30 May 2022 07:00
ABRDN JAPAN INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT ANNOUNCEMENT FOR THE YEAR ENDED 31 MARCH 2022
Performance Highlights
Net asset value total returnA | Index total return | |||
Figures to 31 March 2022 | Figures to 31 March 2022 | |||
-10.0% | -2.7% | |||
Figures to 31 March 2021 | +33.5% | Figures to 31 March 2021 | +24.8% | |
Return since 8 October 2013 (change of mandate) | +109.7% | Return since 8 October 2013 (change of mandate) | +99.6% | |
Share price total returnA | Ongoing charges ratioA | |||
Figures to 31 March 2022 | Year to 31 March 2022 | |||
-10.9% | 1.00% | |||
Figures to 31 March 2021 | +35.2% | Year to 31 March 2021 | 1.04% | |
Return since 8 October 2013 (change of mandate) | +106.4% | |||
Discount to net asset valueA | Dividend per share | |||
As at 31 March 2022 | Year to 31 March 2022 | |||
11.0% | 15.00p | |||
As at 31 March 2021 | 9.9% | Year to 31 March 2021 | 15.00p | |
A Alternative Performance Measure (see pages 81 and 82 of the 2022 Annual Report). Comparatives for the corresponding period can be also be found on these pages. | ||||
Financial Calendar, Dividends and Highlights
Financial Calendar
Payment dates of dividends | July 2022December 2022 |
Annual General Meeting (London) | 1 July 2022 |
Half year end | 30 September 2022 |
Expected announcement of results for the six months ending 30 September 2022 | November 2022 |
Financial year end | 31 March 2023 |
Expected announcement of results for the year ending 31 March 2023 | June 2023 |
Dividends
Rate | Ex-dividend date | Record date | Payment date | |
Proposed final dividend 2022 | 9.00p | 23 June 2022 | 24 June 2022 | 22 July 2022 |
Interim dividend 2022 | 6.00p | 2 December 2021 | 3 December 2021 | 30 December 2021 |
Total dividends 2022 | 15.00p | |||
Final dividend 2021 | 9.00p | 24 June 2021 | 25 June 2021 | 23 July 2021 |
Interim dividend 2021 | 6.00p | 3 December 2020 | 4 December 2020 | 31 December 2020 |
Total dividends 2021 | 15.00p |
Highlights
31 March 2022 | 31 March 2021 | % change | |
Total assets (as defined on page 96 of the 2022 Annual Report) | £100,564,000 | £118,585,000 | -15.2 |
Total equity shareholders' funds (net assets) | £89,930,000 | £107,438,000 | -16.3 |
Market capitalisation | £80,043,000 | £96,775,000 | -17.3 |
Share price (mid market) | 635.00p | 727.50p | -12.7 |
Net asset value per Ordinary share | 713.43p | 807.66p | -11.7 |
Discount to net asset valueA | 11.0% | 9.9% | |
Net gearingA | 11.4% | 10.0% | |
Operating costs | |||
Ongoing charges ratioA | 1.00% | 1.04% | |
Earnings | |||
Total return per Ordinary share | (81.70p) | 203.49p | |
Revenue return per Ordinary share | 8.54p | 6.57p | |
Dividends per Ordinary shareB | 15.00p | 15.00p | |
Revenue reserves (prior to payment of proposed final dividend) | £1,631,000 | £1,758,000 | |
A Considered to be an Alternative Performance Measure. See pages 81 and 82 of the 2022 Annual Report for more information. | |||
B The figure for dividends reflects the years in which they were earned | |||
Chairman's Statement
A year ago I wrote that we had come through a momentous year with the challenges of Covid-19 and its significant impact globally. We recognised the risks relating to Covid-19 had not gone away and that inflation was a looming threat. In our more recent interim report we added slowing Chinese growth to the list of concerns. However, we certainly did not anticipate the Russian invasion of Ukraine, which has had a profound impact geopolitically and on the global economy, and whose outcome and longer term effects remain uncertain.
Overview
The Japanese stock market moved through a number of alternating phases during the year: early on, markets benefited from positive investor sentiment arising from vaccine breakthroughs and improved economic data. Then fears of rising infections, the initially slow vaccination programme and Tokyo entering its third emergency lockdown weighed on markets in the late spring and early summer. However, Japan became one of the strongest major developed markets in August and September 2021, as investors reacted positively to the change in the political landscape and easing of the Covid-19 pandemic. Fumio Kishida replaced former prime minister Yoshihide Suga as leader of the ruling Liberal Democratic Party in the third quarter, and the party comfortably retained power in the general election held at the end of October.
In November 2021, Prime Minister Kishida released details of a stimulus package of almost ¥56 trillion. The measures included direct payments to families with children and support for businesses. However, in common with global stock markets, Japanese equities sold-off abruptly in January 2022, with technology-related stocks especially weak. Unlike the US Federal Reserve, however, the Bank of Japan ("BoJ") indicated that it will not raise interest rates quickly. The initial impact of Russia's invasion of Ukraine on the Japanese stock market was limited. While Russia is a relatively small trading partner for Japan, the implications of the invasion for global energy prices are very relevant given that Japan is an energy-importer. Inflation is rising in Japan with implications for the consumer and businesses.
Performance
Performance weakened in the second half of the year. The Company's net asset value (NAV) total return for the year to 31 March 2022 was -10.0%, underperforming the TOPIX benchmark's -2.7% total return, both in sterling terms.
The Company's medium-term relative performance remains strong, with a NAV return of 24.1% over the last three years, compared to the benchmark return of 18.4%.
The Company's Ordinary share price ended the year at 635.0p, down 92.5p on 31 March 2021. The total return for the period was -10.9% with dividends reinvested and the discount to NAV per Ordinary share widened slightly from 9.9% to 11.0% as at 31 March 2022.
Dividend
The Board continues to believe in the importance of income to our shareholders and makes use of the benefits of the investment trust structure to allow the Company to support the enhanced dividend policy.
The Company's revenue return per share for the financial year was 8.5p (2021 - 6.6p). An interim dividend of 6.0p has already been declared and was paid to shareholders on 30 December 2021. The Board proposes a final dividend of 9.0p, making a total dividend of 15.0p (2021 - 15.0p) for the year ended 31 March 2022. The dividend comprises 8.5p revenue return, 3.0p from revenue reserves and 3.5p from capital reserves. The Board believes that this level of distribution for the year continues to balance a prudent retention of capital for future investment with a recognition of the ongoing importance of income to our shareholders, especially as economic circumstances worsen for many.
Gearing
The Company continues to make use of its capacity to gear through its loan facilities provided by ING Bank. Earlier in the year these were renewed with the Yen 1.3 billion fixed term loan now expiring in January 2023 and the Yen 1.0 billion floating rate facility now extended to expire in December 2024. Further details can be found on page 40 of the 2022 Annual Report.
The Board considers a gearing level of around 10% to be appropriate, although, with stock market fluctuations, this may range between 5-15%. Net gearing as at 31 March 2022 was 11.4% (2021: 10.0%).
The Board believes that the potential to gear the portfolio at the right time is one of the strong advantages of the closed ended company structure, with the sensible use of modest financial gearing seeking to enhance returns to shareholders.
Environmental, Social & Corporate Governance ("ESG")
Japan is changing its approach and embracing the principles of ESG. This development and improvement, particularly on the corporate governance front, has accelerated over the year under review. Your Manager has had the privilege of not only having a front row seat to what has unfolded, but has also, I believe, played an active role in helping some of these changes materialise.
Over the year, the portfolio's holdings have continued to register improvements, including greater transparency in terms of disclosure. Encouragingly, companies are more willing to engage with investors, and the composition of boards is growing more inclusive and diverse. Overall, these developments foster a change in attitude, with management more mindful of helping to not only preserve, but also enhance, shareholder value, both in their day-to-day decisions and at more strategic policymaking levels. Additionally, your Manager has been working with several companies to encourage them to track their key indicators (such as carbon emissions, supply chain management, carbon intensity, and health and safety) and to disclose these regularly. Meticulously tracking and then publishing these numbers will not only help companies provide an objective track record that will result in improved ESG standards, but also keep them accountable in sticking to the targets that they have set for themselves. It is also worth noting that Japanese companies have an added advantage, in that they possess the technology and leading-edge materials that can help them attain these goals.
With this in mind, I wanted to draw your attention to three examples of engagement with companies in our portfolio. Tokio Marine, one of our top performing holdings, has consistently announced share buyback programmes. Earlier in 2021, the company had disappointed the market with a vague explanation about its use of excess capital, which led your Manager to engage with the company's management on improved communication of its shareholder returns policy. Your Manager intends to continue its conversation with the company on this and other matters.
The real estate developer Tokyu Fudosan Holding announced the sale of its stake in DIY store Tokyu Hands to home center operator Cainz. Your Manager had been actively engaging with the company's management on reviewing its weaker businesses to help the company build a more resilient organisation. It intends to continue the conversation with the company as there are other low-margin operations that could pose risks for the business.
Your Manager has had multiple engagements over the years urging the companies whose shares are held in the portfolio to relinquish their poison pills, and for these companies to adopt stronger governance frameworks and reflect an increased awareness of shareholder interests. These engagements have worked alongside a broader improvement in ESG standards in the market.
The latest example of your Manager's involvement is that with property owner and developer Heiwa Real Estate, which decided not to bring its poison pill resolution forwards for a renewal vote at its annual general meeting.
More information on the Manager's ESG Approach can be found on pages 87 to 90 of the 2022 Annual Report.
Discounts and Share Buybacks
The Board regularly monitors the discount level of the Company's shares in relation to the NAV. There is a mechanism in place to buy back shares at appropriate levels, when doing so will add value for shareholders, while having regard to the overall size of the Company. During the financial year, 697,191 shares were bought back into treasury at a cost of £.4.9 million. Since the year end, a further 45,358 shares have been repurchased at a cost of £265,000.
Overall, the discount averaged 9.4% over the last 90 days of the Company's financial year and there is therefore no requirement under the Company's articles of association to put forward a continuation vote to shareholders.
The Board
For its ongoing effectiveness, your Board believes in the importance of an orderly succession plan. The Board regularly reviews its composition, considering the balance of skills and experience of the Directors, as well as their tenure. Having now served on the Board for nine years, with over three years as Chairman, I shall retire as a Director at the Annual General Meeting in 2023. Sir David Warren has agreed to be appointed the Senior Independent Director with immediate effect.
abrdn Rebranding
In July 2021, Standard Life Aberdeen plc changed its name to abrdn plc as part of a rebranding exercise. It is expected that the Company's Manager and Company Secretary (Aberdeen Standard Fund Managers Limited and Aberdeen Asset Management PLC respectively) will also change their names in future, following the same approach taken by the Company's Investment Manager, abrdn Japan Limited (formerly Aberdeen Standard Investments (Japan) Limited).
Following the abrdn name change, the Board made the decision to align itself with the Manager's new brand by changing the Company's name to abrdn Japan Investment Trust plc on 9 May 2022.
Annual General Meeting ("AGM")
The Company's AGM will be held on 1 July 2022 at 10:00am at the offices of abrdn at Bow Bells House, 1 Bread Street, London, EC4M 9HH.
I encourage all shareholders to complete and return the form of proxy enclosed with the Annual Report to ensure that your votes are represented at the meeting (whether or not you intend to attend in person). If you hold your shares via a share plan or a platform and would like to attend and/or vote at the AGM, then you will need to make arrangements with the administrator of your share plan or platform. For this purpose, investors who hold their shares in the Company via the abrdn Investment Plan for Children, Share Plan or ISA will find a Letter of Direction enclosed. abrdn Planholders are encouraged to complete and return the Letter of Direction in accordance with the instructions.
The Notice of Meeting is contained on pages 98 to 102 of the 2022 Annual Report.
Outlook
Japan has a large, sophisticated economy which remains at the forefront of technological innovation and occupies a key role in the global economy with a huge export sector. The country hosts a wealth of successful companies of all sizes, many with leading global market shares and strong products. In view of this, the Board is optimistic about the long term future for Japanese equities. Despite the multiple challenges posed by the ongoing pandemic, rising commodity prices and the global outlook for inflation, companies with strong business models and management teams have coped and, in some cases, thrived. Alongside structural improvements in governance in Japan, we remain resolute in our belief that these companies will do well. Weighing the risk-reward in the market, valuations look attractive for these companies for the medium term.
On a global scale, risks remain in the system. The Omicron variant of Covid-19 resulted in less severe illness and governments globally have treated the surge differently, some with fewer lockdowns and less severe restrictions. Nevertheless, infection rates are still high globally. The effects of high energy prices following Russia's invasion of Ukraine are feeding through into widespread price inflation - the impact is only just being felt by the Japanese consumer. For now, the slow growth in the Japanese economy means that the Bank of Japan will keep rates low - it remains to be seen if rising inflationary pressures or a weakening currency will change that calculation later in 2022.
Your portfolio of investments, in companies with healthy balance sheets and ample free cash flow, puts us in a strong position. A solid fundamental base, coupled with management teams' experience in navigating the pandemic and previous crises, should allow these companies to continue their recovery and progress. Many investee companies have built dominant positions in their own fields and should continue to thrive regardless of the external pressures faced.
The Board recognises that in such a difficult and complex environment, it is more important than ever to check and challenge the positioning of the portfolio and the investment decisions taken by the Manager. However, the Manager's process of seeking out the best companies - whether small, mid or large capitalisation stocks - through stringent screening and regular meetings with senior management is designed to deliver the best long-term growth prospects of the underlying investments in your Company's portfolio. The Manager's ESG focus, which is very much core to the investment process, should also help to encourage effective engagement at all levels. We expect better and more sustainable practices, and subsequently better share price ratings, as a result of their efforts.
Your Board recognises that investors have the choice of a range of investment funds through which they can obtain exposure to Japan. We believe that the Company's strategy of seeking high quality companies, run by capable management teams, with good governance, will serve our shareholders well over the long term.
Karen Brade
Chairman
27 May 2022
Investment Manager's Review
Overview
The Japanese equity market declined by 2.7% in sterling terms over the 12 months to 31 March 2022. The year was characterised by a strengthening economy, a change of Prime Minister and, towards the end of the period, a relaxation of pandemic-related restrictions.
The Company's NAV, however, fell by 10.0% in sterling total return terms, while the share price lost 10.9% with dividends reinvested. This poorer performance in the portfolio over the year reflected higher bond yields and rising inflation expectations supporting lower value cyclical and interest rate-sensitive financial stocks. Our stock choices underperformed the broader market but we believe that our investment approach - that of investing in good quality companies - will outperform over a market cycle, especially in periods where company fundamentals are being rewarded. We may, however, underperform when the markets are disrupted by specific events or unforeseeable circumstances. This was the case in the past year. We recognise that our bottom-up approach may lead to periods of underperformance, but our goal remains to deliver outperformance over the medium to long-term through adherence to our core investment principles.
On the political front, the Liberal Democratic Party's (LDP) popularity suffered over the summer months. Former Prime Minister Yoshihide Suga was criticised for his handling of the Covid-19 pandemic, and on 4 October 2021 Fumio Kishida won the LDP leadership race to become Japan's new prime minister. The former foreign minister ran against the popular vaccinations minister, Taro Kono, in the run-off vote, having outperformed the two female candidates in the first round. The LDP comfortably retained power in the subsequent general election on 31 October, although the equity market declined as investors became concerned about possible tax rises. The new administration proposed a stimulus package of almost ¥56 trillion together with a record setting annual budget for 2022. The package included pandemic countermeasures, social spending for the elderly and record defence spending to prepare against rising regional threats. Kishida's own ratings remain reasonably stable.
The Covid-19 pandemic was a feature adding to uncertainty throughout the period. The Japanese government declared a state of emergency in Tokyo and other economic hubs in January 2021. The infection rate undulated throughout the period, peaking in April 2021. After a slow start, Japan's vaccination campaign gathered speed in the third quarter of 2021, not long before the new Omicron variant was first identified. Cases surged early in 2022, while the government began a drive for booster shots. Japan's quasi-state of emergency was lifted in 18 prefectures, including Tokyo and Osaka, in March 2022, following a decline in new infections and an easing strain on hospitals. Japan has also been relaxing its border controls, with the daily cap on the number of international arrivals increasing from 7,000 to 10,000 in April 2022. The booster shot campaign that began in December 2021 had reached 41% of the population by the end of March 2022. Recent polling on the government's handling of the Omicron variant has been positive.
Fortunately Japan's economy avoided a recession in the second quarter of 2021. A rebound in consumer spending defied pandemic-related restrictions, while renewed investments by businesses and increased government spending also underpinned a higher growth rate. Industrial production saw a record increase of 7.2% month-on-month in November 2021, on the back of a recovery in automotive production as supply chain issues eased. However, in early 2022, higher inflation and a weakening yen has impacted sentiment. Purchasing manager index data indicates that businesses expect contraction and the Bank of Japan's Tankan survey, released soon after the period end, showed falling confidence among large manufacturers.
Rising inflation has been an issue globally. One important driver has been higher energy prices, resulting from Russia's invasion of Ukraine. Brent crude oil traded at around $108 per barrel at the end of March 2022 but had been within a whisker of $140 early in the month. Economists expect the price pressure from these rising energy costs will slow Japan's economic growth. International pressure on Prime Minister Kishida to pull away from the Sakhalin-2 liquefied natural gas project has increased; however he has refused to do so, citing energy shortages as a threat to the Japanese economy, and has announced plans fora relief package to help households cope with higher fuel bills.
While many developed central banks have begun hiking interest rates and withdrawing support, the BoJ held interest rates throughout the year. This has led to a widening of the interest rate differential between the US and Japan and the BoJ has increased its bond buying programme in an effort to control interest rates. This has resulted in the yen weakening to a five year low, providing a tailwind for exporters, but putting pressure on import costs.
In general, corporate results have been positive. Quarterly reporting has reaffirmed our view that fundamentals remain solid for our portfolio holdings. While geopolitical tensions, supply shortage issues and rising raw material costs have hampered a number of industries, certain companies fared well, thanks to their pricing power, ability to procure components and flexibility in adjusting production. Many companies reported profit increases and a large number have announced share buyback programmes.
With this backdrop, we have been busy considering the new trends, assessing how they might affect the portfolio's underlying holdings, and evaluating the opportunities that lie ahead. We lay this out in greater detail below.
Portfolio review
Several of our holdings reported weaker-than-expected results, primarily due to rising costs and component shortages, which has resulted in a muted near-term outlook for some companies and led to share price weakness. While the stock price declines are disappointing, we believe these companies' issues are manageable and will be resolved.
The biggest detractor from the Company's performance was Nabtesco. The factory automation company sector has struggled over the year, facing higher expenses and shortages of key components. Weak automotive capital expenditure has meant lower investment in robots, slowing orders for the company's reduction gears. The company's recent results have been mixed, with investors fearing that supply chain shortages will continue to slow shipments. Koito Manufacturing's profits were also weaker than expected as higher raw material costs and weaker auto production from component shortages reduced margins. While we do see some conservatism forecast into its new assumptions, management made considerable cuts to its profit guidance. Elsewhere, our holding of Tokyo Century weighed on returns. Results from the diversified financial firm have been mixed as travel-related businesses, such as its airline leasing and car rental subsidiaries, remained weak due to rolling shutdowns across markets. Meanwhile, the company's aircraft leasing business will record an impairment from planes that were leased to airlines in Russia, although we believe that the exposure is contained and relatively manageable.
In contrast, Tokio Marine was one of our best performing stocks, as the company delivered impressive results and consistently raised its full-year guidance to factor in better-than-expected underwriting profits and investment gains. A recent purchase of Kohoku Kogyo also performed well, further detail on the company is given below. We also benefited from our holding in mobile operator KDDI, which reported strong results and increased its share buyback programme. KDDI offers a range of bundled services that have helped raise its average revenue per account. It has also been able to deliver on both earnings growth and shareholder return in what is a mature market.
During the year, we took advantage of the market's volatility to initiate several new holdings, exiting others to fund these more attractive investment opportunities.
Early in the year, we initiated a position in AGC, a leading maker of glass products, chemicals and electronics that trades at attractive valuations. The company has been using cash generated by mature businesses, including glass products, to invest in structural growth opportunities such as pharmaceutical development, manufacturing outsourcing, EUV mask blanks and glass and display products for next-generation vehicles. The company has a number of world leading products, enabling stable cashflow generation to support continued reinvestment in the business and underpinning shareholder returns. For further details on AGC, see our case study on page 32 of the 2022 Annual Report.
Late in 2021, we participated in the initial public offerings of Kohoku Kogyo and Net Protections Holdings. Kohoku Kogyo is the global leader in manufacturing key components used in submarine optical cables and automotive aluminium electrolytic capacitors. The company's integrated production system and its ability to produce everything internally, from raw materials to equipment, enables it to maintain its business advantage. The president, who comes from the founder's family, is keen to establish a third pillar of growth, leveraging on the company's existing technologies. Net Protections is Japan's largest Buy-Now-Pay-Later service provider. Its credit technology, built on the large amount of settlement data collected over its 20-year history, gives the company a solid competitive position. The company's offering represents an attractive solution to both parties in credit based e-commerce transactions: its high and accurate approval rate offers retail customers frictionless purchasing experiences while enabling merchants to maximise sales opportunities. The company also brings this technology to transactions among corporate customers, offering one-stop solutions such as payment collection and invoicing, aiming to replicate its success gained in the e-commerce business.
Towards the end of the year, we bought Ajinomoto, Ibiden and Denso. Ajinomoto, Japan's largest producer of seasonings, has a strong sales and product development capability to develop products suited to local tastes. With a high market share in its core business, the company commands pricing power. In addition, the management team have successfully restructured the business portfolio through the divestment of lower-return, commoditised businesses, while prioritising investments in value-added areas within foods and higher growth sectors. The company has also expanded into products such as semiconductor materials and contract development and manufacturing for biopharmaceuticals. Ibiden is a manufacturer of packaging substrates that protect semiconductors. We expect a rapidly growing end-market, product innovation and a shift to higher value products to fuel the company's future growth. Moreover, we are encouraged by the improved business mix achieved in recent years and the reduced reliance on cyclical end applications such as smartphones. Automotive components maker Denso has a leading position in key components for electric vehicles, such as inverters, battery engine control units and thermal management systems. We believe the company is well positioned to benefit from automotive electrification, as it has the technology to provide products that help to improve energy efficiency.
We undertook a number of sales to enable us to make these purchases. Early in the year, we exited material handling systems provider Daifuku, which we had purchased early in 2020. Valuations were no longer as attractive, following last year's welcome re-rating and management had released cautious guidance, anticipating a rise in fixed costs in research and development. In September 2021, we exited Edulab. Following the accounting investigation referenced in our Half-Yearly Report, we engaged with the company on its governance framework and internal controls, and decided it was an appropriate time to sell our position completely.
More recently, we sold our long-held positions in baby-care products supplier, Pigeon, and car auction facility operator, USS, to free up cash to invest in better opportunities. We also sold our holding in medical equipment maker Sysmex due to its high valuation coupled with concerns over a slowdown in China, fuelled by central procurement and distributor issues. Our position in Honda-affiliated car parts maker Stanley Electric was also sold due to a deteriorating outlook amid supply chain risks, elevated market expectations for near-term earnings, and better opportunities elsewhere.
Outlook
Russia's invasion of Ukraine, and its impact on global commodity prices, has put a chill on sentiment across global markets. While the direct impact on most Japanese corporates, including the Company's holdings, is low, the indirect impact from sharp rises in commodity prices, logistical difficulties and supply chain shortages puts further pressure on companies' profitability.
Following this re-positioning we believe that the Company's good quality holdings - broadly defined as having tried and tested management teams, strong business fundamentals, with above average return on capital and ESG standards - should overcome the challenges of the current environment. These companies tend to be flexible in how they manage their businesses, have strong pricing power while not allowing governance to take a back seat. With this backdrop, and with the rotation in the markets earlier in the year, valuations for quality stocks have fallen sharply, yet commentary from these companies suggests that their business fundamentals remain sound. We remain confident in our belief that these companies will outperform over the medium to longer term and offer shareholders good relative returns.
Kwok Chern-Yeh,abrdn Japan Limited27 May 2022
Overview of Strategy
Business Model
This report provides shareholders with details of the Company's business model and strategy as well as the principal risks and challenges it faces.
The Company is an investment trust which seeks to deliver a competitive return to its shareholders through the investment of its funds in accordance with the investment policy as approved by shareholders.
The Board appoints and oversees an investment manager, decides the appropriate financial policies to manage the assets and liabilities of the Company, ensures compliance with legal and regulatory requirements and reports objectively to shareholders on performance.
The Directors do not envisage any change in this model in the foreseeable future.
Investment Objective and Purpose
To achieve long-term capital growth principally through investment in listed Japanese companies which are believed by the Investment Manager to have above average prospects for growth.
The Board's strategy is represented by its investment policy, financial policies, and risk management policies.
Investment Policy
The Company primarily invests in the shares of companies which are listed in Japan. The portfolio is constructed through the identification of individual companies of any market capitalisation and in any business sector, which offer long-term growth potential.
The portfolio is selected from the 3,800 listed stocks in Japan and is actively managed to contain between 30 and 70 stocks which, in the Manager's opinion, represent the best basis for producing higher returns than those of the market as a whole in the long term. There will therefore inevitably be periods in which the Company's portfolio either outperforms or underperforms the market as represented by the Company's benchmark.
The Board does not impose any restrictions on these shorter term performance variations from the benchmark, nor any limits on the concentration of stock or sector weightings within the portfolio, except that no individual shareholding shall exceed 10% of the Company's portfolio at the time of purchase, although market movements may subsequently increase this percentage.
The full text of the Company's investment policy is provided on page 86 of the 2022 Annual Report.
Benchmark Index
Topix (in Sterling terms)
Investment Approach
The Investment Manager's investment philosophy is that markets are not always efficient. The Investment Manager's approach is therefore that superior investment returns are attainable by investing in companies with good fundamentals and above average growth prospects that in the Investment Manager's opinion drive share prices over the long-term. The Investment Manager follows a bottom-up investment process based on a disciplined evaluation of companies through active engagement, at least twice a year, with management on performance including environmental, social and governance issues by its fund managers who are based in Japan and supported by the Manager's Asian investment team in Singapore. The Manager estimates a company's worth in two stages; quality, defined by reference to management, business focus, the balance sheet and corporate governance; and then price, calculated by reference to key financial ratios, the market, the peer group and business prospects. Understanding a company's management and gauging its experience is essential and no stock is bought without the fund managers having first met management.
Stock selection is key in constructing a diversified portfolio of companies with macroeconomic, political factors and benchmark weightings being secondary.
Given the long-term fundamental investment philosophy, the Manager expects to hold most companies in which the Company invests for extended periods of time.
Financial Policies
The Board's main financial policies cover the management of shareholder capital, risk management of the Company's assets and liabilities, including currency risk, the use of gearing and the reporting to shareholders of the Company's performance and financial position.
Management of Shareholder Capital
The Board's policy for the management of shareholder capital is primarily to ensure its long term growth. This growth will reflect both the Manager's investment performance and from time to time the issue of shares, when sufficient demand exists to do this, without diluting the value of existing shareholder capital.
The Board's dividend policy is to make distributions on a semi-annual basis and currently consists of the Company's earnings for the year, 3.0p released from the revenue reserves and an amount from the distributable capital reserves.
The Board will authorise the buyback of shares in order to avoid excessive variability in the discount and if, despite this, the average discount exceeds 10% during the 90 day period preceding its financial year end, the Board will offer shareholders the opportunity to vote on the continuation of the Company at a general meeting.
Risk Management
The policy for risk management is primarily focused on the investment risk in the portfolio using the Manager's risk management systems and risk parameters, overseen by the Board.
Derivatives
The Company may use derivatives from time to time for the purpose of mitigating risk in its investments. The performance of the Company is subject to fluctuations in the Yen/£ exchange rate. The Company's exposure to Yen fluctuations is partially offset by the natural hedge provided by any borrowing in Yen as well as by investments in Japanese companies which have significant sources of income from exports of goods or from non-Japanese operations.
The wider corporate risks, including those arising from the increasingly regulated and competitive marketplace, are managed directly by the Board. The principal risks are more fully described under the paragraph 'Principal Risks and Uncertainties'.
Use of Gearing
Gearing is the amount of borrowing used to increase the Company's portfolio of investments in order to enhance returns when and to the extent it is considered appropriate to do so or to finance share buybacks when necessary. The level of borrowing under the Company's investment policy is subject to a maximum of 25% of net assets but will normally be set at a stable and lower level than the maximum. The Board has currently established a gearing level of around 10% of net assets although, with stock market fluctuations, this may range between 5% and 15%.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its business model, financial position, performance and prospects.
The Board has in place a robust process to identify, assess and monitor the principal risks and uncertainties facing the Company and to identify and evaluate newly emerging risks. The Company's risks are regularly assessed by the Audit Committee and managed by the Board through the adoption of a risk matrix which identifies the key risks for the Company, including emerging risks, and covers strategy, investment management, operations, shareholders, regulatory and financial obligations and third party service providers. The principal risks and uncertainties facing the Company, which have been identified by the Board, are described in the table below, together with the mitigating actions.
Description | Mitigating Action | Trend |
Market, Economic and Political Risk The Company's assets consist mainly of listed securities and the principal risks are therefore market-related. This includes concerns about stock market volatility caused by geopolitical instability, political change, economic growth, interest rates, currency, and other price risks, as well as national or global crises that are harder to predict and may cause major market shocks | An explanation of these risks and the management of them is included in Note 16 to the Financial Statements on pages 76 to 78 of the 2022 Annual Report. The Board considers the composition and diversification of the portfolio by industry, size and growth rates, as well as purchases and sales, at each meeting, and in monthly papers. Individual holdings are discussed with the Manager, as well as views by sector and industry. The Board considers geopolitical risk to have increased following Russia's invasion of Ukraine. | Ý
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Investment Strategy Risk The Company and its investment objective may become unattractive to investors, leading to reduced returns for shareholders, decreased demand for the Company's shares, reduced value of shareholder funds and possible widening of the share price discount to NAV. | The Board regularly reviews and monitors: the Company's investment objective, policy and strategy; the portfolio and its performance; longer term trends in investor demand; and the performance of the Manager in operating the investment policy against the long-term objectives of the Company. If appropriate, the Board can propose changes in the investment objective. | Û |
Investment Management Risk Investment risk arises from the Company's exposure to variations of share prices within its portfolio in response to individual company and to wider Japanese or international factors. Investment in a focussed portfolio of shares can lead to greater short-term changes in the portfolio's value than in a larger portfolio of stocks and these variations will be amplified by the use of gearing. Inappropriate investment decisions may result in the Company's underperformance against the benchmark index and peer group and a widening of the Company's discount. | The Board relies on the Investment Manager's skills and judgment to make investment decisions based on research and analysis of stocks and sectors. The Board regularly monitors the investment performance of the portfolio and reviews holdings, purchases and sales on a monthly basis, as well as with the Manager at Board meetings. The Board regularly reviews performance data and attribution analysis and other relevant factors and, were any underperformance seen as likely to be sustained, would be able to take remedial measures. | Û |
Operational Risk The Company relies on a number of third-party service providers, principally the Manager, Registrar, Custodian and Depositary. | The Manager has extensive business continuity procedures and contingency arrangements to ensure that they are able to continue to service their clients. Third parties are subject to risk-based reviews by the Manager. The Board reviews reports on the operation and efficacy of the risk management and control systems of the Manager and other key third- party service providers, including those relating to cybercrime. | Û |
Regulatory Risk The Company operates under a complex regulatory environment. Serious breaches of regulations, such as Section 1158 of the Corporation Tax Act 2010, the UKLA Listing Rules, Companies Act 2006 and the Alternative Investment Fund Managers Directive could lead to a number of detrimental outcomes and reputational damage. | The Board is active in ensuring that it fully complies with all applicable laws and regulation and is assisted by the Manager and other advisers in doing this. The Board believes that, whilethe consequences of non-compliance can be severe, thecontrol arrangements it has put in place reduce the likelihoodof this happening. | Û
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Share Price and Discount risk The principal risks described above can affect the movement of the Company's share price and in some cases have the potential to increase the discount in the market value of the Company compared with the NAV. | The price of the Company's shares and its discount to NAV are not wholly within the Company's control, as both are subject to market volatility, as witnessed through the pandemic and more recently with Russia's invasion of Ukraine, where the discount has increased during the year. However, the Board can influence this through the ability to authorise the buyback of existing shares, when deemed to be in the best interests of shareholders. The share price, NAV and discount are monitored daily by the Manager and regularly reviewed by the Board. | Ý |
Leverage The Company may borrow money for investment purposes. If investments fall in value, gearing has the effect of magnifying the extent of this fall. | The maximum level of borrowing permitted by the Company's investment policy is 25% of net assets. All borrowing requires prior approval of the Board. In order to manage the level of gearing, the Board has established a gearing level of around 10% of net assets although, with stock market fluctuations, this may range between 5% and 15%. The Board regularly reviews the Company's gearing levels and its compliance with bank covenants. | Û |
Pandemic The Board is cognisant of the risks arising from a global pandemic, including stock market instability and longer term economic effects, and the impact on the operations of the third-party suppliers, including the Manager. | The Manager's robust and disciplined investment process is focused on long term company fundamentals including balance sheet strength and deliverability of sustainable earnings growth. As part of that process, the Manager continues to assess and review the investment risks arising from a global pandemic on companies in the portfolio, including but not limited to: employee absence, reduced demand, supply chain breakdown, balance sheet strength, ability to pay dividends, and takes the necessary investment decisions. The Manager has business continuity procedures and contingency arrangements to ensure they are able to service their clients, including investment trusts. The services from third parties, including the Manager, have continued to be supplied effectively and the Board will continue to monitor arrangements through regular updates from the Manager | Û
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ESG Risks Applying ESG and sustainability criteria in the investment process may result in loss of value from companies in which the Company might otherwise invest. The Manager also monitors and responds to ESG and sustainability risks at portfolio companies as they evolve over time. This may have a positive or negative impact on performance. | The Board supports the Manager's active engagement and analysis of ESG and risks associated with climate change. The Board reviews ESG engagement by the Manager on a quarterly basis, and company research notes in the board papers address and rate ESG risks for all new investments. | Û
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In all other respects, the Company's principal risks and uncertainties have not changed materially since the year end.
Promoting the Success of the Company
The Board is required to report on how it has discharged its duties and responsibilities under section 172 of the Companies Act 2006 (the "s172 Statement"). Under section 172, the Directors have a duty to promote the success of the Company for the benefit of its members as a whole, taking into account the likely long term consequences of decisions, the need to foster relationships with the Company's stakeholders and the impact of the Company's operations on the environment.
The Company consists of four Directors and has no employees or customers in the traditional sense. As the Company has no employees, the culture of the Company is embodied in the Board of Directors. The Board seeks to promote a culture of strong governance and to challenge, in a constructive and respectful way, the Company's advisers and other stakeholders.
The Board's principal concern has been, and continues to be, the interests of the Company's shareholders and potential investors.
The Manager undertakes an annual programme of meetings with the largest shareholders and investors and reports back to the Board on issues raised at these meetings. The Investment Manager, who is based in the Manager's Tokyo office, will attend such meetings. In normal circumstances, the Board encourage all shareholders to attend and participate in the Company's AGM and shareholders can contact the Directors via the Company Secretary. Shareholders and investors can obtain up-to-date information on the Company through its website and the Manager's information services and have direct access to the Company through the Manager's customer services team or theCompany Secretary.
As an investment trust, a number of the Company's functions are outsourced to third parties. The key outsourced function is the provision of investment management services to the Manager and other stakeholders support the Company by providing secretarial, administration, depositary, custodial, banking and audit services.
The Board undertakes a robust evaluation of the Manager, including investment performance and responsible ownership, to ensure that the Company's objective of providing sustainable income and capital growth for its investors is met. The Board typically visits the Manager's offices in Tokyo on an annual basis. This enables the Board to conduct due diligence of the fund management and research teams. The Board has not travelled to Japan over the last two years whilst government restrictions on entry to the country as a result of Covid-19 were in place, however, a number of virtual meetings were held between the Board and the Manager's investment team in Tokyo to review portfolio construction and sector analysis. The portfolio activities undertaken by the Manager on behalf of the Company can be found in the Manager's Review and details of the Board's relationship with the Manager and other third party providers, including oversight, is provided in the Statement of Corporate Governance (pages 42 to 45 of the 2022 Annual Report).
Whilst the Company's direct operations are limited, the Board recognises the importance of considering the impact of the Company's investment strategy and policy on the wider community and the environment. The Board believes that its oversight of environmental, social and governance ("ESG") matters is an important part of its responsibility to stakeholders, and its proper consideration aligns with the objective to achieve long-term capital growth. The Board's review of the Manager includes an assessment of their ESG approach, which embeds ESG considerations in the investment process. Further information on how the Manager addresses ESG is disclosed in the Statement of Corporate Governance on pages 42 to 45 and in the Manager's ESG Approach on pages 87 to 90 of the 2022 Annual Report.
During the year, the Board focused on the performance of the Manager in achieving the Company's investment objective within an appropriate risk framework. In addition to ensuring that the Company's investment objective was being pursued, key decisions and actions undertaken by the Directors during the financial year and up to the date of this report have included:
· renewal of the Company's loan facilities which matured in December 2021 and January 2022 respectively, in order to continue to take advantage of the Company's investment structure to allow the use of gearing, where appropriate, to enhance long-term total returns to shareholders.
· working closely with the Manager to develop communications to raise the profile of the Company, in order to increase demand for and improve liquidity in the Company's shares, including the change of company name to align with the 'abrdn' brand.
· the decision to pay an interim dividend of 6.0p per share and a final dividend of 9.0p, in order to balance the objective of long term capital growth with the policy of providing a regular and sustainable dividend for shareholders.
· the ongoing succession planning and Board composition.
In summary, the Directors are cognisant of their duties under section 172 and decisions made by the Board take into account the interests of all of the Company's key stakeholders and reflect the Board's belief that the long-term sustainable success of the Company is linked directly to its key stakeholders.
Key Performance Indicators ("KPIs")
Performance is compared against the Company's benchmark index and its Peer Group. In view of the Manager's style of investing, there can be, in the short-term, considerable divergence from both comparators. The Board uses a three year rolling performance for the following KPIs: total NAV return against the benchmark index and share price total return compared with the Peer Group. The KPI for the discount comparison to its Peer Group is over one year. The Company's Ongoing Charges Ratio is compared with the Peer Group, taking into account its size, to ensure that total running costs remain competitive.
KPI | Achievement of KPI |
NAV (total return) relative to the Company's benchmark index (3 years)A | Yes |
Share price (total return) vs Peer Group (3 years)A | Yes |
Discount or premium of the share price to NAV vs Peer Group on an annual average (1 year)A | No |
A See page 21 of the 2022 Annual Report for details of key performance indicator results.
Over the three year period to 31 March 2022, the Company's NAV and share price return outperformed its KPI.
Duration
The Company does not have a fixed life. However, under the articles of association, if, in the 90 days preceding the Company's financial year-end (31 March), the Ordinary shares have been trading, on average, at a discount in excess of 10% to the underlying NAV over the same period, notice will be given of an ordinary resolution to be proposed at the following AGM to approve the continuation of the Company. In the 90 days to 31 March 2022, the Ordinary shares traded at an average discount of 9.4% to the underlying NAV and, as such, a continuation vote was not required.
Board Diversity
The Board recognises the importance of having a diverse group of Directors with the appropriate mix of competencies and expertise to allow the Board to fulfil its obligations. At 31 March 2022 there were two male Directors and two female Directors, all of whom bring a variety of knowledge, experience and skills and contribute distinctively to the Board's performance. Further detail is provided on page 44 (under Nomination Committee) of the 2022 Annual Report.
Employee, Environmental, Social & Human Rights Issues
The Company has no employees as it has delegated operational management to the Manager. There are therefore no disclosures to be made in respect of employees. Further information on socially responsible investment can be found on pages 42 to 45 of the 2022 Annual Report.
Global Greenhouse Gas Emissions and Streamlined Energy and CarbonReporting ("SECR")
All of the Company's activities are outsourced to third parties. The Company therefore has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013. For the same reason as set out above, the Company considers itself to be a low energy user under the SECR regulations and therefore is not required to disclose energy and carbon information.
Modern Slavery Act
Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Viability Statement
The Company's business model is designed to deliver long term capital growth to its shareholders through investment in readily realisable stocks in the Japanese equity markets. Its plans are therefore based on having no fixed or limited life provided the global equity markets continue to operate normally.
The Board has assessed the Company's prospects over a three year period in accordance with the UK Corporate Governance Code. The Board considers that this period reflects a balance between looking out over a long-term horizon and the inherent uncertainties of looking out further than three years. In assessing the viability of the Company over the review period the Directors have focused upon the following factors:
· The ongoing relevance of the Company's investment objective in the current environment;
· The principal risks detailed in the strategic report on pages 16 to 17 of the 2022 Annual Report and the steps taken to mitigate these risks. In particular, the Board has considered the operational resilience of the Company to continue in the current environment and the ability of the key third-party suppliers to continue to provide essential services to the Company. Third party services have continued to be provided effectively;
· The liquidity of the Company's underlying portfolio;
· Recent stress testing has confirmed that shares can be easily liquidated, despite the more uncertain and volatile economic environment;
· The level of forecast revenue surplus generated by the Company and its ability to achieve the dividend policy;
· The level of gearing is closely monitored by the Board. Covenants are actively monitored and there is adequate headroom in place; and
· The Company has a fixed term loan facility of JPY 1.3 billion in place until January 2023 and a revolving loan facility of JPY 1.0 billion in place until December 2024. The Company has the ability to renew or repay its gearing through proceeds from equity sales.
Accordingly, taking into account the Company's current position and its prospects, and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report.
In making this assessment, the Board has considered that matters such as significant economic or stock market volatility (including the possibility of a greater than anticipated economic impact of geopolitical developments), a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future.
The Strategic Report was approved by the Board of Directors and signed on its behalf for abrdn Japan Investment Trust plc by:
Karen Brade,Chairman27 May 2022
Results
Key Performance Indicators
Return since | ||||
1 year | 3 year | 5 year | 8 October 2013 | |
return | return | return | (change of mandate) | |
Net asset value total returnA | -10.0% | +24.1% | +25.4% | +109.7% |
Index total return | -2.7% | +18.4% | +25.9% | +99.6% |
Share price total returnA | -10.9% | +28.7% | +25.8% | +106.4% |
Peer Group share price total return | -15.4% | +23.5% | +41.6% | +134.2% |
Over period since | ||||
Over | Over | Over | 8 October 2013 | |
1 year | 3 years | 5 years | (change of mandate) | |
Average discount - Company | -10.5% | -11.6% | -11.5% | -10.5% |
Average discount - Peer Group | -7.0% | -7.8% | -6.4% | -6.3% |
A Considered to be an Alternative Performance Measure. See page 82 of the 2022 Annual Report for further details. | ||||
Source: abrdn plc, Lipper & Morningstar. | ||||
Peer group is the average of Baillie Gifford Japan, CC Japan Income & Growth, Fidelity Japan, JP Morgan Japanese and Schroder Japan Growth. | ||||
Ten Year Financial Record
Year to 31 March | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
Total revenue (£'000) | 1,604 | 1,710 | 1,222 | 1,681 | 2,015 | 1,879 | 1,839 | 1,981 | 1,815 | 1,996 |
Per share (p) | ||||||||||
Net revenue return | 5.13 | 6.00 | 3.70 | 5.67 | 7.25 | 6.59 | 6.83 | 8.08 | 6.57 | 8.54 |
Total return | 58.98 | (30.91) | 174.47 | (36.18) | 102.69 | 75.83 | (70.63) | 19.03 | 203.49 | (81.70) |
Dividends paid from revenue reserves | 4.75 | 4.50 | 2.60 | 4.20 | 6.00 | 5.20 | 5.40 | 11.00 | 9.50 | 11.50 |
Dividends paid from capital reserves | - | - | - | - | - | - | - | 4.00 | 5.50 | 3.50 |
Net asset value | 413.61 | 377.94 | 547.91 | 511.29 | 611.41 | 682.31 | 607.89 | 617.09 | 807.66 | 713.43 |
Shareholders' funds (£'000) | 60,352 | 55,148 | 79,949 | 79,723 | 92,168 | 100,472 | 88,025 | 85,206 | 107,438 | 89,930 |
Ten Largest Investments
As at 31 March 2022
6.0% Total assets | Tokio Marine Holdings, Inc. Tokio Marine is the most progressive of the three largest local property and casualty insurers. Of note is its positive view on shareholder returns, which we expect will grow gradually as it makes further inroads abroad that add value to its business. |
| 4.4% Total assets | Toyota Motor Corporation The carmaker has continued to gain market share, while cost efficiencies from its global platform structure protect its margins. It is also focused on hybrid technology, given rising structural trends such as vehicle electrification. |
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4.3% Total assets | KDDI Corporation KDDI stands out among the telecom incumbents for its balanced approach to growth and shareholder returns. Its stable user base helps drive earnings, and by bundling telecoms and non-telecoms services, KDDI has a good record of enhancing revenue while lowering customer churn. |
| 4.0% Total assets | Shin-Etsu Chemical Company Despite the challenging environment, the Japanese maker of specialty chemicals remains a leader in its industry, due to its technological edge and a greater focus on profits than most of its Japanese rivals. |
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4.0% Total assets | Sony Corporation The electronics giant has a dominant market share in the image sensor business, and we are gaining confidence in its management and the trajectory of its underlying business fundamentals. |
| 3.6% Total assets | Tokyu Fudosan Holdings After several years of investments, Tokyu Fudosan, a real estate developer affiliated with railway operator Tokyu Corp, stands to gain from several re-development projects in Tokyo's Shibuya district, which will help improve its earnings and profitability in the medium term. |
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3.1% Total assets | Asahi Group Holdings Japan's largest brewer is well positioned to achieve growth through premiumisation, cost synergies and cross-selling between different brands. |
| 2.7% Total assets | Keyence Corporation The leading maker of sensors has a cash generative business, backed by a strong balance sheet and technological expertise. |
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2.7% Total assets | Recruit Holdings Corporation Recruit has a dominant HR platform that drives its growth by capturing the hiring needs of SMEs worldwide. It invests in technology, particularly in job search, using cash generated from its strong domestic HR and lifestyle-related media businesses. |
| 2.7% Total assets | Misumi Group Misumi makes precision machinery parts mainly for the domestic market. We see its growth prospects underpinned by China and expansion to new areas such as logistics automation. |
Investment Portfolio
As at 31 March 2022
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Valuation | Total | ||
2022 | investments | ||
Company | Sector | £'000 | % |
Tokio Marine Holdings, Inc. | Non-life Insurance | 6,039 | 6.0 |
Toyota Motor Corporation | Automobiles and Parts | 4,422 | 4.4 |
KDDI Corporation | Telecommunications Service Providers | 4,337 | 4.4 |
Shin-Etsu Chemical Company | Chemicals | 3,998 | 4.0 |
Sony Corporation | Leisure Goods | 3,975 | 4.0 |
Tokyu Fudosan Holdings | Real Estate Investment and Services | 3,632 | 3.6 |
Asahi Group Holdings | Beverages | 3,142 | 3.2 |
Keyence Corporation | Electronic and Electrical Equipment | 2,758 | 2.8 |
Recruit Holdings Corporation | Industrial Support Services | 2,686 | 2.7 |
Misumi Group | Industrial Engineering | 2,671 | 2.7 |
Top ten investments | 37,660 | 37.8 | |
Sho-Bond Holdings Company | Construction and Materials | 2,347 | 2.4 |
Tokyo Electron | Technology Hardware and Equipment | 2,252 | 2.3 |
Chugai Pharmaceutical Company | Pharmaceuticals and Biotechnology | 2,238 | 2.2 |
Zenkoku Hosho Company | Finance and Credit Services | 2,193 | 2.2 |
Daikin Industries | Construction and Materials | 2,102 | 2.1 |
Nippon Sanso Holdings | Chemicals | 2,078 | 2.1 |
Ajinomoto | Food Producers | 2,037 | 2.0 |
Resorttrust | Travel and Leisure | 1,974 | 2.0 |
Hoya Corporation | Medical Equipment and Services | 1,878 | 1.9 |
Astellas Pharma | Pharmaceuticals and Biotechnology | 1,853 | 1.9 |
Top twenty investments | 58,612 | 58.9 | |
Amada Company | Industrial Engineering | 1,711 | 1.7 |
Welcia Holdings Company | Personal Care, Drug and Grocery Stores | 1,546 | 1.5 |
ValueCommerce Company | Media | 1,537 | 1.5 |
Denso Corporation | Automobiles and Parts | 1,490 | 1.5 |
AGC | General Industrials | 1,481 | 1.5 |
Heiwa Real Estate | Real Estate Investment and Services | 1,368 | 1.4 |
Shoei Co | Household Goods and Home Construction | 1,247 | 1.3 |
Nippon Paint Holdings Company | General Industrials | 1,141 | 1.1 |
Kansai Paint Company | General Industrials | 1,112 | 1.1 |
Elecom Company | Technology Hardware and Equipment | 1,069 | 1.1 |
Top thirty investments | 72,314 | 72.6 | |
Advantest Corporation | Technology Hardware and Equipment | 1,065 | 1.1 |
Kohoku Kogyo | Electronic and Electrical Equipment | 1,059 | 1.1 |
Z Holdings Corporation | Software and Computer Services | 1,057 | 1.1 |
Yamaha Corporation | Leisure Goods | 1,039 | 1.0 |
NEC Networks & System Integration Corporation | Telecommunications Equipment | 1,010 | 1.0 |
NEC Networks | Technology Hardware and Equipment | 1,007 | 1.0 |
Fanuc Corporation | Industrial Engineering | 1,001 | 1.0 |
Makita Corporation | Household Goods and Home Construction | 958 | 1.0 |
Nitori Holdings | Retailers | 942 | 0.9 |
Jeol | Electronic and Electrical Equipment | 941 | 0.9 |
Top forty investments | 82,393 | 82.7 | |
Scroll Corporation | Retailers | 933 | 0.9 |
Koito Manufacturing | Automobiles and Parts | 910 | 0.9 |
Murata Manufacturing | Technology Hardware and Equipment | 899 | 0.9 |
As One Corporation | Medical Equipment and Services | 817 | 0.8 |
Fukui Computer Holdings | Software and Computer Services | 805 | 0.8 |
Zuken | Software and Computer Services | 802 | 0.8 |
Nabtesco Corporation | Industrial Engineering | 798 | 0.8 |
Shiseido Company | Personal Goods | 785 | 0.8 |
Milbon Company | Personal Goods | 765 | 0.8 |
Kaga Electronics | Technology Hardware and Equipment | 762 | 0.8 |
Top fifty investments | 90,669 | 91.0 | |
Japan Exchange Group | Investment Banking and Brokerage Services | 749 | 0.8 |
Okinawa Cellular Telephone | Telecommunications Service Providers | 743 | 0.7 |
Tokyo Century Corporation | Finance and Credit Services | 700 | 0.7 |
Asahi Intecc Company | Medical Equipment and Services | 689 | 0.7 |
Menicon Company | Medical Equipment and Services | 649 | 0.7 |
Ibiden | Technology Hardware and Equipment | 564 | 0.6 |
Daiichi Sankyo | Pharmaceuticals and Biotechnology | 535 | 0.5 |
Sanken Electric | Technology Hardware and Equipment | 484 | 0.5 |
Takuma | Construction and Materials | 481 | 0.5 |
Takara Bio | Pharmaceuticals and Biotechnology | 477 | 0.5 |
Top sixty investments | 96,740 | 97.2 | |
BML | Health Care Providers | 471 | 0.5 |
Otsuka Corporation | Software and Computer Services | 464 | 0.5 |
WealthNavi | Investment Banking and Brokerage Services | 382 | 0.4 |
Nihon M&A Centre | Investment Banking and Brokerage Services | 358 | 0.3 |
Sansan | Software and Computer Services | 332 | 0.3 |
Appier Group | Software and Computer Services | 319 | 0.3 |
Net Protections Holdings | Industrial Support Services | 278 | 0.3 |
Workman | Retailers | 232 | 0.2 |
Total investments | 99,576 | 100.0 | |
Unless otherwise stated, foreign stock is held and all investments are equity holdings. | |||
Investment Case Studies
AGC
AGC (formerly the Asahi Glass Co., Ltd) was founded as a maker of flat glass in 1907. The company later expanded into other business areas including vehicle coatings, chemicals and electronics. It has been using the funds from its highly cash-generative businesses, including glass products, to invest in structural growth opportunities. These include pharmaceutical development and manufacturing outsourcing, EUV masks blanks (used in the semiconductor industry), and glass and display products for next-generation vehicles.
In the Investment Manager's discussions with AGC's senior management regarding the company's climate strategy and policy on greenhouse gas (GHG) emissions, it was encouraged to learn that AGC undertook a review of its climate footprint via the Taskforce for Climate-related Financial Disclosures (TCFD) framework in 2019. This enabled AGC to work through the impact of various climate change scenarios on its business and acknowledge the significant risks that it faces. As a result, the company committed to being a net-zero carbon business by 2050.
In 2021, AGC established an additional, more immediate, carbon reduction milestone. By 2030, it intends to reduce its carbon footprint using several methods, including upgrading its 30-plus float furnaces which are the main source of greenhouse gas emissions (GHG) in its glass-making activities. AGC intends to enhance the production, fuel combustion and energy efficiencies of its furnaces, as well as install solar panels. Whilst this was encouraging, the Investment Manager suggested that the company could better inform investors by disclosing one-year emissions targets, as well as reporting on its annual emissions.
The Investment Manager also learned that AGC's architectural glass helps reduce carbon dioxide emissions during product use by ten times the amount of GHG emitted during production of the glass. This is a typical issue for manufacturing companies, where so-called scope 1 (direct) and scope 2 (indirect) emissions are high, but the manufacturer's products significantly reduce scope 3 emissions (emissions from a company's value chain). The Investment Manager again advised the company to better inform the market through the disclosure of this information and will monitor the company's progress in this regard.
Welcia Holdings (Welcia)
Welcia is the leading drugstore operator in Japan, offering its customers an attractive mix of convenience retail. It sells household goods, wellness foods and cosmetics and provides pharmaceutical dispensing services.
The company has demonstrated higher than average industry growth rates in customer spending and footfall growth through a mix of tailored stores, intelligent use of promotions and a dedicated focus on in-store pharmacies, a structural growth area in Japan's ageing society. Moreover, the company has a solid record in mergers and acquisitions and in raising the profitability of acquired stores. With the drugstore industry still being comparatively more fragmented than other retail formats in Japan, stronger drugstore players such as Welcia have been able to make opportunistic acquisitions.
The Investment Manager took the opportunity to speak to the company about its diversity efforts during a recent meeting and views its efforts and targets as encouraging. As part of its three-year plan, Welcia established a goal of having women make up at least 20% of its store managers by February 2023. The company also introduced gender-neutral uniforms in 2021.
Furthermore, Welcia ran a seminar programme for all employees to deepen their understanding of LGBTQ. The company's hiring rate of people with disabilities remains over 3%, above Japan's legal requirement of 2.2%. Welcia also supports the work-life balance of its employees during their child-raising years, establishing a system beyond legal requirements. For example, parental leave is set one year longer than the legal stipulation. The Investment Manager intends to continue this type of conversation with the company to encourage diversity and to promote other ESG matters.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK accounting standards and applicable law, including FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent
· state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial report
We confirm that to the best of our knowledge:
the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
the strategic report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
For and on behalf of abrdnJapan Investment Trust plcKaren Brade,Chairman27 May 2022
Statement of Comprehensive Income
Year ended 31 March 2022 | Year ended 31 March 2021 | ||||||
Revenue | Capital | Total | Revenue | Capital | Total | ||
Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Net (losses)/gains on investments | 10 | - | (11,731) | (11,731) | - | 25,747 | 25,747 |
Income | 3 | 1,996 | - | 1,996 | 1,815 | - | 1,815 |
Exchange gains | 14 | - | 501 | 501 | - | 1,491 | 1,491 |
Management fee | 4 | (276) | (413) | (689) | (275) | (412) | (687) |
Administrative expenses | 5 | (353) | (6) | (359) | (423) | (14) | (437) |
Net return before finance costs and taxation | 1,367 | (11,649) | (10,282) | 1,117 | 26,812 | 27,929 | |
Finance costs | 6 | (57) | (85) | (142) | (44) | (65) | (109) |
Net return before taxation | 1,310 | (11,734) | (10,424) | 1,073 | 26,747 | 27,820 | |
Taxation | 7 | (200) | - | (200) | (181) | - | (181) |
Net return after taxation | 1,110 | (11,734) | (10,624) | 892 | 26,747 | 27,639 | |
Return per Ordinary share (pence) | 9 | 8.54 | (90.24) | (81.70) | 6.57 | 196.92 | 203.49 |
The total column of this statement represents the profit and loss account of the Company. | |||||||
All revenue and capital items in the above statement derive from continuing operations. | |||||||
The accompanying notes are an integral part of the financial statements. | |||||||
Statement of Financial Position
As at | As at | ||
31 March 2022 | 31 March 2021 | ||
Notes | £'000 | £'000 | |
Fixed assets | |||
Investments held at fair value through profit or loss | 10 | 99,576 | 117,711 |
Current assets | |||
Debtors | 11 | 1,154 | 916 |
Cash at bank and in hand | 264 | 528 | |
1,418 | 1,444 | ||
Creditors: amounts falling due within one year | 12 | ||
Foreign currency bank loans | (10,634) | (11,147) | |
Other creditors | (430) | (570) | |
(11,064) | (11,717) | ||
Net current liabilities | (9,646) | (10,273) | |
Net assets | 89,930 | 107,438 | |
Share capital and reserves | |||
Called-up share capital | 13 | 1,582 | 1,582 |
Share premium | 6,656 | 6,656 | |
Capital redemption reserve | 2,273 | 2,273 | |
Capital reserve | 14 | 77,788 | 95,169 |
Revenue reserve | 1,631 | 1,758 | |
Equity shareholders' funds | 89,930 | 107,438 | |
Net asset value per Ordinary share (pence) | 15 | 713.43 | 807.66 |
The financial statements were approved and authorised for issue by the Board of Directors on 27 May 2022 and were signed on its behalf by: | |||
Karen Brade | |||
Chairman | |||
The accompanying notes are an integral part of the financial statements. | |||
Statement of Changes in Equity
For the year ended 31 March 2022 | |||||||
Capital | |||||||
Share | Share | redemption | Capital | Revenue | |||
capital | premium | reserve | reserve | reserve | Total | ||
Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 31 March 2021 | 1,582 | 6,656 | 2,273 | 95,169 | 1,758 | 107,438 | |
Return after taxation | - | - | - | (11,734) | 1,110 | (10,624) | |
Dividends paid | 8 | - | - | - | (724) | (1,237) | (1,961) |
Purchase of Ordinary shares to be held in treasury | 13 | - | - | - | (4,923) | - | (4,923) |
Balance at 31 March 2022 | 1,582 | 6,656 | 2,273 | 77,788 | 1,631 | 89,930 | |
For the year ended 31 March 2021 | |||||||
Capital | |||||||
Share | Share | redemption | Capital | Revenue | |||
capital | premium | reserve | reserve | reserve | Total | ||
Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 31 March 2020 | 1,582 | 6,656 | 2,273 | 72,334 | 2,361 | 85,206 | |
Return after taxation | - | - | - | 26,747 | 892 | 27,639 | |
Dividends paid | 8 | - | - | - | (548) | (1,495) | (2,043) |
Purchase of Ordinary shares to be held in treasury | 13 | - | - | - | (3,364) | - | (3,364) |
Balance at 31 March 2021 | 1,582 | 6,656 | 2,273 | 95,169 | 1,758 | 107,438 | |
The accompanying notes are an integral part of the financial statements. | |||||||
Statement of Cash Flows
Year ended | Year ended | |
31 March 2022 | 31 March 2021 | |
£'000 | £'000 | |
Operating activities | ||
Net return before taxation | (10,424) | 27,820 |
Adjustment for: | ||
Losses/(gains) on investments | 11,731 | (25,747) |
(Decrease)/increase in other creditors | (114) | 150 |
Finance costs | 142 | 109 |
Expenses taken to capital reserve | 6 | 14 |
Foreign exchange gains | (501) | (1,491) |
Overseas withholding tax | (200) | (181) |
Increase in accrued dividend income | (31) | (16) |
Decrease/(increase) in other debtors | 11 | (18) |
Net cash inflow from operating activities | 620 | 640 |
Investing activities | ||
Purchases of investments | (26,105) | (59,281) |
Sales of investments | 32,137 | 63,755 |
Expenses allocated to capital | (6) | (14) |
Net cash inflow from investing activities | 6,026 | 4,460 |
Financing activities | ||
Bank and loan interest paid | (146) | (107) |
Equity dividends paid | (1,961) | (2,043) |
Purchase of own shares to treasury | (4,791) | (3,364) |
Net cash outflow from financing activities | (6,898) | (5,514) |
Decrease in cash | (252) | (414) |
Analysis of changes in cash during the year | ||
Opening balance | 528 | 1,000 |
Effects of exchange rate fluctuations on cash held | (12) | (58) |
Decrease in cash as above | (252) | (414) |
Closing balance | 264 | 528 |
The accompanying notes are an integral part of the financial statements. |
Notes to the Financial Statements
For the year ended 31 March 2022
1. | Principal activity |
The Company is a closed-end investment company, registered in England and Wales No. 03582911, with its Ordinary shares being listed on the London Stock Exchange. |
2. | Accounting policies | |
(a) | Basis of accounting and going concern. The financial statements have been prepared in accordance with Financial Reporting Standard 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ("SORP") issued by the Association of Investment Companies ("AIC") in April 2021. They have also been prepared on the assumption that approval as an investment trust will continue to be granted. | |
The Company's assets consist mainly of equity shares in companies listed on a recognised stock exchange and in most circumstances, including in the current market environment, are considered to be realisable within a short timescale. The Board has reviewed the results of stress testing prepared by the Manager in relation to the ability of the assets to be realised in the current market environment. | ||
The Company does not have a fixed life. However, under the Articles of Association, if, in the 90 days preceding the Company's financial year-end (31 March), the Ordinary shares have been trading, on average, at a discount in excess of 10% to the underlying NAV over the same period, notice will be given of an ordinary resolution to be proposed at the following AGM to approve the continuation of the Company. In the 90 days to 31 March 2022, the Ordinary shares traded at an average discount of 9.4% to the underlying NAV and therefore there is no requirement to convene a general meeting of the Company. The earliest date that the Company may be subject to a further continuation vote would be at a general meeting of the Company which would be likely to be held in mid-2023 following the next review of the discount control mechanism within the Articles. | ||
The Company has a fixed term loan facility of JPY 1.3 billion maturing on 20 January 2023. In addition, the Company has a three year revolving credit facility of JPY 1.0 billion which expires on 21 December 2024. The Board has set limits for borrowing and regularly reviews the Company's gearing levels and its compliance with bank covenants. A replacement option would be sought in advance of the expiry of the facility in January 2023, or, should the Board decide not to renew this facility, any outstanding borrowing may be repaid through the proceeds of equity sales as required. | ||
The Board has considered the ongoing impact of COVID-19 and recent geopolitical developments and believes that there will be a limited resulting impact on the Company's operational resources and existence. The results of stress testing prepared by the Manager, which models a sharp decline in market levels and income, demonstrated that the Company had the ability to raise sufficient funds so as to remain within its debt covenants and pay expenses. | ||
Taking the above factors into consideration, the Board has a reasonable expectation that the Company has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of these financial statements. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements. | ||
The Company's financial statements are presented in Sterling, which is also the functional currency as it is the basis upon which shareholders operate and expenses are generally paid. All values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated. | ||
The accounting policies applied are unchanged from the prior year and have been applied consistently. | ||
(b) | Valuation of investments. The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors. Accordingly, upon initial recognition the Company designates the investments 'at fair value through profit or loss'. Fair value is taken to be the investment's cost at the trade date (excluding expenses incidental to the acquisition which are written off in the Statement of Comprehensive Income, and allocated to 'capital' at the time of acquisition). | |
Subsequent to initial recognition, investments continue to be designated at fair value through profit or loss, which is deemed to be bid prices, where the bid price is available, or otherwise at fair value based on published price quotations. | ||
(c) | Income. Dividends, including taxes deducted at source, are included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are reviewed on a case-by-case basis and may be credited to capital, if circumstances dictate. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital reserves. Interest receivable on bank balances is dealt with on an accruals basis. | |
Where applicable the dividend income is disclosed net of irrecoverable taxes deducted at source. | ||
(d) | Expenses. All expenses are accounted for on an accruals basis. Expenses are allocated to revenue in the Statement of Comprehensive Income except as follows: | |
- expenses are allocated and borne by capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect, the investment management fee is allocated 40% to revenue and 60% to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth; and | ||
- transactions costs are charged to capital. | ||
a)
(e) | Taxation. The tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible (see note 7 for a more detailed explanation). The Company has no liability for current tax. | |
Deferred taxation. Deferred taxation is provided on all timing differences, that have originated but not reversed at the Statement of Financial Position date, where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Statement of Financial Position date, measured on an undiscounted basis and based on tax rates expected to apply in the period that the timing differences reverse. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to maintain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. | ||
(f) | Nature and purpose of reserves | |
Called-up share capital. The Ordinary share capital on the Statement of Financial Position relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve. This reserve is not distributable. | ||
Share premium. The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity share capital comprising Ordinary shares of 10p. This reserve is not distributable. | ||
Capital redemption reserve. The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company's own shares purchased and cancelled in order to maintain the Company's capital. This reserve is not distributable. | ||
Capital reserve. Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. The capital element of the management fee and relevant finance costs are charged to this reserve. Any associated tax relief is also credited to this reserve. The costs of share buybacks to be held in treasury are also deducted from this reserve. The capital reserve, to the extent that the gains are deemed realised, is distributable including by way of dividend. | ||
Revenue reserve. This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. |
b)
(g) | Foreign currencies. Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction. | |
Foreign currency asset and liability balances are translated to Sterling at the middle rate of exchange at the year end. Differences arising from translation are treated as capital gain or loss to capital or revenue within the Statement of Comprehensive Income depending upon the nature of the gain or loss. | ||
(h) | Dividends payable. Dividends are recognised in the financial statements in the period in which they are paid. | |
(i) | Borrowings. All secured borrowings are initially recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest bearing borrowings are subsequently measured at amortised cost. The finance costs of such borrowings are accounted for on an accruals basis using the effective interest rate method and are charged 40% to revenue and 60% to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth. | |
(j) | Significant estimates and judgements. The Directors do not believe that any accounting judgements or estimates have been applied to these financial statements that have a significant risk of causing material adjustment to the carrying amount of assets and liabilities within the next financial year. The Directors believe that there is one key judgement. The Company's investments and borrowings are made in Japanese yen, however the Board considers the Company's functional currency to be Sterling. In arriving at this conclusion, the Board considered that the shares of the Company are listed on the London Stock Exchange, it is regulated in the United Kingdom, principally having its shareholder base in the United Kingdom and also, pays dividends and expenses in Sterling. |
3. | Income | ||
2022 | 2021 | ||
£'000 | £'000 | ||
Income from investments | |||
Overseas dividends | 1,996 | 1,815 | |
Total income | 1,996 | 1,815 |
4. | Management fee | ||||||
2022 | 2021 | ||||||
Revenue | Capital | Total | Revenue | Capital | Total | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Management fee | 276 | 413 | 689 | 275 | 412 | 687 | |
For the year ended 31 March 2022 management and secretarial services were provided by Aberdeen Standard Fund Managers Limited ("ASFML"). The agreement for the provision of management services has been sub-delegated to abrdn Japan Limited. | |||||||
The management fee is charged on the lesser of the Company's net asset value or market capitalisation, payable monthly in arrears. Market capitalisation is defined as the closing share price quoted on the London Stock Exchange multiplied by the number of shares in issue less the number of any shares held in treasury, as determined on the last business day of the applicable calendar month to which the fee relates. The balance due to ASFML at the year end was £101,000 (2021 - £185,000). | |||||||
5. | Administrative expenses | ||||||
2022 | 2021 | ||||||
Revenue | Capital | Total | Revenue | Capital | Total | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Promotional fees | 53 | - | 53 | 51 | - | 51 | |
Directors' fees | 104 | - | 104 | 90 | - | 90 | |
Custody fees | 20 | - | 20 | 22 | - | 22 | |
Depositary fees | 11 | - | 11 | 15 | - | 15 | |
Registrars fees | 38 | - | 38 | 45 | - | 45 | |
Printing and postage | 22 | - | 22 | 31 | - | 31 | |
Legal and professional fees | 20 | - | 20 | 92 | - | 92 | |
Transaction costs on investment purchases | - | 6 | 6 | - | 14 | 14 | |
Auditor's remuneration (excluding irrecoverable VAT): | |||||||
- fees payable to the Company's auditor for the audit of the annual accounts | 44 | - | 44 | 35 | - | 35 | |
Other | 41 | - | 41 | 42 | - | 42 | |
353 | 6 | 359 | 423 | 14 | 437 | ||
The management agreement with ASFML also provides for the provision of promotional activities. The total fees paid and payable under the management agreement in relation to promotional activities were £53,000 (2021 - £51,000) with a balance of £13,000 (2021 - £38,000) being due to ASFML at the year end. The Company has an agreement with ASFML for the provision of company secretarial services and administration services; no separate fee is charged to the Company in respect of this agreement. | |||||||
6. | Finance costs | ||||||
2022 | 2021 | ||||||
Revenue | Capital | Total | Revenue | Capital | Total | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Bank loans | 57 | 85 | 142 | 44 | 65 | 109 | |
7. | Taxation | |||||||
2022 | 2021 | |||||||
Revenue | Capital | Total | Revenue | Capital | Total | |||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
(a) | Analysis of charge for the year | |||||||
Irrecoverable overseas taxation | 200 | - | 200 | 181 | - | 181 | ||
Total tax charge | 200 | - | 200 | 181 | - | 181 | ||
(b) | Factors affecting current tax charge for the year. The tax assessed for the year is higher (2021 - lower) than the standard rate of corporation tax in the UK. The differences can be explained below: | |||||||
2022 | 2021 | |||||||
Revenue | Capital | Total | Revenue | Capital | Total | |||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
Net return before taxation | 1,310 | (11,734) | (10,424) | 1,073 | 26,747 | 27,820 | ||
Net return multiplied by standard rate of corporation tax in the UK of 19% (2021 - 19%) | 249 | (2,230) | (1,981) | 204 | 5,082 | 5,286 | ||
Effects of: | ||||||||
Losses/(gains) on investments not taxable | - | 2,230 | 2,230 | - | (4,889) | (4,889) | ||
Currency gains not taxable | - | (95) | (95) | - | (284) | (284) | ||
Irrecoverable overseas withholding tax | 200 | - | 200 | 181 | - | 181 | ||
Excess management expenses | 130 | 95 | 225 | 141 | 91 | 232 | ||
Non-taxable overseas dividends | (379) | - | (379) | (345) | - | (345) | ||
Total tax charge for the year | 200 | - | 200 | 181 | - | 181 | ||
(c) | Provision for deferred taxation. At 31 March 2022 the Company had surplus management expenses and loan relationship debits with a tax value of £3,893,000 (2021 - £2,734,000) based on enacted tax rates, in respect of which a deferred tax asset has not been recognised. No deferred tax asset has been recognised because the Company is not expected to generate taxable income in the future in excess of the deductible expenses of those future periods. Therefore, it is unlikely that the Company will generate future taxable revenue that would enable the existing tax losses to be utilised. | |||||||
8. | Dividends | ||
2022 | 2021 | ||
£'000 | £'000 | ||
Amounts recognised as distributions to equity holders in the year: | |||
Prior year final dividend (2021 - 9.00p; 2020 - 9.00p) | 1,185 | 1,233 | |
Current year interim dividend (2022 - 6.00p; 2021 - 6.00p) | 776 | 810 | |
1,961 | 2,043 | ||
In order to comply with the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 the Company is required to make a dividend distribution. | |||
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability. It is proposed that the final dividend will be paid on 22 July 2022 to shareholders on the register at the close of business on 24 June 2022. | |||
The table below sets out the total dividends proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158 -1159 are considered. The revenue available for distribution by way of dividend for the year is £1,110,000 (2021 - £892,000). It is anticipated that the total dividend for the year of 15.00p (2021 - 15.00p) will be funded 11.50p (2021 - 9.50p) from the revenue reserve and 3.50p (2021 - 5.50p) from the capital reserve. | |||
2022 | 2021 | ||
£'000 | £'000 | ||
Current year proposed final dividend (2022 - 9.00p; 2021 - 9.00p) | 1,130 | 1,185 | |
Current year interim dividend (2022 - 6.00p; 2021 - 6.00p) | 776 | 810 | |
1,906 | 1,995 | ||
The cost of the proposed final dividend for 2022 is based on 12,559,910 Ordinary shares in issue, being the number of Ordinary shares in issue excluding treasury shares at the date of this report. | |||
9. | Return per Ordinary share | ||||
2022 | 2022 | 2021 | 2021 | ||
p | £'000 | p | £'000 | ||
Returns per share are based on the following figures: | |||||
Revenue return | 8.54 | 1,110 | 6.57 | 892 | |
Capital return | (90.24) | (11,734) | 196.92 | 26,747 | |
Total return | (81.70) | (10,624) | 203.49 | 27,639 | |
Weighted average number of Ordinary shares in issue | 13,002,993 | 13,582,690 | |||
10. | Investments held at fair value through profit or loss | ||
2022 | 2021 | ||
£'000 | £'000 | ||
Opening book cost | 97,537 | 84,216 | |
Opening investment holding net gains | 20,174 | 12,031 | |
Opening fair value | 117,711 | 96,247 | |
Analysis of transactions made during the year | |||
Purchases at cost (excluding transaction costs) | 25,951 | 59,374 | |
Sales - proceeds (net of transaction costs) | (32,355) | (63,657) | |
Net (losses)/gains on investments | (11,731) | 25,747 | |
Closing fair value | 99,576 | 117,711 | |
2022 | 2021 | ||
£'000 | £'000 | ||
Closing book cost | 90,973 | 97,537 | |
Closing investment holding net gains | 8,603 | 20,174 | |
Closing fair value | 99,576 | 117,711 | |
The Company received £32,355,000 (2021 - £63,657,000) from investments sold in the period. The book cost of these investments when they were purchased was £32,516,000 (2021 - £46,053,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments. | |||
As at 31 March 2022, all investments held are in quoted stocks (2021 - same). | |||
Transaction costs. During the year expenses were incurred in acquiring or disposing of investments designated as fair value through profit or loss. Expenses incurred in acquiring investments have been expensed through capital and are included within administration expenses in the Statement of Comprehensive Income, whilst expenses incurred in disposing of investments have been expensed through capital and are included within gains on investments in the Statement of Comprehensive Income. The total costs were as follows: | |||
2022 | 2021 | ||
£'000 | £'000 | ||
Purchases | 6 | 14 | |
Sales | 7 | 15 | |
13 | 29 | ||
The above transaction costs are calculated in line with the AIC SORP. The transaction costs in the Company's Key Information Document are calculated on a different basis and in line with the PRIIPs regulations. | |||
11. | Debtors: amounts falling due within one year | ||
2022 | 2021 | ||
£'000 | £'000 | ||
Amounts due from brokers | 347 | 129 | |
Prepayments and accrued income | 807 | 787 | |
1,154 | 916 | ||
All financial assets are included at amortised cost. | |||
12. | Creditors | |||
2022 | 2021 | |||
£'000 | £'000 | |||
(a) | Foreign currency bank loans | |||
Falling due within one year | 10,634 | 11,147 | ||
The Company entered into a one year fixed term loan facility with ING Bank on 21 January 2022. At the year end, JPY 1,300,000,000 (2021 - JPY1,300,000,000) equivalent to £8,131,000 (2021 - £8,523,000) had been drawn down at an all-in interest rate of 0.90% (2021 - 0.900%) which is due to mature on 20 January 2023. | ||||
In addition, on 21 December 2021, the Company entered into a three year JPY 1,000,000,000 revolving credit facility with ING Bank which expires on 21 December 2024. At the year end JPY 400,000,000 (2021 - JPY 400,000,000), equivalent to £2,503,000 (2021 - £2,624,000), had been drawn down at an all-in interest rate of 1.50% (2021 - 0.95%). At the date of this Report, the Company had drawn down JPY 400,000,000 at an all-in interest rate of 1.50%. | ||||
The terms of both loan facilities with ING Bank contain a covenant that total borrowings should not exceed 35% of the adjusted net asset value of the Company at any time and that the net asset value should not fall below £40,000,000 at any time. The Company has met these covenants throughout the period. | ||||
2022 | 2021 | |||
(b) | Other creditors falling due within one year | £'000 | £'000 | |
Amounts due to brokers | 190 | 214 | ||
Sundry creditors | 240 | 356 | ||
430 | 570 | |||
13. | Called-up share capital | ||||
2022 | 2021 | ||||
Number | £'000 | Number | £'000 | ||
Allotted, called-up and fully paid | |||||
Ordinary shares of 10p each | 12,605,268 | 1,261 | 13,302,459 | 1,330 | |
Held in treasury | 3,216,304 | 321 | 2,519,113 | 252 | |
15,821,572 | 1,582 | 15,821,572 | 1,582 | ||
Ordinary shares | Treasury shares | Total | |||
Number | Number | Number | |||
Opening balance | 13,302,459 | 2,519,113 | 15,821,572 | ||
Ordinary shares bought back for holding in treasury | (697,191) | 697,191 | - | ||
Closing balance | 12,605,268 | 3,216,304 | 15,821,572 | ||
During the year 697,191 Ordinary shares (2021 - 505,321) were bought back and held in treasury at a cost of £4,923,000 (2021 - £3,364,000). Subsequent to the year end a further 45,358 Ordinary shares were bought back for holding in treasury at a cost of £265,000. | |||||
14. | Capital reserve | ||
2022 | 2021 | ||
£'000 | £'000 | ||
At 1 April 2021 | 95,169 | 72,334 | |
(Losses)/gains over cost arising on movement in investment holdings | (11,571) | 8,143 | |
(Losses)/gains on realisation of investments at fair value | (160) | 17,604 | |
Currency gains | 501 | 1,491 | |
Administrative expenses charged to capital | (6) | (14) | |
Management fee charged to capital | (413) | (412) | |
Buyback of Ordinary shares for holding in treasury | (4,923) | (3,364) | |
Finance costs charged to capital | (85) | (65) | |
Final dividend 2021 - 5.50p paid from capital (2020 - 4.00p) | (724) | (548) | |
At 31 March 2022 | 77,788 | 95,169 | |
The capital reserve includes investment holding gains amounting to £8,603,000 (2021 - gains of £20,174,000) as disclosed in note 10. | |||
Net currency gains arising during the year of £501,000 (2021 - gains of £1,491,000) are analysed further in the table below. | |||
2022 | 2021 | ||
£'000 | £'000 | ||
Gains on revaluation of bank loan | 513 | 1,549 | |
Losses on cash deposits | (12) | (58) | |
501 | 1,491 | ||
15. | Net asset value per share | ||||
The net asset value per share and the net asset values attributable to Ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows: | |||||
Net asset value per share | Net asset values attributable | ||||
2022 | 2021 | 2022 | 2021 | ||
p | p | £'000 | £'000 | ||
Ordinary shares | 713.43 | 807.66 | 89,930 | 107,438 | |
The movements during the year of the assets attributable to the Ordinary shares were as follows: | |||||
2022 | 2021 | ||||
£'000 | £'000 | ||||
Net assets attributable at 1 April 2021 | 107,438 | 85,206 | |||
Capital return for the year | (11,734) | 26,747 | |||
Revenue after taxation | 1,110 | 892 | |||
Dividend paid from revenue | (1,237) | (1,495) | |||
Dividend paid from capital | (724) | (548) | |||
Purchase of Ordinary shares to be held in treasury | (4,923) | (3,364) | |||
Net assets attributable at 31 March 2022 | 89,930 | 107,438 | |||
The net asset value per Ordinary share is based on net assets, and on 12,605,268 (2021 - 13,302,459) Ordinary shares, being the number of Ordinary shares in issue, after deducting 3,216,304 (2021 - 2,519,113) shares held in treasury, at the year end. | |||||
16. | Financial instruments |
Risk management. The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise securities and other investments, cash balances, loans, debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. | |
Certain risk management functions have been delegated to Aberdeen Standard Fund Managers Limited ("ASFML" or "Manager") under the terms of the management agreement (further details of which are included under notes 4 and 5). The Board regularly reviews and agrees policies for managing each type of risk, as summarised below. This approach has been applied throughout the year within the Manager's risk management framework which is described below and has not changed since the previous accounting period. | |
Risk management framework. The directors of ASFML collectively assume responsibility for ASFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year. | |
ASFML is a fully integrated member of the abrdn plc group ("the Group"), which provides a variety of services and support to ASFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Standard Investments (Japan) Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company. | |
The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk and Risk Management. The team is headed up by the Group's Head of Risk, who reports to the CEO of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SHIELD"). | |
The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Audit Committee of the Group's Board of Directors and to the Group's CEO. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment. | |
The Group's corporate governance structure is supported by several committees to assist the Board of Directors of the Group, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference. | |
Risk management. The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, price risk and currency risk), (ii) liquidity risk and (iii) credit risk. | |
Market risk. The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market price risk comprises three elements - interest rate risk, price risk and currency risk. | |
Interest rate risk. Interest rate movements may affect: | |
- the level of income receivable on cash deposits; and | |
- interest payable on the Company's variable rate borrowings. | |
Management of the risk. The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. | |
Interest rate sensitivity. Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profit due to there being no investments in fixed interest securities during the year and a relatively low level of bank borrowings. |
c)
Price risk. Price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of quoted investments. | |||||||
Management of the risk. It is the Board's investment policy for the Company's assets to be invested in a selected portfolio of securities in quoted companies as explained on page 14 of the 2022 Annual Report. The Manager has a dedicated investment management process, which ensures that the risk inherent in this investment policy is controlled. Underlying the process is the belief that risk is not that individual stock prices fluctuate in the short term, or that movement in the value of the portfolio deviates from the benchmark but that risk is investment in poorly managed expensive companies which the Manager does not understand. In-depth research and stock selection procedures are in place based on this risk control philosophy. The portfolio is reviewed on a periodic basis by the Manager's Investment Committee and by the Board. | |||||||
Price sensitivity. If market prices at the Statement of Financial Position date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 March 2022 would have increased/(decreased) by £9,958,000 (2021 increased/(decreased) by £11,771,000) and equity reserves would have increased/(decreased) by the same amount. | |||||||
Foreign currency risk. The Company primarily invests in the shares of companies which are listed in Japan but can include companies listed on other stock markets which earn significant revenue from trading in Japan or hold net assets predominantly in Japan. The Statement of Financial Position, therefore, can be significantly affected by movements in foreign exchange rates. | |||||||
Management of the risk. The Company may, from time to time, match specific overseas investment with foreign currency borrowings. The Company's borrowings, as detailed in note 12, are also in foreign currency. | |||||||
The revenue account is subject to currency fluctuation arising on dividends paid in foreign currencies. The Company does not hedge this currency risk. | |||||||
Foreign currency risk exposure by currency of denomination: | |||||||
31 March 2022 | 31 March 2021 | ||||||
Net | Total | Net | Total | ||||
Overseas | monetary | currency | Overseas | monetary | currency | ||
investments | assets | exposure | investments | assets | exposure | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
Japanese Yen | 99,576 | (9,413) | 90,163 | 117,711 | (10,051) | 107,660 | |
d)
Foreign currency sensitivity. The following table details the positive impact to a 10% decrease in Sterling against the foreign currency in which the Company has exposure (based on exposure >5% of total exposure including foreign exchange contracts). The sensitivity analysis includes foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates. In the event of a 10% increase in Sterling then there would be a negative impact on the Company's returns. | |||||
2022 | 2022 | 2021 | 2021 | ||
Revenue | EquityA | Revenue | EquityA | ||
£'000 | £'000 | £'000 | £'000 | ||
Japanese Yen | 200 | 9,016 | 182 | 10,766 | |
A Represents equity exposure to relevant currencies. | |||||
Liquidity risk. This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. | |||||
Management of the risk. Liquidity risk is not considered to be significant as the Company's assets mainly comprise readily realisable securities which can be sold to meet funding requirements if necessary and flexibility is achieved through the use of loan facilities, details of which may be found in note 12. | |||||
Liquidity risk exposure. At 31 March 2022, the Company had a fixed term bank loan of £8,131,000 (2021 - £8,523,000) which is due to mature on 20 January 2023, with interest due on the principal every six months. The Company had also drawn down £2,503,000 (2021 - £2,624,000) which matures on 15 July 2022 with interest payable at each set maturity date, from its revolving credit facility (see note 12 for further details). | |||||
e)
Credit risk. This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. | |
Management of the risk. Investment transactions are carried out with a large number of brokers of good quality credit standing, and cash is held only with reputable banks with high quality external credit enhancements. | |
In addition, both stock and cash reconciliations to the Depositary's records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. | |
None of the Company's financial assets are secured by collateral or other credit enhancements and none are past due or impaired. | |
Credit risk exposure. The amount of cash at bank and in hand of £264,000 (2021 - £528,000) and debtors of £1,154,000 (2021 - £916,000) in the Statement of Financial Position represent the maximum exposure to credit risk at 31 March. | |
Fair values of financial assets and financial liabilities. The fair value of borrowings has been calculated at £10,634,000 as at 31 March 2022 (2021 - £11,147,000) compared to an accounts value in the financial statements of £10,634,000 (2021 - £11,147,000) (note 12), due to the short-term maturity. The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time and currency. The carrying value of all other assets and liabilities is an approximation of fair value. |
17. | Analysis of changes in net debt | |||||
At | Currency | Non-cash | At | |||
31 March 2021 | differences | Cash flows | movements | 31 March 2022 | ||
£'000 | £'000 | £'000 | £'000 | £'000 | ||
Cash and cash equivalents | 528 | (12) | (252) | - | 264 | |
Debt due within one year | (11,147) | 513 | - | - | (10,634) | |
(10,619) | 501 | (252) | - | (10,370) | ||
At | Currency | Non-cash | At | |||
31 March 2020 | differences | Cash flows | movements | 31 March 2021 | ||
£'000 | £'000 | £'000 | £'000 | £'000 | ||
Cash and cash equivalents | 1,000 | (58) | (414) | - | 528 | |
Debt due within one year | (12,698) | 1,549 | - | 2 | (11,147) | |
(11,698) | 1,491 | (414) | 2 | (10,619) | ||
A statement reconciling the movement in net funds to the net cash flow has not been presented as there are no differences from the above analysis. | ||||||
18. | Capital management policies and procedures |
The Company's capital management objectives are: | |
- to ensure that the Company will be able to continue as a going concern; and | |
- to maximise the income and capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Company's investment policy states that the maximum gearing level is 25% of net assets, however gearing will normally be set at a stable and lower level than the maximum. The Board has currently established a gearing level of around 12% of net assets although, with stock market fluctuations, this may range between 5% and 15%. | |
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed should be retained. | |
The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period and year end positions are presented in the Statement of Financial Position. |
19. | Fair value hierarchy |
FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following classifications: | |
Level 1 - unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date. | |
Level 2 - inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly. | |
Level 3 - inputs are unobservable (ie for which market data is unavailable) for the asset or liability. | |
All of the Company's investments are in quoted equities actively traded on a recognised stock exchange, with their fair value being determined by reference to their quoted bid prices at the reporting date (2021 - same). The total value of the investments (2022 - £99,576,000; 2021 - £117,711,000) have therefore been deemed as Level 1. |
20. | Related party transactions and transactions with the Manager |
Directors' fees and interests. Fees payable during the year to the Directors and their interest in shares of the Company are disclosed within the Directors' Remuneration Report on pages 50 and 51 of the 2022 Annual Report. | |
Transactions with the Manager. The Company has agreements with ASFML to provide management, accounting, administrative and secretarial duties. Details of the transactions and balances outstanding at the year end are disclosed in notes 4 and 5. |
Alternative Performance Measures
Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies. | ||||
Discount to net asset value per Ordinary share | ||||
The discount is the amount by which the share price is lower than the net asset value per share, expressed as a percentage of the net asset value. | ||||
2022 | 2021 | |||
NAV per Ordinary share (p) | a | 713.43 | 807.66 | |
Share price (p) | b | 635.00 | 727.50 | |
Discount | (a-b)/a | 11.0% | 9.9% | |
Net gearing | ||||
Net gearing measures the total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due from and to brokers at the year end as well as cash and short term deposits. | ||||
2022 | 2021 | |||
Borrowings (£'000) | a | 10,634 | 11,147 | |
Cash (£'000) | b | 264 | 528 | |
Amounts due to brokers (£'000) | c | 190 | 214 | |
Amounts due from brokers (£'000) | d | 347 | 129 | |
Shareholders' funds (£'000) | e | 89,930 | 107,438 | |
Net gearing | (a-b+c-d)/e | 11.4% | 10.0% | |
Ongoing charges ratio | ||||
The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values with debt at fair value throughout the year. | ||||
2022 | 2021 | |||
Investment management fees (£'000) | 689 | 687 | ||
Administrative expenses (£'000) | 359 | 437 | ||
Less: non recurring chargesA (£'000) | (2) | (27) | ||
Less: transaction costs on investment purchases (£'000) | (6) | (14) | ||
Ongoing charges (£'000) | 1,040 | 1,083 | ||
Average net assets (£'000) | 103,730 | 103,977 | ||
Ongoing charges ratio | 1.00% | 1.04% | ||
A Comprises legal and professional fees which are not expected to recur. | ||||
At 31 March 2022 the Company's OCR was 1.00% as above compared to the Peer Group weighted average OCR of 0.74% (average net assets at 31 March 2022 - £420 million)(Source AIC).The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which includes amongst other things, the cost of borrowings and transaction costs. | ||||
Total return | ||||
NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. Share price and NAV total returns are monitored against open-ended and closed-ended competitors, and the Reference Index, respectively. | ||||
Share | ||||
Year ended 31 March 2022 | NAV | Price | ||
Opening at 31 March 2021 | a | 807.7p | 727.5p | |
Closing at 31 March 2022 | b | 713.4p | 635.0p | |
Price movements | c=(b/a)-1 | -11.7% | -12.7% | |
Dividend reinvestmentA | d | 1.7% | 1.8% | |
Total return | c+d | -10.0% | -10.9% | |
Share | ||||
Year ended 31 March 2021 | NAV | Price | ||
Opening at 31 March 2020 | a | 617.1p | 550.0p | |
Closing at 31 March 2021 | b | 807.7p | 727.5p | |
Price movements | c=(b/a)-1 | 30.9% | 32.3% | |
Dividend reinvestmentA | d | 2.6% | 2.9% | |
Total return | c+d | +33.5% | +35.2% | |
A NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the ex-dividend date. Share price total return involves reinvesting the net dividend in the share price of the Company on the ex-dividend date. | ||||
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
*Neither the Company's website nor the content of any website accessible from hyperlinks on that website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.
For abrdn Japan Investment Trust plc
Aberdeen Asset Management PLC, Secretary
END