AJIT.L Regulatory News (AJIT)

ABERDEEN JAPAN INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT FOR THE YEAR ENDED 31 MARCH 2021

FINANCIAL HIGHLIGHTS

STRATEGIC REPORT

CHAIRMAN'S STATEMENT

Overview

The past year, dominated as it has been by the Covid-19 virus, has felt like a long one. Perhaps surprisingly, given the dramatic losses just over a year ago when the virus first emerged, it has been a very positive year for global stock markets as a combination of strong Central Bank support and successful vaccine programs have supported financial markets and ongoing economic activity. Japan has been no exception. Indeed, Japan's indices have risen nearly 25% over the past twelve months and have broken out of the ranges which have shackled them for years. The domestic market has benefited from a strong response to the virus itself, well-known Japanese technological innovation, which has been a key aspect of business transition this past year, and a stable political backdrop. Moreover, as recovery has increasingly started to take hold, Japan's leveraged position to global trade has been a strong factor in attracting foreign fund flows.

Investment managers have faced the challenging task of working out which companies would firstly survive, and then thrive, as events have unfolded. In the first half of the year, when it was the shares of companies with resilient business models and strong balance sheets which performed best, your Company's investment policy of focusing on exactly these sorts of businesses led to very strong out-performance versus the benchmark and our competitors. In the second half of the year, we have seen more speculative investment behaviour, with some very high valuations being ascribed to less proven companies and only time will tell if these valuations prove to be justified. However, throughout the year, our Manager's local presence and in-house research capability has provided a clear edge in determining the likely winners from this crisis, notably those with leading e-commerce or digital solution capabilities, and led to a portfolio performance throughout the year with which we are very pleased.

Performance

I am pleased to report that the Company's share price and net asset value have both outperformed the benchmark by a significant margin, reaffirming the Manager's strategy of selecting well-run businesses with proven management. The Company's net asset value total return in sterling terms ("NAV") for the year to 31 March 2021 was 33.5%, a strong gain compared with the Topix benchmark's total return of 24.8%. The Ordinary Share price total return was 35.2% as the discount to NAV narrowed to 9.9% at 31 March 2021 (2020 - 10.9%). At 4 June 2021, the latest date prior to the approval of this Report, the discount was 11.6%.

Since the change of mandate to a Japan-only equities strategy in October 2013, the Company has delivered a NAV total return of 133.0%, compared to a benchmark total return of 105.2%, again in sterling terms. Further details of the portfolio's performance and changes to the underlying holdings are set out in the Investment Manager's Review.

Environmental, Social & Corporate Governance ("ESG") 

Over the past year, the portfolio's holdings have continued to register ESG improvements, including greater transparency in terms of disclosure, with companies more willing to engage with investors and the composition of boards growing more inclusive and diverse. Overall, these developments indicate a change in attitude and foster progress. Management teams are increasingly aiming to enhance shareholder value in their day-to-day decisions and at more strategic policy-making levels. Your Manager has been working with several companies to encourage them to track key metrics, such as carbon emissions and carbon intensity, and to disclose this information regularly with other important information on supply chain management and health and safety. Meticulously tracking and then publishing this information will help companies to improve ESG standards and ensure accountability in pursuing the targets that they have set. Japanese companies have an added advantage in that they possess the technology and leading-edge materials to attain these ESG related goals.

The portfolio's ESG standards, as measured by MSCI ratings, are higher than the benchmark, with a carbon footprint (measured using Trucost analytics) less than the broader market. Further information on the Manager's approach to ESG is included below.

Dividend

The Company's revenue return per share for the financial year was 6.57p (2020 - 8.08p). An interim dividend of 6.0p has already been declared and paid. The Board proposes a final dividend of 9.0p, making a total dividend of 15.0p (2020 - 15.0p) for the year ended 31 March 2021, in line with the Company's enhanced dividend policy which was introduced for the year ended 31 March 2020. The dividend comprises 6.5p revenue return and currently 3.0p from revenue reserves and 5.5p from capital reserves.

The Board believes that a total dividend of 15.0p for the year balances a prudent retention of capital for future investment, with a recognition of the importance of income to our shareholders, particularly in this low interest environment. Good performance, combined with a regular, sustainable semi-annual dividend, should allow the Company to broaden the shareholder base and help to maintain the share price discount to NAV at reasonable levels. The Board is keen to take advantage of the investment trust structure to allow the Company to support the enhanced dividend policy.

Gearing

The Company continued to make use of its ability to gear during the financial year. The Company renewed its loan facility with ING Bank in January 2021 which comprised two parts: a Yen 1.3 billion one year fixed term loan, which was fully drawn down; and a Yen 1.0 billion one year floating rate loan facility, of which Yen 400 million was drawn down at the year end.

The Board continues to monitor the level of gearing and considers a gearing level of around 10% to be appropriate although, with market fluctuations, this may range between 5% and 15%. Net gearing at 31 March 2021 was 10.0% (2020 - 13.6%). 

Discounts and Share Buybacks

Over the year, discount volatility continued to feature within the investment trust sector, including the Company's peer group. The Board monitors the discount level and has in place a mechanism to buy back shares at certain levels. During the financial year 505,321 shares were bought back into treasury at a cost of £3.4 million.

Overall, the discount averaged 8.6% over the last 90 days of the Company's financial year and there is therefore no requirement under the articles for the Company to put forward a continuation vote to shareholders. 

Since the end of the financial year, a further 137,232 shares have been bought back into treasury at a cost of £991,000.

The Board

It was with great sadness and regret that I reported that Kevin Pakenham passed away on 19 July 2020. Kevin had served as a Director of the Company since 2007. During this time, the Board and the shareholders benefited hugely from Kevin's significant knowledge and experience and his special wit and humour. He is greatly missed.

Following a search involving an external recruitment agency, Sam Dean was appointed as an independent non-executive Director with effect from 1 December 2020. Sam has a long career in investment banking, working in Equity Capital Markets and corporate finance on behalf of corporate and government clients globally.

The Board members have diverse backgrounds, skills and experience. The Board's policy on tenure is that the length of service of a Director is secondary to the contribution that he or she makes. Tenure will be determined on a case-by-case basis, consistent with the AIC Code of Corporate Governance. The Board has a succession plan and evaluates each Director's performance annually to ensure up-to-date skills and capacity.

Annual General Meeting ("AGM")

At the date of this report, Government guidelines on future gatherings and social distancing measures are still under review and there remains a great degree of uncertainty. The Board has therefore decided to seek to limit attendance at the AGM to the minimum quorum requirements and requests that shareholders exercise their votes in advance. Any questions which shareholders may have should be submitted to the company secretary at aberdeen.japan@aberdeenstandard.com. A presentation from the Manager will be uploaded to the Company's website on the day of the AGM.

One of the resolutions being proposed at this AGM is an amendment to the Company's articles of association to allow for virtual shareholder meetings to be held and conducted in a manner that allows those attending to speak and vote by electronic means. While the Board does not currently intend to hold meetings in this way, the resolution would allow this option when in the best interests of shareholder safety. The amendments do not prevent the Company from holding physical meetings and the Board's intention is always to hold a physical AGM when safe and practical to do so.

Outlook

Your Manager continues to engage with Japanese companies for a more prosperous future: persuading a major carmaker to increase transparency and improve how it is perceived by the market; encouraging a mid-sized property firm to scale back its less profitable operations in order to allow its core business to thrive; and pressing an equipment maker to create a better framework to enhance returns. These efforts are aimed at unlocking value as management teams become more open.

The environment remains uncertain. At the time of writing there are concerns about the new wave of the pandemic in Japan, the low levels of vaccination, and the falling popularity of the Government linked specifically to the Olympics and Paralympics (to which the Government has renewed their commitment). While Japan continues to struggle with deflation, there are also worries about the impact on the global economy if US policy leads to inflationary pressures which affect Japanese importers and investors, at a time when the Bank of Japan appears to be moving away from aggressive monetary stimulus. However, Japan should remain stable politically and economically. I am confident that the quality of the Company's underlying holdings, which have proven more than capable of withstanding the severe tests of the past year, will continue to create value for shareholders.

Karen Brade

Chairman

7 June 2021

INVESTMENT MANAGER'S REVIEW

Overview

In what was a challenging year for investors, Japanese equities recorded a double-digit gain in the year under review, but there were two distinct halves. In the first six months, with a lack of clarity over the Covid-19, the market was more risk averse and favoured quality stocks, at a time of uncertainty in the face of a global pandemic. This benefited your Company's portfolio, which outpaced the benchmark by a substantial margin. The latter half saw optimism that the development and rollout of vaccines would accelerate an end to social and work restrictions and facilitate global economic recovery. This lifted more cyclical parts of the market, with an accompanying increase in risk appetite that favoured the lower quality names that we tend to avoid.

The Japanese market reflected global trends: digitally-enabled companies initially gained the upper hand over analogue and valuations of the former group became increasingly extended, while those of the latter languished. As the year progressed, however, it became evident that the early prognosis of the pandemic's impact was harsher than the actual effects. With the approval and rollout of Covid-19 vaccines in the latter half, albeit slowly in Japan compared with other developed countries, the bifurcation across markets started to reverse. We have been taking stock of the new trends, assessing their effect on the portfolio's underlying holdings and evaluating opportunities.

Portfolio review

Against this backdrop, we are pleased to report that the Company's NAV rose by a solid 33.5% while the share price advanced by 35.2%, both in sterling total return terms.

The ongoing pandemic has had far-reaching effects on all businesses. In this environment, the Company's focus on well-run companies, which adapted quickly to changes in the market and which continue to find ways to create value, contributed to the outperformance. Importantly, we have observed positive trends in ESG initiatives across the Company's holdings. These reflect long-term contacts and dialogue initiated by your Manager, who is committed to maintaining this approach. The discussions we have had with portfolio companies include proposals to raise disclosure standards on their initiatives, to create frameworks for a better assessment of risk and to improve returns, and to promote more significant restructuring.

In terms of stock performance, shares of Sanken Electric rose following the successful listing of its US subsidiary Allegro Microsystems. This is another positive step towards unlocking the company's value, a subject which we had discussed with the company in the past as it moves from a restructuring phase to the pursuit of growth. Separately, the company also received a tender offer from an activist hedge fund, highlighting the value that remains inherent in the company. Speciality chemicals company Shin-Etsu Chemical saw its shares climb on expectations of brighter prospects for both its silicon wafer and polyvinyl-chloride manufacturing businesses. The former is the primary raw material required to make semiconductors used in most electronic devices, for which we expect the demand-supply balance to tighten over the medium term.

Meanwhile, fintech firm WealthNavi responded positively as investors continued to buy into the growth potential of its robo-advisory business, which targets the expanding segment of tech-savvy young consumers looking to invest their savings in an ultra-low interest rate environment. We initiated a holding in the company through its initial public offering in December.

Elsewhere, factory automation solutions provider Nabtesco advanced on hopes for increased capital expenditure as economic conditions improved. Most recently, the company sold its stake in affiliate Harmonic Drive Systems and dissolved the business partnership between the two companies. The proceeds are to be used for share buybacks, debt repayment and growth investments. Capital allocation is a topic that we often discuss with the company, and we had questioned the lack of synergy from this partnership. Nabtesco is a global leader in producing reduction gears for use in mid-to larger-sized industrial robots, while Harmonic Drive focuses on smaller robots - and Nabtesco has the technology to expand its business into Harmonic Drive's domain independently.

The gains from these companies more than offset those that fared less well. These included Tokio Marine, whose shares were weighed down by concerns over its exposure to policies related to business interruption insurance, but which we believe is manageable as the company has astutely diversified its business risks over the years; mobile network operator KDDI, which came under government pressure to cut tariffs, but which has expanded outside its core business and remains committed to earnings growth and shareholder returns; and drugstore operator Welcia Holdings, which performed well in the initial months of the pandemic and has seen a subsequent decline in growth rate, but which retains the dominant market position and is seen as a consolidator in a fragmented industry. We remain confident in the longer-term prospects for these businesses, which remain buffered by resilient balance sheets.

In other activity, we exited several holdings. Among these were retail conglomerate Seven & i Holdings, clinical-testing device maker Sysmex, IT-services providers SCSK and Fujisoft, control equipment provider Azbil, industrial refrigerator manufacturer Daiwa Industries, and pharmaceutical firm Shionogi & Co.

We exited Seven & i due to slow progress on restructuring of non-performing businesses in spite of our continued engagement. We initially invested in the company with the view that its core-convenience store business would drive sustained growth, offsetting weakness from non-core businesses such as department stores. However, even the core business has faced increasing competition from drugstores and other retailers. We were also disappointed by the management's decision to conduct large-scale overseas M&A, instead of tackling issues at home in spite of our engagement efforts. We exited Sysmex after the stock re-rated sharply in 2020, partly due to the company's newly developed antigen-based Covid-19 testing kit. We assessed that the company's antigen-based tests could face challenges given their inferior accuracy rates and longer preparation time required compared to some of its competing products. While we were still confident on the company's ability to build upon its dominant positioning in haematology testing, we could no longer justify the share's high valuations.

Our assessment on Azbil was similar to that of Sysmex as we felt that investors were overly optimistic on the company's prospects to develop and market a specialised air ventilation system to prevent the spread of COVID inside buildings. We believed that the technology would be too expensive for landlords to install, especially as the office space market was softening as more companies were adopting work-from-home technologies. While we remained optimistic on the company's ability to grow sales of ventilation control systems, we could no longer justify the stock's high valuation after the stock nearly doubled in 2020.

We also exited SCSK in light of better opportunities elsewhere. While we remained optimistic on the company's ability to benefit from rising demand for IT services, we believed that it was fully priced in by the market. At the same time, we identified other more attractive IT solution businesses with the client base and track record to capture structural growth opportunities such as digital government and local 5G.

These exits allowed us to establish positions in more attractive opportunities across several businesses, including leading IT solutions provider NEC Corp., which we believe is well-positioned to benefit from the build-out of Japan's 5G network and the government's digitalisation efforts. The company is also poised to expand its business abroad through a partnership with Samsung Electronics on 5G mobile network systems, as well as providing a lower-cost solution for telecommunications providers in the implementation of the new global wireless standard. Similarly, Murata Manufacturing was another new introduction. Murata is one of the few electronic component manufacturers in Japan to reinvest efficiently in its business and grow its margins, which has translated into the company's leading edge research and manufacturing capability. We also established a holding in Jeol, a world-leading maker of multi-beam semiconductor mask-writers, which are crucial in the production of high-end semiconductors. In addition to the lucrative mask-writers business, management is keen to boost profitability by expanding its sales of scientific instruments to the semiconductor and medical sectors.

We also participated in the initial public offers of both Coconala and Appier due to their relatively attractive valuations when compared with their longer-term growth outlooks. Coconala provides an online-based matching platform for knowledge, skills and services. The company is entering a virtuous cycle, whereby more transactions lead to more reviews, leading to clearer visualisation of sellers' skills and buyers' needs. Appier is an artificial intelligence-based marketing support tool provider, enabling its clients to improve data-driven decision making in digital marketing. Its proprietary algorithms help identify valuable customers, enabling more targeted ads and coupons to enhance customer conversion rates.

Outlook

Looking ahead, favourable fundamentals and a recovery in global trade should provide some tailwinds for Japanese equities, while improving governance should drive greater shareholder value.  Some trends during the pandemic are likely to remain; for example, the move to increased working from home, and the increasing shift of retail to online models. This is clear when we look across the Asia Pacific region where economies have reopened and social and business activities have resumed, although some habits formed during shutdowns persist.

Businesses that have delayed expansion plans seem to be making up for lost time, resulting in a broad based pick-up in corporate capital expenditure; there is pent-up demand not only from last year's business disruption, but also from the geopolitical uncertainty witnessed in the year before due to US/Chinese trade tensions. There are, however, risks in this scenario: valuation disparities have widened amid rising imported cost inflation; geopolitical tensions remain a challenge; and the anticipated global recovery is likely to be uneven, given the sharp disparities between countries in Covid-19 vaccination rates and the consequent ability to control the social and economic impact of high levels of virus transmission.

The Japanese Prime Minister Yoshihide Suga has maintained his predecessor Shinzo Abe's economic policies, but has seen his own popularity wane over the past six months. His low-key public persona, lost by-elections, slow and over-bureaucratic vaccination processes as further waves have gathered momentum, and the unpopularity of plans to go ahead with the Olympics (due to start on 23 July) have all been factors. Despite this, the continuity of economic management and stability of government remains.

From an investment perspective, we have kept our focus on and commitment to improving your Company's portfolio through these turbulent times. This includes our continued focus on well run businesses that are leaders in their segments, and that are linked to longer-term structural changes in society. Our diligence in carrying out proprietary research and our continued discussions around improving governance and good ESG credentials has, to date, yielded success; the results of many of the underlying companies held in the Company reaffirm our investment choices, which should position your company well for a global economy which may well be on the cusp of recovery.

Aberdeen Standard Investments (Japan) Limited,

Investment Manager

7 June 2021

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 3,500 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 80 of the published 2021 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. The selection of the portfolio of shares is the major source of the performance of the portfolio, 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 and this accounts for the relatively low level of activity within the portfolio.

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.

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 in normal circumstances and shareholders can contact the Directors via the Company Secretary. Shareholders and investors can obtain up-to-date information on the Company through its website and the Manager's information services and have direct access to the Company through the Manager's customer services team or the Company Secretary.

As an investment trust, a number of the Company's functions are outsourced to third parties. The key outsourced function is the provision of investment management services to the Manager and other stakeholders support the Company by providing secretarial, administration, depositary, custodial, banking and audit services.

The Board undertakes a robust evaluation of the Manager, including investment performance and responsible ownership, to ensure that the Company's objective of providing sustainable income and capital growth for its investors is met. The Board typically visits the Manager's offices in Tokyo on an annual basis. This enables the Board to conduct due diligence of the fund management and research teams. During the course of the financial year, 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.

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 and the Manager's ESG Approach.

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:

- as part of ongoing succession planning and Board refreshment, the appointment and induction of Sam Dean to the Board with effect from 1 December 2020.

- renewal of the Company's loan facilities which matured in January 2021, 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. As part of this process, a review of external broking services was undertaken, leading to the appointment in November 2020 of a new corporate broker, Shore Capital, in order to assist and advise in best promoting the success of the company to existing and potential shareholders, and in trading the Company's shares.

- the convening of a General Meeting in May 2020 under the articles of association, to hold a continuation vote, which was successfully passed with 89% of the votes in favour.

- 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.

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.

 Over the three year period to 31 March 2021, the Company's NAV and share price return outperformed its KPI.

The discount KPI underperformed. The Company's OCR for the year ended 31 March 2021 was 1.04%, in line with the previous year and is competitive within its Peer Group, relative to the size of its total assets and its fixed costs.

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 2021, the Ordinary shares traded at an average discount of 8.6% 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 2021 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 in the Statement of Corporate Governance.

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 in the Manager's ESG Approach .

Global Greenhouse Gas Emissions and Streamlined Energy and Carbon Reporting ("SECR")

All of the Company's activities are outsourced to third parties. The Company therefore has no greenhouse gas emissions to report from the operations of its business, 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 and the steps taken to mitigate these risks. In particular, the Board has considered the operational ability of the Company to continue in the current environment, which has been impacted by the global Covid-19 pandemic, 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 2022 and a revolving loan facility of JPY 1.0 billion in place until January 2022. 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 stockmarket volatility (including the possibility of a greater than anticipated economic impact of the spread of the Covid-19), 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 Aberdeen Japan Investment Trust PLC by:

Karen Brade,

Chairman

7 June 2021

RESULTS

Financial Highlights

DIVIDENDS

INVESTMENT PORTFOLIO

Ten Largest Investments as at 31 March 2021

INVESTMENT PORTFOLIO

Other Investments as at 31 March 2021

GOING CONCERN

The Company's assets consist of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale. The Board has reviewed the results of stress testing prepared by the Manager in relation to the ability of the assets to be realised in the current market environment.

The 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 2021, the Ordinary shares traded at an average discount of 8.6% to the underlying NAV. Accordingly, no resolution on the continuation of the Company will be put to the Company's shareholders at the Annual General Meeting.

The Company has a fixed term loan facility of JPY 1.3 billion in place until January 2022 and a revolving loan facility of JPY 1.0 billion in place until January 2022. 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 2022, or, should the Board decide not to renew this facility, any outstanding borrowing would be repaid through the proceeds of equity sales as required.

The Board has considered the ongoing impact of Covid-19 and believe that this will have a limited financial 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.

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 Aberdeen Japan Investment Trust PLC

Karen Brade,

Chairman

7 June 2021

FINANCIAL STATEMENTS

The following is the unaudited preliminary statement for the year to 31 March 2021 which was approved by the Board on 7 June 2021.

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CASHFLOWS