,584 1.7
========================== ================================== ========= ===========
Sho-Bond Holdings
Company Construction and Materials 1,549 1.7
========================== ================================== ========= ===========
Denso Corporation Automobiles and Parts 1,519 1.6
========================== ================================== ========= ===========
Household Goods and Home
Shoei Co Construction 1,497 1.6
========================== ================================== ========= ===========
Suntory Beverage
& Food Beverages 1,478 1.6
========================== ================================== ========= ===========
Medical Equipment and
Hoya Corporation Services 1,451 1.6
========================== ================================== ========= ===========
Zenkoku Hosho Company Finance and Credit Services 1,419 1.5
-------------------------- ---------------------------------- --------- -----------
Top thirty investments 63,352 68.2
-------------------------------------------------------------- --------- -----------
Software and Computer
TechnoPro Holdings Services 1,411 1.5
========================== ================================== ========= ===========
Astellas Pharma Pharmaceuticals and Biotechnology 1,396 1.5
========================== ================================== ========= ===========
Tokyo Century Corporation Consumer Services 1,282 1.4
========================== ================================== ========= ===========
Electronic and Electrical
Jeol Equipment 1,219 1.3
========================== ================================== ========= ===========
Technology Hardware and
Kaga Electronics Equipment 1,191 1.3
========================== ================================== ========= ===========
Amada Company Industrial Engineering 1,187 1.3
========================== ================================== ========= ===========
Fanuc Corporation Industrial Engineering 1,186 1.3
========================== ================================== ========= ===========
Milbon Company Personal Goods 1,176 1.3
========================== ================================== ========= ===========
Kansai Paint Company General Industrials 1,152 1.2
========================== ================================== ========= ===========
Shiseido Company Personal Goods 1,122 1.2
-------------------------- ---------------------------------- --------- -----------
Top forty investments 75,674 81.5
-------------------------------------------------------------- --------- -----------
Nabtesco Corporation Industrial Engineering 1,097 1.2
========================== ================================== ========= ===========
Software and Computer
Otsuka Corporation Services 1,062 1.1
========================== ================================== ========= ===========
Internet Initiative Telecommunications Service
Japan Providers 1,043 1.1
========================== ================================== ========= ===========
Household Goods and Home
Makita Corporation Construction 1,029 1.1
========================== ================================== ========= ===========
Nitori Holdings Retailers 1,024 1.1
========================== ================================== ========= ===========
Chugai Pharmaceutical
Company Pharmaceuticals and Biotechnology 965 1.0
========================== ================================== ========= ===========
Software and Computer
Zuken Services 887 1.0
========================== ================================== ========= ===========
Software and Computer
Appier Group Services 823 0.9
========================== ================================== ========= ===========
Daiseki Company Waste and Disposal Services 735 0.8
========================== ================================== ========= ===========
Technology Hardware and
Elecom Company Equipment 725 0.8
-------------------------- ---------------------------------- --------- -----------
Top fifty investments 85,064 91.6
-------------------------------------------------------------- --------- -----------
Household Goods and Home
Katitas Construction 686 0.7
========================== ================================== ========= ===========
Software and Computer
Sansan Services 678 0.7
========================== ================================== ========= ===========
Medical Equipment and
As One Corporation Services 636 0.7
========================== ================================== ========= ===========
Recruit Holdings
Corporation Industrial Support Services 630 0.7
========================== ================================== ========= ===========
Electronic and Electrical
Kohoku Kogyo Equipment 616 0.7
========================== ================================== ========= ===========
Technology Hardware and
NEC Corporation Equipment 608 0.7
========================== ================================== ========= ===========
Medical Equipment and
Menicon Company Services 567 0.6
========================== ================================== ========= ===========
Medical Equipment and
Asahi Intecc Company Services 517 0.6
========================== ================================== ========= ===========
Takuma Construction and Materials 463 0.5
========================== ================================== ========= ===========
Yamaha Corporation Leisure Goods 444 0.5
-------------------------- ---------------------------------- --------- -----------
Top sixty investments 90,909 98.0
-------------------------------------------------------------- --------- -----------
Investment Banking and
WealthNavi Brokerage Services 400 0.4
========================== ================================== ========= ===========
Scroll Corporation Retailers 383 0.4
========================== ================================== ========= ===========
Investment Banking and
Nihon M&A Centre Brokerage Services 322 0.3
========================== ================================== ========= ===========
Investment Banking and
Japan Exchange Group Brokerage Services 287 0.3
========================== ================================== ========= ===========
Koito Manufacturing Automobiles and Parts 272 0.3
========================== ================================== ========= ===========
Real Estate Investment
JSB and Services 249 0.3
-------------------------- ---------------------------------- --------- -----------
Total investments 92,822 100.0
-------------------------------------------------------------- --------- -----------
Unless otherwise stated, foreign stock is held and all investments
are equity holdings.
Investment Case Studies
Keyence Corporation
Keyence Corporation ("Keyence") specialises in making precision
equipment used in factory automation, such as sensors, measurement
devices, lasers, barcode readers and other devices. The company was
founded almost 50 years ago and has grown steadily to become a
global leader in factory automation and inspection equipment for
manufacturing and research and development needs.
Standing out above its peers
Keyence has been included in the Company's portfolio since the
change in mandate in 2013. From a top-down perspective, the
Investment Manager believes that factory automation is a secular
growth sector, as companies globally are increasingly automating
processes to reduce labour costs and improve production standards.
Keyence has, over time, positioned itself as a global leader,
growing its customer base across a wide range of sectors with
diverse requirements.
The Investment Manager has been impressed by the company's
resilience through cycles. In the past few years, Keyence has
delivered solid results with growth across its key markets and
geographical regions, with five-year operating profit compound
annual growth rate of 11%. The company runs on a fabless model,
this means that it outsources its manufacturing process rather than
making its products in-house, which allows it to operate a
capital-light model. In more recent times, Keyence has weathered
supply chain headwinds well, focusing on same-day shipment of its
products. This is thanks to a flexible procurement and inventory
management strategy, which includes dual sourcing and component
interchangeability.
Keyence operates a direct sales model. Its in-house consultants
develop products that meet the latest customer requirements.
Keyence continues to expand sales locations and build its workforce
overseas. This has allowed the company to be nearer to its
customers locally and hence more responsive to their needs, which
adds value to customers and builds loyalty.
Areas of engagement: Improving shareholder returns
A key area of the Investment Manager's engagement has been
around the dividend. More broadly, returning capital to
shareholders has also been an area of focus within corporate Japan,
with the Tokyo Stock Exchange, among others, placing pressure on
listed companies to return excess cash to investors. Keyence raised
its annual dividend forecast for the financial year ended March
2023 by 50%. In its interaction with the company, the Investment
Manager has discussed shareholder returns and has voted against its
dividend policy at shareholder meetings.
Despite the increased pay-out, the company continues to hold
cash and cash equivalents on its books that amount to nearly 80% of
its total assets, and more than 10% of its market capitalisation.
The company is able to pay out more to its shareholders, and the
Investment Manager continues to engage on this subject, using proxy
votes to reinforce good governance where required.
Zenkoku Hosho Company
Zenkoku Hosho Company ("Zenkoku") is the largest independent
guarantor of home mortgages in Japan. It offers guarantee services
for mortgages, and educational and card loans. The company is also
involved in the insurance-agency and credit-research
businesses.
Founded in 1981 to guarantee housing loans originated by the
Japan Housing Finance Agency, Zenkoku now focuses on residential
mortgages provided by private banks. In its early years it dealt
mainly with smaller regional financial institutions, but has since
used its track record, know-how and scale to gain market share with
regional, city and
trust banks.
Broad knowledge and experience to drive market share gains and
earnings
Over the past decade, regional banks have increasingly
outsourced mortgage guarantees as a means of hedging credit risk in
new territories. Guarantee services offered by third parties like
Zenkoku have grown at a significant pace as a result.
Zenkoku's competitive edge lies in a broad database of local
property values and deep expertise in handling defaults. This means
it can underwrite credit guarantees anywhere in Japan. Its local
rivals may have built up well in specific regions but are finding a
wider knowledge base harder to acquire.
Looking ahead, Zenkoku's earnings are expected to be driven by
growth in mortgage guarantees as more and more banks outsource this
service in an effort to improve their capital ratios and minimise
credit risk within their retail operations. The company has also
taken market share from banks' captive insurers as some banks
expand housing loans to less familiar customer segments
or regions.
Areas of engagement: Better capital discipline and board
independence and diversity
The Investment Manager has engaged extensively with Zenkoku over
several years to encourage better capital discipline. This has
included focusing on its capital adequacy ratio (a measure of
available capital against risk). It has reiterated that there is
room for greater capital return and emphasised the importance of
shareholder returns, as excessive capital on the balance sheet
negatively impacts the company's return on equity ratio
("ROE").
In March 2023, the company announced a new medium-term plan,
which is viewed as a meaningful step in the right direction.
Management is committed to a minimum ROE target predicated not only
on growing net profits, but also on capital discipline through
increased shareholder return. The plan will require the company to
materially raise pay-out ratios over the next three years, in
conjunction with increased ad hoc buybacks to prevent
overcapitalisation of the balance sheet.
The Investment Manager has also engaged on board independence
and diversity and requested that the company consider appointing an
additional external director to achieve a majority independent
board and a better gender balance.
Social risks are also material to Zenkoku, especially regarding
its workforce. Here, the company continues to develop its human
capital management framework, pursuing a better working environment
for its employees and offering skills upgrading programmes for its
employees.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the 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 they have
elected to prepare the financial statements in accordance with UK
accounting standards and applicable law, including FRS 102, The
Financial Reporting Standard applicable in the UK and Republic of
Ireland.
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 and of the profit or
loss of the Company for that period. In preparing these financial
statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and 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;
- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate 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 enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit 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 issuer,
together with a description of the principal risks and
uncertainties that they face.
In accordance with Disclosure Guidance and Transparency Rule
4.1.14R, the financial statements will form part of the annual
financial report prepared using the single electronic reporting
format under the TD ESEF Regulation. The auditor's report on these
financial statements provides no assurance over the ESEF
format.
We consider the annual report and accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
For and on behalf of abrdn
Japan Investment Trust plc
Karen Brade,
Chairman
5 June 2023
Statement of Comprehensive Income
Year ended 31 March Year ended 31 March
2023 2022
=========================== ===== ========================= ===========================
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ===== ======= ======= ======= ======= ======== ========
Net losses on investments 10 - (5,002) (5,002) - (11,731) (11,731)
=========================== ===== ======= ======= ======= ======= ======== ========
Income 3 1,804 - 1,804 1,996 - 1,996
=========================== ===== ======= ======= ======= ======= ======== ========
Exchange gains 14 - 297 297 - 501 501
=========================== ===== ======= ======= ======= ======= ======== ========
Management fee 4 (213) (320) (533) (276) (413) (689)
=========================== ===== ======= ======= ======= ======= ======== ========
Administrative expenses 5 (463) (10) (473) (353) (6) (359)
--------------------------- ----- ------- ------- ------- ------- -------- --------
Net return before finance
costs and taxation 1,128 (5,035) (3,907) 1,367 (11,649) (10,282)
=========================== ===== ======= ======= ======= ======= ======== ========
Finance costs 6 (56) (84) (140) (57) (85) (142)
--------------------------- ----- ------- ------- ------- ------- -------- --------
Net return before taxation 1,072 (5,119) (4,047) 1,310 (11,734) (10,424)
=========================== ===== ======= ======= ======= ======= ======== ========
Taxation 7 (180) - (180) (200) - (200)
--------------------------- ----- ------- ------- ------- ------- -------- --------
Net return after taxation 892 (5,119) (4,227) 1,110 (11,734) (10,624)
--------------------------- ----- ------- ------- ------- ------- -------- --------
Return per Ordinary share
(pence) 9 7.11 (40.83) (33.72) 8.54 (90.24) (81.70)
--------------------------- ----- ------- ------- ------- ------- -------- --------
The total column of this statement represents the profit and loss account
of the Company.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
Statement of Financial Position
As at As at
31 March 2023 31 March 2022
Notes GBP'000 GBP'000
========================================= ====== ============= =============
Fixed assets
========================================= ====== ============= =============
Investments held at fair value through
profit or loss 10 92,822 99,576
----------------------------------------- ------ ------------- -------------
Current assets
========================================= ====== ============= =============
Debtors 11 767 1,154
========================================= ====== ============= =============
Cash at bank and in hand 283 264
----------------------------------------- ------ ------------- -------------
1,050 1,418
----------------------------------------- ------ ------------- -------------
Creditors: amounts falling due within
one year 12
========================================= ====== ============= =============
Foreign currency bank loans (10,319) (10,634)
========================================= ====== ============= =============
Other creditors (599) (430)
----------------------------------------- ------ ------------- -------------
(10,918) (11,064)
----------------------------------------- ------ ------------- -------------
Net current liabilities (9,868) (9,646)
----------------------------------------- ------ ------------- -------------
Net assets 82,954 89,930
----------------------------------------- ------ ------------- -------------
Share capital and reserves
========================================= ====== ============= =============
Share capital 13 1,582 1,582
========================================= ====== ============= =============
Share premium 6,656 6,656
========================================= ====== ============= =============
Capital redemption reserve 2,273 2,273
========================================= ====== ============= =============
Capital reserve 14 70,987 77,788
========================================= ====== ============= =============
Revenue reserve 1,456 1,631
----------------------------------------- ------ ------------- -------------
Equity shareholders' funds 82,954 89,930
----------------------------------------- ------ ------------- -------------
Net asset value per Ordinary share
(pence) 15 667.26 713.43
----------------------------------------- ------ ------------- -------------
The financial statements were approved and authorised for issue by
the Board of Directors on 5 June 2023 and were signed on its behalf
by:
Karen Brade
Chairman
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Equity
For the year ended 31 March 2023
========================================================================================
Capital
Share Share redemption Capital Revenue
capital premium reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
====================== ===== ======= ======= ========== ======== ======= ========
Balance at 31 March
2022 1,582 6,656 2,273 77,788 1,631 89,930
====================== ===== ======= ======= ========== ======== ======= ========
Return after taxation - - - (5,119) 892 (4,227)
====================== ===== ======= ======= ========== ======== ======= ========
Dividends paid 8 - - - (691) (1,067) (1,758)
====================== ===== ======= ======= ========== ======== ======= ========
Purchase of Ordinary
shares to be held in
treasury 13 - - - (991) - (991)
---------------------- ----- ------- ------- ---------- -------- ------- --------
Balance at 31 March
2023 1,582 6,656 2,273 70,987 1,456 82,954
---------------------- ----- ------- ------- ---------- -------- ------- --------
For the year ended 31 March 2022
Capital
Share Share redemption Capital Revenue
capital premium reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
====================== ===== ======= ======= ========== ======== ======= ========
Balance at 31 March
2021 1,582 6,656 2,273 95,169 1,758 107,438
====================== ===== ======= ======= ========== ======== ======= ========
Return after taxation - - - (11,734) 1,110 (10,624)
====================== ===== ======= ======= ========== ======== ======= ========
Dividends paid 8 - - - (724) (1,237) (1,961)
====================== ===== ======= ======= ========== ======== ======= ========
Purchase of Ordinary
shares to be held in
treasury 13 - - - (4,923) - (4,923)
---------------------- ----- ------- ------- ---------- -------- ------- --------
Balance at 31 March
2022 1,582 6,656 2,273 77,788 1,631 89,930
---------------------- ----- ------- ------- ---------- -------- ------- --------
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows
Year ended Year ended
31 March 2023 31 March 2022
GBP'000 GBP'000
=============================================== ============= =============
Operating activities
=============================================== ============= =============
Net return before taxation (4,047) (10,424)
=============================================== ============= =============
Adjustment for:
=============================================== ============= =============
Losses on investments 5,002 11,731
=============================================== ============= =============
Increase/(decrease) in other creditors 85 (114)
=============================================== ============= =============
Finance costs 140 142
=============================================== ============= =============
Expenses taken to capital reserve 10 6
=============================================== ============= =============
Foreign exchange gains (297) (501)
=============================================== ============= =============
Overseas withholding tax (180) (200)
=============================================== ============= =============
Decrease/(increase) in accrued dividend income 126 (31)
=============================================== ============= =============
Decrease in other debtors - 11
----------------------------------------------- ------------- -------------
Net cash inflow from operating activities 839 620
----------------------------------------------- ------------- -------------
Investing activities
=============================================== ============= =============
Purchases of investments (44,744) (26,105)
=============================================== ============= =============
Sales of investments 46,829 32,137
=============================================== ============= =============
Expenses allocated to capital (10) (6)
----------------------------------------------- ------------- -------------
Net cash inflow from investing activities 2,075 6,026
----------------------------------------------- ------------- -------------
Financing activities
=============================================== ============= =============
Bank and loan interest paid (135) (146)
=============================================== ============= =============
Equity dividends paid (1,758) (1,961)
=============================================== ============= =============
Purchase of own shares to treasury (991) (4,791)
----------------------------------------------- ------------- -------------
Net cash outflow from financing activities (2,884) (6,898)
----------------------------------------------- ------------- -------------
Increase/(decrease) in cash 30 (252)
----------------------------------------------- ------------- -------------
Analysis of changes in cash during the year
=============================================== ============= =============
Opening balance 264 528
=============================================== ============= =============
Effects of exchange rate fluctuations on cash
held (11) (12)
=============================================== ============= =============
Increase/(decrease) in cash as above 30 (252)
----------------------------------------------- ------------- -------------
Closing balance 283 264
----------------------------------------------- ------------- -------------
The accompanying notes are an integral part
of the financial statements.
Notes to the Financial Statements
For the year ended 31 March 2023
1. Principal activity
The Company is a closed-end investment company, registered in England and Wales
No. 03582911, with its Ordinary shares being listed on the London Stock Exchange.
1.
2. Accounting policies
(a) Basis of accounting and going concern . The financial statements
have been prepared in accordance with Financial Reporting Standard
102 and with the Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' ("SORP") issued by the Association of Investment Companies
("AIC") in July 2022. They have also been prepared on the assumption
that approval as an investment trust will continue to be granted.
The Board has considered and sought advice on the appropriateness
of continuing to prepare the Financial Statements on a going
concern basis. Notwithstanding the material uncertainty in relation
to the announcement of the proposed combination of the Company's
assets with the assets of NAVF - which would involve a scheme
of reconstruction resulting in the voluntary liquidation of the
Company - the Board concluded that it remained appropriate to
continue to prepare the Financial Statements on a going concern
basis.
The Company's assets consist mainly of equity shares in companies
listed on a recognised stock exchange and in most circumstances,
including in the current market environment, are considered to
be realisable within a short timescale. The Board has reviewed
the results of stress testing prepared by the Manager in relation
to the ability of the assets to be realised in the current market
environment.
The Company does not have a fixed life. However, under the articles
of association, if, in the 90 days preceding the Company's financial
year-end (31 March), the Ordinary shares have been trading, on
average, at a discount in excess of 10% to the underlying NAV
over the same period, notice will be given of an ordinary resolution
to be proposed at the following AGM to approve the continuation
of the Company. In the 90 days to 31 March 2023, the Ordinary
shares traded at an average discount of 14.0% to the underlying
NAV. Accordingly, a resolution on the continuation of the Company
will be put to the Company's shareholders as part of the Proposal
at the general meetings and AGM at a date to be notified to shareholders
in due course.
The Company has a fixed term loan facility of JPY 1.3 billion
in place until January 2024 and a revolving loan facility of
JPY 1.0 billion in place until December 2024. The Board has set
limits for borrowing and regularly reviews the Company's gearing
levels and its compliance with bank covenants. A replacement
option would be sought in advance of the expiry of the facility
in January 2024, or, should the Board decide not to renew this
facility, any outstanding borrowing would be repaid through the
proceeds of equity sales as required.
The Company's portfolio comprises wholly "Level 1" assets (listed
on a recognisable exchange and realisable within a short timescale).
The results of stress testing prepared by the Manager, which
models a sharp decline in market levels and income, demonstrated
that the Company had the ability to raise sufficient funds so
as to remain within its debt covenants and pay expenses.
Taking the above factors into consideration, the Board has a
reasonable expectation that the Company has adequate resources
to continue in operational existence and discharge its liabilities
as they fall due for a period of at least twelve months from
the date of approval of these financial statements. Accordingly,
the Board continues to adopt the going concern basis in preparing
the financial statements.
On 18 May 2023, the Board announced its agreement in principle
of Heads of Terms for the proposed combination of the assets
of the Company with the assets of NAVF, to be implemented, subject
to shareholder approval, through a scheme of reconstruction under
section 110 of the Insolvency Act 1986, resulting in the voluntary
liquidation of the Company. More detail can be found in the Chairman's
Statement on pages 8 to 10 and in the RNS announcement itself.
The Board believes that the Proposal is in the best interests
of shareholders and recommends that shareholders vote in favour
of the relevant resolutions, including the continuation vote,
at the general meetings to be held in due course, which would
result in the scheme being implemented. However, due to the requirements
for:
a) the continuation vote; and
b) approvals from shareholders of both companies, and for regulatory
approval for NAVF's move to a premium listing on the Main Market
of the London Stock Exchanges, which is a condition of the Proposal,
There can be no certainty of the outcome at the date of this
Annual Report and, therefore, there remains material uncertainty
which may cast significant doubt on the Company's ability to
continue as a going concern.
Should the Proposal not receive the necessary shareholder or
regulatory approvals, or should the continuation vote not be
passed, the Board believes from the work carried out during the
strategic review, that other attractive options remain available
for shareholders in the Japan fund sector, which can be pursued,
and accordingly the Board has prepared the financial statements
on a going concern basis.
The Company's financial statements are presented in Sterling,
which is also the functional currency as it is the basis upon
which shareholders operate and expenses are generally paid. All
values are rounded to the nearest thousand pounds (GBP'000) except
when otherwise indicated.
The accounting policies applied are unchanged from the prior
year and have been applied consistently.
(b) Valuation of investments . The Company's business is investing
in financial assets with a view to profiting from their total
return in the form of income and capital growth. This portfolio
of financial assets is managed and its performance evaluated
on a fair value basis, in accordance with a documented investment
strategy, and information about the portfolio is provided internally
on that basis to the Company's Board of Directors. Accordingly,
upon initial recognition the Company designates the investments
'at fair value through profit or loss'. Fair value is taken to
be the investment's cost at the trade date (excluding expenses
incidental to the acquisition which are written off in the Statement
of Comprehensive Income, and allocated to 'capital' at the time
of acquisition).
Subsequent to initial recognition, investments continue to be
designated at fair value through profit or loss, which is deemed
to be bid prices, where the bid price is available, or otherwise
at fair value based on published price quotations.
(c) Income . Dividends, including taxes deducted at source, are included
in revenue by reference to the date on which the investment is
quoted ex-dividend. Special dividends are reviewed on a case-by-case
basis and may be credited to capital, if circumstances dictate.
Dividends receivable on equity shares where no ex-dividend date
is quoted are brought into account when the Company's right to
receive payment is established. Where the Company has elected
to receive its dividends in the form of additional shares rather
than cash, the amount of the cash dividend is recognised as income.
Any excess in the value of the shares received over the amount
of the cash dividend is recognised in capital reserves. Interest
receivable on bank balances is dealt with on an accruals basis.
Where applicable the dividend income is disclosed net of irrecoverable
taxes deducted at source.
(d) Expenses . All expenses are accounted for on an accruals basis.
Expenses are allocated to revenue in the Statement of Comprehensive
Income except as follows :
- expenses are allocated and borne by capital where a connection
with the maintenance or enhancement of the value of the investments
can be demonstrated. In this respect, the investment management
fee is allocated 40% to revenue and 60% to realised capital reserves
to reflect the Company's investment policy and prospective income
and capital growth; and
- transaction costs associated with the purchase and sale of
investments are charged to capital.
2.
(e) Taxation . The tax payable is based on the taxable profit for
the year. Taxable profit differs from net profit as reported
in the Statement of Comprehensive Income because it excludes
items of income or expenditure that are taxable or deductible
in other years and it further excludes items that are never taxable
or deductible (see note 7 for a more detailed explanation). The
Company has no liability for current tax.
Deferred taxation . Deferred taxation is provided on all timing
differences, that have originated but not reversed at the Statement
of Financial Position date, where transactions or events that
result in an obligation to pay more or a right to pay less tax
in future have occurred at the Statement of Financial Position
date, measured on an undiscounted basis and based on tax rates
expected to apply in the period that the timing differences reverse.
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 underlying timing
differences can be deducted. Timing differences are differences
arising between the Company's taxable profits and its results
as stated in the accounts which are capable of reversal in one
or more subsequent periods. Due to the Company's status as an
investment trust company, and the intention to continue to meet
the conditions required to maintain approval for the foreseeable
future, the Company has not provided deferred tax on any capital
gains and losses arising on the revaluation or disposal of investments.
(f) Nature and purpose of share capital and reserves
Share capital. The Ordinary share capital on the Statement of
Financial Position relates to the number of shares in issue and
in treasury. Only when the shares are cancelled, either from
treasury or directly, is a transfer made to the capital redemption
reserve. Share capital is not distributable.
Share premium . The balance classified as share premium includes
the premium above nominal value from the proceeds on issue of
any equity share capital comprising Ordinary shares of 10p. This
reserve is not distributable.
Capital redemption reserve . The capital redemption reserve is
used to record the amount equivalent to the nominal value of
any of the Company's own shares purchased and cancelled in order
to maintain the Company's capital. This reserve is not distributable.
Capital reserve . Gains or losses on disposal of investments
and changes in fair values of investments are transferred to
the capital reserve. The capital element of the management fee
and relevant finance costs are charged to this reserve. Any associated
tax relief is also credited to this reserve. The costs of share
buybacks to be held in treasury are also deducted from this reserve.
The capital reserve, to the extent that the gains are deemed
realised, is distributable including by way of dividend.
Revenue reserve . This reserve reflects all income and costs
which are recognised in the revenue column of the Statement of
Comprehensive Income. The revenue reserve is distributable by
way of a dividend.
3.
(g) Foreign currencies . Transactions involving foreign currencies
are converted at the rate ruling at the date of the transaction.
Foreign currency asset and liability balances are translated
to Sterling at the middle rate of exchange at the year end. Differences
arising from translation are treated as capital gain or loss
to capital or revenue within the Statement of Comprehensive Income
depending upon the nature of the gain or loss.
(h) Dividends payable . Dividends are recognised in the financial
statements in the period in which they are paid.
(i) Borrowings . All secured borrowings are initially recognised
at cost, being the fair value of the consideration received,
less issue costs where applicable. After initial recognition,
all interest bearing borrowings are subsequently measured at
amortised cost. The finance costs of such borrowings are accounted
for on an accruals basis using the effective interest rate method
and are charged 40% to revenue and 60% to realised capital reserves
to reflect the Company's investment policy and prospective income
and capital growth.
(j) Significant estimates and judgements. The Directors do not believe
that any accounting judgements or estimates have been applied
to these financial statements that have a significant risk of
causing material adjustment to the carrying amount of assets
and liabilities within the next financial year. The Directors
believe that there are two key judgements. Firstly, that the
use of the going concern basis with material uncertainty is appropriate
for the Company. Secondly, that the Company's investments and
borrowings are made in Japanese Yen, however the Board considers
the Company's functional currency to be Sterling. In arriving
at this conclusion, the Board considered that the shares of the
Company are listed on the London Stock Exchange, it is regulated
in the United Kingdom, principally having its shareholder base
in the United Kingdom and also, pays dividends and expenses in
Sterling.
4.
3. Income
======================== ======= =======
2023 2022
GBP'000 GBP'000
======================== ======= =======
Income from investments
======================== ======= =======
Overseas dividends 1,804 1,996
---------------------------- ------- -------
Total income 1,804 1,996
---------------------------- ------- -------
4. Management fee
========================================================================================
2023 2022
======================== ================================= ===============================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
==================== ========== ========== ========= ========= ========= =========
Management fee 213 320 533 276 413 689
------------------------ ---------- ---------- --------- --------- --------- ---------
For the year ended 31 March 2023 management and secretarial services
were provided by abrdn Fund Managers Limited ("aFML"). The agreement
for the provision of investment management services has been sub-delegated
to abrdn Japan Limited.
The management fee is charged on the lesser of the Company's net
asset value or market capitalisation, payable monthly in arrears.
Market capitalisation is defined as the closing share price quoted
on the London Stock Exchange multiplied by the number of shares
in issue less the number of any shares held in treasury, as determined
on the last business day of the applicable calendar month to which
the fee relates. The balance due to aFML at the year end was GBP177,000
(2022 - GBP101,000).
5.
5. Administrative expenses
========================================================================================
2023 2022
====================================== ========================= =========================
Revenue Capital Total Revenue Capital Total
================================== ======= ======= ======= ======= ======= =======
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================== ======= ======= ======= ======= ======= =======
Promotional fees 54 - 54 53 - 53
====================================== ======= ======= ======= ======= ======= =======
Directors' fees 118 - 118 104 - 104
====================================== ======= ======= ======= ======= ======= =======
Custody fees 25 - 25 20 - 20
====================================== ======= ======= ======= ======= ======= =======
Depositary fees 9 - 9 11 - 11
====================================== ======= ======= ======= ======= ======= =======
Registrars fees 35 - 35 38 - 38
====================================== ======= ======= ======= ======= ======= =======
Printing and postage 26 - 26 22 - 22
====================================== ======= ======= ======= ======= ======= =======
Legal and professional fees 38 - 38 20 - 20
====================================== ======= ======= ======= ======= ======= =======
Transaction costs on investment
purchases - 10 10 - 6 6
====================================== ======= ======= ======= ======= ======= =======
Auditor's remuneration (excluding
irrecoverable VAT):
================================== ======= ======= ======= ======= ======= =======
- fees payable to the Company's
auditor for the audit of the
annual accounts 44 - 44 44 - 44
====================================== ======= ======= ======= ======= ======= =======
Other 114 - 114 41 - 41
-------------------------------------- ------- ------- ------- ------- ------- -------
463 10 473 353 6 359
-------------------------------------- ------- ------- ------- ------- ------- -------
The management agreement with aFML also provides for the provision
of promotional activities. The total fees paid and payable under
the management agreement in relation to promotional activities were
GBP54,000 (2022 - GBP53,000) with a balance of GBP13,000 (2022 -
GBP13,000) being due to aFML at the year end. The Company has an
agreement with aFML for the provision of company secretarial services
and administration services; no separate fee is charged to the Company
in respect of this agreement.
6. Finance costs
=================================================================
2023 2022
=============== ========================= =========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========== ======= ======= ======= ======= ======= =======
Bank loans 56 84 140 57 85 142
--------------- ------- ------- ------- ------- ------- -------
6. /
7. Taxation
=================================================================================================
2023 2022
=================================== ========================= ===========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=================================== ======= ======= ======= ======= ======== ========
(a) Analysis of charge for the
year
=================================== ======= ======= ======= ======= ======== ========
Irrecoverable overseas taxation 180 - 180 200 - 200
-------------------------------------------- ------- ------- ------- ------- -------- --------
Total tax charge 180 - 180 200 - 200
-------------------------------------------- ------- ------- ------- ------- -------- --------
(b) Factors affecting current tax charge for the year . The tax assessed
for the year is higher (2022 - higher) than the standard rate
of corporation tax in the UK. The differences can be explained
below:
2023 2022
=================================== ========================= ===========================
Revenue Capital Total Revenue Capital Total
=================================== ======= ======= ======= ======= ======== ========
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=================================== ======= ======= ======= ======= ======== ========
Net return before taxation 1,072 (5,119) (4,047) 1,310 (11,734) (10,424)
-------------------------------------------- ------- ------- ------- ------- -------- --------
Net return multiplied by
standard rate of corporation
tax in the UK of 19% (2022
- 19%) 204 (973) (769) 249 (2,230) (1,981)
============================================ ======= ======= ======= ======= ======== ========
Effects of:
=================================== ======= ======= ======= ======= ======== ========
Losses on investments not
taxable - 952 952 - 2,230 2,230
============================================ ======= ======= ======= ======= ======== ========
Currency gains not taxable - (56) (56) - (95) (95)
============================================ ======= ======= ======= ======= ======== ========
Irrecoverable overseas withholding
tax 180 - 180 200 - 200
============================================ ======= ======= ======= ======= ======== ========
Excess management expenses 139 77 216 130 95 225
============================================ ======= ======= ======= ======= ======== ========
Non-taxable overseas dividends (343) - (343) (379) - (379)
-------------------------------------------- ------- ------- ------- ------- -------- --------
Total tax charge for the
year 180 - 180 200 - 200
-------------------------------------------- ------- ------- ------- ------- -------- --------
(c) Provision for deferred taxation . At 31 March 2023 the Company
had surplus management expenses and loan relationship debits
with a tax value of GBP4,174,000 (2022 - GBP3,893,000) based
on enacted tax rates, in respect of which a deferred tax asset
has not been recognised. No deferred tax asset has been recognised
because the Company is not expected to generate taxable income
in the future in excess of the deductible expenses of those future
periods. Therefore, it is unlikely that the Company will generate
future taxable revenue that would enable the existing tax losses
to be utilised.
7.
8. Dividends
======================================================== ========= ========
2023 2022
GBP'000 GBP'000
======================================================== ========= ========
Amounts recognised as distributions to
equity holders in the year:
======================================================== ========= ========
Prior year final dividend (2022 - 9.00p;
2021 - 9.00p) 1,130 1,185
============================================================ ========= ========
Current year interim dividend (2023 - 5.00p;
2022 - 6.00p) 628 776
------------------------------------------------------------ --------- --------
1,758 1,961
------------------------------------------------------------ --------- --------
In order to comply with the requirements of Sections 1158-1159 of
the Corporation Tax Act 2010 the Company is required to make a dividend
distribution.
The proposed second interim dividend has not been included as a
liability. It is proposed that the second interim dividend will
be paid on 21 July 2023 to shareholders on the register at the close
of business on 23 June 2023.
The table below sets out the total dividends proposed in respect
of the financial year, which is the basis on which the requirements
of Sections 1158 -1159 are considered. The revenue available for
distribution by way of dividend for the year is GBP892,000 (2022
- GBP1,110,000). It is anticipated that the total dividend for the
year of 12.00p (2022 - 15.00p) will be funded 10.10p (2022 - 11.50p)
from the revenue reserve and 1.90p (2022 - 3.50p) from the capital
reserve.
2023 2022
GBP'000 GBP'000
======================================================== ========= ========
Current year proposed second interim dividend
(2023 - 7.00p; 2022 - final of 9.00p) 870 1,130
============================================================ ========= ========
Current year interim dividend (2023 - 5.00p;
2022 - 6.00p) 628 776
------------------------------------------------------------ --------- --------
1,498 1,906
------------------------------------------------------------ --------- --------
The cost of the proposed second interim dividend for 2023 is based
on 12,432,024 Ordinary shares in issue, being the number of Ordinary
shares in issue excluding treasury shares at the date of this Report.
8.
9. Return per Ordinary share
==================================== ======= ========== ======= ==========
2023 2023 2022 2022
p GBP'000 p GBP'000
==================================== ======= ========== ======= ==========
Returns per share are based on the
following figures:
==================================== ======= ========== ======= ==========
Revenue return 7.11 892 8.54 1,110
======================================== ======= ========== ======= ==========
Capital return (40.83) (5,119) (90.24) (11,734)
---------------------------------------- ------- ---------- ------- ----------
Total return (33.72) (4,227) (81.70) (10,624)
---------------------------------------- ------- ---------- ------- ----------
Weighted average number of Ordinary
shares in issue 12,537,027 13,002,993
---------------------------------------- ------- ---------- ------- ----------
10. Investments held at fair value through
profit or loss
========================================================= ========== ==========
2023 2022
GBP'000 GBP'000
========================================================= ========== ==========
Opening book cost 90,973 97,537
============================================================== ========== ==========
Opening investment holding net gains 8,603 20,174
-------------------------------------------------------------- ---------- ----------
Opening fair value 99,576 117,711
============================================================== ========== ==========
Analysis of transactions made during the
year
========================================================= ========== ==========
Purchases at cost (excluding transaction
costs) 44,816 25,951
============================================================== ========== ==========
Sales - proceeds (net of transaction costs) (46,568) (32,355)
============================================================== ========== ==========
Net losses on investments (5,002) (11,731)
-------------------------------------------------------------- ---------- ----------
Closing fair value 92,822 99,576
-------------------------------------------------------------- ---------- ----------
2023 2022
GBP'000 GBP'000
========================================================= ========== ==========
Closing book cost 88,027 90,973
============================================================== ========== ==========
Closing investment holding net gains 4,795 8,603
-------------------------------------------------------------- ---------- ----------
Closing fair value 92,822 99,576
-------------------------------------------------------------- ---------- ----------
The Company received GBP46,568,000 (2022 - GBP32,355,000) from investments
sold in the period. The book cost of these investments when they
were purchased was GBP47,763,000 (2022 - GBP32,516,000). These investments
have been revalued over time and until they were sold any unrealised
gains/losses were included in the fair value of the investments.
As at 31 March 2023, all investments held are in quoted stocks (2022
- same).
Transaction costs . During the year expenses were incurred in acquiring
or disposing of investments designated as fair value through profit
or loss. Expenses incurred in acquiring investments have been expensed
through capital and are included within administration expenses
in the Statement of Comprehensive Income, whilst expenses incurred
in disposing of investments have been expensed through capital and
are included within losses on investments in the Statement of Comprehensive
Income. The total costs were as follows:
2023 2022
GBP'000 GBP'000
========================================================= ========== ==========
Purchases 10 6
============================================================== ========== ==========
Sales 10 7
-------------------------------------------------------------- ---------- ----------
20 13
-------------------------------------------------------------- ---------- ----------
The above transaction costs are calculated in line with the AIC
SORP. The transaction costs in the Company's Key Information Document
are calculated on a different basis and in line with the PRIIPs
regulations.
11. Debtors: amounts falling due within one year
=========================================================
2023 2022
GBP'000 GBP'000
===================================== ======== ========
Amounts due from brokers 86 347
========================================== ======== ========
Prepayments and accrued income 681 807
------------------------------------------ -------- --------
767 1,154
------------------------------------------ -------- --------
All financial assets are included at amortised cost.
9.
12. Creditors
===================================================================================
2023 2022
GBP'000 GBP'000
====================================================== ========== =========
(a) Foreign currency bank loans
====================================================== ========== =========
Falling due within one year 10,319 10,634
---------------------------------------------------------------- ---------- ---------
The Company entered into a one year fixed term loan facility
with ING Bank on 20 January 2023. At the year end, JPY 1,300,000,000
(2022 - JPY 1,300,000,000) equivalent to GBP7,888,000 (2022 -
GBP8,131,000) had been drawn down at an all-in interest rate
of 1.258% (2022 - 0.90%) which is due to mature on 20 January
2024.
In addition, on 21 December 2021, the Company entered into a
three year JPY 1,000,000,000 revolving credit facility with ING
Bank which expires on 21 December 2024. At the year end JPY 400,000,000
(2022 - JPY 400,000,000), equivalent to GBP2,431,000 (2022 -
GBP2,503,000), had been drawn down at an all-in interest rate
of 1.50% (2022 - 1.50%). At the date of this Report, the Company
had drawn down JPY 400,000,000 at an all-in interest rate of
1.50%.
The terms of both loan facilities with ING Bank contain a covenant
that total borrowings should not exceed 35% of the adjusted net
asset value of the Company at any time and that the net asset
value should not fall below GBP40,000,000 at any time. The Company
has met these covenants throughout the period.
2023 2022
(b) Other creditors falling due within one GBP'000 GBP'000
year
====================================================== ========== =========
Amounts due to brokers 262 190
================================================================ ========== =========
Sundry creditors 337 240
---------------------------------------------------------------- ---------- ---------
599 430
---------------------------------------------------------------- ---------- ---------
13. Called-up share capital
==================================================================================
2023 2022
================================ ======================== ======================
Number GBP'000 Number GBP'000
================================ =========== =========== ========== ==========
Allotted, called-up and fully
paid
================================ =========== =========== ========== ==========
Ordinary shares of 10p each 12,432,024 1,243 12,605,268 1,261
===================================== =========== =========== ========== ==========
Held in treasury 3,389,548 339 3,216,304 321
------------------------------------- ----------- ----------- ---------- ----------
15,821,572 1,582 15,821,572 1,582
------------------------------------- ----------- ----------- ---------- ----------
Ordinary Treasury Total
shares shares
Number Number Number
================================ =========== =========== ========== ==========
Opening balance 12,605,268 3,216,304 15,821,572
===================================== =========== =========== ========== ==========
Ordinary shares bought back
for holding in treasury (173,244) 173,244 -
------------------------------------- ----------- ----------- ---------- ----------
Closing balance 12,432,024 3,389,548 15,821,572
------------------------------------- ----------- ----------- ---------- ----------
During the year 173,244 Ordinary shares (2022 - 697,191) were bought
back and held in treasury at a cost of GBP991,000 (2022 - GBP4,923,000).
Subsequent to the year end no further Ordinary shares were bought
back for holding in treasury.
10. /
14. Capital reserve
===================================================== ======= =========
2023 2022
GBP'000 GBP'000
===================================================== ======= =========
At 1 April 2022 77,788 95,169
========================================================== ======= =========
Losses over cost arising on movement in
investment holdings (3,807) (11,571)
========================================================== ======= =========
Losses on realisation of investments at
fair value (1,195) (160)
========================================================== ======= =========
Currency gains 297 501
========================================================== ======= =========
Administrative expenses charged to capital (10) (6)
========================================================== ======= =========
Management fee charged to capital (320) (413)
========================================================== ======= =========
Buyback of Ordinary shares for holding
in treasury (991) (4,923)
========================================================== ======= =========
Finance costs charged to capital (84) (85)
========================================================== ======= =========
Final dividend 2022 - 3.50p paid from capital
(2021 - 5.50p) (691) (724)
---------------------------------------------------------- ------- ---------
At 31 March 2023 70,987 77,788
---------------------------------------------------------- ------- ---------
The capital reserve includes investment holding gains amounting
to GBP4,795,000 (2022 - gains of GBP8,603,000) as disclosed in note
10.
Net currency gains arising during the year of GBP296,000 (2022 -
gains of GBP501,000) are analysed further in the table below.
2023 2022
GBP'000 GBP'000
===================================================== ======= =========
Gains on revaluation of bank loan 308 513
========================================================== ======= =========
Losses on cash deposits (11) (12)
---------------------------------------------------------- ------- ---------
297 501
---------------------------------------------------------- ------- ---------
11.
15. Net asset value per share
The net asset value per share and the net asset values attributable
to Ordinary shareholders at the year end calculated in accordance
with the Articles of Association were as follows:
Net asset value per share Net asset values attributable
========================= ============================= ===============================
2023 2022 2023 2022
p p GBP'000 GBP'000
------------------------- -------------- ------------- -------------- ---------------
Ordinary shares 667.26 713.43 82,954 89,930
------------------------------ -------------- ------------- -------------- ---------------
The movements during the year of the assets attributable to the
Ordinary shares were as follows:
2023 2022
GBP'000 GBP'000
========================= ============== ============= ============== ===============
Net assets attributable at
1 April 2022 89,930 107,438
======================================= ===== ============= ============== ===============
Capital return for the year (5,119) (11,734)
======================================= ===== ============= ============== ===============
Revenue after taxation 892 1,110
======================================= ===== ============= ============== ===============
Dividend paid from revenue (1,067) (1,237)
======================================= ===== ============= ============== ===============
Dividend paid from capital (691) (724)
======================================= ===== ============= ============== ===============
Purchase of Ordinary shares
to be held in treasury (991) (4,923)
--------------------------------------- ----- ------------- -------------- ---------------
Net assets attributable at
31 March 2023 82,954 89,930
--------------------------------------- ----- ------------- -------------- ---------------
The net asset value per Ordinary share is based on net assets, and
on 12,432,024 (2022 - 12,605,268) Ordinary shares, being the number
of Ordinary shares in issue, after deducting 3,389,548 (2022 - 3,216,304)
shares held in treasury, at the year end.
16. Financial instruments
Risk management. The Company's investment activities expose it to
various types of financial risk associated with the financial instruments
and markets in which it invests. The Company's financial instruments
comprise securities and other investments, cash balances, loans,
debtors and creditors that arise directly from its operations; for
example, in respect of sales and purchases awaiting settlement,
and debtors for accrued income.
Certain risk management functions have been delegated to abrdn Fund
Managers Limited ("aFML" or "Manager") under the terms of the management
agreement (further details of which are included under notes 4 and
5). The Board regularly reviews and agrees policies for managing
each type of risk, as summarised below. This approach has been applied
throughout the year within the Manager's risk management framework
which is described below and has not changed since the previous
accounting period.
Risk management framework. The directors of aFML collectively assume
responsibility for aFML's obligations under the AIFMD including
reviewing investment performance and monitoring the Company's risk
profile during the year.
aFML is a fully integrated member of the abrdn plc group ("the Group"),
which provides a variety of services and support to aFML in the
conduct of its business activities, including in the oversight of
the risk management framework for the Company. The AIFM has delegated
the day to day administration of the investment policy to abrdn
Japan Limited, which is responsible for ensuring that the Company
is managed within the terms of its investment guidelines and the
limits set out in its pre-investment disclosures to investors (details
of which can be found on the Company's website). The AIFM has retained
responsibility for monitoring and oversight of investment performance,
product risk and regulatory and operational risk for the Company.
The Manager conducts its risk oversight function through the operation
of the Group's risk management processes and systems which are embedded
within the Group's operations. The Group's Risk Division supports
management in the identification and mitigation of risks and provides
independent monitoring of the business. The Division includes Compliance,
Business Risk, Market Risk and Risk Management. The team is headed
up by the Group's Chief Risk Officer, who reports to the CEO of
the Group. The Risk Division achieves its objective through embedding
the Risk Management Framework throughout the organisation using
the Group's operational risk management system ("SHIELD").
The Group's Internal Audit Department is independent of the Risk
Division and reports directly to the Audit Committee of the Group's
Board of Directors and to the Group's CEO. The Internal Audit Department
is responsible for providing an independent assessment of the Group's
control environment.
The Group's corporate governance structure is supported by several
committees to assist the Board of Directors of the Group, its subsidiaries
and the Company to fulfil their roles and responsibilities. The
Group's Risk Division is represented on all committees, with the
exception of those committees that deal with investment recommendations.
The specific goals and guidelines on the functioning of those committees
are described on the committees' terms of reference.
Risk management . The main risks the Company faces from its financial
instruments are (i) market risk (comprising interest rate risk,
price risk and currency risk), (ii) liquidity risk and (iii) credit
risk.
Market risk . The fair value or future cash flows of a financial
instrument held by the Company may fluctuate because of changes
in market prices. This market price risk comprises three elements
- interest rate risk, price risk and currency risk.
Interest rate risk . Interest rate movements may affect:
- the level of income receivable on cash deposits; and
- interest payable on the Company's variable rate borrowings.
Management of the risk. The possible effects on fair value and cash
flows that could arise as a result of changes in interest rates
are taken into account when making investment and borrowing decisions.
Interest rate sensitivity. Movements in interest rates would not
significantly affect net assets attributable to the Company's shareholders
and total profit due to there being no investments in fixed interest
securities during the year and a relatively low level of bank borrowings.
12.
Price risk. Price risks (ie changes in market prices other than
those arising from interest rate or currency risk) may affect the
value of quoted investments.
Management of the risk . It is the Board's investment policy for
the Company's assets to be invested in a selected portfolio of securities
in quoted companies as explained on page 14 of the 2023 Annual Report.
The Manager has a dedicated investment management process, which
ensures that the risk inherent in this investment policy is controlled.
Underlying the process is the belief that risk is not that individual
stock prices fluctuate in the short term, or that movement in the
value of the portfolio deviates from the benchmark but that risk
is investment in poorly managed expensive companies which the Manager
does not understand. In-depth research and stock selection procedures
are in place based on this risk control philosophy. The portfolio
is reviewed on a periodic basis by the Manager's Investment Committee
and by the Board.
Price sensitivity . If market prices at the Statement of Financial
Position date had been 10% higher or lower while all other variables
remained constant, the return attributable to Ordinary shareholders
for the year ended 31 March 2023 would have increased/(decreased)
by GBP9,282,000 (2022 increased/(decreased) by GBP9,958,000) and
equity reserves would have increased/(decreased) by the same amount.
Foreign currency risk. The Company primarily invests in the shares
of companies which are listed in Japan but can include companies
listed on other stock markets which earn significant revenue from
trading in Japan or hold net assets predominantly in Japan. The
Statement of Financial Position, therefore, can be significantly
affected by movements in foreign exchange rates.
Management of the risk. The Company may, from time to time, match
specific overseas investment with foreign currency borrowings. The
Company's borrowings, as detailed in note 12, are also in foreign
currency.
The revenue account is subject to currency fluctuation arising on
dividends paid in foreign currencies. The Company does not hedge
this currency risk.
Foreign currency risk exposure by currency of denomination:
31 March 2023 31 March 2022
============== =================================== ==================================
Net Total Net Total
Overseas monetary currency Overseas monetary currency
investments liabilities exposure investments liabilities exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============== ============ =========== ======== =========== =========== ========
Japanese Yen 92,822 (9,615) 83,207 99,576 (9,413) 90,163
-------------- ------------ ----------- -------- ----------- ----------- --------
13.
Foreign currency sensitivity. The following table details the positive
impact to a 10% decrease in Sterling against the foreign currency
in which the Company has exposure (based on exposure >5% of total
exposure including foreign exchange contracts). The sensitivity
analysis includes foreign currency denominated monetary items and
adjusts their translation at the year end for a 10% change in foreign
currency rates. In the event of a 10% increase in Sterling then
there would be a negative impact on the Company's returns.
2023 2023 2022 2022
===================================== ========= =========== ======== ==========
Revenue Equity(A) Revenue Equity(A)
GBP'000 GBP'000 GBP'000 GBP'000
===================================== ========= =========== ======== ==========
Japanese Yen 180 8,321 200 9,016
------------------------------------- --------- ----------- -------- ----------
(A) Represents equity exposure
to relevant currencies.
Liquidity risk . This is the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities.
Management of the risk. Liquidity risk is not considered to be significant
as the Company's assets mainly comprise readily realisable securities
which can be sold to meet funding requirements if necessary and
flexibility is achieved through the use of loan facilities, details
of which may be found in note 12.
Liquidity risk exposure . At 31 March 2023, the Company had a fixed
term bank loan of GBP7,888,000 (2022 - GBP8,131,000) which is due
to mature on 20 January 2024, with interest due on the principal
every six months. The Company had also drawn down GBP2,431,000 (2022
- GBP2,503,000) which matured on 13 April 2023 with interest payable
at each set maturity date, from its revolving credit facility (see
note 12 for further details).
14.
Credit risk. This is the risk of failure of the counterparty to
a transaction to discharge its obligations under that transaction
that could result in the Company suffering a loss.
Management of the risk. Investment transactions are carried out
with a large number of brokers of good quality credit standing,
and cash is held only with reputable banks with high quality external
credit enhancements.
In addition, both stock and cash reconciliations to the Depositary's
records are performed on a daily basis to ensure discrepancies are
investigated on a timely basis.
None of the Company's financial assets are secured by collateral
or other credit enhancements and none are past due or impaired.
Credit risk exposure. The amount of cash at bank and in hand of
GBP283,000 (2022 - GBP264,000) and debtors of GBP767,000 (2022 -
GBP1,154,000) in the Statement of Financial Position represent the
maximum exposure to credit risk at 31 March.
Fair values of financial assets and financial liabilities. The fair
value of borrowings has been calculated at GBP10,319,000 as at 31
March 2023 (2022 - GBP10,634,000) compared to an accounts value
in the financial statements of GBP10,319,000 (2022 - GBP10,634,000)
(note 12), due to the short-term maturity. The fair value of each
loan is determined by aggregating the expected future cash flows
for that loan discounted at a rate comprising the borrower's margin
plus an average of market rates applicable to loans of a similar
period of time and currency. The carrying value of all other assets
and liabilities is an approximation of fair value.
17. Analysis of changes in net debt
==============================================================================
At Currency Non-cash At
31 March differences Cash flows movements 31 March
2022 2023
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================= ========== ============ ========== ========= ==========
Cash and cash
equivalents 264 (11) 30 - 283
====================== ========== ============ ========== ========= ==========
Debt due within
one year (10,634) 308 - 7 (10,319)
---------------------- ---------- ------------ ---------- --------- ----------
(10,370) 297 30 7 (10,036)
---------------------- ---------- ------------ ---------- --------- ----------
At Currency Non-cash At
31 March differences Cash flows movements 31 March
2021 2022
================= ========== ============ ========== ========= ==========
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================= ========== ============ ========== ========= ==========
Cash and cash
equivalents 528 (12) (252) - 264
====================== ========== ============ ========== ========= ==========
Debt due within
one year (11,147) 513 - - (10,634)
---------------------- ---------- ------------ ---------- --------- ----------
(10,619) 501 (252) - (10,370)
---------------------- ---------- ------------ ---------- --------- ----------
A statement reconciling the movement in net funds to the net cash
flow has not been presented as there are no differences from the
above analysis.
15.
18. Capital management policies and procedures
The Company's capital management objectives are:
- to ensure that the Company will be able to continue as a going
concern; and
- to maximise the income and capital return to its equity shareholders
through an appropriate balance of equity capital and debt. The Company's
investment policy states that the maximum gearing level is 25% of
net assets, however gearing will normally be set at a stable and
lower level than the maximum. The Board has currently established
a gearing level of around 12% of net assets although, with stock
market fluctuations, this may range between 5% and 15%.
The Board monitors and reviews the broad structure of the Company's
capital on an ongoing basis. This review includes the nature and
planned level of gearing, which takes account of the Manager's views
on the market and the extent to which revenue in excess of that
which is required to be distributed should be retained.
The Company's objectives, policies and processes for managing capital
are unchanged from the preceding accounting period and year end
positions are presented in the Statement of Financial Position.
19. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements using
a fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The fair value hierarchy has the
following classifications:
Level 1 - unadjusted quoted prices in an active market for identical
assets or liabilities that the entity can access at the measurement
date.
Level 2 - inputs other than quoted prices included within Level
1 that are observable (ie developed using market data) for the asset
or liability, either directly or indirectly.
Level 3 - inputs are unobservable (ie for which market data is unavailable)
for the asset or liability.
All of the Company's investments are in quoted equities actively
traded on a recognised stock exchange, with their fair value being
determined by reference to their quoted bid prices at the reporting
date (2022 - same). The total value of the investments (2023 - GBP92,822,000;
2022 - GBP99,576,000) have therefore been deemed as Level 1.
16.
20. Related party transactions and transactions with the Manager
Directors' fees and interests . Fees payable during the year to
the Directors and their interest in shares of the Company are disclosed
within the Directors' Remuneration Report on page 55 of the 2023
Annual Report.
Transactions with the Manager . The Company has agreements with
aFML to provide management, accounting, administrative and secretarial
duties. Details of the transactions and balances outstanding at
the year end are disclosed in notes 4 and 5.
Alternative Performance Measures
Alternative performance measures are numerical measures of the Company's
current, historical or future performance, financial position or cash
flows, other than financial measures defined or specified in the applicable
financial framework. The Company's applicable financial framework includes
FRS 102 and the AIC SORP. The Directors assess the Company's performance
against a range of criteria which are viewed as particularly relevant
for closed-end investment companies.
Discount to net asset value per Ordinary share
The discount is the amount by which the share price is lower than the
net asset value per share, expressed as a percentage of the net asset
value.
2023 2022
==================================================== =============== ======= ========
NAV per Ordinary share (p) a 667.26 713.43
==================================================== =============== ======= ========
Share price (p) b 557.50 635.00
==================================================== =============== ======= ========
Discount (a-b)/a 16.4% 11.0%
---------------------------------------------------- --------------- ------- --------
Net gearing
Net gearing measures the total borrowings less cash and cash equivalents
divided by shareholders' funds, expressed as a percentage. Under AIC
reporting guidance cash and cash equivalents includes net amounts due
from and to brokers at the year end as well as cash and short term
deposits.
2023 2022
==================================================== =============== ======= ========
Borrowings (GBP'000) a 10,319 10,634
==================================================== =============== ======= ========
Cash (GBP'000) b 283 264
==================================================== =============== ======= ========
Amounts due to brokers (GBP'000) c 262 190
==================================================== =============== ======= ========
Amounts due from brokers (GBP'000) d 86 347
==================================================== =============== ======= ========
shareholders' funds (GBP'000) e 82,954 89,930
---------------------------------------------------- --------------- ------- --------
Net gearing (a-b+c-d)/e 12.3% 11.4%
---------------------------------------------------- --------------- ------- --------
Ongoing charges ratio
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of investment management fees and administrative
expenses and expressed as a percentage of the average net asset values
with debt at fair value throughout the year.
2023 2022
==================================================== =============== ======= ========
Investment management fees (GBP'000) 533 689
===================================================================== ======= ========
Administrative expenses (GBP'000) 471 359
===================================================================== ======= ========
Less: non recurring charges(A) (GBP'000) (17) (2)
===================================================================== ======= ========
Less: transaction costs on investment
purchases (GBP'000) (10) (6)
--------------------------------------------------------------------- ------- --------
Ongoing charges (GBP'000) 977 1,040
--------------------------------------------------------------------- ------- --------
Average net assets (GBP'000) 83,353 103,730
--------------------------------------------------------------------- ------- --------
Ongoing charges ratio 1.17% 1.00%
--------------------------------------------------------------------- ------- --------
(A) Comprises legal and professional fees and an exit fee due to a
change in Registrars which are not expected to recur.
At 31 March 2023 the Company's OCR was 1.17% as above compared to the
Peer Group weighted average OCR of 0.77% (based on average net assets
at 31 March 2023 of GBP399.4 million, source AIC). The ongoing charges
ratio provided in the Company's Key Information Document is calculated
in line with the PRIIPs regulations which includes amongst other things,
the cost of borrowings and transaction costs.
Total return
NAV and share price total returns show how the NAV and share price
has performed over a period of time in percentage terms, taking into
account both capital returns and dividends paid to shareholders. Share
price and NAV total returns are monitored against open-ended and closed-ended
competitors, and the Reference Index, respectively.
Share
Year ended 31 March 2023 NAV Price
==================================================== =============== ======= ========
Opening at 31 March 2022 a 713.4p 635.0p
==================================================== =============== ======= ========
Closing at 31 March 2023 b 667.3p 557.5p
==================================================== =============== ======= ========
Price movements c=(b/a)-1 -6.5% -12.2%
==================================================== =============== ======= ========
Dividend reinvestment(A) d 2.1% 2.2%
---------------------------------------------------- --------------- ------- --------
Total return c+d -4.4% -10.0%
---------------------------------------------------- --------------- ------- --------
Share
Year ended 31 March 2022 NAV Price
==================================================== =============== ======= ========
Opening at 31 March 2021 a 807.7p 727.5p
==================================================== =============== ======= ========
Closing at 31 March 2022 b 713.4p 635.0p
==================================================== =============== ======= ========
Price movements c=(b/a)-1 -11.7% -12.7%
==================================================== =============== ======= ========
Dividend reinvestment(A) d 1.7% 1.8%
---------------------------------------------------- --------------- ------- --------
Total return c+d -10.0% -10.9%
---------------------------------------------------- --------------- ------- --------
(A) NAV and share price total returns show how the NAV and share price
has performed over a period of time in percentage terms, taking into
account both capital returns and dividends paid to shareholders. NAV
total return involves investing the net dividend in the NAV of the
Company with debt at fair value on the ex-dividend date. Share price
total return involves reinvesting the net dividend in the share price
of the Company on the ex-dividend date.
Please note that past performance is not necessarily a guide to
the future and that the value of investments and the income from
them may fall as well as rise and may be affected by exchange rate
movements. Investors may not get back the amount they originally
invested.
*Neither the Company's website nor the content of any website
accessible from hyperlinks on that website (or any other website)
is (or is deemed to be) incorporated into, or forms (or is deemed
to form) part of this announcement.
For abrdn Japan Investment Trust plc
abrdn Holdings Limited, Secretary
END
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END
FR UPURAQUPWGAA
(END) Dow Jones Newswires
June 06, 2023 02:00 ET (06:00 GMT)
Abrdn Japan Investment (LSE:AJIT)
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Abrdn Japan Investment (LSE:AJIT)
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