AJG.L Regulatory News (AJG)

Atlantis Japan Growth Fund Ltd - Annual Results for the Year Ended 30 April 2018

PR Newswire

London, July 9

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 year ended 30 April 20189 July 2018(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 2018. All figures are based on the audited financial statements for the year ended 30 April 2018.

The financial information for the year ended 30 April 2018 noted below is derived from the financial statements delivered to the UK Listing Authority.

The annual report and audited financial statements for the year ended 30 April 2018 will shortly be posted to shareholders and will also be available on the company website: www.atlantisjapangrowthfundlimited.com

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 per cent of its gross assets in companies quoted on any Japanese stock exchange including, without limitation, the Tokyo Stock Exchange categorised as First Section, Second Section, JASDAQ, Mothers and Tokyo PRO, or the regional stock exchanges of Fukuoka, Nagoya, Sapporo and Osaka Securities Exchange.

The Company may also invest up to 20 per cent 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 per cent 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, investment will be through investments in equity shares in, or debt issued by, investee companies. However, the Company may also invest up to 20 per cent of its NAV at the time of investment in equity warrants and convertible debt.

The Company will not invest in more than 10 per cent 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 per cent 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 per cent of their total assets in other listed closed-ended investment funds, in which case the limit is 15 per cent.

The Company may borrow, with a view to enhancing capital returns, up to a maximum of an amount not exceeding 20 per cent of NAV at the time of borrowing.

Investment Policy for the Redemption Pool

At each redemption point the Company may (a) notionally allocate assets and liabilities into a separate pool (the "redemption pool") for the purpose of funding valid redemption requests for that redemption point or (b) fund the valid redemption requests from available cash. With regard to the redemption pool, the Company aims to liquidate the necessary assets to meet qualifying redemption requests in a timely manner, and to minimise the impact that such redemptions will have to existing shareholders and the Company as a whole.

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

Tiburon Partners LLP has been appointed as Investment Manager of the Company since 1 August 2014. Effective 3 April 2018, Tiburon Partners LLP became known as Quaero Capital LLP as a result of a merger between Quaero Capital and Tiburon Partners.

Atlantis Investment Research Corporation (“AIRC”) has been appointed as the Investment Adviser to the Company.

AIRC, established in Tokyo, will, through Taeko Setaishi and her colleagues, advise 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 StatementFor the financial year ended 30 April 2018

I am delighted to report that the Company enjoyed an excellent year on several levels. The performance has remained strong following Taeko Setaishi’s appointment as lead adviser in May 2016. Indeed, for the financial year ended 30 April 2018, the Company’s NAV per share increased by 38.8% compared to an increase of 13.5% for the TOPIX in GBP. Aided by this strong NAV performance, the market capitalisation of the Company has now increased to over £110m. Furthermore, the Company’s structure has now been simplified following the cancellation of the subscription rights programme at an EGM held in November 2017. 

Despite these recent achievements, your Board remains ever vigilant and will endeavour to work together with all stakeholders to achieve strong and sustainable performance for shareholders.

The Company has also performed well compared to its peers in the AIC Japan smaller companies universe – number two out of the four within the peer group over the year. It should however in this context be noted that the Company’s NAV per share performance has been impacted to the extent of approximately 11.9% by the dilutive effect of the new shares issued in October 2016 and October 2017 under the subscription rights programme. This NAV dilution has now been crystallised within the historic data which therefore understates the Company’s performance when compared to the peer group. I believe this is worth considering when looking at the performance tables and the current discount to NAV. 

I would also like to take this opportunity to welcome a new Director, Michael Moule, who joined the Board with effect from 5 February 2018. Michael brings a great wealth of experience and expertise to the Company as an investment trust manager and director gained during his 40 year career in the City of London, most recently serving as Chairman of Polar Capital Technology Trust plc.

Towards the end of the Company’s financial year, volatility within global financial markets increased materially when compared to the very benign period experienced during the 2017 calendar year. The Japanese equity market did not escape the weakness but the Company, being priced in GBP, tends to benefit from a strengthening Japanese Yen during periods of risk aversion. The Company’s fundamental stock selection focus will remain unchanged and will hopefully bear fruit over the longer term. 

In April 2018, your Board made a biennial visit to Japan in order to spend more time with the investment team based in Tokyo. The Directors saw, first hand, some of the investment opportunities in which the Company has invested and gained a greater insight into the significant structural changes that the Japanese corporate sector has been experiencing. The economic growth outlook has been steadily improving over the last nine quarters, leading to a great number of opportunities for mid to smaller sized growth companies. The Company’s investment team construct the portfolio on a bottom-up stock-by-stock approach but have identified several underlying long-term themes around some of the well-known challenges in Japan e.g. factory automation and robotics, outsourcing due to a tight labour market, healthcare and mergers and acquisitions due to the aging population trend.

In my Chairman’s statement last year I expressed the view that we were commencing the new financial year in a much better position to take the Company forward on a sound footing. Now, two years on since Taeko Setaishi’s appointment as lead adviser, we have seen the excellent improvement in performance help the discount to NAV narrow, the shareholder register to broaden further and the overall structure of the Company appeal to a wider investor base. The Company’s discount was 9.6% on 30 April 2018 and 6.8% on 6 July 2018.

The Board is confident that its strategy for improving performance, narrowing the share price discount and growing the Company is on track. As previously announced, shareholders will also now be given the opportunity to vote on the continuation of the Company at the AGM in 2019.

PERFORMANCE

Over the year the Company’s NAV per share rose by 38.8%. This compares to the benchmark TOPIX’s 13.5% increase on a total return basis measured in GBP.

Since Company inception

† Since Inception return figures were converted to GBP based on the official USD NAV at inception using Bloomberg FX rate.

Source: Quaero Capital and Bloomberg. As of 30 April 2018.

# Total Net Assets after redemptions during year, see below “Redemption Facility”.

DISCONTINUATION OF SUBSCRIPTION RIGHTS MECHANISM

In September 2017, the Directors reviewed the subscription right mechanism and concluded that, should the 2017 subscription rights be exercised in full (which was the case), the mechanism should be discontinued having achieved the target of being exercised in two of the five years. The discontinuation was approved and by special resolution of the Company, passed on 23 November 2017, as were changes to the Articles of Incorporation whereby provisions relating to the discontinuation of the subscription rights mechanism were deleted.

Eligible applications received from shareholders in respect of the exercise of the 2017 subscription rights amounted to 5,194,498 new ordinary shares. A further 3,404,079 ordinary shares were issued as a result of the exercise of all of the unexercised subscription rights outstanding on 2 October 2017. All the new ordinary shares were issued at the exercise price of 172.79 pence raising gross proceeds of approximately £14.9 million, and ranked pari passu with the existing ordinary shares.

Discount control mechanism

The Directors operate a hard discount control mechanism whereby the Company is obliged to hold a continuation vote should the shares have traded, on average, at a discount of more than 10% to the Net Asset Value per share during any rolling 90 day period in normal market conditions. If the obligation to hold a continuation vote is triggered, the vote will be held no later than the next practicable annual general meeting of the Company.

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.

During the financial year ended 30 April 2018, there were no share buy-backs and, since the financial year end the Company has not exercised its authority to buy back any shares.

Redemption facility

At the redemption point on 29 September 2017, 1,165,502 shares (including 19,588 shares under the excess redemption facility, representing 2.6% of issued shares) were validly lodged for redemption. As part of the operation of the redemption facility on 29 September 2017, a matched trade mechanism was utilised to match excess redemptions received with 19,588 shares matched and the balance of the shares offered for redemption were not redeemed.

At the redemption point on 29 March 2018, 12,370,174 shares representing 24.0% of issued shares, were validly lodged for redemption. Under the terms of the redemption facility, total redemptions at each redemption point are limited to 5% of the issued share capital (excluding treasury shares) at that time. Accordingly, redemption requests were scaled back so that only 5.0% of the Company's shares (2,579,585 shares) were accepted for redemption and redeemed at this redemption point.

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 a flexible loan facility with The Royal Bank of Scotland International Limited for amounts up to ¥1.5 billion. As at the end of April 2018 the Company’s net gearing level (being the amount of drawn down bank debt less the cash held on the balance sheet) was 2.8%.

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 total assets. The Investment Adviser will be encouraged to use the gearing facility and the Company’s cash reserves in order to enhance returns for shareholders.

PRIIPS KEY INFORMATION DOCUMENTS

We are required by new EU regulations introduced at the beginning of 2018 to provide investors with a Key Information Document (“KID”) which includes performance projections which are the product of prescribed calculations based on the Company’s past performance. Whilst the content and format of the KID cannot be amended under the applicable EU regulations, the Board does not believe that these projections are an appropriate or helpful way to assess the Company’s future prospects.

Accordingly, the Board urges shareholders also to consider the more complete information set out in the Company’s interim and full annual report and financial statements, together with the monthly factsheets and daily net asset value announcements, when considering an investment in the Company’s shares. These documents, together with a link to third party research coverage of the Company are published at www.atlantisjapangrowthfund.com.

Ongoing charges

The Board continues to look very closely at the level of ongoing charges incurred by the Company and for the financial year ended 30 April 2018 the ongoing charges were 1.57% (2017: 1.52%). The Board will remain vigilant in seeking opportunities for further reductions.

Outlook

As at the end of April 2018 the TOPIX was trading on a forward price earnings multiple of 15.0x and a price to book ratio of 1.46x.

These valuations are towards the lower end of historical ranges and compare favourably to other developed equity markets. Taeko Setaishi, the Company`s investment adviser, expects the growth outlook for mid to smaller sized companies to continue to exceed that for larger companies lending support to the Company’s portfolio positioning.

The Japanese economy is growing at a steady pace given its mature structural characteristics. There are even some inflationary green shoots finally appearing, although we expect the Bank of Japan (“BoJ”) to maintain its current monetary policies with the 2% inflation target still a long way off.

In last year’s statement, I touched on the implications for the Company of the greater focus in Japan on the Corporate Governance Code and we continue to see a steady improvement in total shareholder returns by way of more efficient use of capital, share buybacks and higher dividends. 

In conclusion, I believe there is a compelling case for investment in Japanese equities over the medium to longer term. Furthermore, the Company’s adviser is very well placed to pursue long-term capital gains through bottom-up stock picking to select undervalued companies with a strong competitive advantage and longer term growth potential.

Noel Lamb6 July 2018

Investment Adviser’s ReportFor the financial year ended 30 April 2018

Performance

The Company’s NAV per share, calculated in sterling and on a total return basis, ended the financial year at 242.3p, representing a 38.8% gain during the course of the year. The Company’s share price at year end was 219.0p, an increase of 36.0% over the same period and representing a 9.6% discount to NAV. Over the year, the TOPIX total return index recorded a 13.5% capital gain calculated in GBP.

At the conclusion of the year under review, the Company’s borrowings stood at ¥1 billion with cash of ¥505 million. The Company’s net gearing was 2.4% which compared to a gearing of 6.9% at the end of the previous year. The JPY was ¥150.27 against GBP at 30 April 2018, a loss of 4.2% from the previous year’s closing rate of ¥143.98.

The Company’s portfolio at 30 April 2018 contained 61 companies, seven fewer than at the same time a year ago. The companies which made a particularly strong contribution to the portfolio’s performance during the period under review included semiconductor production equipment maker Lasertec, material handling/distribution systems assembler Daifuku, and electrical components manufacturer Idec.

Excluding cash, the portfolio was entirely invested in the equities of publicly listed Japanese companies and J-REITs. The Company had no foreign exchange hedges and no exposure to convertible bonds or any other type of structured product.

Market comment & Economic Outlook

The period under review was rewarding for a Japanese equity investor but stressful owing to geopolitical tensions in northeast Asia, massive inflows and subsequent outflows of overseas funds, and foreign exchange/commodity pricing volatility. Sustained selling by overseas funds of approximately ¥10 trillion from November to April was offset by ETF purchases by the BoJ and the Government Investment Pension Fund. Stock selection rotation was relatively muted, and arguably fundamentally driven, as investors focused on sectors with encouraging earnings outlooks, including electrical appliances, machinery, precision instruments and chemicals. In local currency and total return terms, TOPIX rose 18.5%. However, there was a definite preference by investors for growth with higher performances achieved by the indices based on smaller capitalised stocks.

The Investment Adviser believes that earnings growth in the coming year will decelerate from 18%-20% to the 5%-7% range. However, Japanese equities, particularly smaller and medium capitalised companies, are attractive from a growth/value perspective compared to other developed economy markets.

The most recent economic data flow confirms growth has given way to sluggishness. The most disappointing performance has come from consumption. The tight labour market and higher wages have failed to ignite robust household spending. Spending on services has been solid but durables expenditure has dropped back to levels not seen since 2014. The Investment Adviser believes that if wage (and bonus) levels are increased this would fuel a consumption recovery.

The major catalysts that have contributed to two years of growth – external demand and private sector capital expenditure – continue to exhibit brisk growth. Private sector capital spending is solid. Equipment demand is fuelled by Japan’s output gap coupled with surging corporate cash flow. Asian demand for Japan’s robots and material handling equipment remains robust. These contributions, coupled with a consumption recovery, could put Japan back on an economic expansion path. 

The BoJ continues to run an exceedingly loose monetary policy with no change to its 2% CPI target. Key price measurements have slipped into positive territory but remain well adrift of the BoJ target. Given current trends the BoJ is not likely to consider tapering until mid to end 2019. 

In summary, the Investment Adviser expects the Japanese economy over the next 2-3 years to grow potentially at an annualised rate of 1.0% to 1.5% with positive contributions from capital spending, external demand, and private consumption. Risks to this scenario would be a sharp appreciation of the Japanese yen, a full blown trade war between China and the United States with Japan caught in the middle (China and the United States combined account for 40% of Japan’s exports) and a China recession.

Investment Adviser’s Strategy

The Investment Adviser employs a bottom-up stock picking investment style which is based on proprietary research and centred on the conviction that earnings growth drives equity prices over the long term. Consequently, the investment advisory team at AIRC recommends investments in companies with strong competitive advantages, positive cash flow and medium to long term secular growth potential. This may, but not necessarily, result in the Company having a portfolio bias toward medium and smaller capitalised companies. There are no top-down pre-determined sector weightings as such; rather, sector exposure is created by the accumulation of individual positions held in a TOPIX sector. Portfolio construction derives from exposure to themes driving Japan’s economic growth. 

Japan’s economy is mature and growth potential is limited to 1% - 2%. However, there are profound economic and social structural changes underway that are fostering attractive investment opportunities. These trends include:

1. Japan’s demographics are irreversible as the population ages, demand for geriatric healthcare products and services will climb. The Company’s exposure to healthcare is focused on niche specialist equipment companies with global reach (Asahi Intecc), leading edge drug discovery ventures (Peptidream) and well managed care providers (Solasto).

2. Japan is a leader in providing robots, material handling systems and other capital goods to manufacturers and logistic companies, particularly in Asia. The Company’s investments in this area are intended to tap into growth and include Daifuku, Keyence and Mitsubishi Electric.

3. Japan’s ever tightening labour supply has prompted companies to re-examine their personnel practices. Outsourcing non-core and core operations has become standard practice as companies cope with personnel shortages. The Company has exposure to this rising demand for outsourced corporate services through Benefit One, Creek & River and Fullcast.

4. The rising secular demand for semiconductors due to the advent of the Internet of Things, automobile electronics and content digitalisation has flattened out the semiconductor and semiconductor production equipment demand cycle. The Company’s investments in semiconductor production equipment include Lasertec, Tokyo Electron and Japan Material which represent a high global market share in equipment occupying critical locations in semiconductor production lines.

5. As Japan’s economic structure shifts away from manufacturing to services, there has been a noticeable increase in demand for consultant services. Over the past year the Company increased exposure to this sector by investing in Advantage Risk Management and Aoyama Zaisan Networks in addition to holding M&A Nihon Center.

The investment advisory team at AIRC consists of four analysts/advisers who are engaged daily in contacting companies or preparing for management visits. The team meets formally on a weekly basis to review the previous week’s visits but it also exchanges information on a daily basis. AIRC has a collegiate approach toward research but believes a sole individual should be responsible for portfolio advisory decisions. The lead investment adviser to the Company, Taeko Setaishi, is responsible for the final stock recommendations but relies on input from the other team members.

In conclusion, the Investment Adviser believes the Japanese equity markets are host to many attractive growth investment opportunities that have the potential to contribute to the Company’s long term capital appreciation.

Atlantis Investment Research Corporation6 July 2018

Alternative Investment Fund Manager’s ReportFor the financial year ended 30 April 2018

Quaero Capital LLP (formerly Tiburon Partners 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 balance-sheet or a statement of assets and liabilities (see Statement of Financial Position below).

ii. An income and expenditure account for the financial year (see Statement of Comprehensive Income below).

iii. A report on the activities of the financial year (see Chairman’s Statement above, Investment Adviser’s Report below, Details of Ten Largest Investments below, Schedule of Investments below and Directors’ Report and Statement of Directors’ Responsibilities below).

iv. 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 http://www.quaerocapital.uk.

v. 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 2018 are available at http://www.quaerocapital.uk/downloads/regulatory-disclosures.

vi. 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:

Quaero Capital LLP

6 July 2018

Details of Ten Largest Investments

The ten largest investments comprise a fair value of $46,678,063 (2017: $27,229,581), representing 28.6% of Net Asset Value (2017: 27.3%), with details as below:

Nittoku Engineering (172,000 shares)

Nittoku Engineering is a major global assembler and distributor of automatic coil winding machines. Demand for coils, and automatic coil winding machines, continues to climb as coil application expands, not only in electrical devices, but also automobiles. The company is diversifying into radio frequency identification cards and tags. Production is largely off-shore and overseas sales are 70% of total.

Fair value of $5,990,217, representing 3.67% of the Net Asset Value (2017: 4.1%)

Nidec (37,000 shares)

Nidec is the world’s leading small precision electric motor maker with particular application in HDDs. Through a highly active and successful global M&A strategy Nidec has also become a major supplier of mid and large sized motors. The company has a proven management team focused on creating shareholder value.

Fair value of $5,804,595, representing 3.56% of the Net Asset Value (2017: 3.4%)

Star Mica (228,400 shares)

Star Mica’s main business is to purchase pre-owned condominium units that are being rented, to renovate these units after the tenant departs and then put them up for sale. Star Mica’s success can be attributed to its access to capital which translates into rapid decisions during the acquisition process. The company’s growth strategy focuses on expansion of its core business line plus diversification into related businesses, including real estate brokerage and advisory services.

Fair value of $4,960,818, representing 3.04% of the Net Asset Value (2017: 2.5%)

Yamashin-Filter (450,000 shares)

Yamashin-Filter specialises in the manufacture of hydraulic filters which capture oil contaminants in hydraulic and lubrication construction equipment. Yamashin-Filter’s competitive strength is the ability to supply in-house manufactured filters that are tailored to individual customer specifications. The company’s expertise is being applied to the information and technology field as well as construction machinery.

Fair value of $4,950,811, representing 3.03% of the Net Asset Value (2017: 0.8%)

Daifuku (85,000 shares)

Daifuku is a major distribution and material handling systems supplier holding a 60% market share in Japan and 20% globally. Daifuku’s material handling systems are employed in warehouses, airports (baggage handling), automated factory assembly lines and semiconductor/flat panel fabrication lines. Organic expansion has been complimented with an active overseas M&A strategy.

Fair value of $4,574,627, representing 2.8% of the Net Asset Value (2017: 2.3%)

TKP (95,000 shares)

TKP manages and operates rental meeting rooms for corporate clients as well as other large facilities with meeting rooms and banquet halls. TKP keeps costs low by acquiring large facilities on a long term basis and leases them out on the short term, e.g., hourly, basis. The company also provides food, beverages and other services for meetings. TKP plans to build hotels in Japan’s major cities and has been actively expanding overseas in New York, Singapore and Hong Kong.

Fair value of $4,304,158, representing 2.64% of the Net Asset Value (2017: 0.0%)

IDEC (180,000 shares)

IDEC is a comprehensive manufacturer of control equipment and claims the highest domestic market share for operation switches and factory use indicator lights. Cash flow has been directed toward the acquisition of control device companies in North America and Europe.

Fair value of $4,155,057, representing 2.54% of the Net Asset Value (2017: 2.0%)

Fullcast Holdings (190,000 shares)

Fullcast holds the top market share in short term staffing services. Legislative changes and market contraction have driven most competitors from the field but labour demand remains tight and conditions remain conducive for Fullcast, with its hiring power, to expand market share. Fullcast’s sustained investment in online registration, new outlet openings and a multi-brand strategy is expected to lead to further growth.

Fair value of $4,128,513, representing 2.53% of the Net Asset Value (2017: 1.9%)

Japan Material (300,000 shares)

Japan Material provides management services for special gases, ultra-pure water and chemicals by dispatching engineers to semiconductor and LCD production facilities. The company also sells these consumable supplies as well as piping equipment. Clients include most major Japanese semiconductor/LCD manufacturers. Japan Material’s Taiwan subsidiary provides similar services and supplies to major Taiwanese manufacturers.

Fair value of $3,989,756, representing 2.44% of the Net Asset Value (2017: 0.0%)

Nihon M&A Center Inc (130,000 shares)

Nihon M&A provides M&A consulting and advisory services to small and medium sized companies. It seeks to match growth oriented companies looking to expand market share with small and medium sized firms with an uncertain outlook due to succession problems or structural business changes. Employee compensation is largely based on performance. Nihon M&A Center has opened a Singapore office to enhance its cross border capabilities.

Fair value of $3,819,511, representing 2.34% of the Net Asset Value (2017: 2.8%) 

Schedule of InvestmentsAs at 30 April 2018

Board of Directors

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.

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.

RICHARD PAVRY (appointed to the Board on 1 August 2016), British, is the head of investment trusts at Jupiter Asset 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 the corporate finance team at UBS in 1999 and then to Jupiter Asset Management in 2000. Richard has previously served as a non-executive director of Jupiter Second Split Trust PLC.

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 p.l.c. during an extensive City career with Touche Remnant and Henderson Global Investors. He is currently a director of The European Investment Trust plc and a member of the investment committees of the British Heart Foundation and The Open University. He has recently retired as Chairman of Polar Capital Technology Trust plc.

Directors’ Report and Statement of Directors’ Responsibilities

The Directors are pleased to present their twenty second Report and the Audited Financial Statements of the Company for the financial year ended 30 April 2018.

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 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; and

– 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 Financial Statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”) and applicable Guernsey law, gives a true and fair view of the assets, liabilities, financial position and assesses the Company’s position and performance, business model and strategy of the Company; and

– this Annual Report and 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 Disclosure Guidance and Transparency Rules (“DTR”), being a fair review of the Company’s business and a description of the principal risks and uncertainties facing the Company; and

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 Board, the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s 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”). 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 Listing Rules of the Financial Conduct Authority 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.

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 audit work.

REDEMPTION FACILITY

The purpose of the facility is to provide a measure of liquidity for those shareholders who may wish to redeem. The redemption facility will at the Directors’ discretion operate at six-monthly intervals on 31 March and 30 September (or if such date is not a business day, the previous business day).

The Directors shall be entitled at their absolute discretion to determine the procedures for the redemption of the ordinary shares (subject to the facilities and requirements of CREST and the Companies Law). Without prejudice to the Directors discretion, it is intended that the procedure described below shall apply.

Redemptions may take place on any redemption point. Upon redemption, all ordinary shares redeemed shall be cancelled. 

The total redemptions at each redemption point are limited to 5% of the issued share capital at the time. At each redemption point, each shareholder is entitled to request the redemption of 5% of their holding of shares held at the immediately preceding redemption point and held continuously at all times since that date, rounded down to the nearest whole number (the “basic entitlement’’). Until 31 March 2015, the redemption value was based upon the realisation value of the portfolio, less an exit charge set at 2% on redemptions of up to a shareholder's basic entitlement. Following a Board resolution to amend the redemption facility, with effect from the same date, the exit charge payable on redemptions of up to a shareholder's basic entitlement was increased to 4% of the total redemption costs.

Shareholders are entitled to request the redemption of shares in excess of their basic entitlement to the extent that other shareholders redeem less than their basic entitlement or do not seek to redeem their shares at the relevant redemption point (an "excess request"). Following the amendment to the redemption facility, with effect from 31 March 2015, the exit charge on excess requests is the rolling 90-day average discount calculated in accordance with the Company's existing discount control mechanism, subject to an exit charge cap of 10%. Any such excess redemption requests will be satisfied pro rata in proportion to the amount in excess of the basic entitlement (rounded down to the nearest whole number of shares).

The right of shareholders to request the redemption of their ordinary shares on any redemption point shall be exercised by the shareholder delivering to the receiving agent (or to such other person as the Directors may designate for this purpose) a duly completed redemption request. Redemption request forms are available upon request from the Administrator. Redemption requests shall not be valid (unless the Company otherwise agrees) unless they are received by the receiving agent not earlier than 20 days nor later than 10 days before the relevant redemption point. The Company may, prior to a redemption point, in its sole discretion, invite investors to purchase, at the investment price, ordinary shares which are the subject of redemption requests.

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 2018, there was no purchase of shares into treasury (2017: 1,172,500). The number of shares held in treasury at 30 April 2018 is 3,874,186 (2017: 3,874,186).

The Board shall have regard to current market practice for the reissue of treasury shares by investment trusts and the recommendations of 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 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”).

INVESTMENT POLICY

The Company’s investment objective and policy are set out above.

RESULTS

The results for the year are set out in the Statement of Comprehensive Income on below. 

DIVIDEND

As a UK investment trust the Company is subject to the provisions of the Corporation Tax Act 2010. Section 1158 (“s.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 2018.

There were no distributions made during the financial year (2017: none). and the Company met the retention test for the financial year ended 30 April 2018.

CAPITAL VALUES

At 30 April 2018 the value of net assets attributable to shareholders was $163,312,565 (2017: $99,695,364) and the NAV per share was $3.33/£2.42 (2017: $2.26/£1.75).

PREPARATION OF FINANCIAL STATEMENTS

The Financial Statements of the Company have been prepared in accordance with IFRS, which comprise standards and interpretations approved by the European Union, and International Accounting Standards, and Standing Interpretations Committee interpretations approved by the IASC that remain in effect.

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 2018.

SECRETARY

The Secretary is Northern Trust International Fund Administration Services (Guernsey) Limited.

INDEPENDENT AUDITOR

The Company has appointed PricewaterhouseCoopers CI LLP (“PwC CI LLP”) as its independent auditor and tax adviser.

PwC CI LLP have indicated their willingness to continue in office.

Resolutions re-appointing them and authorising the Directors to fix their remuneration will be proposed at the annual general meeting.

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.

Set out below are the principal risks inherent in the Company’s activities along with the actions taken to manage them. The Board conducts robust reviews of these risks and agrees policies for their management. These policies have remained substantially unchanged since 30 April 2006.

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. The introduction of the redemption facility has improved the liquidity in the Company’s shares and helps to narrow the discount to the NAV at which the shares trade.

The Company operates a shareholder-approved discount control mechanism whereby the Company will hold a continuation vote if the shares have traded, on average, at a discount of more than 10% to the NAV per share during any rolling 90 day period in normal market conditions. If the obligation to hold a continuation vote is triggered, the vote will be held no later than the next practicable annual general meeting of the Company. As of the date of this report, the continuation vote has not been triggered.

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 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 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 and the Company’s Administrator. 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 and monitored.

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.

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.

VIABILITY STATEMENT

In accordance with provision C.2.2 of the UK Corporate Governance Code as issued by the Financial Reporting Council (‘FRC’) in April 2016, the Board has assessed the prospects of the Company over the next three years including the period from the date of this document to the annual general meeting in 2019. The Company’s investment objective is to achieve long-term capital growth and the Board regards the Company as a long-term investment.

The Board has considered the Company’s business model including its investment objective and investment policy as well as the principal risks and uncertainties that may affect the Company as detailed below. The Board, in its assessment of the viability of the Company, has considered each of the Company’s principal risks as referred to above, in particular the impact of a significant fall in the Japanese equity market on the value of the Company’s investment portfolio. The Board has noted that the Company holds a highly liquid portfolio invested predominantly in listed equities and no significant increase to ongoing charges or operational expenses is anticipated.

The Directors also review the level of the discount or premium between the middle market price of the Company’s ordinary shares and their Net Asset Value on a regular basis. The Directors have powers granted to them at the last annual general meeting to purchase ordinary shares and either cancel or hold them in treasury as a method of controlling the discount to Net Asset Value and enhancing shareholder value.

The Board has therefore concluded, based on the Company’s processes for monitoring operating costs, share price discount, the Investment Manager’s compliance with the investment objective, asset allocation, the portfolio risk profile, gearing, counterparty exposure, liquidity risk and financial controls, that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years. As part of its assessment, the Board has noted that shareholders will be required to vote on the continuation of the Company at the 2019 annual general meeting.

GOING CONCERN

As outlined in the Viability Statement above, the Directors believe that the Company has adequate resources to continue in operational existence for the next 12 months. Whilst the Company may be obliged to hold a continuation vote at the 2019 annual general meeting in accordance with its discount control mechanism, the Directors do not believe this should automatically trigger the adoption of a non-going concern basis in line with the Association of Investment Companies (“AIC”) Statement of Recommended Practice (“SORP”) which states that it is more appropriate to prepare financial statements on a going concern basis unless a continuation vote has already been triggered and shareholders have voted against continuation. Therefore, the Directors believe the use of the going concern basis is appropriate as there are no material uncertainties relating to events or conditions that may cast significant doubt about the ability of the Company to continue to meet its ongoing obligations.

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 (formerly known as Tiburon Partners 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.

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 Philip Ehrmann Chairman Director 6 July 2018

Directors' Remuneration Report

The Board has approved this report, in accordance with the rules covering good communication to shareholders. 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 he 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 at the forthcoming AGM.

DIRECTORS’ EMOLUMENTS FOR THE YEAR

Directors’ emoluments are paid in GBP. The Directors who served in the financial year are entitled to the following emoluments in the form of fees:

The fees for the non-executive Directors were last reviewed five years ago and have been unchanged since 2013. It has been decided that fees be increased by £1,000 per annum for non-executive Directors and £3,000 per annum for the Chairman with effect from 1 July 2018.

DIRECTORS’ INTERESTS

The Directors listed on above are all members of the Board at the financial year ended 30 April 2018.

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 2018 and 30 April 2017 are as follows:

 As at the date of this report, the above interests of the Directors were unchanged.

There were no relevant contracts in force during or at the end of the 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 year under review.

DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON RECOGNISED STOCK EXCHANGES

The following summarises the Directors’ directorships in other public companies:

None of the other Directors held directorships in other public companies during the year under review.

APPROVAL

A resolution for the approval of the Directors’ Remuneration Report for the financial year ended 30 April 2018 will be proposed at the annual general meeting.

By order of the Board

Noel Lamb Philip Ehrmann Chairman Director 6 July 2018

Corporate Governance

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 recommendations of the July 2016 edition of the AIC Code of Corporate Governance (the “AIC Code”) by reference to the AIC Corporate Governance Guide for Investment Companies (the “AIC Guide”). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code 2016 (the “UK Code”), as well as setting out additional principles and recommendations 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 recommendations of the AIC Code and the relevant provisions of the UK Code throughout the accounting 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 

For the reasons set out in the AIC Guide, and as explained in the UK Code, 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 BOARD

Disclosures under Principle 5 of the AIC Code

The Board comprises four independent non-executive Directors including the 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 (2016-2017: 5) and three Audit Committee meetings (2016-2017: 3) held during the financial year 1 May 2017 to 30 April 2018. The table below shows the number of formal meetings attended by each Director during the year:

Director Board Meetings Attended Audit Committee Meetings Attended

Noel Lamb 5 3

Philip Ehrmann 4 3

Richard Pavry 5 3

Michael Moule 1 1

In addition to the above meetings there were also five other committee meetings held during the year in relation to the operation of the redemption facility and other operational matters.

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. The Board is recommending that all Directors be subject to re-election at the forthcoming AGM.

The Board evaluates its performance and considers the tenure of each Director 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.

When considering succession planning, the Board bears in mind the balance of skills, knowledge, and experience and diversity existing on the Board. The Board has noted amendments to the UK 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 UK 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 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 with Chubb Insurance Company of Europe in respect of the Directors’ liability. For the year 1 May 2017 to 30 April 2018 the charge was $6,877.

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 Financial Statements. The Annual Report and Financial Statements are also independently audited. 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 allocations, 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 (see below for more details):

– review of draft annual and interim report and financial statements;

– review of independence, objectivity, qualifications and experience of the auditor;

– review of audit fees.

The Audit Committee is appointed by the Board and comprises Mr Ehrmann as Chairman, Mr Pavry, Mr Lamb and Mr Moule.

In accordance with the AIC Code, the Board has determined that Mr Ehrmann 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 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 satisfied that auditor objectivity and independence is not impaired by the performance by PwC CI LLP of non-audit services, which cover UK tax compliance services. The Audit Committee considers that the appointment of a third party unfamiliar with the Company to carry out non-audit services of UK tax compliance would not benefit shareholders since they would incur unnecessary additional expense.

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 of Directors 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 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 http://www.quaerocapital.uk/funds/atlantis-japan-growth-fund-limited.

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 Lamb Philip Ehrmann Chairman Director 6 July 2018

Audit Committee Report

Below, 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 2018.

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 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 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 Financial Statements remains with the Board.

The Audit Committee's full terms of reference can be obtained by contacting the Company's Administrator.

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 UK 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 auditors which highlight any issues with respect to the work undertaken on the audit.

The significant issues considered during the 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 $167,172,611 as at 30 April 2018 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 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 2018 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 2018. 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, 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 auditors. 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 Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. 

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. PwC CI LLP has been external auditor to the Company since their appointment on 13 January 2015.

During the year the Audit Committee received and reviewed audit plans and reports from the external Auditor. To assess the effectiveness of the external audit process, the auditors were 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 year by the external auditors both as part of the audit process and on non-audit matters 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 Financial Statements.

The Audit Committee has adopted a policy on the engagement of the Company’s auditor to supply non-audit services to the Company. PwC was paid £5,250 for non-audit services during the financial year under review (2017: £10,450).

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 Committee has reviewed the non-audit services performed by PwC in the financial year and has concluded that the policy has been applied and their independence and objectivity has not been impaired as a result.

The following table summarises the remuneration paid for audit and non-audit services during the financial year ended 30 April 2018 and the financial year ended 30 April 2017.

*Other services rendered in connection with accounting matters relating to functional currency.

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 6 July 2018 and signed on behalf of the Audit Committee by

Philip EhrmannChairman, Audit Committee

Depositary StatementFor the financial year ended 30 April 2018

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 (formerly Tiburon Partners LLP) (the “AIFM”) for the financial year ended 30 April 2018, in our capacity as Depositary to the Company.

This report, including the review provided below, has been prepared for and solely for the shareholders in 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 ofNorthern Trust (Guernsey) Limited6 July 2018

Independent Auditor’s Report to the Members ofAtlantis Japan Growth Fund LimitedFor the financial year ended 30 April 2018

Report on the audit of the financial statements

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Our opinion

In our opinion, the financial statements give a true and fair view of the financial position of Atlantis Japan Growth Fund Limited (the “Company”) as at 30 April 2018, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”) and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.

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What we have audited

The Company’s financial statements comprise:

- the statement of financial position as at 30 April 2018;

- the statement of comprehensive income for the year then ended;

- the statement of changes in equity for the year then ended;

- the statement of cash flows for the year then ended; and

- the notes to the financial statements, which include a summary of significant accounting policies.

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Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”). 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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Independence

We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

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Our audit approach

Context

The Company’s return is driven primarily by the performance of the underlying investment portfolio, consisting of listed Japanese equities, and so the underlying performance and prevailing trading conditions of these investments are of particular relevance to our audit.

Overview

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Audit scope

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

We have audited the financial statements of the Company using the accounting records of the Company, prepared by the Administrator to whom the Board of the Company has delegated the provision of certain administrative functions. We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which the Company operates, taking a combination of controls and substantive approach.

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Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Company materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $81.6k (being 5% of overall materiality), as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

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Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. 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.

Other information

The directors are responsible for the other information. The other information comprises the introduction, the investment policy, the chairman’s statement, the investment adviser’s report, the alternative investment fund manager’s report, the details of ten largest investments, the schedule of investments, the board of directors, the directors’ report and statement of directors’ responsibilities, the directors’ remuneration report, the corporate governance, the audit committee report, the depositary statement, administration, the notice of the annual general meeting and the annual general meeting rider (but does not include the financial statements and our auditor’s report thereon).

Other than as specified in our report, our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above 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, 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.

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Responsibilities of the directors for the financial statements

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, the requirements of Guernsey law 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 relating 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.

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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 will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

- Conclude 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 auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

- Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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Report on other legal and regulatory requirements

Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:

- we have not received all the information and explanations we require for our audit;

- proper accounting records have not been kept; or

- the financial statements are not in agreement with the accounting records.

We have no exceptions to report arising from this responsibility.

We have nothing to report in respect of the following matters which we have reviewed:

- the directors’ statement set out on above in relation to going concern. As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the Company has adequate resources to remain in operation, and that the directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Company’s ability to continue as a going concern;

- the directors’ statement that they have carried out a robust assessment of the principal risks facing the Company and the directors’ statement in relation to the longer-term viability of the Company. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit; and

- the part of the Corporate Governance Statement relating to the Company’s compliance with the ten further provisions of the UK Corporate Governance Code specified for our review.

This report, including the opinion, has been prepared for and only for the members as a body in accordance with Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Evelyn BradyFor and on behalf of PricewaterhouseCoopers CI LLPChartered Accountants and Recognised AuditorGuernsey, Channel IslandsDate 9 July 2018

Statement of Comprehensive IncomeFor the financial year ended 30 April 2018

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. 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 EquityFor the financial year ended 30 April 2018

The notes form an integral part of these financial statements.

The notes form an integral part of these financial statements.Statement of Financial PositionAs at 30 April 2018

*Based on the Net Asset Value at the year-end divided by the number of shares in issue: 49,012,128 (30 April 2017: 44,139,050) (See Note 14).

Approved by the Board of Directors on 6 July 2018 and signed on its behalf by:

Noel Lamb Philip Ehrmann Chairman Director 

The notes form an integral part of these financial statements.Statement of Cash FlowsFor the financial year ended 30 April 2018

The notes form an integral part of these financial statements.Notes to the Financial StatementsFor the financial year ended 30 April 2018

1. GENERAL INFORMATION

Atlantis Japan Growth Fund Limited (the “Company”) was incorporated in Guernsey on13 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 (formerly Tiburon Partners 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 years presented, unless otherwise stated.

a) Basis of preparation

The Financial Statements of the Company have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”). 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 and the Company’s Principal Documents.

The preparation of the Financial Statements in conformity with IFRS 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 2018, the Company, being solely invested in listed equities, did not hold any investment requiring the use of estimates to determine their value. 

The significant accounting policies adopted are consistent with those of the previous financial year and are set out below:

Accounting standards in issue and effective for the first time in these financial statements

Disclosure initiative – Amendments to IAS 7 Statement of Cash Flows (the “Amendments”)

The main changes under the Amendments are:

i) require disclosures that enable users of the financial statements to evaluate changes in liabilities arising from financing activities; and

ii) 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.

The standard has a mandatory effective date for annual periods beginning on or after 1 January 2017. The requirements of the Amendments have been met as part of the Statement of Changes in Equity for share capital transactions attributable to holders of ordinary shares and Note 12 (Loans Payable).

New standards, amendments and interpretations effective after 30 April 2018 not yet adopted

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 30 April 2018, and have not been applied in preparing these Financial Statements. Those that the Directors consider relevant to the Company are detailed as follows:

IFRS 9, ‘Financial Instruments’ (for annual periods beginning on or after 1 January 2018)

IFRS 9 deals with recognition, derecognition, classification and measurement of financial assets and financial liabilities. Its requirements represent a significant change from the existing requirements in International Accounting Standards (“IAS”) 39, Financial Instruments: Recognition and Measurement, in respect of financial assets. The standard contains two primary measurement categories for financial assets: at amortised cost and fair value.

A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of held to maturity, available for sale and loans and receivables.

The Directors do not expect the measurement and classification requirements to have a significant impact on its financial statements since the Company’s financial assets and liabilities are valued at fair value through profit or loss.

b) Going concern

The Financial Statements have been prepared on a going concern basis in line with the Directors’ belief that it is appropriate to assume that the Company will continue in business (refer below for more details).

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

The Company’s business is investing in securities with a view to profiting from their total return in the form of income and capital growth. This portfolio of investments is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company’s Board of Directors.

Investments are initially recognised at the settlement date of purchase. Accordingly, upon initial recognition the investments are designated by the Company as ‘at fair value through profit or loss’. 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). Subsequently, the investments are measured at ‘fair value’, which is their last traded price based on published price quotations.

Gains and losses on investments are included in the Statement of Comprehensive Income as capital.

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.

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 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.

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.

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) Loans payable

All loans are initially recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account discount or premium on settlement. Any costs of arranging any interest-bearing loans are capitalised and amortised over the life of the loan.

The Company’s loans 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 USD.

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.

At each Statement of Financial Position date, assets and liabilities are translated into the presentation currency at the closing rate of exchange. Income and expenses for each Statement of Comprehensive Income are translated into the presentation currency at the exchange rate prevailing on the dates of the transactions. Resulting exchange differences are recognised in other comprehensive income 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”.

Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss 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 recommendations 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 expected to apply 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 sale 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.

o) 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 revenue reserve, which is a distributable reserve.

When such shares are subsequently sold or reissued, and 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 revenue 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 16.

p) 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.

q) Ordinary shares

The Company’s ordinary shares are 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.

r) 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.

s) Functional currency

The Board of Directors considers 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, as well as the currency in which it receives subscriptions from its investors. 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 US Dollar.

3. OPERATING SEGMENTS

The Board of Directors 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.

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 below.

4. NET GAINS ON INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS

5. RELATED PARTY DISCLOSURES

The Investment Manager, 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 2018.)

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 2018 and 30 April 2017 are as follows:

The above interests of the Directors were unchanged as at the date of this report.

As at 30 April 2018, a family member of the President of the Investment Adviser held 900,800 (2017: 946,000) ordinary shares of the Company.

6. INVESTMENT MANAGEMENT FEE

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. Fees payable to the Investment Adviser are met by the Investment Manager.

The Company pays to the Investment Manager a fee accrued daily and paid monthly in arrears at the annual rate of 1% of the weekly NAV of the Company.

Redemption pool investment management fees

The Investment Manager shall also be entitled to receive a fee from the Company of 1% per annum of the daily NAV of any redemption pool together with transaction charges.

For the financial year ended 30 April 2018, total investment management fees were $1,472,797 (2017: $913,225), of which $144,138 (2017: $76,807) is due and payable as at that date. Of the total investment management fees, $368,199 (2017: $228,306) was due to the Investment Manager, with $36,035 (2017: $19,202) payable as at 30 April 2018, and $1,104,598 (2017: $684,919) was due to the Investment Adviser, with $108,104 (2017: $57,605) payable as at 30 April 2018.

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 performance fees) of the Company as at the last business day of the month at an annual rate of:

Gross Asset Value Annual Rate

Up to $50,000,000 0.035%

$50,000,001 to $100,000,000 0.025%

Thereafter 0.015%

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.

Redemption pool depositary fees

The Depositary shall also be entitled to receive a fee from the Company of the Gross Asset Value of any redemption pool, together with transaction charges, at an annual rate of:

Gross Asset Value Annual Rate

Up to $25,000,000 0.035%

$25,000,001 to $50,000,000 0.025%

Thereafter 0.015%

For the financial year ended 30 April 2018, total depositary fees were $119,459 (2017: $84,690), of which $14,982 (2017: $16,006) 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:

NAV Annual Rate

Up to $50,000,000 0.18%

$50,000,001 to $100,000,000 0.135%

$100,000,001 to $200,000,000 0.0675%

Thereafter 0.02%

Redemption pool administration fees

At each redemption date a charge in respect of the preparatory work for the set-up and calculation of investment and redemption prices of £7,500 will be payable.

An additional fee will be payable on the fair value of the assets of that redemption pool of:

NAV Annual Rate

Up to $25,000,000 0.18%

$25,000,001 to $50,000,000 0.135%

Thereafter 0.0675%

For the financial year ended 30 April 2018, total administration fees were $186,985 (2017: $144,947), of which $38,006 (2017: $27,086) 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 £30,000 per annum for the Chairman, £27,500 per annum for the Chairman of the Audit Committee and £25,000 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 2018, total directors’ fees and expenses were $130,624 (2017: $147,817), of which $12,815 (2017: $12,454) was due and payable as at that date.

10. 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 (2017: £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.

Current taxation

The current taxation charge for the year is different from the standard rate of corporation tax in the UK. The differences are explained in the following table:

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 2018, the Company has excess management expenses of $31,538,857 that are available to offset future taxable revenue. Whilst this represents management’s best estimate based on the carried forward balance in the previous year of $31,401,529, 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.

11. BASIC AND DILUTED EARNINGS/(DEFICIT) PER ORDINARY SHARE

The basic and diluted earnings/(deficit) per ordinary share figure is based on the profit/(loss) for the year of $48,764,951 (2017: $15,823,318) and on 48,002,848, being the weighted average number of shares in issue during the financial year ended 30 April 2018 (2017: 42,738,212).

The revenue loss per ordinary share and capital profit per ordinary share figure is based on the net revenue loss for the financial year of $137,328 (2017:$(345,640)), the net capital profit of $48,902,279 (2017: $16,168,958) respectively and 48,002,848 being the weighted average number of shares in issue during the financial year ended 30 April 2018 (2017: 42,738,212).

12. LOANS PAYABLE

The credit facility is provided by Royal Bank of Scotland International Limited (“RBSI”). As at 30 April 2018, the Company had drawn down ¥1,000,000,000 ($9,152,899) (2017: ¥1,000,000,000/$8,985,540) of the ¥1,500,000,000 borrowable under the terms of the facility agreement.

Under the terms of the facility agreement, the Company is required to comply with the following financial covenants:

- the Company’s portfolio must contain at least 60 investments, of which at least 50 must be in investments quoted on the Tokyo Stock Exchange or any other equivalent exchange approved by RBSI, at all times;

- the amount of the credit facility drawn down must not exceed 25% of the value of the Company’s portfolio at any time; and

- the Company’s NAV must not fall below $58,800,000 at any time.

The Company complied with all of the above the financial covenants during the years ended 30 April 2018 and 30 April 2017.

Gains on foreign exchange on the Company’s loan amounted to $374,807 during the financial year ended 30 April 2018 (2017: $(337,250)).

13. FORWARD CURRENCY CONTRACTS

There were no forward currency contracts held during the year ended 30 April 2018 (2017: None).

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 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. 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

During the financial year ended 30 April 2018, there was no purchase of shares into treasury (2017: $2,202,538).

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 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 First Section, Second Section, JASDAQ, Mothers and Tokyo PRO, or the regional stock exchanges of Fukuoka, Nagoya, Sapporo and Osaka Securities Exchange.

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 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, revolving credit facility with RBSI (see Note 12).

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. 

No shares were repurchased into treasury during the financial year ended 30 April 2018 (2017:1,172,500). (See Notes 17 and 18 respectively for details of shares issued via the subscription right and the redemption facility mechanisms).

Market price 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 2018, 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 2018 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: 

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 2018.

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 2018, the Company has a USD cash exposure in USD terms of $10,527 (2017: $10,527).

The Company's net JPY exposure in USD terms is set out in the following table:

Foreign currency sensitivity analysis

If the exchange rate at 30 April 2018, 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: 

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 except for the one outstanding loan payable detailed in Note 12, and any excess cash and cash equivalents are invested at short-term market interest rates.

As at 30 April 2018, 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 on each RBSI drawdown loan for each interest period is the percentage rate per annum which is the aggregate of the applicable (i) margin, (ii) LIBOR and (iii) mandatory cost. Interest on the loan is payable on the last day of each interest period. As at 30 April 2018, the interest accrued on the loan was $15,428 (2017: $14,870).

The following assets and liabilities disclosures exclude prepayments and taxation receivables and payables:

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 cash and cash equivalents, which are carried at amortised cost, and loans payable, which are carried at amortised cost using the effective interest rate method.

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 2018, the Company had drawn down a loan facility of ¥1,000,000,000/$9,152,899 (2017:¥1,000,000,000/$8,985,540). In connection with the facility agreement, the Company has entered into a English law, multicurrency, revolving credit facility with RBSI.

The loan may be used for the following purposes:

- the acquisition of investments in accordance with the investment policy;

- its working capital requirements in the ordinary course of business; and

- funding permitted redemptions which in each case will be repaid other than by way of rollover loan within 30 days of the relevant drawing.

The loan must be repaid on the last day of its interest period.

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:

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 (see above), 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 2018 Northern Trust Corporation had a long term rating from Standard & Poor’s of 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 year end amounted to $4,626,424 (2017: $1,588,786).

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.

The following table sets out fair value measurements using the IFRS 13 fair value hierarchies:

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. NAV HISTORY

17. SUBSCRIPTION RIGHTS

Shareholders had the opportunity to subscribe for one new ordinary share for every five ordinary shares held on 1 October in each year, commencing in 2015 and ending in 2017. The following subscriptions were made during the year:

During the financial year ended 30 April 2018, a total of $19,860,180 was paid by subscribing shareholders (2017: $13,386,514).

18. REDEMPTION FACILITY

Ordinarily, shareholders have the opportunity to make redemptions of part or all of their shareholding on a six-monthly basis with the Board’s discretion in declining any redemption requests. The following redemptions were made during the year:

During the financial year ended 30 April 2018, a total of $11,655,759 was paid to redeeming shareholders (2017: $5,038,258).

19. DIVIDENDS

All amounts held in the Company’s revenue reserve are distributable to shareholders by way of dividends.

There were no dividends declared by the Board of Directors during the financial year ended 30 April 2018 (2017: $Nil).

20. ONGOING CHARGES

The ongoing charges using the AIC recommended methodology were 1.57% for the financial year ended 30 April 2018 (2017: 1.52%). Of the $1,688,711 expenses in the Statement of Comprehensive Income, excluded from the calculation of ongoing charges, are $45,498 considered by the Directors to be non-recurring (2017: $296,539).

21. EXCHANGE RATES

The following exchange rates were used to translate assets and liabilities into the reporting currency (USD) at 30 April 2018 and 30 April 2017.

The following average exchange rates were used to translate transactions into the reporting currency (USD) during the years ended 30 April 2018 and 30 April 2017:

22. 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 2018, may be obtained, upon request, at the registered office of the Company.

23. EVENTS AFTER THE REPORTING PERIOD

There were no significant events subsequent to the financial year ended 30 April 2018 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.