TIDMAJG
ATLANTIS JAPAN GROWTH FUND LIMITED
("AJGF" or the "Company")
(a closed-ended investment company incorporated in Guernsey with registration
number 30709)
LEI 5493004IW0LDG0OPGL69
Annual Results for the financial year ended 30 April 2023
22 August 2023
(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)
The financial information set out below does not constitute the Company's
statutory accounts for the financial year ended 30 April 2023. All figures are
based on the audited financial statements for the financial year ended 30 April
2023.
The financial information for the financial year ended 30 April 2023 noted below
is derived from the financial statements delivered to the UK Listing Authority.
The annual report and audited financial statements for the financial year ended
30 April 2023 will shortly be posted to shareholders and will also be available
on the company website:
www.atlantisjapangrowthfundlimited.com (http://www.tiburon.co.uk/disclaimer/?go=/
funds/atlantis-japan-growth-fund-limited/)
INTRODUCTION
INVESTMENT OBJECTIVE
Atlantis Japan Growth Fund Limited (the "Company") aims to achieve long term
capital growth through investment wholly or mainly in listed Japanese equities.
INVESTMENT POLICY
The Company may invest up to 100% of its gross assets in companies quoted on any
Japanese stock exchange including, without limitation, the Tokyo Stock Exchange
Prime, Standard and Growth sections, or the regional stock exchanges of Fukuoka,
Nagoya and Sapporo. The Company's benchmark index is the TOPIX Total Return
index "benchmark total return index" and the Company will not be restricted to
investing in constituent companies of the benchmark.
The Company may also invest up to 20% of its Net Asset Value (the "NAV") at the
time of investment in companies listed or traded on other stock exchanges but
which are either controlled and managed from Japan or which have a material
exposure to the Japanese economy.
The Company may also invest up to 10% of its NAV at the time of investment in
securities which are neither listed nor traded on any stock exchange or over-the
-counter market.
In general, investments will be made in equity shares of investee companies, or
in debt issued by investee companies. However, the Company may also invest up to
20% of its NAV at the time of investment in equity warrants and convertible
debt.
The Company will not invest in more than 10% of any class of securities of an
investee company. The Company will not invest in derivative instruments save for
the purpose of efficient portfolio management.
The Company may not invest more than 10% in aggregate of the value of its total
assets in other listed closed-ended investment funds except in the case of
investment in closed-ended investment funds which themselves have published
investment policies to invest no more than 15% of their total assets in other
listed closed-ended investment funds, in which case the limit is 15%.
The Company may borrow up to a maximum of 20% of NAV at the time of borrowing.
No material change will be made to the investment policy without the approval of
shareholders by ordinary resolution.
The management and impact of the risks associated with the investment policies
are described in detail in the Notes to the Financial Statements (see Note 15).
INVESTMENT MANAGER AND INVESTMENT ADVISER
Quaero Capital LLP has been appointed as the Investment Manager of the Company
since 1 August 2014.
Atlantis Investment Research Corporation ("AIRC") has been appointed as the
Investment Adviser to the Company since 1 August 2014.
AIRC, established in Tokyo, through Taeko Setaishi, as lead adviser, and her
colleagues, advises the Investment Manager on the day-to-day conduct of the
Company's investment business, the role it has played since the launch of the
Company in May 1996.
CHAIRMAN'S STATEMENT
FOR THE FINANCIAL YEARED 30 APRIL 2023
As announced on 11 August 2023, the Board has agreed heads of terms for a
proposed combination of the assets of the Company with the assets of Nippon
Active Value Fund Plc ("NAVF") (the "Proposal"). Further details regarding the
Proposal are provided in the Strategic Review section below.
The past year has continued along the pattern of challenging equity markets and
rapid rotations in the global economic and geopolitical theatres. A persistent
surge in inflation, fuelled further by the Russian energy sanctions and grain
supply chain shortages out of Ukraine, overshadowed the continued resurgence in
growth following the pandemic. The US Federal Reserve has led the global move to
tighten rates, and equity markets have been closely tied to each signal on the
path of interest rates. Despite Japan being the only G7 nation to maintain an
easy monetary policy and not raise rates, reaffirmed by the new BOJ Governor
Ueda, the equity market has moved much in line with US stocks. Meanwhile, the
yen has fallen some 5% against sterling and the dollar reflecting, in part, the
widening interest rate differential. Closer to home, we took heart from the
enhanced economic policy management by Prime Minister Kishida, after the ruling
party success in the Upper House elections last July. Our thoughts were very
much with the Japanese at this time, coming closely after the assassination of
former Prime Minister, Shinzo Abe who had both re-energised Japan following the
2011 earthquake and pushed for the enhanced corporate governance in Japan.
In a challenging environment for growth companies, the Company finished its
financial year to 30 April 2023 with the net asset value on a total return basis
4.0% lower than a year earlier. This underperformed the Company's benchmark, the
Topix Total Return (TR) Index which was 7.3% higher in sterling terms. The
Company is always seeking to invest in those companies whose growth dynamics
have been overlooked by the market, with a focus on delivering sustainable
earnings growth over the long-term. Given this and the polarisation of
investment style trends, the underperformance of growth stocks by over 7.5%
created performance headwinds for the Company.
Whilst undeniably challenging over the near term, the Company's performance over
a 5-year period places it in the middle of its peer group. The Company paid out
four regular quarterly dividends of 1% of the Company's net asset value ("NAV"),
calculated on the average daily NAV of April 2022. Further, at the end of the
financial year, the Company's discount was 16.0% against 12.2% a year earlier.
Market AND Performance
The pattern that we saw in the last financial year, where the rotation from
growth to value companies took hold, was amplified in the financial year just
ended. This masked the strength in the overall market though the pattern of
investing behaviour being led by foreign investors, highlighted by investors
such as Warren Buffett, was to focus on the globally compelling valuation that
was to be found in Japanese stocks. Valuations for growth companies contracted
over the period despite their encouraging earnings outlook, their low debt
levels and continued robust cash positions. Persistent foreign selling of the
Topix Growth Index was amplified by the fears of a global financial crisis
stemming from the collapse of regional banks in the US in spite of backstop
protection from the US Treasury. This more than offset the positive demand
outlook for China's economy.
STRATEGIC REVIEW
Following discussions with several of the Company's biggest shareholders in
connection with the Company's forthcoming continuation vote at this year's AGM,
the Board has recently undertaken a comprehensive strategic review of the future
opportunities for your Company.
The Board's key objective in this review was to consider the best long term
investment strategy for those of our shareholders who wish to remain invested in
the Japanese market, whilst recognising that the current discount attaching to
our shares, our recent performance and our relatively modest market
capitalisation are problematic in attracting new shareholders to the register.
In the course of the Board's strategic review we identified a number of
competing Japanese investment trusts where greater liquidity and a lower
discount has been evident, supported by clear, focused and differentiated
investment strategies.
The Board has agreed heads of terms for a proposed combination of the assets of
the Company with the assets of NAVF. 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 operation over a larger pool
of assets under management.
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 a general meeting 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 that many shareholders will wish to
continue to be invested in the enlarged fund.
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 a 2%
discount to the fair value per share of the Company on the effective date of the
Scheme. The manager of NAVF has agreed to meet the Company's reasonable costs of
implementing the Proposal.
dividend policy
The quarterly dividend is set at 1% of the average daily NAV per share in the
final month of the preceding financial year and is paid out of capital resources
at the end of each calendar quarter. The Board continues to believe that this
dividend policy is a fairer way to distribute capital to all shareholders,
compared to the previously employed redemption mechanism.
The September 2022, December 2022, March 2023 and June 2023 dividend payments
were paid to registered shareholders at the rate of 2.15p per share, based on
the average daily NAV per share in the final month of the Company's financial
year ended 30 April 2022. As a result of the Company's performance over the year
to April 2023, the average NAV per share for the month of April 2023 was 196p.
Thus, the new quarterly dividend rate (subject to the outcome of the Proposal
described above) will be at 1.96p for the four dividends payable at the end of
September 2023, December 2023, March 2024 and June 2024.
Environmental, Social and Governance (ESG) Investment
Investing responsibly is at the centre of the Company's investment philosophy
and process. In 2015 the Company's investment manager, Quaero Capital, became a
signatory to the UNPRI to demonstrate commitment to responsible investment.
Quaero Capital has since joined the Institutional Investor Group for Climate
Change (IIGCC) and the Carbon Disclosure Project (CDP), as it looks to
understand and adopt best practice to address climate change. As long-term
investors it is important that we understand the environmental, social and
governance risks and opportunities affecting the companies in which we invest.
Strong relationships built over many years in the market enable us to use our
position as long-term investors to encourage transparency and flag areas of high
ESG risk.
BOARD COMPOSITION
Given the support comprising 51% of the Company's share register, indicated
during consultation with major Shareholders ahead of the Proposal, the Board
does not anticipate the need for re-election at an AGM. Should this prove
necessary, and as reported in 2021, I would be stepping down this year as
Chairman of the Company and have been working with my successor, Michael Moule,
to ensure a smooth transition and a focus on refreshing board membership.
Michael has been a director since February 2018 and, a should the Proposal not
be adopted, Shareholders would be assured of his continued stewardship as
Chairman with effect from this year's AGM.
Philip Ehrmann would not be seeking re-election to the Board at any forthcoming
AGM.
Not including the outgoing Chairman and Philip Ehrmann as detailed above, all
Directors would be subject to annual re-election at the AGM on 8 December 2023,
should it be required to take place.
DISCOUNT management and share buy backs
In order to assist in managing the discount at which the Company's shares trade
and to enhance the NAV per share of remaining shareholders, the Company has
authority to buy back shares. The Board renewed its existing powers to buy back
shares at the 2022 AGM. The Board reviews the discount level on a regular basis
and will opportunistically buy back stock if the discount is perceived to be too
wide.
The discount widened over the period from 12.2% to 16.0%. As part of its
discount management policy, during the financial year ended 30 April 2023, the
Company exercised its authority to buy back 560,500 shares for holding in
Treasury, which represented 1.21% of the issued share capital.
At the 2019 AGM, the Board announced that a Continuation Vote will be called
every fourth year. The next Continuation Vote would therefore be held at the at
the AGM on 8 December 2023, should it be required to take place.
GEARING
Gearing is defined as the ratio of a company's long-term debt, less cash held,
compared to its equity capital, expressed as a percentage. The effect of gearing
is that, in rising markets, the Company tends to benefit from any growth of the
Company's investment portfolio above the cost of payment of the prior ranking
entitlements of any lenders and other creditors. Conversely, in falling markets
the Company suffers more if the Company's investment portfolio underperforms the
cost of those prior entitlements.
In order to improve the potential for capital returns to shareholders, the
Company currently has access to an overdraft facility with the Company's
Depositary, Northern Trust (Guernsey) Limited, for up to ¥1.5 billion. As at 30
April 2023 the Company's net gearing level (being the amount of drawn-down bank
debt less the cash held on the balance sheet) was 4% compared to 5% at the end
of the prior reporting period.
The Directors consider it a priority that the Company's level of gearing should
be maintained at appropriate levels with sufficient flexibility to enable the
Company to adapt at short notice to changes in market conditions. The Board
reviews the Company's level of gearing on a regular basis. The current maximum
that has been set is 20% of the Company's net assets. The Investment Adviser is
encouraged to use the gearing facility and the Company's cash reserves in order
to enhance returns for shareholders.
ONGOING CHARGES AND INVESTMENT MANAGEMENT FEE
The Board continues to monitor the level of ongoing charges incurred by the
Company and for the financial year ended 30 April 2023 the ongoing charges were
1.85% (30 April 2022: 1.65%). The Board will remain vigilant in seeking
opportunities for reductions. Details of the ongoing charges are shown in Note
19 to the Financial Statements.
A tiered structure for investment management fees was put in place with effect
from 5 July 2019, with a fee of 1% on the first £125m of net assets, 0.85% on
net assets between £125m and £175m and 0.70% on net assets above £175m.
ANNUAL GENERAL MEETING ("AGM")
To create provision for all possible outcomes relating to the Proposal, notice
of the Company's AGM accompanies this Annual Report which would, if required,
take place on 8 December 2023. In the event that the Proposal is approved by
Shareholders at an extraordinary general meeting in Q3, the AGM will be
adjourned since the Company will already have completed its merger with NAVF.
The Board will update shareholders on the timing of the shareholder meeting to
consider the Proposal, once this is confirmed, by notice of meeting and by RNS
announcement.
OUTLOOK
We are entering a transformational period in Japan, with a more persistent
inflation outlook than we have seen in decades, which is opening the door for
the Bank of Japan to adjust its decades long low interest rate regime. This
could herald a sharp reversal in the fortunes of the Japanese yen in the coming
year. We have corporates talking of double digit pay increases for graduates and
sustained wage inflation across many industries. Furthermore, we have a
government and stock exchange committed to enhanced corporate governance focus
and to pressing companies to address the poor returns on capital and low ratings
on the premium market. This is all at a time when we are seeing resilient
earnings recovery, improving customer demand and a domestic economy that has
seen a healthy uptick in the post-pandemic environment. In spite of the
challenging environment in which our Investment Adviser has been operating over
the past few terms, the factors above all support the unrepentant focus on those
growth companies that have attractive PER, PBR and yield comparables,
particularly those with long-term resilient business models. Given the return of
the foreign investor over recent months, we expect their early interest in value
to broaden out to the wider market and those businesses that benefit from strong
operational moats, demand recovery and the increased infrastructure spend in the
key areas of digital transformation, pharmaceutical technology, and the evolving
workforce.
Your Directors and I continue to believe in the long-term growth potential of
the Japanese market given the economic factors set out above which, if realised,
would place the sector in a strong position to benefit from the recovery of the
global economy and, more particularly, the firming domestic outlook. This sense
of optimism is a primary contributor to our conclusions and ultimate proposal
arising from the strategic review as outlined earlier in this statement.
Noel Lamb22 August 2023
Investment Adviser's Report
FOR THE FINANCIAL YEARED 30 APRIL 2023
Performance
The Company's Net Asset Value (NAV) per share, calculated in sterling, ended the
financial year at 193.4p, down 3.99% YoY on a total return basis, versus the
TOPIX Total Return Index return of 7.26%. The company's discount to NAV ended
the period at 16.0%, widening from 12.2%. At financial year end the Company's
net gearing was 4%, narrowing from the previous year's level of 5%.
At the end of April 2023, the Company held 55 stocks, reduced from 66 positions
held in the previous year. Sectors that performed positively included Banks,
Other Financial and Wholesale Trade. There were strong contributions from small
cap engineering consultant INTLOOP (9556 JP), major global supplier of
semiconductor manufacturing supplies DISCO (6146 JP), and Sumitomo Mitsui
Financial Group (8316 JP) one of Japan's three major conglomerate banks. Sectors
that underperformed included Information and Communications and Electrical
Appliances. Detraction from performance came from S-Pool (2471 JP), a provider
of special needs employment services, Wacom (6727 JP), manufacturer of touch
panels and VisasQ (4490 JP), a leading provider of expert network services.
The Company's performance has continued to suffer from the post-COVID market
style shift away from growth towards value. Over the period, the TOPIX Growth
Total Return index underperformed the TOPIX Total Return Value index by 7.53%.
This appeared to have stabilised towards the end of 2022, although in early 2023
Japan's value attractions received attention from global investors after Warren
Buffet extolled the cheapness of Japanese equities.
The portfolio remains entirely invested in the equities of Japanese companies
and J-REITS. The Company has no exposure to foreign exchange hedges, nor does it
take positions in convertible bonds, or other types of structured financial
products.
Market comment
Inflation and interest rate policy have been significant factors in markets
during the period under review. The invasion of Ukraine in February 2022 drove
up commodity and energy prices, contributing to global inflation and adding
urgency to central bank policy tightening. Japan has been the exception as
inflation here has remained largely muted and the Bank of Japan (BoJ) has kept
easy monetary policy largely unchanged. The resulting policy divergence with the
rest of the world has led to a substantial move in the USD/JPY rate to above
¥150. After decades of stagnant inflation, the BoJ has been reluctant to stifle
emergent reflation in the hope that recovery could lead to a more self
-sustaining cycle of wage growth and consumption. We have seen encouraging signs
on wage hikes among larger companies and it remains to be seen if this will
spread more broadly across the corporate sector.
Japan has been slower than the western world to exit from its COVID
restrictions. Nevertheless, after a significant peak in infections during the
summer of 2022, the country began incrementally dismantling its prohibitions
since the autumn, removing mask advice and, most significantly, allowing visa
-free travel into the country from November 2022. Inbound tourism, which was
prior to COVID a significant contributor to domestic consumption, thus picked up
in the second half of the financial year.
Late reopening and the weak currency have generally provided a favourable
environment for older economy cyclical `value' stocks. In 2023, Japan's lower
priced stocks received a further boost from a recurrence of the activist theme
in Japan, as the Tokyo Stock Exchange announced it would apply further pressure
on Prime-listed companies which consistently trade at a discount to book value.
Economic Outlook
Japan downgraded COVID-19 to flu status on May 8th 2023. Inbound tourist travel
to Japan should continue to recover, helping the domestic economy. Retail sales
have continued to provide evidence of domestic recovery, rising 7.2% in March
2023. While the tourism spend is a major boost, the bulk of spending is by
domestic consumers supported by low unemployment and improving wages. This may
also indicate the emergence of rational expectations of rising prices as opposed
to the deflationary mind-set of the last couple of decades.
Inflation continues to rise, with March CPI +3.2% YoY. Although it is expected
to slow from this summer as commodity/energy price impact fades, there is the
suggestion that individuals continue to spend ahead of higher prices expected in
the not-too-distant future, a positive development for the economic outlook. On
April 9th, the BoJ appointed a new governor Kazuo Ueda, and although he appears
unlikely to change policy significantly in the near future, the April 28th BoJ
board meeting left its zero-interest rate policy unchanged.
Tempering the generally benign outlook, global macro and geopolitical concerns
remain, as some US regional banks have continued to stumble, reminding us that
tightening monetary policy to contain inflation has real world consequences and
is not an exact science. We are cautiously optimistic on the outlook for Japan's
economy, though the FY 3/23 earnings season appears to be resulting in some
rather conservative FY 3/24 earnings guidance.
Investment Adviser's Strategy
Since the TOPIX Growth TR Index peaked against the corresponding value index in
December 2020, it has underperformed by 37.5% to end of April 2023. In one
sense, this is easily explained by earnings as the above trend growth of
digitalization and e-commerce `growth' sectors has slowed since COVID, while
older economy `value' stocks have seen earnings recover strongly as the economy
reopened. Further supporting this narrative, the shareholder activism theme has
returned to the Japanese market, with several high-profile activist successes,
and a natural recovery in shareholder returns as profits have recovered. Without
wishing to predict the timing of a recovery in growth, we can at least say that
the earnings of companies with structural growth are cheaper than they were,
while the gap with book value has narrowed for more cyclical sectors.
The Investment Adviser continues to focus on companies which can achieve long
term structural growth in earnings, for example those benefiting from structural
change and growth areas such as in technology, manufacturing and workflow
efficiency, work-style reform, healthcare, infrastructure and unique new
business models. The Investment Adviser has not changed its basic approach of
frequently meeting with company managements to test their progress and continues
to employ a bottom-up approach in its fundamental analysis.
Atlantis Investment Research Corporation
22 August 2023
Alternative Investment Fund Manager's Report
FOR THE FINANCIAL YEARED 30 APRIL 2023
Quaero Capital LLP, which is registered in England as a limited liability
partnership, was authorised on 22 July 2014 by the Financial Conduct Authority
of the UK as the Company's Alternative Investment Fund Manager (the "AIFM") for
the purposes of the Alternative Investment Fund Managers Directive ("AIFMD" or
the "Directive").
As the Company's AIFM, Quaero Capital LLP is required to make available an
annual report for each financial year of the Company containing the following:
i. A detailed description of the principal risks and uncertainties facing the
Company (see Principal Risks and Uncertainties below).
ii. A balance sheet or a statement of assets and liabilities (see Statement of
Financial Position below).
iii. An income and expenditure account for the financial year (see Statement of
Comprehensive Income below).
iv. A report on the activities of the financial year including an overview of
the investment activities and financial performance over the year (see
Chairman's Statement above Investment Adviser's Report above, Details of Ten
Largest Investments below, Schedule of Investments below and Directors' Report
and Statement of Directors' Responsibilities below).
v. Details of material changes to the information set out under Article 23 of
the Directive. To satisfy this requirement, Quaero Capital LLP publishes an
Investor Disclosure Document available at www.atlantisjapangrowthfund.com.
vi. Certain disclosures in relation to the remuneration of Quaero Capital LLP.
To meet these requirements, details of Quaero Capital LLP's remuneration policy
and remuneration disclosures in respect of Quaero Capital LLP's reporting period
for the financial year ended 31 March 2023 are available at
www.atlantisjapangrowthfund.com/literature (https://urldefense.com/v3/__http:/www
.atlantisjapangrowthfund.com/literature__;!!Oe2TtrU3ZNiRdQ!YOAxlgymf8gnNvZuN3RlDQ
SkQUBuw695CiLsy053VDT4Gr-MeCqifsI0LT4E$).
vii. Details of the leverage employed by the Company. Using the methodologies
prescribed under the Directive, the leverage of the Company is disclosed in the
following table:
+--------------+-------------------------+--------------------+
| |Commitment leverage as at|Gross leverage as at|
| | | |
| |30 April 2023 |30 April 2023 |
+--------------+-------------------------+--------------------+
|Leverage ratio|1.04:1 |1.04:1 |
+--------------+-------------------------+--------------------+
Quaero Capital LLP
22 August 2023
Details of Ten Largest Investments
AS AT 30 APRIL 2023
The ten largest investments comprise a fair value of £22,998,339 (30 April 2022:
£26,026,741) representing 29.1% of Net Asset Value (30 April 2022: 29.8%) with
details as below:
Internet Initiative Japan (180,000 shares)
Internet Initiative Japan (IIJ) was Japan's first ISP (internet service
provider) which gave it a first mover advantage. It initially worked closely
with NTT, Japan's main telecom provider and largest shareholder, which helped
establish the firm as the go-to ISP for Japan's leading enterprises and giving
it a large Rolodex of major companies as customers. IIJ's main businesses are
now split between Network Services and System Integration. Its services cover
the entire gamut from highly sophisticated cloud software and cyber security to
general connectivity infrastructure and MVNO (discount mobile virtual network
operator) offerings to support the digital transformation needs of major multi
-national corporations to smaller enterprises. The company is well positioned
for stable double-digit growth over the coming years.
Fair value of £2,976,367 representing 3.77% of Net Asset Value (30 April 2022:
1.6%)
Sumitomo Mitsui Financial (75,000 shares)
Sumitomo Mitsui Financial Group (SMFG) is one of Japan's three leading banking
groups. While loans have been growing, lending margins have been under pressure
in Japan for over ten years, and the impact of the former has finally overcome
the latter to generate net interest income growth over the last year, while the
prospect of some normalization of domestic monetary policy could boost core
earnings growth substantially. Meanwhile SMFG has the highest Common Equity Tier
1 Capital ratio at 13.7%, suggesting upside potential from improved capital
efficiency. Japanese banks do not appear to be affected by the particular set of
circumstances currently afflicting the US regional banking space.
Fair value of £2,455,087 representing 3.11% of Net Asset Value (30 April 2022:
1.2%)
Topcon (210,000 shares)
Topcon is a globally present manufacturer of optical devices with applications
in ophthalmology and high precision 3D surveying/positioning devices using GPS,
networks and lasers. In ophthalmology it has a global top share in 3D Optical
Coherence Tomography (OCT) and auto refractometers (Chronos) amongst others. Its
precision optical equipment products are automation systems positioning and
smart infrastructure for use in civil engineering, construction, and
agricultural fields. The shortage of skilled labour in industries such as
construction and agriculture is driving demand for automation technology
including Topcon's devices. Infrastructure expansion plans in the US and Europe
are a tailwind. We see the potential for Topcon to raise margins substantially
over the next few years as new ophthalmic product development costs have peaked
and as the smart infrastructure and positioning business grows overseas.
Fair value of £2,381,023 representing 3.01% of Net Asset Value (30 April 2022:
1.2%)
Japan Material (197,000 shares)
Japan Material is a supplier of ultra-pure water, specialty gases and chemicals
used in semiconductor and LCD manufacturing. The company's services include
managing the entire process from design to construction, installation and
maintenance of specialty equipment, piping, pumps and other infrastructure. The
company has a long history with Japan's top semiconductor related companies
including Kioxia (Toshiba), Micron and other manufacturers such as Japan
Display. The company is known for its highly skilled staff and has a good track
record of supplying total solutions for managing the entire process of laying
out the piping to design and maintenance of the gas supply, for advanced
semiconductor and electronics manufacturing, to help reduce operating costs.
With the recent disruption of supply chains in the semiconductor sector, the
Japanese government is supporting the onshoring of production in Japan. Several
major projects have ensued between Japanese and Taiwanese semiconductor
manufactures as well as other companies who are increasing their investment in
Japan. Japan Material has recently acquired land in Kyushu to support
semiconductor plants in the region, which should help drive long-term above
trend growth for the company.
Fair value of £2,360,299 representing 2.99% of Net Asset Value (30 April 2022:
3.5%)
FP Partner (56,000 shares)
FP Partner is an independent insurance agent selling retail insurance products
and providing after-sales services on behalf of a number of insurance companies.
It offers products from the majority of domestic and international insurers
operating in Japan. As well as insurance product sales, the company has expanded
into banking and securities, selling investment trusts and brokering mortgages,
and aiming to become a one-stop provider of financial products under the "Money
Doctor" brand. The company's branch and store network now has national coverage
and in a fragmented industry the company estimates that it is the second-largest
independent insurance agent in Japan. The number of industry agents is
contracting nationally, with rising costs of compliance and technology, as well
as succession issues with older independent agents driving consolidation and
presenting opportunity for larger players such as FP. The company listed in
September 2022.
Fair value of £2,282,743 representing 2.89% of Net Asset Value (30 April 2022:
0.0%)
Creek & River (180,000 shares)
Creek & River's core businesses are staff agency business, managing temporary
staffing and employment of specialists, and a production business accepting
outsourced creative production and development. While the agency business began
in creative fields such as video production, TV and game design, over time the
scope of service has expanded into professional services such as doctors, IT
engineers, lawyers, accountants, architects, fashion designers and chefs with
the view that Creek & River's business model is widely applicable. As of the end
of February 2023, about 370,000 professionals were registered with the company.
The creative business still accounts for over 75% of revenue, but the medical
staffing business, providing employment services for medical specialists,
generates higher margins and consequently 33% of consolidated operating profit,
is growing fast. The majority of medical institutions in Japan are registered as
clients. The company's growth strategy lies in expanding the number of
professional services from the current 18 to 50. Alongside staff agency and
production C&R has a fast growing Rights business managing the distribution of
intellectual property.
Fair value of £2,245,814 representing 2.84% of Net Asset Value (30 April 2022:
1.2%)
Disco (24,000 shares)
Disco is a semiconductor production equipment maker and holds the top global
share in slicing and dicing, grinding and polishing equipment for
semiconductors, electronic components and silicon wafers. The stock also offers
some defensive qualities as it also has non-integrated circuit (IC) customers
that provides some counter-cyclical protection, and it has a large consumables
and maintenance business that generates steady recurring revenues. Disco has
benefited from the extension of the current semiconductor cycle and the
continued excess demand conditions in maintenance, parts and consumables. Due to
the acute semiconductor shortages as a result of the pandemic, and more recently
the war in Ukraine, the Japanese government is supporting the onshoring of
semiconductor production and strengthening of the industry and
supply chains in Japan as a strategic initiative. The same phenomenon is
occurring in other countries which is benefiting
Disco. The company is also a weak yen beneficiary and has a large orderbook
giving it visibility on steady sales growth for the next few years regardless of
where we are in the cycle.
Fair value of £2,181,749 representing 2.76% of Net Asset Value (30 April 2022:
2.5%)
Amvis Holdings (120,000 shares)
Amvis is the leader in Japan's fast-growing hospice care segment. Japan lags
many countries in providing specialist end-of-life care for the terminally ill
and the potential market for such services is huge. Hospice care reduces the
burden on a hospital system which is struggling under the weight of Japan's
ageing society, reducing costs for the state while providing a better
environment for patients and their families. This segment does not suffer from
the health budget constraints and over-competition of the more generalist
nursing home sector. Amvis is the fast-moving operator in this sector, growing
from 29 to 58 facilities in the last two years and with plans to double this
again over the next three years. It is highly focused on efficiency and
profitability giving it the financial resources to pursue its rapid expansion,
while increasingly able to hire qualified nursing staff to run its facilities.
Fair value of £2,090,430 representing 2.64% of Net Asset Value (30 April 2022:
1.5%)
Shin-Etsu Chemical (90,000 shares)
Shin-Etsu Chemical is a leading global specialty chemical manufacturer with
leading global businesses in construction PVC and silicon wafers for microchips;
the company also has a world-class supply chain in silicones, cellulose and
photoresists. The PVC business is centred on its US subsidiary Shintech. While
the company has seen some softness in both the PVC business and the
semiconductor wafer businesses, the PVC market has already shown signs of
bottoming, while the expanding range of semiconductor applications is expected
to drive growth in the longer term.
Fair value of £2,050,965 representing 2.6% of Net Asset Value (30 April 2022:
2.0%)
&Do Holdings (350,000 shares)
&Do is a small, independent real estate company specializing in home equity
withdrawal products, a relatively new financial service category in Japan.
Having gained substantial data and expertise through the establishment of a
national franchise chain engaged in the traditional businesses of residential
property brokerage, property sales and renovation services, &Do has taken an
early lead in offering financial products such as reverse mortgage and
residential sale & leaseback services. Applying financial technology to its
extensive residential property expertise, and in alliance with financial
institutions, &Do is able to tap the growing market amongst Japan's burgeoning
senior population for ways to finance their later years. &Do's services offering
them the potential to unlock the equity stored in their homes.
Fair value of £1,973,862 representing 2.5% of Net Asset Value (30 April 2022:
1.4%)
Schedule of Investments
AS AT 30 APRIL 2023
30 April 2023 30 April
2022
Fair value Fair value
Holdings Financial £ '000 % of NAV £ '000
assets at
fair value
through
profit or
loss
Banks: 4.91%
(30 April
2022: 1.92%)
Keiyo Bank
430,000 1,426 1.80 671
Sumitomo
75,000 Mitsui 2,455 3.11 1,007
Financial
Chemicals:
6.05% (30
April 2022:
3.58%)
Axxzia
220,000 1,442 1.82 -
Shin-Etsu
90,000 Chemical 2,051 2.60 1,762
Tri Chemical
100,000 Laboratories 1,288 1.63 1,361
Construction:
1.21% (30
April 2022:
1.46%)
Besterra
180,000 960 1.21 1,271
Electric
Appliances:
11.60% (30
April 2022:
20.10%)
Chino
150,000 1,873 2.37 1,379
Keyence
4,000 Corporation 1,442 1.82 1,942
Kohoku Kogyo
35,000 1,043 1.32 1,110
Lasertec
4,000 434 0.55 1,302
Nidec
27,000 1,068 1.35 2,824
Optex
40,000 481 0.61 738
Oxide
60,000 1,134 1.43 1,496
Sony
17,000 1,287 1.63 2,061
Tokyo
4,500 Electron 411 0.52 2,548
Information &
Communication:
14.85% (30
April 2022:
18.32%)
Hikari Tsushin
10,000 1,090 1.38 1,681
Internet
180,000 Initiative 2,976 3.77 1,384
Japan
Opendoor
150,000 Technologies 1,290 1.63 -
Plus Alpha
112,000 Consulting 1,913 2.42 1,360
Shift
10,000 1,483 1.88 3,646
ULS
90,000 1,678 2.12 975
WingArc1st
100,000 1,304 1.65 -
Insurance:
4.47% (30 April
2022: 0.00%)
FP Partner
56,000 2,283 2.89 -
Lifenet
180,000 Insurance 1,253 1.58 -
Machinery:
7.40% (30 April
2022: 8.69%)
Daifuku
120,000 1,763 2.23 1,972
Disco
24,000 2,182 2.76 2,162
Okada Aiyon
180,000 1,903 2.41 1,610
Marine
Transportation:
0.00% (30 April
2022: 1.99%)
Metal Products:
0.00% (30 April
2022: 0.93%)
Nonferrous
Metals: 1.38%
(30 April 2022:
2.24%)
SWCC Showa
105,000 1,088 1.38 856
Other Financing
Business: 0.73%
(30 April 2022:
3.26%)
Premium
60,000 574 0.73 2,847
Other Products:
1.77% (30 April
2022: 1.84%)
EDP
90,000 1,398 1.77 -
Others: 1.97%
(30 April 2022:
0.00%)
Invincible
4,500 Investment 1,558 1.97 -
Reits
Pharmaceutical:
0.71% (30 April
2022: 2.86%)
CellSource
37,000 558 0.71 1,773
Precision
Instruments:
6.34% (30 April
2022: 4.49%)
Asahi Intecc
110,000 1,586 2.01 2,022
Hirayama
220,000 1,045 1.32 866
Topcon
210,000 2,381 3.01 1,029
Real Estate:
6.18% (30
April 2022:
8.53%)
&Do Holdings
350,000 1,974 2.50 1,218
Aoyama Zaisan
280,000 Networks 1,660 2.10 523
Katitas
80,000 1,249 1.58 932
Retail Trade:
2.94% (30
April 2022:
0.00%)
Komehyo
60,000 Holdings 980 1.24 -
Welcia
80,000 Holdings 1,343 1.70 -
Services:
24.88% (30
April 2022:
20.49%)
Amvis Holdings
120,000 2,090 2.64 1,319
Bell System24
220,000 Holdings 1,809 2.29 2,018
Bridge
95,000 International 1,422 1.80 -
Creek & River
180,000 2,246 2.84 1,032
Daiei Kankyo
75,000 815 1.03 -
Funai Soken
75,000 1,148 1.45 667
Intloop
42,000 1,848 2.34 -
Japan Material
197,000 2,360 2.99 3,024
Kanamoto
140,000 1,874 2.37 1,309
M&A Capital
60,000 Partners 1,357 1.72 -
Recruit
70,000 Holdings 1,579 2.00 1,328
S-Pool
300,000 1,111 1.41 2,485
Transportation
Equipment:
2.13% (30
April 2022:
1.67%)
Denso
35,000 1,683 2.13 1,462
Wholesale
Trade: 3.78%
(30 April
2022: 2.49%)
Ai Holdings
80,000 1,118 1.41 -
Mitsui
75,000 1,871 2.37 1,061
Total Japan 81,638
(30 April 103.30
2022: 104.86%)
Total listed 81,638
equities (30 103.30
April 2022:
104.86%)
Total 81,638
investments 103.30
held at fair
value through
profit or loss
Bank overdraft
(30 April (2,937) (3.72)
2022: (5.19%))
Other net
assets (30 331 0.42
April 2022:
0.33%)
Net assets 79,032
attributable 100.00
to equity
shareholders
Board of Directors
FOR THE FINANCIAL YEARED 30 APRIL 2023
NOEL LAMB (Chairman, appointed to the Board on 1 February 2011 and appointed as
Chairman on 1 May 2014), British, graduated from Exeter College, Oxford
University and is a barrister-at-law. He joined Lazard Brothers & Co Limited in
1987 and from 1992 to 1997 he was the managing director of Lazard Japan Asset
Management where he was the fund manager for their Japanese equities. In 1997,
he moved to the Russell Investment Group where he established the investment
management capability of Russell in London. In 2002, he was promoted to Chief
Investment Officer in North America where he managed assets of $150bn until his
departure in 2008. In 2020, he was appointed as a director of Guinness Asset
Management Funds and in January 2022 as chairman of Rockwood Strategic plc.
PHILIP EHRMANN FCSI (appointed to the Board on 25 October 2013),British,
graduated from the London School of Economics with a BSc in Economics. He
started his investment career in 1981 specialising in the North American market
before heading up Emerging Markets for Invesco Asset Management. In 1995 he
joined Gartmore Investment Management to undertake a similar role, before
becoming Head of Pacific & Emerging Markets. Whilst at Gartmore he managed the
Gartmore Asia Pacific Trust plc, a pan-Asian Investment Trust. In 2006 he moved
to Jupiter Asset Management where he was Co-Head of Asia. At the beginning of
2015 he joined Manulife Asset Management as a Senior Managing Director,
responsible for overseeing Global Emerging Markets equity portfolios.
Philip Ehrmann would not be seeking re-election to the Board at any forthcoming
AGM.
RICHARD PAVRY (appointed to the Board on 1 August 2016), British, is the Chief
Executive Officer at Devon Equity Management Limited. Richard graduated in
Natural Sciences from Cambridge University before converting to law.He began his
career as a solicitor with Simmons & Simmons, moving to Jupiter Asset Management
in 2000 where he served as head of investment trusts. He moved to Devon Equity
Management Limited in November 2019.Richard has previously served as a non
-executive director of Jupiter Second Split Trust plc and is Chairman of Devon
Equity Funds SICAV.
MICHAEL MOULE (appointed to the Board on 5 February 2018), British, has a close
connection to investment trusts and global investment having managed The City of
London Investment Trust plc, The Bankers Investment Trust plc and The Law
Debenture Corporation plc during an extensive City career with Touche Remnant
and Henderson Global Investors. He was until May 2022 a member of the Investment
Committee of The Open University, and was previously Chairman of Polar Capital
Technology Trust plc.
YUKI SOGA (appointed to the Board on 1 July 2021), Japanese, currently residing
in London. Schooled in the UK and a graduate of Somerville College, Oxford, she
has spent most of her career to date working in Tokyo. Yuki commenced her career
with lawyers Clifford Chance and Herbert Smith and then researched quoted
Japanese equities for Arcus and Macquarie. She subsequently became a partner at
Indus Capital Tokyo. Since June 2020 Yuki has been running her own research and
consulting business.
strategic report
FOR THE FINANCIAL YEARED 30 APRIL 2023
The Strategic Report provides shareholders with enhanced transparency and
oversight capabilities when assessing how directors have performed their duties
to promote the continued success of the company for shareholders' collective
benefit. This is achieved by providing context to the financial statements,
analysis of past performance and insights into the decisions taken to maintain
future performance.
The Directors submit their Strategic Report, Directors' Report and Statement of
Directors' Responsibilities, together with the Company's Statement of
Comprehensive Income, Statement of Changes in Equity, Statement of Financial
Position, Statements of Cash Flows and the related Notes for the financial year
ended 30 April 2023, together the "Audited Financial Statements". These Audited
Financial Statements give a true and fair view and have been properly prepared,
in accordance with International Financial Reporting Standards as adopted by the
European Union ("IFRS EU").
THE COMPANY
Atlantis Japan Growth Fund Limited (the "Company") was incorporated in Guernsey
on 13 March 1996. The Company commenced activities on 10 May 1996. The Company
is an authorised closed-ended investment scheme registered and domiciled in P.O.
Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL, Channel
Islands. The Company's equity shares are traded on the London Stock Exchange.
As an investment trust, the Company is classified as an Alternative Investment
Fund whose Alternative Investment Fund Manager (AIFM), Quaero Capital LLP, is
required to be authorised and regulated by the Financial Conduct Authority. The
Company is itself subject to the UKLA Listing Rules, Prospectus Rules,
Disclosure Guidance and Transparency Rules ("DTR") and the rules of the London
Stock Exchange.
INVESTMENT OBJECTIVE AND POLICY
The Company's investment objective and policy are set out above.
The Company's investment activities are managed by Quaero Capital LLP
("Investment Manager") with the administration delegated to Northern Trust
International Fund Administration Services (Guernsey) Limited.
KEY PERFORMANCE INDICATORS ("KPIs")
At each Board meeting, the Board considers a number of performance measures to
assess the Company's success in achieving its objectives. Below are the main
KPIs which have been identified by the Board for determining the progress of the
Company:
· Change in Net Asset Value ("NAV"),
· Discount to the NAV,
· Share price; and
· Ongoing charges.
RESULTS AND DIVIDS
The results for the financial year are set out in the Statement of Comprehensive
Income below.
As a UK investment trust the Company is subject to the provisions of the
Corporation Tax Act 2010. Section 1158 includes a retention test which states
that the Company should not retain in respect of any accounting period an amount
which is greater than 15% of its income. This has been modified for accounting
periods beginning on or after 28 June 2013 such that a negative balance on a
company's revenue reserve is taken into account when calculating the amount of
distributable income. This is not relevant for the financial year ended 30 April
2023 (30 April 2022: not relevant).
Distributions of £3,845,816 were made during the financial year (30 April 2022:
£4,511,513) and the Company met the retention test for the financial year ended
30 April 2023.
CAPITAL VALUES
At 30 April 2023, the value of net assets attributable to shareholders was
£79,031,826 (30 April 2022: £87,278,759) and the NAV per share was £1.93 (30
April 2022: £2.11).
BUSINESS REVIEW AND TAX STATUS
The Company has been formally accepted into the investment trust company regime,
subject to the Company continuing to submit appropriate annual tax filings to HM
Revenue and Customs. In the opinion of the Directors, the Company has conducted
its affairs so as to enable it to maintain ongoing investment trust status,
subject to completion of the relevant tax work.
DIVID POLICY
There is a regular dividend paid to all shareholders on a quarterly basis set at
1% of net asset value at the close of the preceding financial year. The June
2022 dividend was made at the rate of 2.88p per share, being 1% of the average
daily NAV per share in the final month of our financial year ended the 30 April
2021. The quarterly dividend will be paid out of capital resources at the end of
each calendar quarter. The September 2022, December 2022, March 2023 and June
2023 dividend payments were made at the rate of 2.15p per share, being 1% of the
average daily NAV per share in the final month of our financial year ended 30
April 2022. As a result of the Company's performance over the year to April
2023, the average NAV per share for the month of April 2023 was 196p and so the
new quarterly dividend rate ((subject to the outcome of the Proposal described
above) will be at 1.96p for the four dividends payable at the end of September
2023, December 2023, March 2024 and June 2024.
SHARE BUY-BACKS
The Company has been granted the authority to make market purchases of up to a
maximum of 14.99% of the aggregate number of ordinary shares in issue at a price
not exceeding the higher of (i) 5% above the average of the mid-market values of
the ordinary shares for the five business days before the purchase is made, or
(ii) the higher of the price of the last independent trade and the highest
current investment bid for the ordinary shares.
In deciding whether to make any such purchases the Directors will have regard to
what they believe to be in the best interests of shareholders as a whole, to the
applicable legal requirements and any other requirements in the Articles. The
making and timing of any buy-backs will be at the absolute discretion of the
Board and not at the option of the shareholders, and is expressly subject to the
Company having sufficient surplus cash resources available (excluding borrowed
moneys).
The Board believes that the effective use of treasury shares can assist the
Company in improving liquidity in the Company's ordinary shares, managing any
imbalance between supply and demand and minimising the volatility of the
discount at which the ordinary shares trade to their NAV for the benefit of
shareholders. It is believed that this facility gives the Company the ability to
sell ordinary shares held in treasury quickly and cost effectively, and provides
the Company with additional flexibility in the management of the capital base.
During the financial year ended 30 April 2023, 560,500 shares were purchased
into treasury (30 April 2022: 378,000). The number of shares held in treasury at
30 April 2023 is 5,625,686 (30 April 2022: 5,065,186), the percentage of
treasury shares in total is 12.1% (30 April 2022: 10.9%).
The Board shall have regard to current market practice for the re-issuance of
treasury shares by investment trusts and the recommendations of the Investment
Manager and the Investment Adviser. The Board's current policy is that any
ordinary shares held in treasury will not be resold by the Company at a discount
to the Investment Manager and the Investment Adviser's estimate of the
prevailing NAV per ordinary share as at the date of issue. The Board will make
an announcement of any change in its policy for the re-issuance of ordinary
shares from treasury via a Regulatory Information Service approved by the
Financial Conduct Authority ("FCA").
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 11 August 2023 of the proposed combination
with NAVF and the material uncertainty described in the Going Concern statement
below (that shareholders may choose not to support the Proposal), 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 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 scheme of reconstruction, which is
subject to shareholder and regulatory approvals at the date of this Annual
Report;
· The principal risks detailed below 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; and
· The level of gearing is closely monitored by the Board. Covenants are
actively monitored and there is adequate headroom in place.
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.
GOING CONCERN
The Board has considered and sought advice on the appropriateness of continuing
to prepare the Financial Statements on a going concern basis.
It is worth noting that one option being considered by the Board is 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, however, material uncertainties exist in
relation to this Proposal, including pending shareholder, regulatory and tax
approvals.
Notwithstanding the above, a number of attractive options remain available to
the Company, and the Board has concluded that it remained appropriate to
continue to prepare the Financial Statements on a going concern basis.
Additionally, the Company's assets consist of equity shares in companies listed
on recognised stock exchanges and in normal circumstances are 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 results of stress testing, which models a sharp
decline in market levels, demonstrated that the Company had the ability to raise
sufficient funds so as to remain within its debt covenants and pay expenses.
The Company does not have a fixed life. However, 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.
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 11 August 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, resulting in the voluntary liquidation of the Company. More
detail can be found in the Chairman's Statement above, and in the RNS
announcement itself. Further information will be set out in a circular to
shareholders to be published in due course.
The Board believes that the Proposal is in the best interests of shareholders
and will recommend that shareholders vote in favour of the relevant resolutions
at the extraordinary general meetings to be held in due course in order to
implement the scheme. However, due to the requirements for approvals from
shareholders of both companies there can be no certainty of the outcome at the
date of this Annual Report and, therefore, there remains material uncertainties
on the Proposal obtaining the necessary approvals to be enacted.
Should the Proposal not receive the necessary shareholder or regulatory
approvals and should the Continuation Vote to be put to the subsequent AGM also
fail to be approved by shareholders 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. Accordingly the
Board has prepared these financial statements on a going concern basis.
PRINCIPAL RISKS AND UNCERTANTIES
As an investment trust, the Company invests in securities for the long term. The
financial investments held as assets by the Company comprise equity shares (see
the Schedule of Investments above for a breakdown). As such, the holding of
securities, investing activities and financing associated with the
implementation of the investment policy involve certain inherent risks. Events
may occur that could result in either a reduction in the Company's net assets or
a reduction of revenue profits available for distribution.
Principal risks should include, but are not necessarily limited to, those that
could result in events or circumstances that might threaten the company's
business model, future performance, solvency, liquidity and reputation. In
deciding which risks are principal risks companies should consider the potential
impact and probability of the related events or circumstances, and the timescale
over which they may occur.
The Board has considered the risks and uncertainties facing the Company and
prepares and reviews regularly a risk matrix which documents the significant and
emerging risks.
The risk matrix document considers the following information:
· Identifying and reporting changes in the risk environment;
· Identifying and reporting changes in the operational controls;
· Identifying and reporting on the effectiveness of controls and remediation
of errors arising; and
· Reviewing the risks faced by the Company and the controls in place to
address those risks.
Performance
Inappropriate investment policies and processes may result in under-performance
against the prescribed benchmark index and the Company's peer group. The Board
manages these risks by ensuring a diversification of investments and regularly
reviewing the portfolio asset allocation and investment process. The Board also
regularly monitors the Company's investment performance against a number of
indices and the AIC Japanese smaller companies' sub-sector peer group. In
addition, certain investment restrictions have been set and these are monitored
as appropriate.
Discount
A disproportionate widening of the discount relative to the Company's peers
could result in loss of value for shareholders. The Board reviews the discount
level regularly.
Regulatory
The Company operates in a complex regulatory environment and faces a number of
regulatory risks. Breaches of regulations, such as Section 1158 of the
Corporation Tax Act 2010, the Companies (Guernsey) Law, 2008, the UKLA Listing
Rules and the Disclosure and Transparency Rules ("DTR"), could lead to a number
of detrimental outcomes and reputational damage. The Company conforms with the
Alternative Investment Fund Managers Directive ("AIFMD"). The Board relies on
the services of the Administrator, Northern Trust International Fund
Administration Services (Guernsey) Limited, and its professional advisers to
ensure compliance with the Companies (Guernsey) Law, 2008, the Protection of
Investors (Bailiwick of Guernsey) Law, 2020 ("POI Law"), the Authorised Closed
-Ended Investment Scheme Rules and Guidance, 2021 ("Authorised Closed-ended
Rules"), the UKLA Listing Rules and Prospectus Rules, the DTR and the rules of
the London Stock Exchange.
Operational
Like most other investment trust companies, the Company has no employees. The
Company therefore relies upon the services provided by third parties and is
dependent on the control systems of the Investment Manager, Investment Adviser,
Company's Administrator and Depositary. The security, for example, of the
Company's assets, dealing procedures, accounting records and maintenance of
regulatory and legal requirements depends on the effective operation of these
systems. These are regularly tested, monitored and are reviewed by the Directors
at the quarterly board meetings.
Financial
The financial risks faced by the Company, including the impact of changes in
Japanese equity market prices on the value of the Company's investments, are
disclosed in Note 15 to the Financial Statements. The financial risks disclosed
in Note 15 are detailed for compliance with IFRS EU.
Global Events
The geopolitical tension caused by the Russian invasion of Ukraine continues to
create uncertainty in the markets and is directly impacting energy costs.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") POLICIES
Although the Company does not have specific ESG or sustainability objectives.
the Board is convinced that integrating ESG risks into the Company's financial
analysis will support making better decisions for its shareholders. As a long
-term investor it is fundamentally important that the Company understands the
environmental, social and governance risks and opportunities affecting its
investments.
The Investment Manager, in consultation with the Investment Adviser, operates an
exclusion policy which incorporates exclusion lists to screen investments across
all applicable investment strategies. These exclusion lists include any
companies involved in the production or distribution of indiscriminate and
controversial weapons, in line with international convention. Additionally,
companies whose conduct is in systematic and severe breach of UN Global Compact
principles are also excluded from investment consideration. Companies that have
a significant part of their business exposed to coal mining and coal powered
energy without any public plans for significant reduction are also not
considered for investment.
The Investment Manager and the Investment Adviser support all the Principles of
the Japan Stewardship Code for responsible institutional investors and seek to
fulfil their stewardship responsibilities under the Code. Whilst using both
external and internal analysis, the Investment Manager, in consultation with the
Investment Adviser, seeks to vote on all investee companies' matters in line
with its responsible investment philosophy with the aim of contributing
positively and promoting the sustainable growth and long-term success of
investee companies and stakeholders.
The Investment Manager is a signatory/member of the following:
· UN PRI (United Nations Principles for Responsible Investment) to demonstrate
commitment to responsible investment. The PRI acts in the long-term interests of
its signatories, of the financial markets and economies in which they operate
and ultimately of the environment and society.
· IIGCC (Institutional Investors Group on Climate Change), which looks to
influence corporations to address long term risks associated with climate
change.
· CDP (Carbon Disclosure Project), which looks to influence companies to
disclose their carbon footprint and address risks associated with climate
change. The project also provides a wealth of environmental data reported by
companies.
· TCFD (Task Force for Climate-related Financial Disclosure). The Investment
Manager has signed the statement of support for the Financial Stability Board's
Task Force on Climate-related Financial Disclosures. As such as it will make
annual disclosures in line with the recommendation in its annual Sustainability
Report, outlining its strategy and its targets.
FUTURE PROSPECTS
Please see the Chairman's Statement and the Investment Adviser's Report above
for more information on the future prospects of the Company.
SECTION 172 STATEMENT
Section 172 of the Companies Act 2006 requires that the Board must act in the
way it considers, in good faith, would be most likely to promote the success of
the Company for the benefit of its members (i.e. shareholders) as a whole and in
doing so, have regard (amongst other matters) to the likely consequences of any
decision in the long term; the need to foster the Company's business
relationships with suppliers, customers and others; the impact of the Company's
operations on the community and the environment; the desirability of the Company
maintaining a reputation for high standards of business conduct; and the need to
act fairly as between members of the Company.
Promotion of the Success of the Company
As an externally managed investment company, the Company does not have any
employees. Instead, key functions are outsourced such as the provision of
investment management services to the Investment Manager and other stakeholders
support the Company by providing secretarial, administration, depositary,
custodial, banking and audit services.
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.
Consideration of Stakeholder Interests
The Directors have regard to the interests of the Company's stakeholders, which
include but are not limited to shareholders and service providers. The Directors
have taken steps to understand and assess the impact of the Company's operations
on these stakeholders. The Company recognizes the importance of maintaining
positive relationships with all stakeholders.
Ongoing shareholder engagement is vital for the Company's success and the
effective execution of its long-term strategy. The Board is dedicated to
cultivating and sustaining positive relationships with shareholders, and
actively seeks to consider their interests. This allows the Board to incorporate
shareholder views into its strategic decision-making and objectives.
To establish and nurture strong working relationships, the Company invites its
key service providers, such as the Investment Adviser, AIFM, and Company
Secretary/Administrator, to attend quarterly Board meetings and present their
respective reports. This practice ensures effective oversight of the Company's
activities. Additionally, the external auditor is invited to participate in at
least one Audit Committee meeting annually. The Chair of the Audit Committee
maintains regular communication with the auditor, Investment Adviser, and
Administrator to ensure the smooth execution of the audit process.
The Board recognizes the importance of engaging with the Company's key service
providers beyond scheduled meetings. This includes dedicating time to foster
working relationships and ensure the seamless operational functioning of the
Company.
Furthermore, the AIFM plays a crucial role in the Company's long-term success by
engaging the Investment Adviser to provide investment advisory services. The
Board regularly monitors the Company's investment performance in alignment with
its objectives, investment policy, and strategy. The Board receives and reviews
periodic reports and presentations from both the AIFM and Investment Adviser,
and seeks to maintain regular contact to foster a productive working
relationship.
The Directors recognize the importance of environmental stewardship and have
taken steps to minimize the Company's impact on the environment. The Company
seeks to invest in environmentally responsible companies and engages with
investee companies to encourage sustainable practices.
Engagement with Stakeholders
The Company actively engages with its stakeholders to ensure their voices are
heard and considered in decision-making processes. This includes regular
communication channels, such as annual general meetings, investor presentations,
and periodic reports. The Company also encourages feedback from stakeholders and
considers their input when making significant decisions.
Directors' Duties and Decision-Making Process
The Directors of the Company have fulfilled their duties by exercising
reasonable care, skill, and diligence in the best interests of the Company and
its shareholders. They have conducted comprehensive analysis and research when
making strategic decisions, considering the potential consequences on
stakeholders and the long-term sustainability of the Company.
In conclusion, the Directors are mindful of their duties under Section 172 of
the Companies Act 2006 by promoting the success of the Company, considering the
interests of stakeholders, and engaging with them in a meaningful way. The
Company remains committed to upholding these principles and continuously
enhancing its practices to ensure the sustainable growth and prosperity of the
Company and its stakeholders.
Noel Lamb Richard Pavry
ChairmanDirector
22 August 2023
Directors' Report and Statement of Directors' Responsibilities
FOR THE FINANCIAL YEARED 30 APRIL 2023
The Directors are pleased to present their twenty seventh Annual Report and
Audited Financial Statements of the Company for the financial year ended 30
April 2023.
PRINCIPAL ACTIVITY
The Company is a Guernsey registered authorised closed-ended investment company
with UK investment trust status traded on the London Stock Exchange. The Company
has a premium listing in the Official List. Trading in the Company's ordinary
shares commenced on 10 May 1996.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing Financial Statements for each
financial year which 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 financial year. 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 accounting standards have been followed
subject to any material departures disclosed and explained in the Financial
Statements;
- prepare the Financial Statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business.
We confirm, to the best of our knowledge, that:
- this Annual Report and Audited Financial Statements, prepared in
accordance with IFRS EU and applicable Guernsey law, give a true and fair view
of the assets, liabilities, financial position and assesses the Company's
position, performance, business model and strategy of the Company; and
- this Annual Report and Audited Financial Statements include
information detailed in the Directors' Report, the Investment Adviser's Report
and Notes to the Financial Statements, which provides a fair review of the
information required by:
a) DTR 4.1.8 of the DTR, being a fair review of the Company's business and a
description of the principal risks and uncertainties facing the Company;
b) DTR 4.1.11 of the DTR, being an indication of important events that have
occurred since the beginning of the financial year, the likely future
development of the Company, the Company's use of financial instruments and,
where material, the Company's financial risk management objectives and policies
and its exposure to price risk, credit risk, liquidity risk and cash flow risk.
In the opinion of the Directors, the Annual Report and Audited Financial
Statements, taken as a whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the Company's position,
performance, business model and strategy.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements comply with
the Companies (Guernsey) Law, 2008 (the "Companies Law") and the POI. They are
also responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for ensuring that the Directors' Report and other
information included in the Annual Report is prepared in accordance with company
law applicable in Guernsey. They are also responsible for ensuring that the
Annual Report includes information required by the UKLA Listing Rules and the
DTR.
The Directors who held office at the date of the approval of the Financial
Statements confirm that, so far as they are aware:
- There is no relevant audit information of which the Company's auditor
is unaware; and
- Each Director has taken all the steps they ought to have taken as
Directors to make themselves aware of any relevant audit information and to
establish that the Company's auditor is aware of that information.
The Directors confirm that these Financial Statements comply with these
requirements.
In respect of the UK Criminal Finances Act 2017, which has introduced a new
corporate criminal offence of "failing to take reasonable steps to prevent the
facilitation of tax evasion", the Board confirms that it is committed to zero
tolerance towards the criminal facilitation of tax evasion.
PREPARATION OF FINANCIAL STATEMENTS
The Financial Statements of the Company have been prepared in accordance with
IFRS EU.
SIGNIFICANT SHAREHOLDINGS
In accordance with the Company's Articles of Association the Directors have the
ability to request nominee shareholders to disclose the beneficial shareholders
they represent. Based on the information received the following shareholders had
a holding in the Company in excess of 3% as at 30 April 2023.
Shareholder % Ordinary Shares
1607 Capital Partners 25.28 10,331,009
Allspring Global Investments 14.44 5,900,954
Lazard Asset Management 6.29 2,570,751
Hargreaves Lansdown Asset Management 5.88 2,404,347
Premier Miton Investors 4.23 1,730,000
Interactive Investor 3.71 1,516,806
Canaccord Genuity Wealth Management 3.08 1,258,025
The Company has not received any notifications of changes to the above mentioned
holdings from 30 April 2023 to date of approval of the financial statements.
SECRETARY
The Secretary is Northern Trust International Fund Administration Services
(Guernsey) Limited.
INDEPENT AUDITOR
Grant Thornton Limited were re-appointed as the independent auditor at the
Annual General Meeting, and Grant Thornton Limited have indicated their
willingness to be re-appointed in office.
Resolutions to re-appointing the Independent Auditor and authorising the
Directors to fix their remuneration will be proposed at the Annual General
Meeting.
CORPORATE GOVERNANCE AND SHAREHOLDER RELATIONS
Details of the Company's compliance with corporate governance best practice,
including information on relations with shareholders, are set out in the
Corporate Governance Statement below and this statement forms part of the
Directors' Report.
ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE
The Company has entered into the arrangements necessary to ensure compliance
with the AIFM Directive. Following a review of the Company's management
arrangements, the Board approved the appointment of Quaero Capital LLP
("Quaero") as the Company's Alternative Investment Fund Manager on the terms of
and subject to the conditions of the Investment Management Agreement between the
Company and Quaero.
The Board has also appointed Northern Trust (Guernsey) Limited (the
"Depositary") to act as the Company's depositary (as required by the AIFM
Directive) on the terms and subject to the conditions of a Depositary Agreement
between the Company, Quaero and the Depositary.
BOARD ROLES
During the financial year Philip Ehrmann stood down as Chair of the Audit
Committee and was replaced as Chair of the Audit Committee by Richard Pavry.
Philip Ehrmann would not be seeking re-election to the Board at any forthcoming
AGM.
During the financial year Noel Lamb stood down as a member of the Audit
Committee. He will remain as Chair of the Board of the Company until his
retirement at the Annual General Meeting in December 2023.
There were no other changes to the Board of Directors during the financial year.
International Tax Reporting
For the purposes of the US Foreign Account Tax Compliance Act, the Company
registered with the US Internal Revenue Services ("IRS") as a Guernsey reporting
Foreign Financial Institution ("FFI"), received a Global Intermediary
Identification Number PYT2PS.99999.SL.831, and can be found on the IRS FFI list.
The Common Reporting Standard ("CRS") is a global standard for the automatic
exchange of financial account information developed by the Organisation for
Economic Co-operation and Development ("OECD"), which has been adopted by
Guernsey and which came into effect on 1 January 2016. The Board has taken the
necessary action to ensure that the Company is compliant with Guernsey
regulations and guidance in this regard.
Noel Lamb Richard Pavry
ChairmanDirector
22 August 2023
Directors' Remuneration Report
FOR THE FINANCIAL YEARED 30 APRIL 2023
The Board has approved this report, in accordance with the rules covering good
communication to shareholders, as opposed to the requirements and format of a
typical listed company Directors' Remuneration Report. An ordinary resolution
for the approval of this report will be put to the members at the forthcoming
annual general meeting.
REMUNERATION COMMITTEE
The Board as a whole fulfils the function of a Remuneration Committee. The
Company's Financial Adviser, Corporate Broker and Company Secretary will be
asked to provide advice when the Directors consider the level of Directors'
fees.
POLICY ON DIRECTORS' FEES
The Board's policy is that the remuneration of non-executive Directors should
reflect the experience of the Board as a whole and be fair and comparable to
that of other investment trusts that are similar in size, have a similar capital
structure and have a similar investment objective.
The fees for the non-executive Directors are determined within the limits of
£200,000 set out in the Company's Articles of Incorporation. The Directors are
not eligible for bonuses, pension benefits, share options, long-term incentive
schemes or other benefits.
DIRECTORS' SERVICE CONTRACTS
It is the Board's policy that none of the Directors have a service contract.
Directors are appointed initially until the following annual general meeting
when, under the Company's Articles of Incorporation, it is required that they be
re-elected by shareholders. Thereafter, two Directors shall retire by rotation,
or if only one Director is subject to retire by rotation they shall retire. The
retiring Directors will then be eligible for reappointment having been
considered for reappointment by the Chairman and other Directors.
Notwithstanding the foregoing provisions of the Company's Articles of
Incorporation, the Board is recommending that all Directors be subject to re
-election as laid out in AIC Code at the forthcoming annual general meeting.
DIRECTORS' EMOLUMENTS FOR THE FINANCIAL YEAR
The Directors who served in the financial year are entitled to the following
emoluments in the form of fees are listed in the table below:
Year ended Year ended
30 April 2023 30 April 2022
Regular £ £
fees
Noel 34,000
Lamb 36,000
Richard 26,000
Pavry 26,000
Philip 29,000
Ehrmann 30,000
Michael 26,000
Moule 26,000
Yuki 21,667
Soga 26,000
136,667
144,000
Other than the fixed yearly emoluments listed above the Directors who served
during the financial year are entitled to no other short term benefits, long
term benefits, post-employment benefits, share based payments or any benefits on
termination of their directorship with the Company.
DIRECTORS' INTERESTS
The Directors listed above are all members of the Board at the financial year
end 30 April 2023.
Certain Directors had a beneficial interest in the Company by way of their
investment in the ordinary shares of the Company.
The details of these interests as at 30 April 2023 and 30 April 2022 are as
follows:
Ordinary Shares Ordinary Shares
30 April 2023 30 April 2022
Noel 30,000
Lamb 30,000
Richard 40,000
Pavry 40,000
Philip 50,000
Ehrmann 50,000
Michael 50,000
Moule 50,000
As at the date of this report, there were no changes to the Directors'
interests.
There were no relevant contracts in force during or at the end of the financial
year in which any Director had an interest. There are no service contracts in
issue in respect of the Company's Directors.
No Directors had a non-beneficial interest in the Company during the financial
year under review.
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON RECOGNISED STOCK
EXCHANGES
The following summarises the Directors' directorships in other public companies:
Noel Lamb
Company Name Stock Exchange
Rockwood Strategic plc London
None of the other Directors held directorships in other public companies during
the financial year under review.
APPROVAL
A resolution for the approval of the Directors' Remuneration Report for the
financial year ended 30 April 2023 will be proposed at the annual general
meeting.
By order of the Board
Noel LambRichard Pavry
ChairmanDirector
22 August 2023
Corporate Governance
FOR THE FINANCIAL YEARED 30 APRIL 2023
INTRODUCTION
The following Corporate Governance statement forms part of the Directors' Report
above (DTR 7.2.1). The Board of the Company has considered the principles and
provisions of the February 2019 edition of the AIC Code of Corporate Governance
(the "AIC Code"). The AIC Code addresses all the principles set out in the UK
Corporate Governance Code 2018 (the "UK Code"), as well as setting out
additional principles and provisions on issues that are of specific relevance to
the Company.
The Company is subject to the Guernsey Financial Services Commission ("GFSC")
Code of Corporate Governance (the "GFSC Code") and reports against the AIC Code
which is deemed to comply with the GFSC Code.
The Company has complied with the provisions of the AIC Code and the relevant
provisions of the UK Code throughout the financial year, except as set out
below:
- the role of the chief executive
- executive directors' remuneration
- the need for an internal audit function
- the need to appoint a senior independent director
- the need to appoint a nomination committee or management engagement
committee
- the whistle blowing policy
The Board considers these provisions are not relevant to the position of the
Company, being an externally managed investment company. The Company has
therefore not reported further in respect of these provisions. The Directors are
non-executive and the Company does not have employees, hence no whistle-blowing
policy is required. However, the Directors note that the Company's service
providers have whistle blowing policies in place.
The AIC Code is available on the AIC website (www.theaic.co.uk). It includes an
explanation of how the AIC Code adapts the Principles and Provisions set out in
the UK Code to make them relevant for investment companies.
THE BOARD
Disclosures under the AIC Code
The Board comprises five independent non-executive Directors including the
outgoing Chairman, Noel Lamb. Due to the size of the Company, the nature of its
activities and the fact that all of the Directors are independent, the Board
does not consider it necessary to appoint a senior independent Director.
The Board has not appointed a remuneration committee but, comprising wholly
independent Directors, the whole Board considers these matters regularly. The
Board considers agenda items formally laid out in the Notice and Agenda, which
are formally circulated to the Board in advance of the meeting as part of the
Board papers.
The primary focus at board meetings is a review of investment performance and
associated matters such as the discount, redemptions, gearing, asset allocation,
marketing and investor relations, peer group information and industry issues.
There were five board meetings (1 May 2021-30 April 2022: five), three Audit
Committee meetings (1 May 2021-30 April 2022: three) and five other committee
meetings (1 May 2021-30 April 2022: six) held during the financial year 1 May
2022 to 30 April 2023. The table below shows the number of formal meetings
attended by each Director during the financial year:
Director Board Audit Committee Board Committee Meetings Attended
Meetings Meetings
Attended Attended
Noel 5/5 3/3 5/5
Lamb
Philip 5/5 3/3 1/5
Ehrmann
Richard 5/5 3/3 1/5
Pavry
Michael 5/5 3/3 3/5
Moule
Yuki 5/5 3/3 0/5
Soga
Directors are appointed initially until the following annual general meeting
when, under the Company's Articles of Incorporation, it is required that they be
re-elected by shareholders. Thereafter, two Directors shall retire by rotation,
or if only one Director is subject to retire by rotation he shall retire. The
retiring Directors will then be eligible for reappointment having been
considered for reappointment by the Chairman and other Directors. Not including
the outgoing Chairman (see Board Composition note above), the Board is
recommending that all eligible Directors be subject to re-election as laid out
in AIC Code at the forthcoming AGM.
The Board evaluates its performance and considers the tenure of each Director
including the Chairman on an annual basis, and considers that the mix of skills,
experience, ages and length of service to be appropriate to the requirements of
the Company. The Directors can also provide feedback to the Chairman at the
regular quarterly board meetings, audit committee and other committee meetings.
When considering succession planning, the Board bears in mind the balance of
skills, knowledge, sector experience and diversity existing on the Board. The
Board has noted amendments to the AIC code to strengthen the principle on
boardroom diversity following the Davies Report. The Board considers diversity
as part of the annual performance evaluation and it is felt that there is a
range of backgrounds and each Director brings different qualities to the Board
and its discussions. It is not felt appropriate for the Company to have set
targets in relation to diversity; candidates will be assessed in relation to the
relevant needs of the Company at the time of appointment. A good knowledge of
investment management generally, Japanese investment management specifically and
investment trust industry matters and sophisticated investor concerns relevant
to the Company will nevertheless remain the key criteria by which new Board
candidates will be assessed. The Board will recommend when the recruitment of
additional non-executive Directors is required. Once a decision is made to
recruit additional Directors to the Board each Director is invited to submit
nominations and these are considered in accordance with the Board's agreed
procedures. The Board may also use independent external agencies as and when the
requirement to recruit an additional Board member becomes necessary.
The Board embraces the principles of the AIC Code but, with regard to its
provisions concerning Director tenure, is of the opinion that an individual's
independence cannot be arbitrarily determined on the basis of a set period of
time. The Company's investment objective is to achieve long term capital growth
and it benefits from having long serving Directors with a detailed knowledge of
the Company's operations to effectively oversee its management on behalf of
shareholders. The Company therefore does not impose fixed term limits on
Directors' tenure as this would result in a loss of experience and knowledge
without any assurance of increased independence. The Board, collectively and
individually, firmly believes in the continued independence of its members. The
Board confirms that the performance of all Directors has been subject to formal
evaluation and that they continue to be effective in their role. The Board
firmly recommends to shareholders that all eligible Directors should be re
-elected.
There is an agreed procedure for Directors to take independent professional
advice if necessary, and at the Company's expense. This is in addition to the
access which every Director has to the advice of the Company Secretary. The
Company has taken out insurance jointly with QBE and Travelers in respect of the
Directors' liability. For the financial year ended 30 April 2023 the charge was
£6,859 (30 April 2022: £6,383).
INTERNAL CONTROLS
The Board has delegated the responsibility for the management of the Company's
investment portfolio, the provision of depositary services and the
administration, registrar and corporate secretarial functions including the
independent calculation of the Company's NAV and the production of the Annual
Report and Audited Financial Statements. The Annual Report and Audited Financial
Statements are also independently reviewed by the Audit Committee. Whilst the
Board delegates responsibility, it retains responsibility for the functions it
delegates and is responsible for the risk management and systems of internal
control. Formal contractual agreements have been put in place between the
Company and providers of these services.
The Board directly on an ongoing basis and via its Audit Committee has
implemented a system to identify and manage the risks inherent in such
contractual arrangements by assessing and evaluating the performance of the
service providers, including financial, operational and compliance controls and
risk management systems.
On an ongoing basis compliance reports are provided at each Board meeting from
the Administrator, Northern Trust International Fund Administration Services
(Guernsey) Limited, and the Audit Committee reviews the Service Organisation
Controls (SOC 1) report on this service provider.
The extent and quality of the systems of internal control and compliance adopted
by the Investment Manager and the Investment Adviser are also reviewed on a
regular basis, and the primary focus at each Board meeting is a review of
investment performance and associated matters such as gearing, asset allocation,
marketing and investment relations, peer group information and industry issues.
The Board also closely monitors the level of discount and has the ability to buy
back shares in the market.
The Board believes that it has implemented an effective system for the
assessment of risk, but the Company has no staff, has no internal audit function
and can only give reasonable but not absolute assurance that there has been no
material financial misstatement or loss.
COMMITTEES
The Board has established an Audit Committee which is described below.
The Board has not appointed a Management Engagement Committee or Nomination
Committee but has chosen to assess and review the performance of the Board and
contractual arrangements with the Investment Manager, Investment Adviser and
service providers to the Company on an annual basis by the entire Board who are
independent non-executive Directors. Details of the Investment Management
Agreement are shown in Note 6 to the Financial Statements.
Audit Committee
The Audit Committee operates within defined terms of reference. The Audit
Committee's responsibilities include, but are not limited to:
- review of draft annual and interim report and financial statements;
- review of independence, objectivity, qualifications and experience of
the auditor; and
- review of audit fees.
The Audit Committee is appointed by the Board and comprises Mr Pavry as
Chairman, Mr Ehrmann, Mr Moule and Ms Soga. Philip Ehrmann would not be seeking
re-election to the Board at any forthcoming AGM.
In accordance with the AIC Code, the Board has determined that Mr Pavry has
recent and relevant financial experience. All other members of the Audit
Committee are deemed to have the necessary ability and experience to understand
the Financial Statements.
The incoming Chairman is also a member of the Audit Committee and in accordance
with the AIC Code, the Board has deemed this appropriate as all of the other
members of the Audit Committee are independent non-executive Directors and the
Chairman may not be the Chairman of the Audit Committee.
The function of the Audit Committee is to ensure that the Company maintains the
highest standards of integrity, financial reporting and internal control.
The Audit Committee meets with the Company's external auditor annually to review
the Audited Financial Statements.
The Audit Committee meets at least twice a year and may meet more frequently if
the Audit Committee deems necessary or if required by the Company's auditor.
The Company's auditor is advised of the timing of the Audit Committee Meetings.
The Audit Committee has access to the Compliance officers of the Investment
Manager, the Administrator and the Depositary.
The Company Secretary is the Secretary of the Audit Committee and attends all
meetings of the Audit Committee.
The Audit Committee is authorised by the Board to investigate any activity
within its terms of reference. It is authorised to obtain outside legal or other
independent professional advice and to secure the attendance of outsiders with
relevant experience and expertise if it considers this necessary.
SHAREHOLDER RELATIONS
The Board monitors the trading activity and shareholder profile on a regular
basis and maintains contact with the Company's stockbroker to ascertain the
views of shareholders. Shareholders where possible are contacted directly on a
regular basis, and shareholders are invited to attend the Company's annual
general meeting in person and ask questions of the Board and Investment Adviser.
Following the annual general meeting each year the Investment Adviser gives a
presentation to the shareholders.
The Company reports to shareholders twice a year and a proxy voting card is sent
to shareholders with the Annual Report and Audited Financial Statements. The
Registrar monitors the voting of the shareholders and proxy voting is taken into
consideration when votes are cast at the annual general meeting. Shareholders
may contact the Directors via the Company Secretary. In addition, estimated NAVs
are published on a daily basis and monthly factsheets are published on the
Investment Manager's website at www.atlantisjapangrowthfund.com.
EVALUATION OF PERFORMANCE OF INVESTMENT MANAGER AND INVESTMENT ADVISER
The investment performance is reviewed at each regular Board meeting at which
representatives of the Investment Manager and Investment Adviser are required to
provide answers to any questions raised by the Board. The Board has instigated
an annual formal review of the Investment Manager and Investment Adviser which
includes consideration of:
- performance compared with benchmark and peer group;
- investment resources dedicated to the Company;
- investment management fee arrangements and notice period compared with
peer group; and
- marketing effort and resources provided to the Company.
In the opinion of the Directors the continuing appointment of the Investment
Manager and Investment Adviser on the terms agreed is in the interests of the
Company's shareholders as a whole.
By order of the Board
Noel LambRichard Pavry
ChairmanDirector
22 August 2023
Audit Committee Report
FOR THE FINANCIAL YEARED 30 APRIL 2023
On the following pages, we present the Audit Committee's Report, setting out the
responsibilities of the Audit Committee and its key activities for the financial
year ended 30 April 2023.
The Audit Committee has continued its detailed scrutiny of the appropriateness
of the Company's system of risk management and internal controls, the robustness
and integrity of the Company's financial reporting, along with the external
audit process. The Committee has devoted time to ensuring that controls and
processes have been properly established, documented and implemented.
During the course of the financial year, the information that the Audit
Committee has received has been timely and clear and has enabled the Audit
Committee to discharge its duties effectively.
The Audit Committee supports the aims of the UK Code, the AIC code and the best
practice recommendations of other corporate governance organisations and the
Association of Investment Companies ("AIC"), and believes that reporting against
the revised AIC Code allows the Audit Committee to further strengthen its role
as a key independent oversight Committee.
ROLE AND RESPONSIBILITIES
The primary function of the Audit Committee is to assist the Board in fulfilling
its oversight responsibilities. This includes reviewing the financial reports
and other financial information before publication.
In addition, the Audit Committee reviews the systems of internal controls on a
continuing basis that the Investment Manager and the Board have established with
respect to finance, accounting, risk management, compliance, fraud and audit.
The Committee also reviews the accounting and financial reporting processes,
along with reviewing the roles, independence and effectiveness of the external
auditor.
The ultimate responsibility for reviewing and approving the Annual Report and
Audited Financial Statements remains with the Board.
The Audit Committee's full terms of reference can be obtained by contacting the
Company's Administrator.
Should it be required to take place, Philip Ehrmann would not be seeking re
-election to the Board at any forthcoming AGM, and from that date would cease to
be a member of the Audit Committee.
RISK MANAGEMENT AND INTERNAL CONTROL
The Board, as a whole, including the Audit Committee members, considers the
nature and extent of the Company's risk management framework and the risk
profile that is acceptable in order to achieve the Company's strategic
objectives. As a result, it is considered that the Board has fulfilled its
obligations under the AIC Code.
The Audit Committee continues to be responsible for reviewing the adequacy and
effectiveness of the Company's on-going risk management systems and processes.
Its system of internal controls, along with its design and operating
effectiveness, is subject to review by the Audit Committee through reports
received from the Investment Manager, Investment Adviser and Depositary, along
with those from the Administrator and external auditor.
The Audit Committee has reviewed the need for an internal audit function and has
decided that the systems and procedures employed by the Investment Manager,
Investment Adviser, Administrator and Depositary provide sufficient assurance
that a sound system of risk management and internal control, which safeguards
shareholders' investments and the Company's assets, is maintained. An internal
audit function is therefore considered unnecessary.
FRAUD, BRIBERY AND CORRUPTION
The Audit Committee has relied on the overarching requirement placed on all
service providers under the relevant agreements to comply with applicable law.
The Audit Committee reviews the service provider policies and receives a
confirmation from all service providers that there have been no instances of
fraud or bribery.
FINANCIAL REPORTING AND SIGNIFICANT FINANCIAL ISSUES
The Audit Committee assesses whether suitable accounting policies have been
adopted. The Audit Committee reviews accounting papers prepared by the
Investment Manager and Administrator which provide details on the main financial
reporting judgements. The Audit Committee also reviews reports by the external
auditor which highlight any issues with respect to the work undertaken on the
audit.
The significant issues considered during the financial year by the Audit
Committee in relation to the Financial Statements and how they were addressed is
detailed below:
(i) Valuation of Investments:
The Company's investments had a fair value of £81,638,432 as at 30 April 2023
and represent a substantial portion of the assets of the Company. As such this
is the largest factor in relation to the consideration of the Financial
Statements. These investments are valued in accordance with the Significant
Accounting Policies set out in Note 2 (f) to the Financial Statements. The Audit
Committee considered the valuation of the investments held by the Company as at
30 April 2023 to be correct from information provided by the Investment Manager,
Investment Adviser, Depositary and Administrator on their processes for the
valuation of these investments.
(ii) Income Recognition:
The Audit Committee considered the income from investments recorded in the
Financial Statements for the financial year ended 30 April 2023. Income from
investments is recognised in accordance with the Significant Accounting Policies
set out in Note 2 (d). The Audit Committee reviewed information obtained from
the Investment Manager and was satisfied that income (excluding net realised and
unrealised gains/losses on investments), having arisen solely from dividends
declared by listed equities, was correctly stated in the Financial Statements.
(iii) Review of the Financial Statements:
At the request of the Audit Committee, the Administrator confirmed that it was
not aware of any material misstatements, including matters relating to Financial
Statements presentation. At the Audit Committee meeting to review the Annual
Report and Audited Financial Statements, the Audit Committee received and
reviewed a report on the audit from the external auditor. On the basis of its
review of this report, the Audit Committee is satisfied that the external
auditor has fulfilled its responsibilities with diligence and professional
scepticism. The Audit Committee advised the Board that these Annual Report and
Audited Financial Statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for shareholders to assess
the Company's position, performance, business model and strategy. The Audit
Committee will consider and make recommendations to the Board in relation to the
appointment and reappointment of the Company's external auditor. The Audit
Committee will discuss with the external auditor concerning such issues as
compliance with accounting standards and any proposals which the external
auditor has made regarding internal auditing procedures.
The Audit Committee is satisfied that appropriate disclosures have been included
in the Financial Statements.
EXTERNAL AUDITOR
The Audit Committee has responsibility for making a recommendation on the
appointment, reappointment and removal of the external auditor.
During the financial year the Audit Committee received and reviewed the audit
plan, audit findings report and audit report from the external Auditor. To
assess the effectiveness of the external audit process, the auditor was asked to
articulate the steps that they have taken to ensure objectivity and
independence, including where the auditor provides non-audit services. The Audit
Committee also reviewed the work done during the financial year by the external
auditor as part of the audit process and from time to time compares their
effectiveness as well as their costs with the benefit of the experience they
have had in other investment management houses and relevant contexts. These
steps enable the Audit Committee to monitor the auditor's performance, behaviour
and effectiveness during the exercise of their duties, which informs the
decision to recommend reappointment on an annual basis. The Audit Committee
under its terms of reference reviews the appointment and re-appointment of the
external auditor typically at its December meeting in advance of the reviewing
the audit approach for the Annual Report and Audited Financial Statements.
The Committee ensures that auditor objectivity and independence are safeguarded
by requiring pre-approval by the Committee for all non-audit services provided
to the Company, which takes into consideration:
- confirmation from the auditor that they have adequate arrangements in
place to safeguard their objectivity and independence in carrying out such work,
within the meaning of the regulatory and professional requirements to which they
are subject;
- the fees to be incurred, relative to the audit fees;
- the nature of the non-audit services; and
- whether the auditor's skills and experience make it the most suitable
supplier of such services and whether they are in a position to provide them.
The following table summarises the remuneration paid for services of Grant
Thornton Limited during the financial year ended 30 April 2023 and 30 April
2022.
+------------+++-+++------------------------------------------+
| ||| |||For the financial year ended 30 April 2023|
+------------+++-+++------------------------------------------+
| ||| |||£ |
+------------+++-+++------------------------------------------+
|Annual audit|||,|||40,425 |
+------------+++-+++------------------------------------------+
| ||| ||| |
+------------+++-+++------------------------------------------+
| ||| |||For the financial year ended 30 April 2022|
+------------+++-+++------------------------------------------+
| ||| |||£ |
+------------+++-+++------------------------------------------+
|Annual audit||| |||36,750 |
+------------+++-+++------------------------------------------+
For any questions on the activities of the Audit Committee not addressed in the
foregoing, a member of the Audit Committee will attend each annual general
meeting to respond to such questions.
The Audit Committee Report was approved on 22 August 2023 and signed on behalf
of the Audit Committee by:
Richard Pavry
Chairman, Audit Committee
Depositary Statement
FOR THE FINANCIAL YEARED 30 APRIL 2023
REPORT OF THE DEPOSITARY TO THE SHAREHOLDERS
Northern Trust (Guernsey) Limited has been appointed as Depositary to Atlantis
Japan Growth Fund Limited (the "Company") in accordance with the requirements of
Article 36 and Articles 21(7), (8) and (9) of the Directive 2011/61/EU of the
European Parliament and of the Council of 8 June 2011 on Alternative Investment
Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations
(EC) No 1060/2009 and (EU) No 1095/2010 (the "AIFM Directive").
We have enquired into the conduct of Quaero Capital LLP (the "AIFM") for the
financial year ended 30 April 2023, in our capacity as Depositary to the
Company.
This report, including the review provided below, has been prepared solely for
the shareholders of the Company. We do not, in giving this report, accept or
assume responsibility for any other purpose or to any other person to whom this
report is shown.
Our obligations as Depositary are stipulated in the relevant provisions of the
AIFM Directive and the relevant sections of Commission Delegated Regulation (EU)
No 231/2013 (collectively the "AIFMD legislation").
Amongst these obligations is the requirement to enquire into the conduct of the
AIFM and the Company and their delegates in each annual accounting period.
Our report shall state whether, in our view, the Company has been managed in
that period in accordance with the AIFMD legislation. It is the overall
responsibility of the AIFM to comply with these provisions. If the AIFM or their
delegates have not so complied, we, as the Depositary, will state why this is
the case and outline the steps which we have taken to rectify the situation.
BASIS OF DEPOSITARY REVIEW
The Depositary conducts such reviews as it, in its reasonable discretion,
considers necessary in order to comply with its obligations and to ensure that,
in all material respects, the Company has been managed (i) in accordance with
the limitations imposed on its investment and borrowing powers by the provisions
of its constitutional documentation and the appropriate regulations and (ii)
otherwise in accordance with the constitutional documentation and the
appropriate regulations. Such reviews vary based on the type of company, the
assets in which a company invests and the processes used, or experts required,
in order to value such assets.
REVIEW
In our view, the Company has been managed during the year, in all material
respects:
(i) in accordance with the limitations imposed on the investment and borrowing
powers of the Company by the constitutional document and by the AIFMD
legislation; and
(ii) otherwise in accordance with the provisions of the constitutional document
and the AIFMD legislation.
For and on behalf of
Northern Trust (Guernsey) Limited
22 August 2023
Independent Auditor's Report to the Members OF ATLANTIS JAPAN GROWTH FUND
LIMITED
FOR THE FINANCIAL YEARED 30 APRIL 2023
Opinion
We have audited the financial statements of Atlantis Japan Growth Fund Limited
(the `Company') for the year ended 30 April 2023 which comprise the Statement of
Comprehensive Income, the Statement of Changes in Equity, the Statement of
Financial Position, the Statement of Cash flows and the notes to the financial
statements, including a summary of significant accounting policies. The
financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (IFRSs) as
adopted by the European Union (IFRS EU).
In our opinion, the financial statements:
· give a true and fair view of the state of the Company's affairs as at 30
April 2023 and of the Company's loss for the year then ended;
· are in accordance with IFRSs as adopted by the European Union; and
· comply with The Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards
are further described in the `Auditor's responsibilities for the audit of the
financial statements' section of our report. We are independent of the Company
in accordance with the ethical requirements that are relevant to our audit of
the financial statements in Guernsey, including the FRC's Ethical Standard as
applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that
the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Material uncertainty related to going concern
We draw attention to Note 2(b) the financial statements, which indicates that a
resolution on the continuation of Company will be put to the Company's
shareholders as part of the Proposal at the general meetings and AGM. On 11
August 2023 the Board announced that heads of terms had been agreed for the
combination of the assets of the Company by way of a Scheme of Reconstruction
(`the Scheme'). This reconstruction is subject to shareholder, regulatory and
tax approval. As stated in Note 2(b) these events indicate that a material
uncertainty exists that may cast significant doubt on the Company's ability to
continue as a going concern. Our opinion is not modified in respect of this
matter.
In auditing the financial statements, we have concluded that the directors' use
of the going concern basis of accounting in the preparation of the financial
statements is appropriate.
Our evaluation of the directors' assessment of the Company's ability to continue
to adopt the going concern basis of accounting included:
· We assessed the determination made by the Board of Directors that the
Company is a going concern and hence the appropriateness of the financial
statements to be prepared on going concern basis;
· We assessed the Company's worst case scenario and have evaluated the
Company's liquidity, solvency and ability to meet its ongoing liabilities as
they fall due;
· We obtained management's assessment of going concern and corroborated
management's key assertions that the investments held could easily be converted
to cash (if required), by review of the frequency of investment trading activity
during the year and shortly after the year end;
· We challenged the appropriateness of management's key assertions by
challenging the assumptions used including their expectation on the impact of
the Russian/Ukraine crisis on the markets; and
· We assessed the disclosures in the financial statements relating to going
concern to ensure they were fair, balanced and understandable and in compliance
with IAS 1 `Presentation of Financial Statements'.
We are responsible for concluding on the appropriateness of the directors' use
of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions
that may cast significant doubt on the company's ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify the auditor's
opinion. Our conclusions are based on the audit evidence obtained up to the date
of our report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
In relation to the Company's reporting on how they have applied the UK Corporate
Governance Code, we have nothing material to add or draw attention to in
relation to the directors' statement in the financial statements about whether
the directors considered it appropriate to adopt the going concern basis of
accounting and directors' identification in the financial statements of any
material uncertainties to the entity's ability to continue to do so over a
period of at least twelve months from the date of approval of the financial
statements.
Our approach to the audit
+-----------------------------------------------+------------------------------+
| |Overview of our audit approach|
+-----------------------------------------------+------------------------------+
|Overall materiality: £1,580,637, which |
|represents 2% of the Company's net asset value |
|as at 30 April 2023. |
+-----------------------------------------------+------------------------------+
|The only key audit matter identified was |
| |
| · Existence and valuation of the portfolio of|
|investments. |
| |
|Our auditor's report for the year ended 30 |
|April 2022, reflected the same, single key |
|audit matter. |
| |
|Our audit approach is a risk-based audit |
|focused on the investment activities of the |
|Company. There was no change in our approach |
|from prior year. |
+-----------------------------------------------+------------------------------+
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of
most significance in our audit of the financial statements of the current period
and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those
that had the greatest effect on:
- the overall audit strategy;
- the allocation of resources in the audit; and
- directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
In the graph below, we have presented the key audit matters, significant risks
and other risks relevant to the audit.
In addition to the matter described in the Material uncertainty related to going
concern section, we have determined the matters described below to the key audit
matters to be communicated in our report;
Key Audit How our scope addressed the matter
Matter
Existence and In responding to the key audit matter, we performed the
valuation of following audit procedures:
the portfolio
of - Updated our understanding of the processes, policies and
investments methodologies, and controls in relation to the valuation and
measurement of investments and performed tests of the design
The portfolio and implementation of relevant controls.
of
investments - Obtained year-end confirmation from the Custodian
is fully confirming the number of shares owned as well as the price per
comprised of unit used to value the shares at year end.
quoted
investments - Selected a sample of investment sales and purchases that
which are occurred during the year and agreed the transactions selected
held by an to supporting contracts and cash payments/receipts.
external
Custodian and - Performed recalculation of the fair value of all
valued using investments using listed prices from an independent source and
publicly agree it to the schedule of investments and financial
available statements.
quoted market
prices, in - Determined if the listed shares are considered actively
accordance traded by analysing the trade volumes and trade dates up to the
with IFRS 9 year-end to determined if any price discount should have been
Financial applied to determine the fair value.
Instruments
and IFRS 13 - Where applicable, assessed the foreign exchange rate
Fair Value applied to convert the value of all investments to GBP and
Measurement. concluded on whether the foreign exchange rate applied was
reasonable in comparison to publicly available rates.
Whilst the
valuation of
these
investments
is not
considered
complex, nor
does it
involve
significant
judgements
and estimates
to be made by
management,
the market
value of
investments
is material
to the
Company, as
they
represent
103% of the
net asset
value as at
30 April 2023
and represent
a balance
considerably
larger than
any other
reported
balance
within the
Company's
financial
statements.
In addition,
due to the
regular/freque
nt trading of
investment
positions
held by the
Company,
there is a
risk that the
reported
investment
portfolio at
the year end,
may be
misstated.
Due to the
financial
significance
of the
investments
held at the
year-end, an
error or
misstatement
regarding the
recognition/
inclusion of
a single
investment
could lead to
a material
misstatement
within the
financial
statements.
As the risk
of potential
financial
statement
impact was
considered
high, the
existence and
valuation of
the portfolio
of
investments
was
considered to
be the most
significant
assessed risk
of material
misstatement.
Relevant Our results
disclosures
in the Annual Based on our work, we did not find any material misstatement
Report and relating to the valuation and existence of investments.
Audited
Financial
Statements
· Audit
committee
report
Financial
Statements:
note 2(f),
Investments
held at fair
value through
profit and
loss; note
15, Financial
risk
management
objectives
and policies
and note 16,
Investments
held at fair
value through
profit or
loss.
Our application of materiality
We apply the concept of materiality both in planning and performing the audit,
and in evaluating the effect of identified misstatements on the audit and of
uncorrected misstatements, if any, on the financial statements and in forming
the opinion in the auditor's report.
Materiality was determined as follows:
Materiality measure Company
Materiality for financial statements as We define
a whole materiality
as the
magnitude of
misstatement
in the
financial
statements
that,
individually
or in the
aggregate,
could
reasonably be
expected to
influence the
economic
decisions of
the users of
these
financial
statements.
We use
materiality
in
determining
the nature,
timing and
extent of our
audit work.
Materiality threshold £1,580,637
which is 2%
of the
Company's net
asset value
as at 30
April 2023.
Significant judgements made by auditor In
in determining the materiality determining
materiality,
we made the
following
significant
judgements:
- A key
performance
indicator/metr
ic for users
of the
financial
statements is
the net asset
value of the
Company,
specifically
the change in
net asset
value per
share. It is
indicated in
the Strategic
Report that
the Board
considers the
change in Net
Asset Value
as a measure
in assessing
the Company's
success in
achieving its
objectives.
-
Significant
income and
consequently
profit/loss
for the year
is dependent
upon the
transactions
within, and
the valuation
of, the
investment
portfolio.
- Net
asset value
is the
generally
accepted
measure used
for similar
companies
within the
industry.
Materiality
for the
current year
is higher
than the
level that we
determined
for the year
ended 30
April 2022
(1%) to
reflect our
assessment of
the level
judgment /
misstatement
involving
investments.
Performance materiality used to drive We set
the extent of our testing performance
materiality
at an amount
less than
materiality
for the
financial
statements as
a whole to
reduce to an
appropriately
low level the
probability
that the
aggregate of
uncorrected
and
undetected
misstatements
exceeds
materiality
for the
financial
statements as
a whole.
Performance materiality threshold £1,185,477
which is 75%
of financial
statement
materiality.
Significant judgements made by auditor In
in determining the performance determining
materiality materiality,
we made the
following
significant
judgements:
· No
misstatements
were
identified in
the prior
year audit
and our
assessment of
the control
environment
which
concluded
that there
were
effective
controls
around the
relevant
business
processes and
financial
reporting
activities.
Specific materiality We determine
specific
materiality
for one or
more
particular
classes of
transactions,
account
balances or
disclosures
for which
misstatements
of lesser
amounts than
materiality
for the
financial
statements as
a whole could
reasonably be
expected to
influence the
economic
decisions of
users taken
on the basis
of the
financial
statements.
Our
assessment
did not
highlight any
particular
classes of
transaction,
account
balances or
disclosures
where a lower
level of
specifically
materiality
was required.
Communication of misstatements to the We determine
audit committee a threshold
for reporting
unadjusted
differences
to the audit
committee.
Threshold for communication £79,032 and
misstatements
below that
threshold
that, in our
view, warrant
reporting on
qualitative
grounds.
An overview of the scope of our audit
The day-to-day management of the Company's investment portfolio, the custody of
its investments and the maintenance of the Company's accounting records is
outsourced to third-party service providers. Accordingly, our audit work is
focused on obtaining an understanding of, and evaluating, internal controls at
the Company and the third-party service providers (which included obtaining the
System and Organisation Controls (SOC) 1 Report of the Administrator), and
inspecting records and documents held by these third-party service providers.
The Company engages an investment manager, Quaero Capital LLP, to manage the
investment portfolio. We had interaction with the investment manager which
included correspondence on Company performance, in completing aspects of our
audit work.
We undertook substantive testing on significant transactions, balances and
disclosures, the extent of which was based on various factors such as our
overall assessment of the control environment, the effectiveness of controls
over individual systems and the management of specific risks. In relation to the
KAM described above, the majority of our substantive testing focused on the
audit of the investment portfolio and associated disclosures as at the reporting
date and the movement in investment holdings during the year. There were no
changes in approach from the previous period.
Other information
The other information comprises the information included in the Annual Report
and Audited Financial Statements, other than the financial statements and our
auditor's report thereon. The directors are responsible for the other
information contained within the Annual Report and Audited Financial Statements.
Our opinion on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our report, we do not
express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there is a material
misstatement of the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
Corporate governance statement
The Listing Rules require us to review the directors' statement in relation to
going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the Company's compliance with the provisions of the UK
Corporate Governance Code specified for our review.
The Company has also reported compliance against the GFSC Finance Sector Code of
Corporate Governance and the AIC Code of Corporate Governance (the "Code") which
has been endorsed by the UK Financial Reporting Council as being consistent with
the UK Corporate Governance Code to meet the Company's obligations, as an
investment company, under the Listing Rules of the FCA.
Aside from the impact of the matters disclosed in the material uncertainty
related to going concern section, based on the work undertaken as part of our
audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or
our knowledge obtained during the audit:
· the directors' explanation in the annual report as to how they have assessed
the prospects of the Company, over what period they have done so and why they
consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Company will be able to continue in
operation and meet their liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions;
· the directors' statement that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company's performance,
business model and strategy;
· the directors' confirmation in the annual report that they have carried out
a robust assessment of the principal and emerging risks facing the Company
(including the Russian/Ukraine crises and cost of living crises) and the
disclosures in the annual report that describe the principal risks, procedures
to identify emerging risks and an explanation of how they are being managed or
mitigated (including the impact of the Russian/Ukraine crises and cost of living
crises);
· the section of the annual report that describes the review of the
effectiveness of Company's risk management and internal control systems,
covering all material controls, including financial, operational and compliance
controls; and
· the section of the annual report describing the work of the audit committee,
including significant issues that the audit committee considered relating to the
financial statements and how these issues were addressed.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to
which The Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
· proper accounting records have not been kept by the Company; or
· the Company's financial statements are not in agreement with the accounting
records; or
· we have not obtained all the information and explanations, which to the best
of our knowledge and belief, are necessary for the purposes of our audit.
Responsibilities of directors for the financial statements
As explained more fully in the Directors' Report and Statement of Directors'
Responsibilities the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of
these financial statements.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
· We obtained an understanding of the legal and regulatory frameworks
applicable to the Company and the investment industry in which it operates,
becoming familiar with applicable laws and regulations. We determined that the
following laws and regulations were most significant:
· IFRS as adopted by the European Union;
· The Companies (Guernsey) Law, 2008;
· The Protection of Investors (Bailiwick of Guernsey) Law, 2020;
· The UK Corporate Governance Code;
· The Association of Investment Companies (AIC) Code of Corporate Governance
and GFSC Finance Sector Code of Corporate Governance.
· FCA Listing Rules;
· FCA Disclosure Guidance and Transparency Rules;
· The Authorised Closed-Ended Investment Scheme Rules and Guidance 2021;
· The Alternative Investment Fund Managers Directive; and
· Applicable tax legislation in Guernsey and the United Kingdom.
· We obtained an understanding of how the Company is complying with those
legal and regulatory frameworks by making inquiries of management and those
responsible for legal and compliance procedures. We corroborated our inquiries
through our review of board minutes and reports prepared for Board meetings and
Audit Committee meetings.
· In assessing the potential risks of material misstatements we:
· Obtained an understanding of the Company's operations, including the nature
of its revenue sources and investment operations and of its objectives and
strategies to understand the classes of transactions, account balances, expected
financial statement disclosures and business risks that may result in risks of
material misstatement;
· Obtained an understanding of the applicable statutory provisions;
· Reviewed the policies and procedures implemented by the Company to review
and monitor compliance with its regulatory requirements; and
· Reviewed compliance reports prepared by the Administrator/Secretary and
presented to the Board throughout the year.
· We assessed the susceptibility of the Company's financial statements to
material misstatement, including how fraud might occur. We also considered
investor focus and management remuneration which may create an incentive for
management to manipulate profit. We considered the possibility of fraud through
management override and, based on our understanding, we designed and
incorporated the following audit procedures into our audit strategy to identify
instances of fraud and non-compliance with relevant laws and regulations:
· identifying and assessing relevant controls management has in place to
prevent and detect fraud;
· identifying and testing journal entries, in particular any journal entries
posted with unusual account combinations; and
· assessing the extent of compliance with the relevant laws and regulations as
part of our procedures on the related financial statement item.
· These audit procedures were designed to provide reasonable assurance that
the financial statements were free from fraud or error. The risk of not
detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error and detecting irregularities that result from
fraud is inherently more difficult than detecting those that result from error,
as fraud may involve collusion, deliberate concealment, forgery or intentional
misrepresentations. Also, the further removed non-compliance with laws and
regulations is from events and transactions reflected in the financial
statements, the less likely we would become aware of it;
· As per the engagement partner's assessment, the engagement team collectively
have the appropriate competence and capabilities to recognise non-compliance
with laws and regulations.
All non-compliance with laws and regulation and fraud were communicated with the
engagement team and none of these matters were identified as key audit matters.
· Relevant laws and regulations and potential fraud risks were communicated to
all engagement team members. We remained alert of any indications of fraud or
non-compliance with laws and regulations throughout the audit.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor's report.
Other matters which we are required to address
We were appointed by the audit committee on 22 March 2023 to audit the financial
statements for the year ended 30 April 2023. Our total uninterrupted period of
engagement is 4 years covering the periods ended 30 April 2020 to 30 April 2023.
The non-audit services prohibited by the FRC's Ethical Standard were not
provided to the Company and we remain independent of the Company in conducting
our audit.
Our audit opinion is consistent with the additional report to the audit
committee.
Use of our report
This report is made solely to the Company's members, as a body, in accordance
with Section 262 of The Companies (Guernsey) Law, 2008. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Cyril Swale
For and on behalf of Grant Thornton Limited
Chartered Accountants
St Peter Port
Guernsey
Date: 22 August 2023
Statement of Comprehensive Income
FOR THE FINANCIAL YEARED 30 APRIL 2023
30 April 30 April
2023 2022
Revenue Capital Total Revenue Capital
Total
Notes £'000 £'000 £'000 £'000 £'000
£'000
Income
4 Net losses on - (3,032) (3,032) - (23,473)
(23,473)
investments
held
at
fair value
through profit
or loss
Net gains on - 9 9 - 46
46
foreign
exchange
Dividend 1,447 - 1,447 1,589 -
1,589
income
1,447 (3,023) (1,576) 1,589 (23,427)
(21,838)
Expenses
6 Investment (834) - (834) (1,107) -
(1,107)
management
fees
7 Depositary (74) - (74) (95) -
(95)
fees
8 Administration (130) - (130) (140) -
(140)
fees
9 Directors' (161) - (161) (144) -
(144)
fees
and expenses
Insurance fees (7) - (7) (6) -
(6)
Audit fees (51) - (51) (43) -
(43)
Printing and (13) - (13) (12) -
(12)
advertising
fees
Legal and (129) - (129) (92) -
(92)
professional
fees
10 Research costs (129) - (129) (101) -
(101)
Miscellaneous (48) - (48) (89) -
(89)
expenses
(1,576) - (1,576) (1,829) -
(1,829)
Finance cost
Interest (63) - (63) (21) -
(21)
expense
and bank
charges
Loss before (192) (3,023) (3,215) (261) (23,427)
(23,688)
taxation
11 Taxation (228) - (228) (243) -
(243)
Loss for the
financial year
(420) (3,023) (3,443) (504) (23,427) (23,931)
Total (420) (3,023) (3,443) (504) (23,427)
(23,931)
comprehensive
loss for the
financial year
12 Deficit per £(0.010) £(0.073) £(0.083) £(0.012) £(0.562)
£(0.574)
ordinary share
In arriving at the result for the financial year, all amounts above relate to
continuing activities.
The total column in this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with IFRS EU. The supplementary
revenue and capital columns are both prepared under guidance published by the
Association of Investment Companies.
The notes form an integral part of these financial statements.
Statement of Changes in Equity
FOR THE FINANCIAL YEARED 30 APRIL 2023
Accumulated
Capital Capital
Capital other
Ordinary Share Revenue reserve/ reserve/
reserve/ comprehensive
Share
capital premium reserve realised
unrealised exchange income Total
Notes £'000 £'000 £'000 £'000 £'000
£'000 £'000 £'000
Balances at 1 - - (25,841) 91,026 30,342
(14,391) 6,143 87,279
May
2022
Movements
during
the financial
year
14 Shares bought - - - (958) -
- - (958)
into
treasury
4 Net - - - 2,280 (2,280)
- - -
unrealised
loss on
investments
held at fair
value
through
profit or
loss
Net gain on - - - (9) -
9 - -
foreign
exchange
18 Distributions - - - (3,846) -
- - (3,846)
to
shareholders
Total - - (420) (3,023) -
- - (3,443)
comprehensive
loss
Balances at - - (26,261) 85,470 28,062
(14,382) 6,143 79,032
30
April 2023
STATEMENT OF
CHANGES IN
EQUITY
For the year
ended
30 April 2022
Accumulated
Capital Capital
Capital other
Ordinary Share Revenue reserve/ reserve/
reserve/ comprehensive
Share
capital premium reserve realised
unrealised exchange income Total
Notes £'000 £'000 £'000 £'000 £'000
£'000 £'000 £'000
Balances at 1 - - (25,337) 89,356 60,776
(14,437) 6,143 116,501
May
2021
Movements
during
the financial
year
14 Shares bought - - - (779) -
- - (779)
into
treasury
4 Net - - - 30,434 (30,434)
- - -
unrealised
loss on
investments
held at fair
value
through
profit or
loss
Net gain on - - - (46) -
46 - -
foreign
exchange
18 Distributions - - - (4,512) -
- - (4,512)
to
shareholders
Total - - (504) (23,427) -
- - (23,931)
comprehensive
loss
Balances at - - (25,841) 91,026 30,342
(14,391) 6,143 87,279
30
April 2022
The notes form an integral part of these financial statements.
Statement of Financial Position
AS AT 30 APRIL 2023
30 April 2023 30 April 2022
Notes £'000 £'000
Non-current assets
15,16 Investments held at fair 81,638 91,525
value through profit or
loss
Current assets
Cash and cash equivalents 105 72
Due from brokers 348 -
Dividends receivable 469 622
Prepaid expenses and other 35 5
receivables
957 699
Current liabilities
Bank overdraft (3,042) (4,605)
Due to brokers (323) (107)
Payables and accrued (198) (233)
expenses
(3,563) (4,945)
Net current liabilities (2,606) (4,246)
Non-current liabilities - -
17 Net assets 87,279
79,032
Equity
Ordinary share capital - -
Share premium - -
Revenue reserve (26,261) (25,841)
Capital reserve 99,150 106,977
Accumulated other 6,143 6,143
comprehensive income
Net assets attributable to 79,032 87,279
equity shareholders
17 Net asset value per £1.93 £2.11
ordinary share*
*Based on the Net Asset Value at the financial year end divided by the number of
shares in issue: 40,856,070 (30 April 2022: 41,416,570) (see Note 17).
Approved by the Board and authorised for issue on 22 August 2023 and signed on
its behalf by:
Noel LambRichard Pavry
ChairmanDirector
The notes form an integral part of these financial statements.
Statement of Cash Flows
FOR THE FINANCIAL YEARED 30 APRIL 2023
30 April 2023 30 April 2022
£'000 £'000
Notes **Restated**
Cash flows from operating activities
Loss before taxation (3,215) (23,688)
Dividend income (1,447) (1,589)
Adjustments to reconcile loss before
taxation and dividend income to net
cash flows from operating activities
4 Net realised losses/(gains) on 752 (6,961)
investments held at fair value
through profit or loss
4 Net unrealised losses on investments 2,280 30,434
held at fair value through profit or
loss
Interest expense and bank charges 63 21
(Increase)/decrease in due from (348) 322
brokers
Decrease/(increase) in dividends 153 (224)
receivable
(Increase)/decrease in prepaid (30) 20
expenses and other receivables
Increase/(decrease) in due to brokers 216 (184)
11 Decrease in payables and accrued (35) (11)
expenses
Taxation paid (228) (243)
(1,839) (2,103)
16 Purchase of investments (48,502) (55,642)
16 Sale of investments 55,357 57,590
Dividend income 1,447 1,589
8,302 3,537
Net cash inflow from operating 6,463 1,434
activities
Cash flows from financing activities
Interest paid (63) (21)
18 Distributions paid to shareholders (3,846) (4,512)
13 (Repayment)/Drawdown of overdraft (1,563) 3,938
facility*
14 Redemptions (958) (779)
Net cash outflow from financing (6,430) (1,374)
activities
Net increase/(decrease) in cash and 33 60
cash equivalents
Cash and cash equivalents at 72 12
beginning of financial year
Cash and cash equivalents at end of 105 72
financial year*
* The 30 April 2022 amounts have been reclassified to conform with the current
year presentation of the bank overdraft facility as a financing activity. This
change in presentation was done so as to provide more reliable and more relevant
information. As an impact the 30 April 2022 accounts have a figure of £3,938,000
representing a drawdown of the overdraft facility during the financial year to
30 April 2022. The Cash and cash equivalents at end of financial year figure has
also been adjusted to reflect this reclassification changing from (£4,533,000)
to £72,000.
The notes form an integral part of these financial statements.
Notes to the Financial Statements
FOR THE FINANCIAL YEARED 30 APRIL 2023
1. GENERAL INFORMATION
Atlantis Japan Growth Fund Limited (the "Company") was incorporated in Guernsey
on 13 March 1996. The Company commenced activities on 10 May 1996. The Company
is an authorised closed-ended investment scheme registered and domiciled in P.O.
Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL, Channel
Islands. The Company's equity shares are traded on the London Stock Exchange.
As an investment trust, the Company is not regulated as a collective investment
scheme by the Financial Conduct Authority. However, it is subject to the UKLA
Listing Rules, Prospectus Rules, Disclosure Guidance and Transparency Rules and
the rules of the London Stock Exchange.
The Company's investment objective is to achieve long term capital growth
through investing wholly or mainly in listed Japanese equities.
The Company's investment activities are managed by Quaero Capital LLP
("Investment Manager") with the administration delegated to Northern Trust
International Fund Administration Services (Guernsey) Limited.
2.SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these financial
statements are set out below. These policies have been consistently applied to
all the financial years presented, unless otherwise stated.
a) Basis of preparation
The Financial Statements of the Company have been prepared in accordance with
IFRS EU. The Financial Statements have been prepared under the historical cost
convention, as modified by the revaluation of investments held at fair value
through profit or loss, and in accordance with the Association of Investment
Companies ("AIC") Statement of Recommended Practice ("SORP") for Investment
Trust Companies and Venture Capital Trusts to the extent it is not in conflict
with IFRS EU and the Company's Principal Documents.
The preparation of the Financial Statements in conformity with IFRS EU requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from those
estimates. As at the financial year ended 30 April 2023, the Company, being
solely invested in listed equities, did not hold any investment requiring the
use of significant estimation to determine their value. There were no other
significant estimates for the financial year ended 30 April 2023.
The significant accounting policies adopted are consistent with those of the
previous financial year.
New standards not yet adopted
There were no new standards or interpretations effective for the first time for
periods beginning on or after 1 May 2022 that had a significant effect on the
Company's Financial Statements. Furthermore, none of the amendments to standards
that are effective from that date had a significant effect on these Financial
Statements.
Other accounting standards and interpretations have been published and will be
mandatory for the Company's accounting periods beginning on or after 1 May 2023
or later periods. On review of the future standards and interpretations, the
impact of these standards is not expected to be material to the reported results
and financial position of the Company.
Critical judgements
The Board consider GBP the currency that most faithfully represents the economic
effect of the underlying transactions, events and conditions. GBP is the
currency in which the Company measures its performance. This determination also
considers the competitive environment in which the Company is compared to other
European investment products. The presentation currency for these financial
statements is GBP.
b) Going concern
The Board has considered and sought advice on the appropriateness of continuing
to prepare the Financial Statements on a going concern basis.
It is worth noting that one option being considered by the Board is 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, however, material uncertainties exist in
relation to this Proposal, including pending shareholder, regulatory and tax
approvals.
Notwithstanding the above, a number of attractive options remain available to
the Company, and the Board has concluded that it remained appropriate to
continue to prepare the Financial Statements on a going concern basis.
Additionally, the Company's assets consist of equity shares in companies listed
on recognised stock exchanges and in normal circumstances are 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 results of stress testing, which models a sharp
decline in market levels, demonstrated that the Company had the ability to raise
sufficient funds so as to remain within its debt covenants and pay expenses.
The Company does not have a fixed life. However, 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.
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 11 August 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, resulting in the voluntary liquidation of the Company. More
detail can be found in the Chairman's Statement above, and in the RNS
announcement itself. Further information will be set out in a circular to
shareholders to be published in due course.
The Board believes that the Proposal is in the best interests of shareholders
and will recommend that shareholders vote in favour of the relevant resolutions
at the extraordinary general meetings to be held in due course in order to
implement the scheme. However, due to the requirements for approvals from
shareholders of both companies there can be no certainty of the outcome at the
date of this Annual Report and, therefore, there remains material uncertainties
on the Proposal obtaining the necessary approvals to be enacted.
Should the Proposal not receive the necessary shareholder or regulatory
approvals and should the Continuation Vote to be put to the subsequent AGM also
fail to be approved by shareholders 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. Accordingly the
Board has prepared these financial statements on a going concern basis.
c) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company,
supplementary information which analyses the Statement of Comprehensive Income
between items of a revenue and capital nature has been presented alongside the
Statement of Comprehensive Income.
d) Income recognition
Dividend income arising on the Company's investments is accounted for gross of
withholding tax on an ex-dividend basis or when the right to receive payment is
established.
e) Expenses
All expenses are recognised in the Statement of Comprehensive Income on an
accruals basis.
f) Investments held at fair value through profit or loss
(i) Classification and Measurement
The Company classifies its investments based on both the Company's business
model for managing those financial assets and the contractual cash flow
characteristics of those financial assets. The portfolio of the financial assets
is managed and performance is evaluated on a fair value basis. The Company is
primarily focused on fair value information and uses that information to assess
the assets' performance and to make decisions.
The Company classifies its entire investment portfolio as financial assets or
liabilities as fair value through profit or loss. This includes forward currency
contracts of which Nil were held at the financial year end (30 April 2022: Nil).
All financial assets are mandatorily measured as at fair value through profit or
loss with no assets being designated.
The Company's policy requires the Investment Manager and the Directors to
evaluate the information about these financial assets and liabilities on a fair
value basis together with other related financial information.
(ii) Recognition and Measurement
Investments are initially recognised at the trade date of purchase. They are
included initially at fair value, which is taken to be their cost (excluding
expenses incidental to the acquisition which are written off in the Statement of
Comprehensive Income, and allocated to the capital column of the Statement of
Comprehensive Income at the time of acquisition).
Investments are de-recognised when the rights to receive cash flows from the
investments have expired or the Company has transferred substantially all risks
and rewards of ownership.
Gains and losses on investments are included in the Statement of Comprehensive
Income as capital.
(iii) Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value of financial assets and liabilities traded
in active markets (such as transferable securities and financial derivative
instruments traded publicly) are based on quoted market prices at the close of
trading on the reporting date.
If a quoted market price is not available on a recognised stock exchange or from
a broker/dealer for non-exchange traded financial instruments, the fair value of
the instrument is estimated using valuation techniques, including the use of
recent arm's length market transactions, reference to the current fair value of
another instrument that is substantially the same, discounted cash flow
techniques, option pricing models or any other valuation technique that provides
a reliable estimate of prices obtained in actual market transactions.
The fair value of financial derivative instruments, that are not exchange
-traded, is estimated at the amount that the Company would receive or pay to
terminate the contract at the reporting date, taking into account current market
conditions (volatility, appropriate yield curve) and the current
creditworthiness of the counterparties. Realised gains and losses on investment
disposals are calculated using the weighted average cost method.
g) Due from and due to brokers
Amounts due from and to brokers represent receivables for securities sold and
payables for securities purchased that have been contracted for but not yet
settled or delivered on the Statement of Financial Position date respectively.
These amounts are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method.
At each reporting date, the Company shall measure the loss allowance on the
amounts due from broker at an amount equal to the lifetime expected credit
losses if the credit risk has increased significantly since initial recognition.
If, at the reporting date, the credit risk has not increased significantly since
initial recognition, the Company shall measure the loss allowance at an amount
equal to 12 month expected credit losses. Significant financial difficulties of
the broker, probability that the broker will enter bankruptcy or financial
reorganisation, and default in payments are all considered indicators that a
loss allowance may be required. If the credit risk increases to the point that
it is considered to be credit impaired interest income will be calculated based
on the gross carrying amount adjusted for the loss allowance. A significant
increase in credit risk is defined by management as any contractual payment
which is more than 30 days past due. Any contractual payment is more than 90
days past due is considered credit impaired.
The effective interest method is a method of calculating the amortised cost of a
financial asset or financial liability and of allocating the interest income or
interest expense over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash payments or receipts
throughout the expected life of the financial instrument or, when appropriate, a
shorter period to the net carrying amount of the financial asset or financial
liability. When calculating the effective interest rate, the Company estimates
cash flows considering all contractual terms of the financial instrument but
does not consider future credit losses. The calculation includes all fees and
points paid or received between parties to the contract that are an integral
part of the effective interest rate, transaction costs and all other premiums or
discounts.
h) Other receivables
Other receivables are amounts due in the ordinary course of business. If
collection is expected in one year or less, they are classified as current
assets. If not, they are presented as non-current assets. Other receivables are
recognised initially at fair value and subsequently measured at amortised cost
using the effective interest method.
i) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term
deposits with an original maturity of three months or less.
For the purposes of the Statement of Cash Flows, cash and cash equivalents
consist of cash and cash equivalents, as defined above, net of outstanding bank
overdrafts.
IAS 7 requires disclosures that:
· Enable users of the financial statements to evaluate changes in
liabilities arising from financing activities; and
· Provide a reconciliation of the opening and closing balances of
liabilities arising from financing activities in the statement of financial
position is suggested although not mandatory.
These requirements have been met as part of the Statement of Changes in Equity
for share capital transactions attributable to holders of ordinary shares and
Note 13 (Overdraft Facility).
j) Other payables and accrued expenses
Other payables and accrued expenses are obligations to pay for services that
have been acquired in the ordinary course of business. Other payables are
classified as current liabilities if payment is due within one year or less. If
not, they are presented as non-current liabilities. Other payables are
recognised initially at fair value and subsequently measured at amortised cost
using the effective interest method.
k) Overdraft facility
All borrowings are initially recognised at cost, being the fair value of the
consideration received, less issue costs where applicable. After initial
recognition, all borrowings are subsequently measured at amortised cost.
Amortised cost is calculated by taking into account discount or premium on
settlement.
The Company's borrowings are denominated in JPY. Gains and losses on foreign
exchange on loans are included in the Statement of Comprehensive Income as
capital.
l) Foreign currencies
The Company's investments are predominately denominated in JPY. The Company's
obligation to shareholders is denominated in GBP and, when appropriate, the
Company may hedge the exchange rate risk from JPY to GBP. Therefore, the
Company's functional currency is GBP. The Company's presentation currency is
GBP.
At each Statement of Financial Position date, assets and liabilities, which are
denominated in foreign currencies, are translated into the functional currency
at the closing rates of exchange. Transactions involving currencies other than
the functional currency are recorded at the exchange rates prevailing on the
dates of the transactions. Resulting exchange differences are recognised in
profit or loss in the Statement of Comprehensive Income.
Foreign exchange gains and losses relating to cash and cash equivalents are
presented in the Statement of Comprehensive Income within "Net gains/(losses) on
foreign exchange".
m) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. In addition, the Company incurs withholding taxes imposed by certain
countries on dividend and interest income. Such income is recognised gross of
the taxes and the corresponding withholding tax is recognised as a tax expense.
The tax currently payable is based on the taxable profit for the financial year.
Any taxable profit differs from the net profit, if any, as reported in the
Statement of Comprehensive Income because it excludes items of income or expense
that are taxable or deductible in other years and it further excludes items that
are never taxable or deductible.
The Company's liability for current tax is calculated using tax rates that were
applicable at the Statement of Financial Position date.
In line with the provisions of the AIC SORP, the allocation method used to
calculate tax relief on expenses presented against capital returns in the
supplementary information in the Statement of Comprehensive Income is the
"marginal basis".
Under this basis, if taxable income is capable of being offset entirely by
expenses presented in the revenue return column of the Statement of
Comprehensive Income, then no tax relief is transferred to the capital return
column.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the Financial
Statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. A
deferred tax liability is recognised in full for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Investment trusts which have approval as
such under Section 1158 of the Corporation Tax Act 2010 are not liable for
taxation on capital gains.
The carrying amount of deferred tax assets is reviewed at each Statement of
Financial Position date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the
asset to be recovered.
Deferred tax is calculated at the tax rates that are enacted or substantively
enacted in the period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the Statement of Comprehensive Income,
except when it relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity.
n) Capital reserve
The capital reserve distinguishes between gains/(losses) on sales or disposals
and valuation gains/(losses) on investments. The capital reserve consists of
realised gains/(losses) on investments, movement in valuation of gains/(losses)
on investments and gains/(losses) relating to foreign exchange. This is a
distributable reserve which may be utilised for the repurchase of share capital
and for distributions to shareholders by way of Dividend.
o) Share premium
Share Premium Account represents the excess of the issue price over the par
value on shares issued.
p) Revenue reserve
Revenue reserve is a distributable reserve and is the undistributed income of
the Company.
q) Accumulated other comprehensive income
Historical exchange differences on the translation of assets, liabilities,
income and expenses from functional to presentation currency are recognised in
accumulated other comprehensive income.
r) Treasury shares
Where the Company purchases its own share capital (whether into treasury or
cancellation), the consideration paid, which includes any directly attributable
costs (net of income taxes), is recognised as a deduction from equity
shareholders' funds through the capital reserve, which is a distributable
reserve.
When such shares are subsequently sold or reissued, the consideration received,
net of any directly attributable incremental transaction costs and the related
income tax effects, is recognised as an increase in equity and proceeds from the
reissue of treasury shares are transferred to/from the capital reserve.
Shares held in treasury are not taken into account in determining earnings per
share detailed in Statement of Comprehensive Income and NAV per share detailed
in Note 17.
s) Offsetting of financial assets and liabilities
Financial assets and liabilities are offset and the net amount reported in the
Statement of Financial Position when there is a legally enforceable right to
offset the recognised amounts and there is an intention to settle on a net basis
or realise the asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events and must be
enforceable in the normal course of business and in the event of default,
insolvency or bankruptcy of the Company or the counterparty.
t) Ordinary shares
The Company's ordinary shares were redeemable in the capital of the Company at
no par value and are classified as equity in accordance with the Company's
Articles of Incorporation.
u) Subscriber shares
The Company's subscriber shares are classified as equity in accordance with the
Company's Articles of Incorporation. These shares do not participate in the
profits of the Company. For more information please see Note 14.
v) Dividend distribution
Dividend distribution to the Company's shareholders is recognised as a liability
in the Company's financial statements and disclosed in the Statement of Changes
in Equity in the period in which the dividends are approved by the Board.
3.OPERATING SEGMENTS
The Board makes the strategic resource allocations on behalf of the Company and
is responsible for the Company's entire portfolio. The Board is of the opinion
that the Company is engaged in a single geographic and economic segment
business. The asset allocation decisions are based on a single, integrated
investment strategy, and the Company's performance is evaluated on an overall
basis.
The internal reporting provided to the Directors for the Company's assets,
liabilities and performance is prepared on a consistent basis with the
measurement and recognition principles of IFRS EU.
The fair value of the financial instruments held by the Company and the
equivalent percentages of the total value of the Company are reported in the
Schedule of Investments.
4.NET LOSSES ON INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
30 April 2023 30 April 2022
£'000 £'000
Realised gains on
investments held at 8,936 19,240
fair
value through profit
or loss
Realised losses on (9,688) (12,279)
investments held at
fair value through
profit or loss
Net realised (752) 6,961
(losses)/gains on
investments
held at fair value
through profit or
loss
Unrealised gains on 11,648 9,256
investments held at
fair value through
profit or loss
Unrealised losses on (13,928) (39,690)
investments held at
fair value through
profit or loss
Net unrealised losses (2,280) (30,434)
on investments held
at fair value through
profit or loss
Net losses on
investments held at (3,032) (23,473)
fair
value through profit
or loss
5.RELATED PARTY DISCLOSURE
The Investment Manager, Investment Adviser, Depositary, Administrator and
Directors are considered related parties to the Company under IAS 24 as they
have the ability to control, or exercise significant influence over, the Company
in making financial or operational decisions. See Notes 6 to 9 for details of
transactions with these related parties during the financial year ended 30 April
2023.
The Company has an overdraft facility with the Depositary, Northern Trust
Guernsey Limited (NTGL). Please see Note 13 for details.
Certain Directors had a beneficial interest in the Company by way of their
investment in the ordinary shares of the Company.
The details of these interests as at 30 April 2023 and 30 April 2022 are as
follows:
+-------+++++-------------------------------++-------------------------------+
| |||||Ordinary Shares ||Ordinary Shares |
+-------+++++-------------------------------++-------------------------------+
| |||||30 April 2023 ||30 April 2022 |
+-------+++++-------------------------------++-------------------------------+
|Noel ||||| 30,000|| 30,000|
|Lamb ||||| || |
+-------+++++-------------------------------++-------------------------------+
|Richard||||| 40,000|| 40,000|
|Pavry ||||| || |
+-------+++++-------------------------------++-------------------------------+
|Philip ||||| 50,000|| 50,000|
|Ehrmann||||| || |
+-------+++++-------------------------------++-------------------------------+
|Michael||||| 50,000|| 50,000|
|Moule ||||| || |
+-------+++++-------------------------------++-------------------------------+
The above interests of the Directors were unchanged as at the date of this
report.
Remuneration paid to the Directors during the year is detailed in note 9 and in
the Directors' Remuneration Report.
As at 30 April 2023, a family member of the late President of the Investment
Adviser held 0 (zero) (30 April 2022: 900,800) ordinary shares of the Company.
6.INVESTMENT MANAGEMENT AND INVESTMENT ADVISER FEES
Under the terms of the Investment Management Agreement, the Investment Manager,
Quaero Capital LLP, will continue in office until a resignation is tendered or
the contract is terminated. In both circumstances, a resignation or termination
must be given with a notice period which must not be less than three months, and
be in accordance with the Investment Management Agreement.
The Company pays to the Investment Manager a fee accrued daily and paid monthly
in arrears at the annual rate of 1% of the daily NAV of the Company on the first
£125m of net assets, 0.85% on net assets between £125m and £175m and 0.70% on
net assets above £175m.
The Investment Adviser Fees are 75% of the total Investment Management Fees and
are paid by the Investment Manager.
For the financial year ended 30 April 2023, total investment management fees
were £834,431 (30 April 2022: £1,106,750), of which £61,338 (30 April 2022:
£71,043) is due and payable as at that date. Of the total investment management
fees, £208,608 (30 April 2022: £276,688) was due to the Investment Manager, with
£15,334 (30 April 2022: £53,282) payable as at 30 April 2023.
For the financial year ended 30 April 2023, total investment adviser fees were
£625,823 (30 April 2022: £830,062), with £46,004 (30 April 2022: £17,761)
payable as at 30 April 2023.
7.DEPOSITARY FEES
Under the terms of the Depositary Agreement, fees are payable to the Depositary,
Northern Trust (Guernsey) Limited, monthly in arrears, on the Gross Asset Value
(Net Asset Value before investment management fees) of the Company as at the
last business day of the month at an annual rate of:
Gross Asset ValueAnnual Rate
Up to $50,000,0000.035%
$50,000,001 to $100,000,0000.025%
Thereafter0.015%
The Depositary is also entitled to a global custody fee of 0.03% per annum of
the NAV of the Company, subject to a minimum fee of $20,000, and transaction
fees as per the Depositary Agreement.
For the financial year ended 30 April 2023, total depositary fees were £74,057
(30 April 2022: £94,579), of which £13,947 (30 April 2022: £18,034) was due and
payable as at that date.
8.ADMINISTRATION FEES
Under the terms of the Administration Agreement, the Company pays to the
Administrator, Northern Trust International Fund Administration Services
(Guernsey) Limited, a fee accrued weekly and paid monthly in arrears at the
annual rate of:
NAVAnnual Rate
Up to $50,000,0000.18%
$50,000,001 to $100,000,0000.135%
$100,000,001 to $200,000,0000.0675%
Thereafter0.02%
For the financial year ended 30 April 2023, total administration fees were
£129,834 (30 April 2022: £140,342), of which £14,262 (30 April 2022: £21,552)
was due and payable as at that date.
9.DIRECTORS' FEES AND EXPENSES
Each of the Directors is entitled to receive a fee from the Company, being
£36,000 per annum for the Chairman, £30,000 per annum for the Chairman of the
Audit Committee and £26,000 per annum for each of the other Directors. In
addition, the Company reimburses all reasonably incurred out-of-pocket expenses
of the Directors.
For the financial year ended 30 April 2023, total directors' fees and expenses
were £161,278 (30 April 2022: £148,146), of which £13,864 (30 April 2022:
£8,910) was due and payable as at that date.
10.RESEARCH COSTS
The Investment Manager has established a research budget whereby the Company
will pay for research services independently of trade execution. All
transactions are placed and executed on the basis that best execution is
achieved. Research costs incurred from 1 May 2022 to 30 April 2023 amounted to
£128,770 (30 April 2022: £100,611).
11.TAXATION
The Company is exempt from taxation in Guernsey under the provisions of The
Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and has paid an annual
exemption fee of £1,200 (30 April 2022: £1,200), however the Company is subject
to UK tax being a UK tax resident to comply with the Section 1158 of the
Corporation Tax Act 2010. The main rate of corporation tax in the UK was 19%
effective from 1 April 2017 and effective 1 April 2023 the rate will increase to
25%.
30 April 2023 30 April 2022
£'000 £'000
Irrecoverable overseas tax 228 243
Tax charge in respect of the current year 228 243
Current taxation
The current taxation charge for the financial year is different from the
standard rate of corporation tax in the UK. The differences are explained in the
following table:
30 April 2023 30 April 2022
£'000 £'000
Loss before tax (3,215) (23,688)
Capital gain for the financial year 3,023 23,427
Revenue loss for the financial year (192) (261)
30 April 2023 30 April 2022
£'000 £'000
Theoretical tax at UK corporation (37) (50)
tax rate of 19% (30 April 2022
-19%)
Effects of:
Excess management expenses 80 96
Notional relief for overseas tax (43) (46)
suffered
Overseas tax written off 228 243
Actual current tax charge 228 243
The Company is an investment trust and therefore is not taxable on capital
gains.
Factors that may affect future tax charges
As at 30 April 2023, the Company has excess management expenses of £3,881,495
that are available to offset future taxable revenue. Whilst this represents
management's best estimate based on the carried forward balance in the previous
financial year of £11,170,418 the estimated value could differ from actual
amounts. However, the potential impact is not expected to be significant.
A deferred tax asset has not been recognised in respect of these amounts as they
will be recoverable only to the extent that there is sufficient future taxable
revenue.
12.EARNINGS/(DEFICIT) PER ORDINARY SHARE
The earnings/(deficit) per ordinary share figure is based on the loss for the
financial year of £3,443,430 (30 April 2022: loss of £23,930,408) divided by the
weighted average number of shares (excluding shares held in treasury) in issue
during the financial year ended 30 April 2023, being 41,165,951 (30 April 2022:
41,416,570).
30 April 2023 30 April 2022
£'000 £'000
Net revenue loss (420) (504)
Net capital loss (3,023) (23,427)
Net total loss (3,443) (23,931)
Weighted average
number of ordinary
shares
in issue during the 41,165,951 41,716,040
financial year
£ £
Revenue loss per (0.010) (0.012)
ordinary share
Capital loss per (0.073) (0.562)
ordinary share
Total loss per (0.083) (0.574)
ordinary share
The revenue loss per ordinary share and capital loss per ordinary share figure
is based on the net revenue loss for the financial year of £420,341 (30 April
2022: loss of £503,939), the net capital loss of £3,022,089 (30 April 2022: loss
of £23,426,469) respectively and 41,165,951 being the weighted average number of
shares in issue during the financial year ended 30 April 2023 (30 April 2022:
41,416,570).
13.OVERDRAFT FACILITY
As at 30 April 2023, the Company had drawn down ¥515,993,536 (£3,045,934) on the
overdraft facility (30 April 2022: drawn down ¥752,724,992 (£4,609,310)).
¥1,500,000,000 (£8,848,774) is borrowable under the terms of the facility
agreement. Under the terms of the facility agreement with NTGL, the Company is
required to comply with the following financial covenant:
Borrowings on the accounts in the name of the borrower may not exceed at any
time the lesser of (a) 20% of the value of unencumbered, listed and daily priced
assets held in custody by the Depositary for the borrower or (b) 100% of any
borrowing limit set out in the constitutional documents of such borrower.
The Company complied with all of the above financial covenants during the
financial years ended 31 April 2023 and 30 April 2022.
14.SHARE CAPITAL AND SHARE PREMIUM
Authorised
The Company is authorised to issue an unlimited number of ordinary shares of no
par value. The Company has issued two subscriber shares for the purposes of
incorporation of the Company. The subscriber shares do not participate in the
profits of the Company.
The Company may also issue C shares being a convertible share in the capital of
the Company of no par value. C shares shall not have the right to attend or vote
at any general meeting of the Company. The holders of C shares of the relevant
class shall be entitled, in that capacity, to receive a special dividend of such
amount as the Directors may resolve to pay out of the net assets attributable to
the relevant C share class and from income received and accrued attributable to
the relevant C share class for the period up to the conversion date payable on a
date falling before, on or after the conversion date as the Directors may
determine. There are no C shares currently in issue.
The rights which the ordinary shares confer upon the holders thereof are as
follows:
Voting rights
On a show of hands, every member who is present shall have one vote and, on a
poll, a member present in person or by proxy shall be entitled to one vote per
ordinary share held.
Entitlement to dividends
The Company may declare dividends in respect of the ordinary shares which are
paid out of capital reserves. Treasury shares do not confer an entitlement to
any dividends declared.
Rights in a winding-up
The holders of ordinary shares will be entitled to share in the NAV of the
Company as determined by the Liquidator.
Issued Ordinary Shares
Number of Shares Share Capital Share Premium
£'000 £'000
In issue at 30 April 2023 40,856,070 - -
In issue at 30 April 2022 41,416,570 - -
Number of Shares Number of Shares
30 April 2023 30 April 2022
Shares of no par value
Issued shares at the 41,416,570 41,794,570
start of the financial
year
Purchase of shares into (560,500) (378,000)
treasury
Number of shares at the 40,856,070 41,416,570
end of the financial
year
Shares held in treasury
Opening balance 5,065,186 4,687,186
Shares bought into 560,500 378,000
treasury during the
financial year
Number of shares at the 5,625,686 5,065,186
end of the financial
year
During the financial year ended 30 April 2023, £958,010 of shares were purchased
into treasury (30 April 2022: £778,650).
Shareholders are entitled to receive any dividends or other distributions out of
profits lawfully available for distribution and on winding up they are entitled
to the surplus assets remaining after payment of all the creditors of the
Company. The shares redeemed in the current financial year were cancelled
immediately.
15.FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
In accordance with its investment objective and policies, the Company holds
financial instruments which at any one time may comprise the following:
- securities held in accordance with the investment objective and
policies;
- cash and cash equivalents and short-term receivables and payables
arising directly from operations;
- loans used to finance investment activity; and
- derivative instruments for the purposes of efficient portfolio
management only.
The financial instruments held by the Company principally comprise equities
listed on the stock markets in Japan, including, without limitation, the Tokyo
Stock Exchange categorised as Prime, Standard and Growth sections, or
the regional stock exchanges of Fukuoka, Nagoya and Sapporo.
The specific risks arising from the Company's exposure to these instruments, and
the Investment Manager/Investment Adviser's policies for managing these risks,
which have been applied throughout the financial year, are summarised below.
Capital management
The Company's objectives when managing capital are to safeguard the Company's
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
The Company may not borrow or otherwise use leverage exceeding 20% of its net
assets for investment purposes, to settle facilities for specific investments,
such as bridge financing. In connection with the facility agreement, the Company
has entered into an English law, multicurrency, and revolving overdraft facility
with NTGL (see Note 13).
As at 30 April 2023, the Company had a commitment leverage ratio of 1.04:1 and a
gross leverage ratio of 1.04:1.
The Company does not have any externally imposed capital requirements apart from
the fact that it should not retain more than 15% of income, in order to comply
with Section 1158 of Corporation Tax Act 2010. The Company has complied with
this requirement.
The Company is a closed-ended investment company. The Company's capital is
represented by ordinary shares of no par and each share carries one vote. They
are entitled to dividends when declared.
There were 560,500 shares repurchased into treasury during the financial year
ended 30 April 2023 (30 April 2022: 378,000).
Market risk
The Company's investment portfolio - particularly its equity investments - is
exposed to market price fluctuations which are monitored by the Investment
Manager/Investment Adviser in pursuance of the investment objective and
policies.
At 30 April 2023, the Company's market price risk is affected by three main
components: changes in market prices, currency exchange rates and interest rate
risk. Currency exchange rate movements and interest rate movements, which are
dealt with under the relevant headings below, primarily affect the fair values
of the Company's exposures to equity securities, related derivatives and other
instruments. Changes in market prices primarily affect the fair value of the
Company's exposures to equity securities, related derivatives and other
instruments.
Exceptional risks associated with investment in Japanese smaller companies may
include:
- greater price volatility, substantially less liquidity and
significantly smaller market capitalisation; and
- more substantial government intervention in the economy, including
restrictions on investing in companies or in industries deemed sensitive to
relevant national interests.
Market price sensitivity analysis
If the price of each of the equity securities to which the Company had exposure
at 30 April 2023 had increased or decreased by 5% with all other variables held
constant, this would have increased or decreased profit and net assets
attributable to equity shareholders of the Company by:
30 April 2023 30 April 2022
+/- +/-
NAV £4,081,922 £4,576,274
NAV per share £0.10 £0.11
Total comprehensive income £4,081,922 £4,576,274
Earnings per share £0.10 £0.11
Foreign currency risk
The Company principally invests in securities denominated in currencies other
than GBP, the functional currency of the Company. Therefore, the Statement of
Financial Position will be affected by movements in the exchange rates of such
currencies against the GBP. The Investment Manager/Investment Adviser has the
power to manage exposure to currency movements by using forward currency
contracts. No such instruments were held as at 30 April 2023 (30 April 2022:
None).
It is not the present intention of the Directors to hedge the currency exposure
of the Company, but the Directors reserve the right to do so in the future if
they consider this to be desirable.
The treatment of currency transactions other than in GBP is set out in Note 2(l)
to the Financial Statements.
As at 30 April 2023, the Company has a USD cash exposure in GBP terms of £1,470
(30 April 2022: £4,757).
The Company's net JPY exposure in GBP terms is set out in the following table:
As at 30 April
2023
£'000
Assets
Investments 81,638
held at fair
value through
profit or loss
Due from 348
brokers
Dividends 469
receivable
Total assets 82,455
Liabilities
Bank overdraft (3,044)
Due to brokers (323)
Payables and (3)
accrued
expenses
Total (3,370)
liabilities
Total net 79,085
assets
The Company's net JPY exposure in GBP terms is set out in the following table:
As at 30 April
2022
£'000
Assets
Investments 91,525
held at fair
value through
profit or loss
Dividends 622
receivable
Total assets 92,147
Liabilities
Bank overdraft (4,609)
Due to brokers (107)
Payables and (4)
accrued
expenses
Total (4,720)
liabilities
Total net 87,427
assets
Foreign currency sensitivity analysis
If the exchange rate at 30 April 2023, between the functional currency and all
other currencies had increased or decreased by a 5% currency movement with all
other variables held constant, this would have increased or reduced profit and
net assets attributable to equity shareholders of the Company by:
30 April 2023 30 April 2022
+/- +/-
NAV £3,954,331 £4,371,610
NAV per share £0.10 £0.11
Total comprehensive income £3,954,331 £4,371,610
Earnings per share £0.10 £0.11
No benchmark is used in the calculation of the above information. The only
foreign currency the Company has a significant exposure to is JPY, hence the
above foreign currency sensitivity analysis has not been disclosed on a currency
by currency basis.
Interest rate risk
Substantially all the Company's assets and liabilities are non-interest bearing
and any excess cash and cash equivalents are invested at short-term market
interest rates.
As at 30 April 2023, the Company has a small exposure to interest rate risk
regarding the loan facility and cash and cash equivalents.
Increases in interest rates may increase the costs of the Company's borrowings.
The rate of interest is the rate per annum equivalent to the Bank of Japan
Official base rate plus 1.25% and will be calculated on the amount for the time
being outstanding on each account based upon the number of days elapsed and a
year of 365 days. The currency base lending rate is subject to a floor of zero.
Interest on the loan is payable monthly in arrears. As at 30 April 2023, the
interest accrued on the loan was £3,159 (30 April 2022: £nil).
The following disclosures exclude prepayments and taxation receivables and
payables:
Less than 1 month to
1 month 1 year Total
As at 30 April 2023 £'000 £'000 £'000
Financial assets
Cash and cash equivalents 105 - 105
Financial liabilities
Bank overdraft (3,042) - (3,042)
Net financial assets/(liabilities) (2,937) - (2,937)
Less than 1 month to
1 month 1 year Total
As at 30 April 2022 £'000 £'000 £'000
Financial assets
Cash and cash equivalents 72 - 72
Financial liabilities
Bank overdraft (4,605) - (4,605)
Net financial assets/(liabilities) (4,533) - (4,533)
The cash flow interest rate risk comprises those assets and liabilities with a
floating interest rate, for example cash deposits at local market rates. Cash
and cash equivalents earn interest at the prevailing market interest rate.
Although this portion of the NAV is not subject to fair value risk as a result
of possible fluctuations in the prevailing market interest rates, the future
cashflows of the Company could be adversely or positively impacted by decreases
or increases in those prevailing market interest rates.
The fair value interest rate risk comprises those assets and liabilities with a
fixed interest rate, for example loans payable and loan interest payable.
Fair value
All assets and liabilities are carried at fair value with the exception of short
term receivables and payables and cash and cash equivalents, which are carried
at amortised cost.
Short term receivables and payables
Receivables and payables do not carry interest and are short term in nature.
They are stated at amortised cost, as reduced by appropriate allowances for
irrecoverable amounts in the case of receivables.
Liquidity risk
Liquidity risk is the risk that the Company will encounter in realising assets
or otherwise raising funds to meet financial commitments.
As at 30 April 2023, the Company had drawn down ¥515,993,536 (£3,043,934) on the
credit facility (30 April 2022: drawn down ¥752,724,992 (£4,609,310)). In
connection with the facility agreement, the Company has entered into an English
law, multicurrency, and revolving credit facility with NTGL.
The loan may be used for the following purposes:
- the acquisition of investments in accordance with the investment
policy; and
- its working capital requirements in the ordinary course of business.
The loan must be repaid on the earliest of the day on which written demand is
made by NTGL for repayment or the day on which an automatic repayment event
occurs (such as insolvency).
The Company invests primarily in listed securities which are liquid in nature.
The Company's liquidity risk is managed by the Investment Manager who monitors
the cash positions on a regular basis.
The maturity analysis of the Company's financial liabilities (excluding tax
balances) is set out in the following table:
Up to 1 year 1 to 5
or on demand years Total
As at 30 April 2023 £'000 £'000 £'000
Financial liabilities
Bank overdraft (3,042) - (3,042)
Other financial liabilities (521) - (521)
Total financial liabilities (3,563) - (3,563)
As at 30 April 2022
Financial liabilities
Bank overdraft (4,605) - (4,605)
Other financial liabilities (340) - (340)
Total financial liabilities (4,945) - (4,945)
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Company.
In accordance with the investment restrictions as described in its prospectus
and investment policy, the Company may not invest more than 10% of the Company's
gross assets in securities of any one company or issuer. However, this
restriction shall not apply to securities issued or guaranteed by a government
or government agency of the Japanese or US Governments. In adhering to these
investment restrictions, the Company mitigates the risk of any significant
concentration of credit risk arising on broker and dividend receivables.
As the Company invests primarily in publicly traded equity securities the
Company is not exposed to credit risk from these positions. However, the Company
will be exposed to a credit risk on parties with whom it trades and will bear
the risk of settlement default. The Company minimises concentrations of credit
risk by undertaking transactions with a number of regulated counterparties on
recognised and reputable exchanges. All transactions in listed securities are
settled/paid for upon delivery using approved brokers. The risk of default is
considered minimal, as delivery of securities sold is only made once the broker
has made payment. Payment is made on a purchase once the securities have been
received from the broker. The trade will fail if either party fails to meet its
obligation. The Company is exposed to credit risk on cash and investment
balances held with the Depositary. The Investment Manager regularly reviews
concentrations of credit risk.
All of the cash assets are held with the Northern Trust Company ("NTC"). Cash
deposited with NTC is deposited as banker and is held on its Statement of
Financial Position. Accordingly, in accordance with usual banking practice,
NTC's liability to the Company in respect of such cash deposits shall be that of
debtor and the Company will rank as a general creditor of NTC. The financial
assets are held with the Depositary, Northern Trust (Guernsey) Limited.
These assets are held distinct and separately from the proprietary assets of the
Depositary. Securities are clearly recorded to ensure they are held on behalf of
the Company.
Bankruptcy or insolvency of the Depositary and, or one of its agents or
affiliates may cause the Company's rights with respect to the securities held by
the Depositary to be delayed or limited.
NTC is a wholly owned subsidiary of Northern Trust Corporation. As at 30 April
2023, Northern Trust Corporation had a long term rating from Standard & Poor's
of A+ (30 April 2022: A+). Risk is managed by monitoring the credit quality and
financial positions of the Depositary the Company uses. Northern Trust acts as
its own sub-depositary in the US, the UK, Ireland and Canada. In all other
markets Northern Trust appoints a local sub-depositary. Northern Trust
continually reviews its sub-depositary network to ensure clients have access to
the most efficient, creditworthy and cost-effective provider in each market.
The securities held by the Company are legally held with the Depositary, which
holds the securities in segregated accounts, and subject to any security given
by the Company to secure its overdraft facilities, the Company's securities
should be returned to the Company in the event of the insolvency of the
Depositary or its appointed agents, although it may take time for the Company to
prove its entitlement to the securities and for them to be released by the
liquidator of the insolvent institution. The Company will however only rank as
an unsecured creditor in relation to any cash deposited or derivative positions
with the Depositary, their related companies and their appointed agents, and is
therefore subject to the credit risk of the relevant institution in this
respect.
The assets exposed to credit risk at financial year end amounted to £104,896 (30
April 2022: £71,870).
Fair value hierarchy
The fair value of investments traded in active markets (such as publicly traded
derivatives and trading securities) are based on quoted market prices at the
close of trading on the Statement of Financial Position date. The quoted market
price used for investments held by the Company is the last traded price; the
appropriate quoted market price for financial liabilities is the current asking
price.
A financial instrument is regarded as quoted in an active market if quoted
prices are readily and regularly available from an exchange, dealer, broker,
industry group, pricing service, or regulatory agency, and those prices
represent actual and regularly occurring market transactions on an arm's length
basis.
The fair value of investments that are not traded in an active market is
determined by using valuation techniques.
For instruments for which there is no active market, the Company may use
internally developed models, which are usually based on valuation methods and
techniques generally recognised as standard within the industry. Valuation
models may be used primarily to value unlisted equity, debt securities and other
debt instruments for which markets were or have been inactive during the
financial year. Some of the inputs to these models may not be market observable
and are therefore estimated based on assumptions. These instruments would be
categorised as level 2.
The following table sets out fair value measurements using the IFRS EU 13 fair
value hierarchies:
At 30 April 2023
Investments at fair Level Level 2 Level 3 Total
value through profit or 1
loss
£'000 £'000 £'000 £'000
Equity investments 81,638
81,638 - -
81,638
81,638 - -
At 30 April 2022
Investments at fair Level Level 2 Level 3 Total
value through profit or 1
loss
£'000 £'000 £'000 £'000
Equity investments 91,525
91,525 - -
91,525
91,525 - -
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset as follows:
· Level 1 - valued using quoted prices in active markets for identical assets
or liabilities.
· Level 2 - valued by reference to valuation techniques using observable
inputs other than quoted prices included within level 1.
· Level 3 - valued by reference to valuation techniques using inputs that are
not based on observable market data.
16.INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
30 April 2023 30 April 2022
£'000 £'000
Opening book cost 82,932 77,919
Purchases at cost 48,502 55,642
Proceeds on sale (55,357) (57,590)
Realised gains (752) 6,961
Closing book cost 75,325 82,932
Unrealised gains on investments 6,312 8,593
Fair value 81,638 91,525
17.NAV HISTORY
30 April 2023 30 April 2022 30 April 2021
NAV £79,031,826 £87,278,759 £116,501,330
Number of 40,856,070 41,416,570 41,794,570
Shares in
Issue
excluding
treasury
shares
NAV per £1.93 £2.11 £2.79
Ordinary
Share
18.DIVIDS
All amounts held in the Company's revenue reserve are distributable to
shareholders by way of dividends. There are regular quarterly payments of 1% of
the company's NAV (based on the average daily NAV in the final month of the
financial year). These will be paid in March, June, September and December.
The Company declared the following dividends during the financial year ended 30
April 2023:
Date Dividend Dividend Record Ex-dividend date Pay date
(£) date
rate per
share
(pence)
11 May 2.88 27 May 26 May 2022 30 June 2022
2022 1,192,797 2022
17 2.15 26 25 August 2022 30 September 2022
August 887,371 August
2022 2022
16 2.15 25 24 November 2022 30 December 2022
November 884,555 November
2022 2022
21 2.15 03 March 02 March 2023 31 March 2023
February 881,093 2023
2023
19.ONGOING CHARGES
The ongoing charges using the AIC recommended methodology were 1.85% for the
financial year ended 30 April 2023 (30 April 2022: 1.65%). Of the £1,576,539
expenses in the Statement of Comprehensive Income, excluded from the calculation
of ongoing charges, are £30,000 considered by the Directors to be non-recurring
(30 April 2022: £nil).
20.EXCHANGE RATES
The following exchange rates were used at the reporting date to convert the
assets and liabilities of the Company:
30 April 2023 30 April 2022 30 April 2021
GBP GBP GBP
USD $1.2569 $1.2555 $1.3846
JPY ¥171.1458 ¥162.6627 ¥151.3383
The following average exchange rates were used during the financial year to
convert the transactions of the Company:
30 April 2023 30 April 2022 30 April 2021
GBP GBP GBP
USD $1.2013 $1.3591 $1.3195
JPY ¥163.2002 ¥154.4499 ¥140.0542
21.CHANGES IN THE PORTFOLIO
A list, specifying for each investment the total purchases and sales which took
place during the financial year ended 30 April 2023, may be obtained, upon
request, at the registered office of the Company.
22.EVENTS DURING THE FINANCIAL YEAR
There were no significant events during the financial year which require
adjustment to or additional disclosure in the Financial Statements.
23.EVENTS AFTER THE FINANCIAL YEAR
Philip Ehrmann would not be seeking re-election to the Board at any forthcoming
AGM.
There were no other significant events subsequent to the financial year which
require adjustment to or additional disclosure in the Financial Statements.
24.ULTIMATE CONTROLLING PARTY
There is no one entity with ultimate control over the Company.
This information was brought to you by Cision http://news.cision.com
END
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