AJIT.L Regulatory News (AJIT)

ABERDEEN JAPAN INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT FOR THE YEAR ENDED 31 MARCH 2019

FINANCIAL HIGHLIGHTS

STRATEGIC REPORT

CHAIRMAN'S STATEMENT

Performance

For the year under review, on a total return basis, your Company's net asset value (NAV) fell by 10.2% compared to the Topix benchmark, which declined by 1.8%. The share price fell by 9.1% as the discount to NAV per share marginally tightened from 14.6% to 13.6%.

These results reflect the Company's weighting to Japanese stocks with exposure to international trade, particularly with China. Over the longer term, since the change to a Japan-only mandate, the Company has delivered results in line with the index. The Board believes that the Company will reverse its recent underperformance as the external environment develops, and over time deliver excess returns. 

Overview

Despite Japanese share prices hitting a 27-year high last autumn, the past year has been challenging for the market. The return of volatility that buffeted the first half was followed by a global sell-off in the latter six months. Worsening trade tensions between the world's two largest economies, the US and China, along with the deceleration in economic activity in China undermined investor sentiment and saw risk aversion spike in the second half. The deteriorating outlook forced corporations, particularly those with major capital investments pending, to defer their commitments. This exacerbated the economic slowdown, while impacting those businesses with a significant exposure to the Chinese market. 

On a separate note, technology sector stocks were hurt by Washington's attempts to thwart Beijing's rapid advance in the development of 5G wireless technology, as well as sluggish smartphone sales amid marginally incremental innovations in recent product launches. Although the US Federal Reserve's pause in monetary policy normalisation at the end of 2018 provided a boost to global stock markets, the rebound in Japanese stocks was more muted due to a less certain outlook. Sentiment among large manufacturers fell to the lowest level in two years.

Against this difficult backdrop, your Company's portfolio underperformed. Heavy selling in the market was particularly prevalent among the better-quality names that also tend to be more liquid. Such stocks are held by a larger proportion of foreign shareholders who are quick to re-allocate cash elsewhere. Notably, companies with an exposure to the Chinese economy de-rated. 

Your Manager remains convinced of the fundamentals of the portfolio's holdings and feels that the degree of pessimism, especially in the latter half-year, has been unwarranted. Details of your Company's performance for the year under review are discussed in the Investment Manager's Review on page 7.

The Manager continues to adhere to its approach of detailed due diligence and engagement with the management of the companies held in the portfolio. The domestic Japanese market remains under researched compared to other developed markets. However, corporate governance standards, though gradually improving, continue to lag other advanced economies. Your Manager invests only in companies that are relatively transparent and whose valuations can be readily analysed. The Manager's ongoing engagement also seeks to ensure that these companies' objectives remain aligned with that of minority shareholders including this Company, and that efforts are made to improve shareholders' returns over the long term. 

Management Fee

I am pleased to report that the Board has agreed with the Manager a change to the basis on which the management fee is calculated. Effective from 1 June 2019, the fee of 0.75% per annum will be charged on the lesser of the Company's net asset value or market capitalisation (as defined below), rather than on purely the net asset value. This will offer an immediate saving to the Company helping to reduce further the Ongoing Charges Ratio. The interests of the Manager will be more closely aligned with those of shareholders which is to reduce or eliminate the discount to NAV. The fee will continue to be 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 remuneration relates.

Dividend

The Company's revenue return per share for the financial year marginally increased to 6.83p (2018 - 6.59p).

In the past the Board has paid a dividend marginally greater than that required to maintain investment trust status. It intends to maintain that policy for the current year. In consequence the dividend proposed to be payable on 12 July 2019 is 5.4p. However there are a number of factors which lead the board to propose a new, enhanced dividend policy for the year ahead and these are considered below. 

Alongside an increased focus on governance, Japanese companies are increasingly aware of the benefits of returning income to shareholders by way of dividends and share buybacks and this has enabled the Company to build up a reasonable level of revenue reserves. 

Investors increasingly are taking a total return view of their investments and the Board recognises the importance of income to our shareholders. Investors are seeking reliable income alongside capital growth, influenced by the current low interest rate environment and the recent changes to the pension rules. The Board believes that investors will welcome a higher level of distributions, without changing the investment policy of your Company.

Rather than reliance on share buybacks to limit share price volatility, the Board believes that a regular, sustainable dividend will help the Company to broaden the shareholder base and help to maintain the discount at reasonable levels. The revised dividend policy, which will be put to shareholders at the forthcoming AGM for their approval, should improve the Company's appeal amongst investors.

If the policy change, as set out in the table of resolutions, is endorsed at the AGM, the Board expects to pay an enhanced distribution to shareholders, which would consist of the Company's earnings for the year, 3p from revenue reserves plus an amount from capital reserves. As a guide, by using the Company's financial results for the year to 31 March 2019, a minimum distribution of 15.0p for the year ending 31 March 2020 is anticipated. This assumes a payment from capital of at least 5.2p (minimum of 0.85% of net assets). Dividend distributions will be made on a semi-annual basis. 

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 which comprises two parts:- a Yen 1.3 billion one year fixed term and a Yen 1.0 billion one year floating rate term which both now expire in January 2020. 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 as at 31 March 2019 was 11.6%. 

Discounts and Share Buybacks

During the period, discount volatility continued to feature within the investment trust sector, including the Company's peer group. The Board monitors closely the discount level of the Company's shares in relation to the NAV and has in place a mechanism to buy back shares at certain levels.

During the financial year, 244,838 shares were bought back into treasury at a cost of £1.35 million. Since the period end, a further 200 shares have been bought back into treasury. Overall, the discount averaged 9.4% over the last 90 days of the Company's financial year and there is no requirement under the articles therefore for the Company to put forward a continuation vote to shareholders. The discount at the end of March 2019 was 13.6% compared to 14.6% at the previous year end and an average of 11.4% for the year.

Board Composition

The Board regularly undertakes a review of its performance and structure to ensure that it has the appropriate mix of relevant skills, diversity and experience for the effective operation of the Company's business. As part of the Board's succession planning, Claire Boyle was appointed as a non-executive Director on 1 February 2019. Claire, a qualified chartered accountant, has over 17 years' experience working in finance and equity investment management running portfolios over a wide range of sectors.

Neil Gaskell retired from the Board on 31 March 2019 and I would like to thank Neil on behalf of the Board and all shareholders for his leadership and invaluable contribution over 15 years to the Board.

Environmental, Social & Corporate Governance ('ESG') 

The Company is a 'tier 1' signatory of the UK Stewardship Code which aims to enhance the quality of engagement by investors with investee companies in order to improve their socially responsible performance and the long term investment return to shareholders. The Board works closely with the Investment Manager to ensure the appropriate active engagement with the companies in which the Company invests. During the year the Manager has continued to integrate its engagement of ESG issues into the investment process, reporting the results regularly to the Board and has disinvested from one company as a result of unacceptable governance.

Outlook

In the near term, your Manager expects that market sentiment will continue to be dictated by slowing global growth and the challenges of trade negotiations. Share prices are likely to be affected by the proposed increase in the planned consumption tax later this year and concerns over the impact of decelerating growth in China, especially on companies with significant exposure to the mainland. Nevertheless, the Japanese stock market remains attractive over the longer term.

Japanese companies across the market-cap spectrum, particularly many of those held in the Company's portfolio, are world leaders in their industries, run by experienced, conservative management who invest consistently to maintain their competitive advantage. Many have established operations in markets overseas to circumvent potential trade barriers as well as to be nearer to their end markets. While forays abroad often come with steep learning curves, it places these companies on a solid footing for their next phase of growth. 

As part of the Company's All-Cap investment mandate, the Manager has taken advantage of the increasing number of investment opportunities it is now seeing within the Small-Cap sector. This sector, which has been relatively under-researched, has the potential to provide superior alpha returns. As smaller Japanese companies show increasing awareness that pursuing good governance policies can lead to greater support from investors and a consequent improvement in the rating of their shares, the pool of potential investee companies has grown. The Company's Small-Cap exposure has increased more recently and, at the date of this report, represented 19.5% of the portfolio.

What is important is for investors to be able to discern between market noise caused by short-term, cyclical events and the deep structural changes in markets that present rewarding opportunities over the medium term.

Your Manager believes in the quality of our investee companies, their resilience in volatile markets and the solidity of their finances which should underpin growth for the future.

Karen Brade

Chairman

29 May 2019

MANAGER'S REVIEW

Overview

Japanese equities weakened in the year under review. The market traded range-bound in the first half of the period before plunging in the last quarter of 2018, when a spike in US Treasury yields compelled investors to re-assess global stock valuations. Subsequently, as the year turned, stocks climbed steadily, bolstered by expectations of a normalisation of trade flows despite the hiccup in ongoing US-China trade talks and the US Federal Reserve's pivot towards a dovish policy stance.

At home, economic growth slowed in the summer due to a series of natural disasters. It then rebounded, thanks to a recovery in capital investments. Still, as trade friction worsened, exports fell toward the end of the review period.

Portfolio review

The portfolio's net asset value per share fell by 10.2% on a total return basis, compared to the benchmark index's total return which declined by 1.8%. The equity holdings returned -9.1%, excluding the sterling hedge effect of -0.4%. The year under review was a difficult one for markets, and your Company's underperformance can be better understood in the context of the US-China trade war, as well as the China's economic slowdown resulting from the government-induced deleveraging. Industrial and tech stocks suffered the brunt of these, and hence were the biggest detractors from the portfolio's performance. Foreign investors' flight from the broader market - the worst outflows since 1987 - further exacerbated the slide in share prices, especially in the better-quality and more liquid stocks that your Company holds.

Specifically, robot-maker Fanuc and precision reduction gear-maker Nabtesco were indiscriminately sold off, particularly in the first half of the review period. Tightening credit in China caused Chinese firms to defer capital spending, affecting the duo's orderbooks. As previously mentioned in the interim report, we remain confident of their longer-term prospects: there is a growing need for manufacturers globally to adopt robotics technologies for efficiency, product quality and environmental reasons. Indeed, our conviction was reaffirmed by their recovery in recent months, with Nabtesco becoming a major stock-level contributor in the past six months. We are also pleased with the performance of Keyence, which has remained resilient despite the difficult economic outlook as its automation products help companies reduce costs, especially in challenging times. With Sino-US trade relations turning up and China's economy appearing to be on the mend, the outlook for these industrial holdings is improving.

Separately, Yahoo Japan was lacklustre as its heavy upfront investments into e-payments and e-commerce weighed on earnings. We remain positive about its long-term prospects. The diverse offerings on its portal, ranging from earthquake alerts to online auctions, gives it a solid competitive edge - one that will be enhanced in future by data from its new businesses. We are also encouraged by management's increasingly pro-active approach in communicating with investors and increased transparency. Previously, it had described profit targets only in qualitative terms, causing some investors to lose faith in its ongoing investments. Following our engagement with the CEO where we expressed our desire for a clearer account of future profit expectations, the firm subsequently disclosed its medium-term profit target for the first time.

Medical equipment supplier Sysmex was another detractor, posting sluggish sales due to slowing fundamentals and one-off issues. We believe the quality of the business remains intact, and that growing healthcare needs will result in rising demand for medical diagnostics. Nevertheless, your Company's other healthcare holdings in drugmakers Chugai Pharmaceutical and Shionogi, as well as medical-equipment manufacturer Asahi Intecc, more than made up for its negative performance. All told, the healthcare sector contributed the most to your Company's returns in the period.

Chugai was one of the portfolio's standout performers. The drugmaker received breakthrough-therapy status from US regulators for its treatment of an auto-immune disease that affects optic nerves and the spinal cord. In all, the firm has been granted this designation seven times for four drugs, underscoring its prowess in research and development; Chugai has the most drugs with this designation among local peers. Adding to the positive momentum for Chugai is its haemophilia drug Helimbra which, following the nod from US regulators, also received approval from European regulators for treating all haemophilia A patients. The drug has recorded higher-than-expected sales, and is one step closer to becoming the blockbuster that management envisaged.

Meanwhile, Shionogi received early approval for its new flu drug Xofluza, the first to be given the green light by US authorities in nearly two decades. Following that, it raised its full-year operating profit outlook, with the bullish forecast surprising the market. Xofluza is more palatable compared to rival treatments, requiring only a single dose instead of multiple doses daily for several days. In addition, Asahi Intecc held up well on expectations that the maker of medical guidewires will cement its leading position in Japan, and also gain market share in the US following a successful switch from using a third-party distributor to a direct-sales model.

During the period, we remained actively engaged with the companies in which we invest. This, we believe, not only improves governance but also shareholder returns, and we believe our on-the-ground presence and active voting of shares bolsters these efforts. Having raised the topic of capital allocation with Shin-Etsu's Chemical's management, we were heartened when it decided to lift its dividend forecast and also discussed share buybacks. Similarly, Keyence doubled its dividend payout which increased its payout ratio to 10.6%. While this can be further improved given the firm's good cashflows and large cashpile, it is a step in the right direction.

Meanwhile, Kansai Paint appointed two new independent directors, after we urged its board to improve governance and oversight standards. In all, the new board will feature six internal directors and three external ones. All of them have relevant business experience, and can be expected to represent minority shareholders fairly. In other portfolio activity, market volatility during the year afforded opportunities for us to introduce attractively valued companies that we have been eyeing.

The portfolio historically has had a higher exposure towards larger-cap stocks for quality reasons. However, we believe that the opportunity is broadening for the portfolio. An increasing number of smaller-cap companies are meeting our criteria, after efforts to raise governance and improve transparency in recent years, and market volatility has afforded opportunities to invest in companies that we believe are attractive for the long term. With this backdrop, we have been selectively shifting a proportion of the trust to capture these opportunities, whilst remaining true to our criteria.

These include Elecom, which designs and sells PCs and smartphone accessories. With its superior development capabilities, the company is able to launch new products quickly to respond to fast-changing demand for consumer electronics. Its network of low-cost outsourced manufacturers gives it a competitive edge, along with its focus on profitability. Elecom drives quality improvements at these external suppliers by embedding employees with them. Founder Junji Hada aims to grow the company's fee-based business such as digital signages, and to catch up with competition in the e-commerce space. Elecom was also among your portfolio's top stock-level contributors this past year, an endorsement by investors who fancy its growth prospects.

Aside from small caps, we continue to find opportunities amongst larger companies. We initiated a position in Tokio Marine, the most progressive of the three largest local property and casualty insurers. While the trio's dominance allows each to produce stable cashflow, Tokio Marine uses its cash pile to fuel its overseas forays in niche segments. Almost half of its profits are derived abroad, while its overseas operations allow it to spread its risks. 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.

Against these, we divested online fashion retailer Zozo, which experienced issues with the rollout of its private brand and faced a backlash from brand partners against its discount-based membership scheme. We also exited Hoshizaki Electric, which was troubled by reports of falsified sales. Although management noted that the associated earnings impact is likely to be minimal, the news demonstrates weak internal controls and raises concerns that its ambitious sales targets may be incentivising employees to engage in fraudulent behaviour.

Outlook

Japanese equities are likely to face more weakness in the near term, but there may be better days further ahead. At the time of writing, the corporate earnings season was just getting underway, and companies' forecasts for the year ahead suggested that earnings growth will probably weaken in the first half of 2019 before recovering after. Leading macroeconomic indicators are also pointing to a rebound, or at least stabilisation, in China's economy, a major export market for many Japanese companies.

The case for investing in Japanese stocks remains intact: many of them are global leaders in their industries, have solid franchises, and are operating in areas of long-term structural growth - whether robotics, consumer staples or healthcare innovation. They are in also good financial health: balance sheets are robust, and cashflows sustainable. Encouragingly, these corporates are increasingly improving shareholder returns, in line with better corporate governance standards.

Aberdeen Standard Investments (Japan) Limited

Investment Manager

29 May 2019

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

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 size 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 both outperforms and also 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 67 of the published 2019 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 good 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 asset 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.

Following the change of mandate in 2013, the Board's dividend policy was to pay a dividend marginally greater than the minimum required to maintain investment trust status. Following a review, the Board has proposed a revised enhanced dividend policy which is subject to shareholder approval at the AGM in July 2019. Going forward, the dividend distribution to shareholders would be paid semi-annually and consist of the Company's earnings for the year, 3.0p released from the revenue reserves and an amount from the 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 wind up the Company at the next AGM.

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 market place, 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 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

The Company's risks are regularly monitored at Audit Committee meetings and the Board believes that the Company is resilient to most short term operational risks which are effectively mitigated by the internal controls of the Manager and Depositary. Identification and mitigation of other longer term and strategic risks which might threaten its business model, future performance or solvency are robustly assessed by the Audit Committee and managed by the Board. The principal risks and uncertainties faced by the Company are described in the table below, together with the mitigating actions.

In addition to these risks, the outcome and potential impact of the UK Government's negotiations with the European Union on Brexit is still unclear at the date of this report. This remains an economic risk for the Company, principally in relation to the potential impact of Brexit on currency volatility and the Manager's operations. Aberdeen Standard Investments has a significant Brexit program in place aimed at ensuring that they can continue to satisfy their clients' investment needs post Brexit.

In all other respects, the Company's principal risks and uncertainties have not changed materially since the year end.

Key Performance Indicators (KPIs)

The key performance indicators (KPIs) which the Board uses to monitor the Company's performance are established industry measures, and are as follows:

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.

An analysis of the KPIs is provided below. Over the three year period to 31 March 2019, the Company's NAV and share price return underperformed its KPI. This was largely attributable to the relative underperformance of the Trust's investment portfolio in the financial year to 31 March 2019 and the loss on the Currency Hedge in the financial year to 31 March 2017 caused by the sharp depreciation of sterling following the Brexit Referendum.

The discount KPI also underperformed. The Trust's OCR reduced over the year to 31 March 2019 to 1.10% and is competitive within its Peer Group relative to its size of total assets.

Promoting the Company

The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective element of achieving this is through participation in the promotional programme run by the Aberdeen Group on behalf of a number of investment trusts under its management.

The purpose of the programme is both to enable the Company to communicate the long-term attractions of the Company effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. The Company also supports the Aberdeen Group's investor relations programme of regional roadshows, promotional and public relations campaigns.

In addition, the Company's website contains a daily update on the latest portfolio performance and a monthly summary of investment performance together with information about the Japanese market, details of the principal risks of investing in the Company and any other significant developments within the Company.

Investors should be aware that, under the PRIIPS Regulation, the Manager is required to prepare a key information document ("KID") in respect of the Company. This KID must be made available to retail investors prior to them making any investment decision and a link to it is available from the Company's website. The information and the procedures for calculating the risks, costs and potential returns contained in the KID are prescribed by the law. Investors should note that the figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed.

Board Diversity

The Board recognises the importance of having a diverse group of Directors with the right mix of competencies to allow the Board to fulfil its obligations. At 31 March 2019 there were three male Directors and two female Directors, all of whom bring different experience and skills and contribute distinctively to the Board's performance. The Board's statement on diversity is set out on page 28 of the published 2019 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. The Company's socially responsible investment policy is outlined on page 30 of the published 2019 Annual Report.

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 large and liquid stocks in the global 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 principal risks detailed in the strategic report (above) and the steps taken to mitigate these risks;

- The ongoing relevance of the Company's investment objective in the current environment;

- The level of revenue surplus generated by the Company;

- The level of gearing is closely monitored by the Board;

- The Company has the ability to renew or repay its gearing. The Company has a loan facility totalling JPY 2.3 billion in place until January 2020;

- The liquidity of the Company's portfolio and the impact of stress testing on the portfolio, including the effects of any substantial future falls in investment values; and

- The Company is invested in readily realisable listed securities.

Matters such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio or changes in investor sentiment, all of which could have an impact on the Company's prospects and viability in the future.

As an investment trust with a Japanese mandate, the Company's portfolio is unlikely to be adversely impacted as a direct result of Brexit although some currency volatility could arise.

Accordingly, taking into account the Company's current position and its prospects, 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.

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

29 May 2019

RESULTS

Financial Highlights

DIVIDENDS

INVESTMENT PORTFOLIO

Top Ten Investments as at 31 March 2019

INVESTMENT PORTFOLIO

Other Investments as at 31 March 2019

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 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 2019, the Ordinary shares traded at an average discount of 9.4% 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 in place loan facilities to the value of Yen 2.3 billion, available until January 2020 of which Yen 1.7 billion was drawn down at the year end. The Board has set limits for borrowing and regularly reviews the Company's gearing levels and its compliance with bank covenants. In advance of expiry of these facilities in January 2020, replacement options for the Company's gearing would be sought or, should the Board decide not to do so, any outstanding borrowing would be repaid through the proceeds of equity sales as required.

After making enquiries, the Directors have 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. This takes account of the liquidity of the Company's investments, and that the earliest date that the Company may be subject to a continuation vote is at the Annual General Meeting of the Company to be held in 2020. Accordingly, they continue 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 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 are required to prepare the financial statements in accordance with UK accounting standards, 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 its profit or loss 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 its 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

29 May 2019

FINANCIAL STATEMENTS

The following is the unaudited preliminary statement for the year to 31 March 2019 which was approved by the Board on 29 May 2019. The Board of Aberdeen Japan Investment Trust PLC is recommending to the Annual General Meeting of the Company to be held on 9 July 2019 the payment of a final dividend of 5.4p (2018 - 5.20p) per ordinary share making a total of 5.4p (2018 - 5.20p) paid and proposed for the year ended 31 March 2019.

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CASHFLOWS