Fidelity Japan Trust Regulatory News (FJV)

Fidelity Japan Trust Plc - Annual Financial Report

PR Newswire

London, March 25

FIDELITY JAPAN TRUST PLC

Annual Report for the year ended 31 December 2021

Financial Highlights:

Contacts

For further information, please contact:

Natalia de Sousa

Company Secretary, FIL Investments International

01737 837846

CHAIRMAN’S STATEMENT

PERFORMANCE REVIEWFor the year to 31 December 2021, the Company’s NAV per share increased by 1.8% in sterling terms and the share price rose by 3.9%. In comparison, the Reference Index returned 2.0%. The Company performed well relative to the other growth-oriented trusts in the AIC Japan peer group over the review period but trailed those with more of a value tilt. It is gratifying to note that Fidelity Japan Trust PLC was the best performing Japanese trust in its peer group over both three and five years to 31 December 2021.

In yen terms, the Japanese market rose 10.4% over the year and reached its highest year end close since the market peaked in 1989. Sadly, the returns for sterling investors were eroded by the weakening in the yen over the year from ¥141 against the pound to ¥156.

The market saw a significant style rotation over the year with large-cap value stocks outperforming while significant declines were seen in more defensive and domestic sectors as well as in mid and small sized growth stocks. A fuller review of the drivers of the market and sources of performance over the year to end of December 2021 are included in the Portfolio Manager’s Review.

The start of 2022 saw weakness across all markets amidst fears that new COVID variants may stall the global economic recovery as well as concerns of growing inflationary pressure and the need for interest rates to rise. This has been exacerbated in recent weeks by the Russian invasion of Ukraine and the resulting volatility in global markets and concerns that the conflict and sanctions imposed on Russia will have a significant impact on energy and commodity prices. This has seen the Company’s NAV fall more than the market index as growth stocks have suffered the most over this period.

DISCOUNT MANAGEMENT, SHARE REPURCHASES AND TREASURY SHARESOver the year, the discount at which the Company’s shares traded narrowed from 6.8% at the start of the year to 4.9% at the end of the year, having peaked at 9.5%. The discount has remained in line with the Company’s policy of managing the discount so that it remains in single digits in normal market conditions, as set out in the 2019 Annual Report.

As part of the discount management policy, 678,032 ordinary shares were repurchased for holding in Treasury over the year which represented 0.5% of the issued share capital. Since the year end and as at the date of this report, no further shares have been repurchased.

At the forthcoming Annual General Meeting (“AGM”), the Board is seeking to renew the annual authority to repurchase up to 14.99% of the Company’s shares, to be either cancelled or held in Treasury, as it has done each year previously.

ONGOING CHARGESThe ongoing charge for the year, including the variable element, was 1.10% (2020: 1.04%). This comprises the fixed charges of 0.90% (2020: 0.94%) and a variable charge of 0.20% (2020: 0.10%) This increase is due to the Company’s outperformance of its Reference Index on a three-year rolling basis.

GEARINGThe Company continues to gear the portfolio through the use of long contracts for difference (“CFDs”). Throughout the course of the year, the Board supported Nicholas Price, the Portfolio Manager, in taking a dynamic approach to gearing in order to take advantage of market movements to the benefit of the Company’s performance.

The Portfolio Manager has the discretion to be up to 25% geared. Total portfolio exposure at the end of the year was £380.4m, equating to gearing of 21.6% compared with 23.5% at the end of 2020. Further information can be found in the Strategic Report. As at 22 March 2022, gearing was 22.2%.

The Board continues to be of the view that using CFDs provides more flexibility at a much lower cost than traditional bank debt, despite the low level of interest rates.

UNLISTED COMPANIESAt present, the Company is permitted to invest up to 10% of its Portfolio Exposure in unlisted companies. As Nicholas mentions in his Portfolio Manager’s Review, there have been increasing opportunities in recent years to invest in companies prior to their listing on a recognised exchange. Often, they offer an excellent opportunity for patient, long-term, investors.

During the year, Coconala and Photosynth, two previously unlisted companies, both listed on the TSE Mothers market, while new investments were made in Business-to-Consumer online platforms in areas such as online travel services, personal finance and biotech. At the end of December, there were holdings in six unlisted companies, accounting for around 5% of the portfolio.

As the opportunities for investment in unlisted companies is expected to grow, we are seeking shareholder approval at the Annual General Meeting on 17 May 2022 to increase the limit of the Company’s assets in unlisted companies from 10% to 20%.

IMPACT OF COVIDCOVID has had far-reaching consequences globally on how people work. I would like to express my thanks to Fidelity International for maintaining its high standard of support for the Company over the past two years and to Nicholas and the Fidelity team in Tokyo for adapting so readily to the changes to the work environment.

As for the Board, we were, once again, unable to conduct our annual Due Diligence trip to Japan in 2021. However, as highlighted in last year’s Annual Report, we were able to have a “virtual” visit with a series of meetings with the investment team, analysts and senior management in Tokyo. We are hoping to visit Japan in June 2022, but it remains unclear exactly when the Japanese Government will relax restrictions on foreign visitors.

BOARD CHANGESAs was reported last year, David Robins stepped down from the Board as a non-executive Director and Chairman at the conclusion of the AGM on 18 May 2021. On behalf of the Board and shareholders, I would like to thank David for his valued contribution to the Company over the ten years he served on the Board. The Board continues to review its composition and effectiveness as well as considering appropriate succession planning.

All Directors are subject to annual re-election at the AGM on 17 May 2022. Biographical details of the full Board are included in the Annual Report to assist shareholders when considering their voting at the AGM.

CONTINUATION VOTEThe Company’s Articles of Association provide that the Directors must ask shareholders every three years to vote on the continuation of the Company as an investment trust. Accordingly, a resolution proposing that the Company continues in its current form will be put to shareholders at the forthcoming AGM. The Board is pleased with the Company’s strong performance relative to the Reference Index over the last three years and remains confident in the investment team’s ability to continue to generate good investment returns over the long term, notwithstanding the recent volatility in markets. Therefore, we recommend that shareholders vote in support of the resolution. Further information can be found in the Notice of Meeting.

ANNUAL GENERAL MEETING (AGM)Sadly, as a result of COVID we have not been able to meet in person for our AGM since 2019. While we were sorry not to engage directly with shareholders we were pleased to be able to do so online, broadcasting a ‘live’ presentation and taking written questions posed in real time, using the internet. We were delighted with the level of online attendance and have received positive feedback on last year’s meeting.

At last year’s AGM, we updated the Articles of Association so that ‘hybrid’ general meetings can be held as a matter of course in future. Hybrid meetings allow attendance and voting in person as well as remotely in real time. The presentations and formal business will all be filmed and simultaneously streamed online. We will welcome questions from those in the room and attending online on an equal footing.

More details are set out in the Notice of Meeting.

OUTLOOKAt the time of writing, even if the war in Ukraine was to cease shortly, it is difficult to see when normality will return to markets given the fragile geopolitical situation and likely impact of the conflict on inflation and global economic growth.

The Board remains confident in the Portfolio Manager’s ability to invest in companies with growth prospects that are not fully recognised by the market and believes that many such opportunities continue to exist in Japan.

The team in Tokyo will be monitoring the situation closely. It is hoped that the increasing optimism that the team had for the prospects of the Tokyo stock market for 2022, based on valuations and earnings outlook, will be restored but much will depend on the persistence of the uncertainty over the conflict in Ukraine.

DAVID GRAHAM

Chairman

25 March 2022

Portfolio Manager’s Review

Nicholas Price was appointed as Portfolio Manager of Fidelity Japan Trust PLC on 1 September 2015. He joined Fidelity Investments Japan in 1993 as a research analyst. He became a portfolio manager in 1999 and has since been managing a number of Japanese equity portfolios on behalf of both Japanese and international clients.

QUESTIONWhat were the key drivers of the Japanese stock market during the year under review?

ANSWERJapanese stocks advanced over the course of 2021, though most of the gains were concentrated in the first half and share

prices lagged those in other developed markets. On the currency markets, the yen weakened to ¥156 against the pound from ¥141 at the end of 2020, diminishing sterling-based returns over the period.

At the start of the year, consensus-beating earnings results and the prospect of additional economic stimulus, primarily in the US, drove major market indices to multi-decade highs. However, gains were capped by inflation concerns and rising US Treasury yields, which weighed heavily on high-priced growth stocks. Ahead of the Tokyo Olympics, the Japanese government’s decision to extend the state of emergency and the slow start to the domestic COVID vaccine rollout generated further headwinds. Subsequently, share prices were supported by strong earnings momentum and domestic political developments, while rising vaccination rates led new COVID cases to peak. Reports that Prime Minister Yoshihide Suga would not run in the Liberal Democratic Party leadership race at the end of September attracted buying among overseas investors. However, uncertainty stemming from the US budget debate and credit concerns related to China’s Evergrande Group weighed on stocks. Thereafter, share prices reacted positively to the Liberal Democratic Party retaining its stable majority in Lower House elections and new Prime Minister Fumio Kishida’s larger-than-expected stimulus package. Solid interim earnings results also provided support. However, towards the end of the year, Japanese equities succumbed to concerns over US tapering, rising oil prices and the spread of the Omicron variant of COVID.

In terms of style, large-cap value stocks that benefited from a pickup in global growth and long-term interest rates were the strongest performers over the period. This was reflected in the outperformance of global cyclical sectors such as shipping, mining and metals. Conversely, defensive and domestic segments of the market that were negatively impacted by the virus, as well as those trading on high valuations experienced the most significant declines. Mid/small-cap growth stocks, a key segment of the Company’s holdings, faced increased selling pressure as risk sentiment deteriorated amid expectations for earlier interest rate hikes in the US. There were conspicuous laggards over the year.

QUESTIONHow has the Company performed in the period under review? What were the key contributors and detractors?

ANSWERAs noted in the Chairman’s Statement, the Company’s NAV per share increased by 1.8% in sterling terms and the share price rose by 3.9%. In comparison, the Reference Index returned 2.0%. The discount narrowed to 4.9% from 6.8% a year ago.

The standout contributor to the Company’s performance over the period was Mitsui High-tec, now a top 10 holding, which dominates nearly 70% of the global motor core market, an essential component of power-train motors in electric vehicles (EV) and hybrid vehicles. The company’s strength lies in its ultra-precision machining and die technology which is used to create high-quality motor cores and machine tools. Mitsui High-tec is a dominant supplier to Japanese car makers and is expanding its motor core production capacity. From the time the stock was added to the portfolio in late 2020, its market capitalisation has almost tripled to £2 billion. Another company tied to secular growth trends (factory automation (FA)) that made a material contribution to performance is MISUMI Group, a manufacturer and distributor of FA and metal die components. The company’s distinctive business model (it provides customised products with short delivery times) and sophisticated production system, allied with its e-commerce platform, are conducive to sustainable growth. Against a backdrop of accelerating automation demand globally and persistent supply constraints, the company delivered earnings results that exceeded market expectations. On the services side, meanwhile, positions in Recruit Holdings and Open House added value. Staffing and HR company Recruit benefited from recovering labour markets while developer Open House saw a pickup in demand for single-family homes.

In the internet space, Coconala, a unique online consumer-to-consumer (C2C) freelancing platform that enables users to trade knowledge, skills and experience, was the standout contributor to performance. I first invested in the company as an unlisted security in 2019, recognising it as a beneficiary of the many structural changes occurring in Japan’s labour market, and was attracted by its high and sustainable growth rates, as well as the high operating leverage of its business. Coconala had a strong debut on the Tokyo Stock Exchange in March 2021 and the value of the Company’s holding increased more than threefold. The success of this investment highlights the benefits of our on-the-ground research in Japan and the increasing opportunities which exist from investing in companies before they are listed.

Conversely, the position in Ryohin Keikaku, operator of the MUJI brand of general merchandise stores, was the most significant detractor from returns over the period. The company’s share price lost ground as sluggish sales trends came at a time when it was incurring upfront costs aimed at driving future growth. This led to disappointment among some market participants. However, the MUJI brand remains strong and we expect earnings to recover, supported by faster growth in Asia, centred on China, and the emerging benefits of its investments.

In the Pharmaceuticals sector, the holding in drug company Eisai struggled to perform. The slow roll out of its Alzheimer’s treatment Aduhelm in the US and approval hurdles in Europe weighed on the stock. While its share price did not reflect the potential growth of the drug or other related treatments under development, it appeared unlikely to perform in the absence of favourable trial results and the position was sold.

In the Information & Communication sector, holdings in online platform and software-as-a-service (SaaS) companies that performed well for the Company in 2020 came under selling pressure. Shares in JustSystems, a leading provider of educational and business software, fell sharply at the start of the year due to negative seasonality and style headwinds as the market rotated in favour of large-cap value stocks. Nevertheless, JustSystems remains a key beneficiary of the strong demand for distance-learning software in Japan and remains an overweight position. Shares in business-to-business (B2B) e-gift platform provider, Giftee, reacted negatively to concerns over the impact of the Omicron variant, as well as downward revisions to its full-year earnings guidance. However, the earnings downgrade was largely due to the postponement of the government’s GoTo Travel campaign and, excluding that impact, Giftee continued to deliver good results. Commissions from companies that offer products that can be redeemed and those that use e-gifts for marketing are its main source of revenue; this is expected to grow over the mid to long-term in line with the rising digitisation of gifts, cash vouchers and coupons. Finally, SaaS company Hennge, a provider of one-stop solutions for secure access to cloud-based services, was another significant detractor from performance. Although business conditions were generally favourable, driven by rising cloud adoption and SaaS uptake, recent rates of revenue growth came in below expectations despite increased promotional activity. This led to a reassessment of its mid-term earnings growth prospects and the position was sold.

QUESTIONWhat impact will the new Kishida administration have?

ANSWERThe election victory of the ruling Liberal Democratic Party under new Prime Minister Fumio Kishida increased expectations of policy continuity, at least in the near-term. Kishida’s government has come up with a huge supplementary budget to support Japan’s economic recovery, though the pandemic and a fragile political base provide little room for the new Prime Minister to make significant changes to the economic policy. Kishida came to power pledging to boost middle-class incomes and create a new brand of capitalism that spreads prosperity more widely. He also advocated tax breaks for companies that raise wages. Although such measures could help to lift incomes to a certain extent, the effect will likely prove transitory in the absence of broader reforms. In the end, it remains to be seen how the new Prime Minister’s pledge to promote economic growth and to narrow wealth gaps through an approach he calls “new capitalism” will develop.

QUESTIONWhat have you seen in terms of new listings in Japan over the year and how is this evolving?

ANSWERThere were 125 initial public offerings (IPOs) in calendar year 2021, marking the highest number of listings since 2006. Six companies listed directly on the TSE First Section, and around three-quarters of the IPOs were on the TSE Mothers market, an exchange for emerging companies with high growth potential. Around 70% of the IPOs were for companies in the Information & Communication and Services sectors, reflecting growth trends in areas such as artificial intelligence, digital transformation and SaaS.

While the number of companies listing on the stock market reached a 15-year high, Prime Minister Kishida highlighted Japan’s start-up market as an area in need of support and changes could be on the way. Japan’s lack of unicorns (private companies valued at more than US$1 billion) compared to the US and Europe was also flagged. The Japan Securities Dealers Association set up a panel to review the listing process and to address the issue of IPO prices being set too low, which can deprive entrepreneurs of funding. Indeed, the Fair Trade Commission recently warned brokerage firms that the under-pricing of IPOs could violate Japan’s antitrust law.

Moreover, from a bottom-up perspective, we are seeing a lot more entrepreneurial activity in Japan compared with five to ten years ago. A number of new growth companies are also coming through, which is creating opportunities in the IPO market. Being on the ground in Japan, and seeing many different companies, means that we are well placed to help entrepreneurs in the latter stages of their pre-IPO journey. We expect there to be an increase in such opportunities which offer a source of differentiated returns as we saw with the listings of Raksul and Coconala. Accordingly, I would like to gradually increase the exposure to unlisted securities to 20% of the portfolio.

QUESTIONSustainability is a key area of focus for investors. Can you outline your approach as well as the opportunities and challenges in this area that are specific to Japan?

ANSWERSustainability is a core part of the Fidelity-wide investment process and assessing which companies can grow sustainably over the medium-term and enhance the efficiency of other corporates and their supply chains is a key part of my portfolio construction. By working closely with our Head of Engagement in Tokyo and maintaining an active dialogue with investee companies, we aim to continually improve the sustainability of their businesses, which will also enhance their performance as investments.

Globally, the uncertainty wrought by COVID has shone a light on sustainability – and Japan is no exception. Although Japanese companies generally have lower sustainability scores than their European counterparts, we believe this is not due to any fundamental differences in strategy, but more to do with cultural reasons around disclosure practices and language. By working closely with our sustainable investing team in Japan, we are able to identify companies that are implementing real change and moving up the governance scale. As these companies improve their disclosure process, their environmental, social and governance (ESG) ratings should catch up and the market should adjust valuations accordingly. For investors, this creates an opportunity to benefit from the adjustment.

QUESTIONWhat have been the key ESG trends in Japan and what developments are ahead?

ANSWERIn the wake of COP26, a number of Japanese companies set carbon-neutral targets, underlining the country’s move towards decarbonisation. On the institutional front, the revision of the Japanese Corporate Governance Code in June will require companies listed on the Prime Market (from April 2022, the Tokyo Stock Exchange’s four market divisions will be restructured into three new segments: Prime, Standard and Growth) to disclose their climate change measures in accordance with the Task Force on Climate-Related Financial Disclosures (TCFD). The revised code also reflects a number of other sustainability topics such as diversity, human capital and human rights initiatives. From April 2022, the Prime Market will finally be launched following the reform of the Tokyo Stock Exchange’s market structure.

Many companies have committed to sustainability initiatives in preparation for listing on the Prime Market; we will now be looking at how they will implement these measures.

QUESTIONCould you provide an example of where active engagement has brought about real change?

ANSWERFA supplier MISUMI Group is a good example of a company with which we have consistently engaged to help it improve its ESG rating. The company’s unique business model lends itself well to sustainability through efficiency gains for its customers in the manufacturing sector. This was not appreciated by either the market or ESG rating providers due to its limited public disclosures on the topic, resulting in a low rating. In terms of governance, we encouraged MISUMI to take effective measures, such as establishing a Nomination Committee and making its existing Remuneration Committee majority independent. The company followed up on these recommendations and went on to establish a Sustainability Committee that reports to the board and became signatories of the Task Force on Climate-Related Financial Disclosures (TCFD). The sustainability page of the company’s revamped website now clearly explains the direct link between its business model and the shift towards a sustainable world. As a result of these actions, the perception gap was closed and MISUMI’s ESG rating was upgraded. Over time, it is our belief that executives at Japanese companies such as MISUMI will treat the disclosure of sustainability issues as importantly as they do financial data. By finding companies that will disclose sooner and better, and by engaging with them, we can create additional alpha opportunities for the Company.

QUESTIONWhat are your current thoughts on gearing? And how has your use of gearing changed over the period under review?

ANSWERThe level of gearing gradually declined over the course of the year and stood at 21.6% at the end of December. This was largely a reflection of profit taking in the Technology sector, where valuations had expanded and the potential for further upside appeared limited as we approached the peak of the cycle. I also sold positions where companies are likely to face much tougher year-on-year growth comparisons from the second half of 2022. Meanwhile, the recent market correction is creating opportunities to selectively add globally competitive growth companies that have been oversold and are now trading on compelling valuations. As always, the level of gearing is a reflection of the opportunities that I see in the market.

QUESTIONThe opening weeks of 2022 have been beset by increased volatility and extreme market rotations. Why is that and what are your thoughts on the Company for the year ahead?

ANSWERSo far 2022 has brought with it an extreme style rotation that has led to the outperformance of value names and sharp declines for growth stocks. This was most evident in the buying of low price-to-book (PB) names and the selling of high PB stocks. This has occurred as accelerating rate hike expectations have driven up real interest rates in the US. The stock market has started to price in these developments, which has seen, for example, Banks and Insurance stocks outperform quite strongly over the year-to-date period. Conversely, growth-oriented sectors such as Precision Instruments, Services and Electric Appliances have been the most significant underperformers. Given the rising momentum for US rate hikes, further volatility is possible in the near-term.

In this environment, holdings in mid/small-cap growth stocks in the Information & Communication sector have been among the most significant detractors from performance. In particular, SaaS related names have corrected sharply since the previous quarter. At the same time, companies tied to secular growth trends such as factory automation (FA) and electric vehicles (EV) that did well last year have been subject to profit taking over the year-to-date period. Given the market trends described above, the underweight exposure to traditional value sectors such as Banks and Automobiles has also worked against performance.

Another factor of the recent market phase that has generated headwinds for performance is the narrowness of price movements. This has produced strong intra-sector divergences and as a result, natural hedges have not worked. For example, shares in Toyota Motor (an underweight position in the Company) are up versus TOPIX over the year-to-date period, but group company Toyota Tsusho (an overweight holding in the Company) is down in relative terms. Given the extreme nature of these movements, we expect them to correct at some point.

I have been taking some profits in stocks that have performed well and those that have been relatively insulated from the recent correction. At the same time, I have been gradually adding on weakness where valuations are looking more attractive on a mid-term view. As a result, there has not been a significant change in terms of key holdings in the Company’s portfolio.

The price-to-earnings ratio (PER) of the portfolio has come down quite considerably, to a level closer to the market average, though the estimated earnings growth is far higher. The portfolio PER estimate for 2022 still shows a premium versus the index as some of the COVID reopening plays have yet to recover fully. However, the estimate for 2023 multiple is pretty much in line and with a significantly higher rate of earnings growth and returns.

The sharp correction in high valuation and high-growth stocks that has been driving the value rally is unlikely to go much further given the scale of the moves so far, though the buying of value names that have yet to fully participate may continue. While the correction in valuations has largely played out for now (the convergence or crossover of value and growth valuations generally indicates that we are close to a bottom), the unwinding of global monetary easing will accentuate the importance of bottom-up stock picking and a keen focus on companies that can continue to grow earnings over the mid-term.

With this in mind, I am focusing on companies that are long-term winners with sustainable growth prospects and differentiated products in growing markets. In particular, I like companies that are efficiency enablers in both the Manufacturing (FA) and Software (Digitalisation) sectors. Over the longer-term, I am looking at companies that can contribute to and support Japan’s energy transition and requirements for energy efficiency (green energy, factory automation and EV components, etc.). As always, we continue to evaluate new and under-covered opportunities, while focusing on companies that can continue to grow through 2022/23 and exceed market expectations over the mid-term.

QUESTIONWhile the Russian invasion of Ukraine took place after the reporting period, could you share some thoughts on the situation and the impact this may have on the Company’s holdings?

ANSWERThe conflict in Ukraine is first and foremost a human tragedy, but it is also creating huge economic uncertainty. While financial markets appear hopeful of some form of de-escalation, it remains unclear just how long the conflict will last. Russia accounted for just 1% of Japanese exports and 1.8% of total imports in 2021, so the direct impact is not significant. Still, surging commodity prices, especially oil, are driving up costs and creating headwinds for both households and corporates in Japan.

The direct impact of the situation in Ukraine on portfolio holdings is relatively limited and there has not been a significant change in terms of positioning. I turned a bit more cautious towards the end of last year (inventories were on the rise in the manufacturing sector and there were signs of a post-COVID shift from goods to services) and looked more towards companies that can grow sustainably through the second half of 2022 and into 2023. So, I am focusing on defensive/sustainable growth names and services companies that can generate earnings in a more challenging environment and those that can positively surprise the market on mid-term growth.

NICHOLAS PRICEPortfolio Manager25 March 2022

ESG in the Investment Process

Fidelity International (“Fidelity”) has embedded Environmental, Social and Governance (“ESG”) factors in its investment decision making for a number of years. Fidelity has been a signatory to the United Nations Principles for Responsible Investment (UNPRI) since 2012 and submits an annual report detailing how it incorporates ESG into its investment analysis. As a founding signatory to the Net Zero Asset Managers Initiative, Fidelity has committed to halving the carbon footprint of its investment portfolios by 2030, from a 2020 baseline, starting with equity and corporate bond holdings; and to reach net zero for holdings by 2050.

ESG integration at Fidelity is carried out at the fundamental research analyst level within its investment teams, primarily through the implementation of the Fidelity Proprietary Sustainability Rating. This rating was established in 2019 and is designed to generate a forward-looking and holistic assessment of a company’s ESG risks and opportunities, based on sector specific key performance indicators across 127 individual and unique sub-sectors. A breakdown of the ratings of the companies in the portfolio using MSCI and Fidelity’s own proprietary ratings is included in the Annual Report. In addition, Fidelity’s portfolio managers are also active in analysing the effects of ESG factors when making investment decisions. ESG analysis complements financial analysis to provide a complete view of every company that is researched and monitored.

Fidelity’s approach to integrating ESG factors into its investment analysis includes the following activities:

· In-depth research

· Company engagement

· Active ownership

· Collaboration within the investment industry

In addition to Fidelity’s Sustainability Ratings, Fidelity has developed a proprietary Climate Rating, which is an important part of its plans to reach net zero emissions across its portfolios. It utilises its fundamental research capabilities to identify climate related risks, net zero investments and targets for transition engagement within the Fidelity investment universe. It assesses which companies are in the best position to transition to net zero or have a positive trajectory towards transition. The Climate Rating is designed to complement the broader Sustainability Ratings which score companies across a range of environmental, social and governance criteria.

Although Fidelity’s analysts have overall responsibility for analysing the environmental, social and governance performance of the companies in which it invests, it has a dedicated Sustainable Investing Team working closely with the investment teams and is responsible for consolidating Fidelity’s approach to stewardship, engagement, including thematic engagement, ESG integration and the exercise of its votes at general meetings.

The Sustainable Investing Team has a key role in assisting the investment teams with ESG integration which includes:

· Implementing Fidelity’s proxy voting guidelines.

· Engagement with investee companies on ESG issues, utilising Fidelity’s corporate access research capabilities and investment scale to improve corporate behaviour, including at company meetings.

· Working closely with the investment team globally across all asset classes in integrating ESG into analysis and decision-making.

· Providing internal ESG reporting including analyst reports, portfolio manager reviews and industry analysis.

· Co-ordinating and responding to specific client queries on ESG topics.

· Publishing client reporting on ESG integration and proxy voting.

· Maintaining a thorough understanding of current ESG themes and trends around the world.

· Attending external seminars and conferences focusing on trending ESG issues and ESG integration.

· Providing ESG training to the investment team and across the business.

During 2021, Fidelity introduced its sustainable investing voting principles and guidelines. These seek to provide a clear overview of Fidelity’s voting approach, promote improved corporate behaviours and reduce risk, include environmental and social factors, increase clarity of votes to issuers and clients and meet current market best practices and stewardship expectations. Examples of the policy include voting against companies not meeting key criteria on climate change and against management in developed markets with less than 30% female representation at board level.

Fidelity’s investment approach involves bottom-up research. As well as studying financial results, the portfolio managers and analysts carry out additional qualitative analysis of potential investments. They examine the business, customers and suppliers and may often visit the companies in person to develop a view of every company in which Fidelity invests and ESG factors are embedded in this research process.

Examples of ESG factors that Fidelity’s investment teams may consider as part of its company and industry analysis include:

· Corporate governance (e.g. Board structure, executive remuneration)

· Shareholder rights (e.g. election of directors, capital amendments)

· Changes to regulation (e.g. greenhouse gas emissions restrictions, governance codes)

· Physical threats (e.g. extreme weather, climate change, water shortages)

· Brand and reputational issues (e.g. poor health and safety record, cyber security breaches)

· Supply chain management (e.g. increase in fatalities, lost time injury rates, labour relations)

· Work practices (e.g. observation of health, safety and human rights provisions and compliance with the provisions of the Modern Slavery Act*)

Fidelity operates analyst training and development programmes which include modules on ESG themes, topics and strategies and attendance at external seminars on the trending ESG issues in the market globally as well as conferences to explore new ways of integrating ESG into the investment process across all asset classes.

Fidelity uses a number of external research sources around the world that provide ESG-themed reports and it subscribes to an external ESG research provider and rating agency to supplement its organic analysis. Fidelity receives reports that include company specific and industry specific research as well as ad hoc thematic research looking at particular topics. The ESG ratings are industry specific and are calculated relative to industry peers and Fidelity uses these ratings in conjunction with its wider analysis. Fidelity’s sources of ESG research are reviewed on a regular basis.

The ESG ratings and associated company reports are included on Fidelity’s centralised research management system. This is an integrated desktop database, so that each analyst has a first-hand view of how each company under their coverage is rated according to ESG factors. In addition, ESG ratings are included in the analyst research notes which are published internally and form part of the investment decision. The external research vendor also provides controversy alerts which include information on companies within its coverage which have been identified to have been involved in a high-risk controversy that may have a material impact on the company’s business or its reputation.

* https://eumultisitev4prod-live-eb461540d2184169bb77db2b062d9318-f268f99.s3-eu-west-1.amazonaws.com/PI%20UK/pdf/modern-slavery-human-trafficking-statement.pdf

THE ARBITRAGE OPPORTUNITY IN JAPANESE SUSTAINABILITY RATINGSAs people become more aware of the benefits of sustainable investing, they are paying more attention to corporate ESG ratings. Third-party ESG ratings provide an independent assessment of a company’s sustainability profile that can help investors decide which companies to invest in. However, there are gaps in the framework that can be exploited. One of these is the relatively lower sustainability ratings in Japan, which is setting up an arbitrage opportunity.

Fidelity compared the sustainability ratings of a widely used third-party agency with its in-house system and found that there was a systematic under-rating of Japanese companies versus European ones. Comparing the third-party’s ratings to Fidelity’s own, corrects for any underlying fundamental differences in the companies, so the variation is down to non-fundamental factors.

Fidelity believes the difference in ratings are broadly due to cultural issues, but these should correct over time. Corporate culture in Japan has historically avoided conspicuously emphasising achievements, which is seen as not aligned with the more sober management style that is prevalent there. Japanese executives therefore tend to underplay their sustainability credentials compared to other regions and this can work against them with investors accustomed to a higher level of corporate promotion and disclosure.

The other issue is the language barrier. Japanese companies, particularly small-caps, still do not widely publish their reports in English. For third-party ESG ratings agencies, which tend not to have many on the ground analysts based in Japan, this makes covering Japanese companies harder. As a result, Japanese companies are often unintentionally penalised.

Fidelity’s engagement with Japanese companies confirms that they are in fact taking sustainability seriously, making progress on ESG issues and keeping up with their European counterparts. The problem is that they are not making this information as accessible. Japanese companies have the right corporate strategy and operations but are not fully appreciating the significance of sharing this information publicly to help investors value companies accurately. But this is changing.

More and more Japanese companies are realising that to continue attracting investors they need to evolve their disclosure policies and publish sustainability reports. In Fidelity’s conversations with corporate executives at these companies, it is finding a real openness to engage on this issue and a willingness to re-think their disclosure policies.

It is Fidelity’s view that, over time, executives at Japanese companies will treat the disclosure of sustainability as importantly as financial data. Finding those companies that will disclose sooner and better by engaging with them, will potentially create additional alpha opportunities.

Blending a portfolio of top-ranking sustainable companies with those exposed to potential upgrades makes sense. These companies have the potential to consistently earn more than their cost of capital over the longer-term because of their sustainable competitive advantage. As engaged investors, Fidelity is partnering with companies to see where it can advise how to improve their practices and benefit from ESG ratings upgrades as they happen. An excellent example of such engagement in practice took place with FA supplier MISUMI Group. Full details are included in the Portfolio Manager’s report.

Strategic Report

PRINCIPAL RISKS AND UNCERTAINTIES AND RISK MANAGEMENTAs required by provisions 28 and 29 of the 2018 UK Corporate Governance Code, the Board has a robust ongoing process for identifying, evaluating and managing the principal risks and emerging risks faced by the Company, including those that could threaten its business model, future performance, solvency or liquidity. The Board, with the assistance of the Alternative Investment Fund Manager (FIL Investment Services (UK) Limited/ the “Manager”), has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key existing and emerging risks and uncertainties that the Company faces. The Board believes the key emerging risk to be the longer-term ramifications from the pandemic and climate change.

Climate change is one of the most critical emerging issues confronting asset managers and their investors. It refers to a large-scale shift in the planet’s weather patterns and average temperatures. Climate change risk includes how climate change can affect the Company’s investments and potentially shareholder returns. The Board notes that the Manager has integrated ESG considerations, including climate change, into the Company’s investment process. Further details are included in the Annual Report. The Board will continue to monitor this.

The risks identified are placed on the Company’s risk matrix and graded appropriately. This process, together with the policies and procedures for the mitigation of existing and emerging risks, is updated and reviewed regularly in the form of comprehensive reports considered by the Audit Committee. The Board determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives.

The Manager also has responsibility for risk management for the Company. It works with the Board to identify and manage the principal risks and uncertainties and to ensure that the Board can continue to meet its UK corporate governance obligations.

The Board considers the following as the principal risks and uncertainties faced by the Company.

Other risks facing the Company include:

TAX AND REGULATORY RISKSThere is a risk of the Company not complying with tax and regulatory requirements. A breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status resulting in the Company being subject to tax on capital gains.

The Board monitors tax and regulatory changes at each Board meeting and through active engagement with regulators and trade bodies by the Manager.

CONTINUATION VOTEA continuation vote takes place every three years. There is a risk that shareholders do not vote in favour of continuation of the Company during periods when performance of the Company’s NAV and share price is poor. At the Company’s AGM held on 21 May 2019, 99.88% of shareholders voted in favour of the continuation of the Company. The next continuation vote will take place at the AGM on 17 May 2022 and the Directors expect the vote to be passed.

VIABILITY STATEMENTIn accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 month period required by the “Going Concern” basis. The Company is an investment trust with the objective of achieving long-term capital growth. The Board considers that five years is an appropriate investment horizon to assess the viability of the Company, although the life of the Company is not intended to be limited to this or any other period.

In making an assessment on the viability of the Company, the Board has considered the following:

· The ongoing relevance of the investment objective in prevailing market conditions;

· The Company’s level of gearing;

· The Company’s NAV and share price performance;

· The principal and emerging risks and uncertainties facing the Company, as set out above, and their potential impact;

· The future demand for the Company’s shares;

· The Company’s share price discount to NAV;

· The liquidity of the Company’s portfolio;

· The level of income generated by the Company;

· Future income and expenditure forecasts; and

· The Company will offer its shareholders a continuation vote at the AGM on 17 May 2022.

The Company’s performance has been very strong for the five year reporting period to 31 December 2021, with a NAV total return of 96.7% and a share price total return of 125.6% compared to the Reference Index total return of 38.0%. The Board regularly reviews the investment policy and considers whether it remains appropriate. The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years based on the following considerations:

· The Investment Manager’s compliance with the Company’s investment objective and policy, its investment strategy and asset allocation;

· The portfolio mainly comprises readily realisable securities which can be sold to meet funding requirements if necessary;

· The Board’s discount management policy;

· The ongoing processes for monitoring operating costs and income which are considered to be reasonable in comparison to the Company’s total assets;

· The Board’s assessment of the principal risks and uncertainties facing the Company, as set out above and their potential impact; and

· The expectation that a majority of shareholders will vote in favour of the continuation of the Company at the AGM on 17 May 2022.

In addition, the Directors’ assessment of the Company’s ability to operate in the foreseeable future is included in the Going Concern Statement which can be found in the Directors’ Report.

PROMOTING THE SUCCESS OF THE COMPANYUnder Section 172(1) of the Companies Act 2006, the Directors of a company must act in a way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to the likely consequences of any decision in the long-term; the need to foster relationships with the Company’s suppliers, customers and others; the impact of the company’s operations on the community and the environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the Company.

As an externally managed Investment Trust the Company has no employees or physical assets, and 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, but other professional service providers support the Company by providing administration, custodial, banking and audit services. The Board considers the Company’s key stakeholders to be the existing and potential shareholders, the external appointed Manager (FIL Investment Services (UK) Limited) and other third party professional service providers. The Board considers that the interest of these stakeholders is aligned with the Company’s objective of delivering long-term capital growth to investors, in line with the Company’s stated investment objective and strategy, while providing the highest standards of legal, regulatory and commercial conduct.

The Board, with the Portfolio Manager, sets the overall investment strategy and reviews this at an annual strategy day which is separate from the regular cycle of board meetings. In order to ensure good governance of the Company, the Board has set various limits on the investments in the portfolio, whether in the maximum size of individual holdings, the use of derivatives, the level of gearing and others. These limits and guidelines are regularly monitored and reviewed and are set out on in the Annual Report•.

The Board places great importance on communication with shareholders. The Annual General Meeting provides the key forum for the Board and Portfolio Manager to present to the shareholders on the Company’s performance and future plans and the Board encourages all shareholders to attend in person or virtually, and raise questions and concerns. The Chairman and other Board members are available to meet shareholders as appropriate, and shareholders may also communicate with Board members at any time by writing to them at the Company’s registered office or via the Company Secretary at the address provided in the Annual Report or by email at investmenttrusts@fil.com. The Portfolio Manager meets with major shareholders, potential investors, stock market analysts, journalists and other commentators during the year. These communication opportunities help inform the Board in considering how best to promote the success of the company over the long-term.

The Board seeks to engage with the Manager and other service providers and advisers in a constructive and collaborative way, promoting a culture of strong governance, while encouraging open and constructive debate, in order to ensure appropriate and regular challenge and evaluation. This aims to enhance service levels and strengthen relationships with service providers, with a view to ensuring shareholders’ interests are best served, by maintaining the highest standards of commercial conduct while keeping cost levels competitive.

Whilst the Company’s direct operations are limited, the Board recognises the importance of considering the impact of the Company’s investment strategy on the wider community and environment. The Board believes that a proper consideration of Environmental, Social and Governance (“ESG”) issues aligns with the objective to deliver long-term capital growth, and the Board’s review of the Manager includes an assessment of their ESG approach, which is set out in detail in the Annual Report.

In addition to ensuring that the Company’s investment objective was being pursued, key decisions and actions taken by the Directors during the reporting year, and up to the date of this report, have included:

– arranging meetings with key shareholders on David Graham’s appointment as Chairman to discuss the Company’s strategy, performance and portfolio;

– authorising the repurchase of 678,032 ordinary shares into Treasury when market conditions permitted in order to keep the Company’s discount in single digits;

– spending time with the promotional team to understand how best to raise the Company’s profile;

– increasing the marketing budget of the Company to better promote the performance of the Portfolio Manager and raise the Company’s profile in its sector.

– the decision to seek shareholder approval to increase the limit on unlisted investments from 10% to 20% in order to benefit from the growing opportunities for investment in unlisted investments; and

– the decision to hold a hybrid AGM in 2022 in order to make the Annual General Meeting more accessible and improve the shareholder experience.

GOING CONCERN STATEMENTThe Financial Statements of the Company have been prepared on a going concern basis.

The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio (being mainly securities which are readily realisable) and the projected income and expenditure, are satisfied that the Company is financially sound and has adequate resources to meet all of its liabilities and ongoing expenses and continue in operational existence for the foreseeable future. The Board has therefore concluded that the Company has adequate resources to continue to adopt the going concern basis for the period to 31 March 2023 which is at least twelve months from the date of approval of the Financial Statements. In preparing the Financial Statements, the Directors have considered the impact of climate change, particularly in the context of the climate change emerging risk identified in the Strategic Report. The prospects of the Company over a period longer than 12 months can be found in the Viability Statement.

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 period. Under that law they have elected to prepare the Financial Statements in accordance with UK Generally Accepted Accounting Practice, 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 for the reporting period.

In preparing these Financial Statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable and prudent;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with the specific requirements in FRS 102 is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the company financial position and financial performance;

· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

· prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for ensuring that 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 to enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors’ Report, a Corporate Governance Statement and a Directors’ Remuneration Report that comply with that law and those regulations.

The Directors have delegated to the Manager the responsibility for the maintenance and integrity of the corporate and financial information included on the Company’s pages of the Manager’s website at www.fidelity.co.uk/japan. Visitors to the website need to be aware that legislation in the UK governing the preparation and dissemination of the Financial Statements may differ from legislation in their own jurisdictions.

The Directors confirm that to the best of their knowledge:

· The Financial Statements, prepared in accordance with FRS 102, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

· The Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.

· The Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy.

Approved by the Board on 25 March 2022 and signed on its behalf by:

DAVID GRAHAM

Chairman

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021

The Company does not have any other comprehensive income. Accordingly the net return on ordinary activities after taxation for the year is also the total comprehensive income for the year and no separate Statement of Comprehensive Income has been presented.

The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.

No operations were acquired or discontinued in the year and all items in the above statement derive from continuing operations.

The Notes form an integral part of these Financial Statements.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021

The Notes form an integral part of these Financial Statements.

BALANCE SHEET AS AT 31 DECEMBER 2021COMPANY NUMBER 2885584

The Financial Statements were approved by the Board of Directors on 25 March 2022 and were signed on its behalf by:

DAVID GRAHAMChairman

The Notes form an integral part of these Financial Statements.

NOTES TO THE FINANCIAL STATEMENTS

1 PRINCIPAL ACTIVITYFidelity Japan Trust PLC is an Investment Company incorporated in England and Wales with a premium listing on the London Stock Exchange. The Company’s registration number is 2885584, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as to continue to be approved.

2 ACCOUNTING POLICIESThe Company has prepared its Financial Statements in accordance with UK Generally Accepted Accounting Practice (“UK GAAP”), including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, issued by the Financial Reporting Council (“FRC”). The Financial Statements have also been prepared in accordance 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. The Company is exempt from presenting a Cash Flow Statement as a Statement of Changes in Equity is presented and substantially all of the Company’s investments are highly liquid and are carried at market value.

a) Basis of accountingThe Financial Statements have been prepared on a going concern basis and under the historical cost convention, except for the measurement at fair value of investments and derivative instruments. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence up to 31 March 2023 which is at least 12 months from the date of approval of these Financial Statements. In making their assessment the Directors have reviewed income and expense projections, reviewed the liquidity of the investment portfolio and considered the Company’s ability to meet liabilities as they fall due. This conclusion also takes into account the Director’s assessment of the continuing risks arising from COVID and their consideration of the upcoming continuation vote at the AGM on 17 May 2022. The Directors recommend that the shareholders vote in favour of the continuation of the Company.

In preparing these Financial Statements the Directors have considered the impact of climate change risk as an emerging risk as set out in the Annual Report and have concluded that there was no further impact of climate change to be taken into account as the investments are valued based on market pricing. In line with FRS 102 investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the balance sheet date. Investments which are unlisted are priced using market-based valuation approaches. All investments therefore reflect the market participants view of climate change risk on the investments held by the Company.

The Company’s Going Concern Statement in the Directors’ Report takes account of all events and conditions up to 31 March 2023 which is at least twelve months from the date of approval of these Financial Statements.

b) Significant Accounting estimates, assumptions and judgementsThe preparation of the Financial Statements requires the use of estimates, assumptions and judgements. These estimates, assumptions and judgements affect the reported amounts of assets and liabilities at the reporting date. While estimates are based on best judgement using information and financial data available, the actual outcome may differ from theses estimates.

The key sources of estimation and uncertainty relate to the fair value of the unlisted investments.

JudgementsThe Directors consider whether each fair value is appropriate following detailed review and challenge of the pricing methodology. The judgement applied in the selection of the methodology used (see Note 2 (j) below) for determining the fair value of each unlisted investment can have a significant impact upon the valuation.

EstimatesThe key estimate in the Financial Statements is the determination of the fair value of the unlisted investments by the Manager’s Fair Value Committee (“FVC”) for consideration by the Directors. This estimate is key as it significantly impacts the valuation of the unlisted investments at the Balance Sheet date. When no recent primary or secondary transaction in the company’s shares have taken place, the fair valuation process involves estimation using subjective inputs that are unobservable (for which market data is unavailable). The estimates involved in the valuation process include the following:

(i) the selection of appropriate comparable companies. Comparable companies are chosen on the basis of their business characteristics and growth patterns;

(ii) the selection of a revenue metric;

(iii) the selection of an appropriate illiquidity discount factor to reflect the reduced liquidity of unlisted companies versus their listed peers;

(iv) the estimation of the likelihood of a future exit of the position through an initial public offering (“IPO”) or a company sale;

(v) the selection of an appropriate industry benchmark index to assist with the valuation; and

(vi) the calculation of valuation adjustments derived from milestone analysis (i.e. incorporating operational success against the plans/ forecasts of the business into the valuation).

As the valuation outcomes may differ from the fair value estimates a price sensitivity analysis is provided in Other Price Risk Sensitivity in Note 16 below to illustrate the effect on the Financial Statements of an over or under estimation of fair value.

The risk of an over or under estimation of fair value is greater when methodologies are applied using more subjective inputs.

AssumptionsThe determination of fair value by the FVC involves key assumptions dependent upon the valuation techniques used. The valuation process recognises that the price of a recent investment may be an appropriate starting point for estimating fair value. The Multiples approach involves subjective inputs and therefore presents a greater risk of over or under estimation, particularly in the absence of a recent transaction.

c) Segmental reportingThe Company is engaged in a single segment business and, therefore, no segmental reporting is provided.

d) Presentation of the Income StatementIn order to reflect better the activities of an investment company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been prepared alongside the Income Statement. The net revenue return after taxation for the year is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1159 of the Corporation Tax Act 2010.

e) IncomeIncome from equity investments is accounted for on the date on which the right to receive the payment is established, normally the ex-dividend date. Overseas dividends are accounted for gross of any tax deducted at source. Amounts are credited to the revenue column of the Income Statement. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend foregone is recognised in the revenue column of the Income Statement. Any excess in the value of the shares received over the amount of the cash dividend is recognised in the capital column of the Income Statement. Special dividends are treated as a revenue receipt or a capital receipt depending on the facts and circumstances of each particular case.

Derivative instrument income received from dividends on long contracts for difference (“CFDs”) is accounted for on the date on which the right to receive the payment is established, normally the ex-dividend date. The amount net of tax is credited to the revenue column of the Income Statement.

f) Investment management fees and other expensesInvestment management fees and other expenses are accounted for on an accruals basis and are charged as follows:

· The base investment management fee is allocated 20% to revenue and 80% to capital to reflect the Company’s focus on capital growth to generate returns;

· The variable investment management fee is charged/credited to capital, as it is based on the performance of the net asset value per share relative to the Reference Index; and

· All other expenses are allocated in full to revenue with the exception of those directly attributable to share issues or other capital events.

g) Functional currency and foreign exchangeThe functional and reporting currency of the Company is UK sterling, which is the currency of the primary economic environment in which the Company operates. Transactions denominated in foreign currencies are reported in UK sterling at the rate of exchange ruling at the date of the transaction. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the Balance Sheet date. Foreign exchange gains and losses arising on translation are recognised in the Income Statement as a revenue or a capital item depending on the nature of the underlying item to which they relate.

h) Finance costsFinance costs comprises interest on collateral and bank overdrafts and finance costs paid on long CFDs, which are accounted for on an accruals basis. Finance costs are allocated 20% to revenue and 80% to capital to reflect the Company’s focus on capital growth to generate returns.

i) TaxationThe taxation charge represents the sum of current taxation and deferred taxation.

Current taxation is taxation suffered at source on overseas income less amounts recoverable under taxation treaties. Taxation is charged or credited to the revenue column of the Income Statement, except where it relates to items of a capital nature, in which case it is charged or credited to the capital column of the Income Statement. The Company is an approved Investment Trust under Section 1158 of the Corporation Tax Act 2010 and is not liable for UK taxation on capital gains.

Deferred taxation is the taxation expected to be payable or recoverable on timing differences between the treatment of certain items for accounting purposes and their treatment for the purposes of computing taxable profits. Deferred taxation is based on tax rates that have been enacted or substantively enacted when the taxation is expected to be payable or recoverable. Deferred tax assets are only recognised if it is considered more likely than not that there will be sufficient future taxable profits to utilise them.

j) InvestmentsThe Company’s business is investing in financial instruments with a view to profiting from their total return in the form of income and capital growth. This portfolio of investments is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided on that basis to the Company’s Board of Directors. Investments are measured at fair value with changes in fair value recognised in profit or loss, in accordance with the provisions of both Section 11 and Section 12 of FRS 102. The fair value of investments is initially taken to be their cost and is subsequently measured as follows:

· Listed investments are valued at bid prices, or last market prices, depending on the convention of the exchange on which they are listed; and

· Investments which are not quoted, or are not frequently traded, are stated at the best estimate of fair value. The Manager’s Fair Value Committee (“FVC”), which is independent of the Portfolio Manager’s team, provides a recommendation of fair values to the Directors. These are based on the principles outlines in Note 2 (b) above.

The techniques applied by the FVC when valuing the unlisted investments are predominantly market-based approaches. The market-based approaches are set out below and are followed by an explanation of how they are applied to the Company’s unlisted portfolio:

· Multiples;

· Industry Valuation Benchmarks; and

· Available Market Prices.

The nature of the unlisted investment will influence the valuation technique applied. The valuation approach recognises that the price of a recent investment, if resulting from an orderly transaction, generally represents fair value as at the transaction date and may be an appropriate starting point for estimating fair value at subsequent measurement dates. However, consideration is given to the facts and circumstances as at the subsequent measurement date, including changes in the market or performance of the investee company. Milestone analysis is used where appropriate to incorporate the operational progress of the investee company into the valuation. Consideration is also given to the input received from the Fidelity analyst that covers the company and an external valuer. Additionally, the background to the transaction must be considered. As a result, various multiples-based techniques are employed to assess the valuations particularly in those companies with established revenues. An absence of relevant industry peers may preclude the application of the Industry Valuation Benchmarks technique and an absence of observable prices may preclude the Available Market Prices approach.

The unlisted investments are valued according to a three month cycle of measurement dates. The fair value of the unlisted investments will be reviewed before the next scheduled three monthly measurement date where there is an indication of a change in fair value (commonly referred to as ‘trigger’ events).

In accordance with the AIC SORP, the Company includes transaction costs, incidental to the purchase or sale of investments, within gains on investments in the capital column of the Income Statement and has disclosed these costs in Note 9 below.

k) Derivative instrumentsWhen appropriate, permitted transactions in derivative instruments are used. Some of the Company’s portfolio exposure to Japanese equities is achieved by investment in long CFDs. Long CFDs are classified as other financial instruments and are initially accounted and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value as follows:

· Long CFDs are valued at the difference between the strike price and the value of the underlying shares in the contract.

See Note 10 for details of the Company’s exposure to derivative instruments.

l) DebtorsDebtors include securities sold for future settlement, accrued income, other debtors and prepayments incurred in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business, if longer) they are classified as current assets. If not, they are presented as non-current assets. They are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.

m) Cash collateral held with brokersThese are amounts held in segregated accounts on behalf of brokers as collateral against open derivative contracts. These are carried at amortised cost.

n) Other creditorsOther creditors include securities purchased for future settlement, investment management fees and other creditors and expenses accrued in the ordinary course of business. If payment is due within one year or less (or in the normal operating cycle of the business, if longer) they are classified as current liabilities. If not, they are presented as non-current liabilities. They are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.

o) Other reserveThe full cost of ordinary shares repurchased and held in Treasury is charged to the other reserve.

p) Capital reserveThe following are accounted for in the capital reserve:

· Gains and losses on the disposal of investments and derivative instruments;

· Changes in the fair value of investments and derivative instruments held at the year end;

· Foreign exchange gains and losses of a capital nature;

· Dividends receivable which are capital in nature;

· 80% of base investment management fees and finance costs;

· Variable investment management fees; and

· Other expenses which are capital in nature.

Technical guidance issued by the Institute of Chartered Accountants in England and Wales in TECH 02/17BL, guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006, states that changes in the fair value of investments which are readily convertible to cash, without accepting adverse terms at the Balance Sheet date, can be treated as realised. Capital reserves realised and unrealised are shown in aggregate as capital reserve in the Statement of Changes in Equity and the Balance Sheet. At the Balance Sheet date, the portfolio of the Company consisted of investments listed on a recognised stock exchange and were considered to be readily convertible to cash, with the exception of the level 3 investments which had unrealised investment holding losses of £1,110,000 (2020: unrealised investment holding losses of £54,000). See Note 16 for further details on the level 3 investments.

3 INCOME

No special dividends have been recognised in capital during the reporting year (2020: nil)

4 INVESTMENT MANAGEMENT FEES

1 For the calculation of the variable management fee element, the Company’s NAV return was compared to the Reference Index return on a daily basis. The period used to assess the performance was from 1 July 2018 until a three year history was established. From 1 July 2021 the performance period is now on a rolling three year basis.

FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management to FIL Investments International (“FII”). Both companies are Fidelity group companies.

FII charges base investment management fees at an annual rate of 0.70% of net assets. In addition, there is a +/- 0.20% variation fee based on performance relative to the Reference Index. Fees are payable monthly in arrears and are calculated on a daily basis.

Investment management fees have been allocated 80% to capital reserve in accordance with the Company’s accounting policies.

Further details of the terms of the Management Agreement are given in the Directors’ Report.

5 OTHER EXPENSES

1 Details of the breakdown of Directors’ fees are provided in the Directors’ Remuneration Report.

6 FINANCE COSTS

Finance costs have been allocated 80% to capital reserve in accordance with the Company’s accounting policies.

7 TAXATION ON RETURN ON ORDINARY ACTIVITIES

b) Factors affecting the taxation charge for the yearThe taxation charge for the year is lower than the standard rate of UK corporation tax for an investment trust company of 19.00% (2020: 19.00%). A reconciliation of the standard rate of UK corporation tax to the taxation charge for the year is shown below:

1 The Company is exempt from UK taxation on capital gains as it meets the HM Revenue & Customs criteria for an investment company set out in Section 1159 of the Corporation Tax Act 2010.

c) Deferred taxationA deferred taxation asset of £8,106,000 (2020: £5,613,000), in respect of excess expenses of £32,422,000 (2020: £29,543,000) has not been recognised as it is unlikely that there will be sufficient future profits to utilise these expenses.

In the Spring Budget, the UK Government announced that from 1 April 2023 the corporation tax rate will increase to 25.00%. This rate has been substantively enacted at the balance sheet date and has therefore been applied to calculate the unrecognised deferred tax asset for the current year (2020: 19.00%).

8 RETURN PER ORDINARY SHARE

The return per ordinary share is based on the net return on ordinary activities after taxation for the year divided by the weighted average number of ordinary shares held outside Treasury during the year, as shown below:

9 INVESTMENTS

The Company received £230,232,000 (2020: £156,120,000) from investments sold in the year. The book cost of these investments when they were purchased was £194,776,000 (2020: £137,554,000). 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.

Investment transaction costsTransaction cost incurred in the acquisition and disposal of investments, which are included in the gains on investments above, were as follows:

The portfolio turnover for the year was 74.6% (2020: 66.9%). The portfolio turnover rate measures the Company’s trading activity. It is calculated by taking the average of the total amount of securities purchased and the total amount of the securities sold in the reporting year divided by the average fair value of the investment portfolio of the Company.

10 DERIVATIVE INSTRUMENTS

Derivative instruments recognised on the Balance Sheet

11 DEBTORS

12 OTHER CREDITORS

13 SHARE CAPITAL

* Ordinary shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.

The Company repurchased 678,032 ordinary shares (2020: 2,652,164 shares) and held them in Treasury. The cost of repurchasing these shares was £1,503,000 (2020: £4,370,000). This amount was charged to the other reserve.

14 CAPITAL AND RESERVES

The capital reserve balance at 31 December 2021 includes investment holding gains of £42,198,000 (2020: gains of £76,807,000) as detailed in Note 9 above. See Note 2 (p) above for further details. The capital reserve is distributable by way of dividend. The revenue reserve could be distributed by way of dividend if it were not in deficit.

15 NET ASSET VALUE PER ORDINARY SHARE

It is the Company’s policy that shares held in Treasury will only be reissued at net asset value per ordinary share or at a premium to net asset value per ordinary share and, therefore, shares held in Treasury have no dilutive effect.

16 FINANCIAL INSTRUMENTSManagement of RiskThe Company’s investment activities in pursuit of its objective involve certain inherent risks. The Board confirms that there is an ongoing process for identifying, evaluating and managing the risks faced by the Company. The Board, with the assistance of the Manager, has developed a risk matrix which, as part of the internal control process, identifies the risks that the Company faces. Principal risks identified are geopolitical and natural disaster, performance and gearing, discount control and demand, key person, market, ecconomic and currency, cybercrime, environmental, social and governance (“ESG”) and operational resilience. Other risks identified are tax and regulatory. Risks are identified and graded in this process, together with steps taken in mitigation, and are updated and reviewed on an ongoing basis. These risks and how they are identified, evaluated and managed are shown in the Strategic Report.

This note refers to the identification, measurement and management of risks potentially affecting the value of financial instruments. The Company’s financial instruments may comprise:

· Equity shares held in accordance with the Company’s investment objective and policies;

· Derivative instruments which comprise CFDs; and

· Cash, liquid resources and short-term debtors and creditors that arise from its operations.

The risks identified arising from the Company’s financial instruments are market price risk (which comprises interest rate risk, foreign currency risk and other price risk), liquidity risk, counterparty risk, credit risk and derivative instrument risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies are consistent with those followed last year.

MARKET PRICE RISKInterest rate riskThe Company finances its operations through its share capital and reserves. In addition, the Company has a geared exposure to Japanese equities through the use of long CFDs. The level of gearing is reviewed by the Board and the Portfolio Manager. The Company is exposed to a financial risk arising as a result of any increases in yen interest rates associated with the funding of the long CFDs.

Interest rate risk exposureThe values of the Company’s financial instruments that are exposed to movements in interest rates are shown below:

Foreign currency riskThe Company’s net return on ordinary activities after taxation for the year and its net assets may be affected by foreign exchange movements because the Company has income and assets which are denominated in yen whereas the Company’s functional currency is UK sterling. The Company may also be subject to short-term exposure from exchange rate movements, for example, between the date when an investment is purchased or sold and the date when settlement of the transaction occurs. The Company does not hedge the sterling value of investments or other net assets priced in yen by the use of derivative instruments.

Three significant areas have been identified where foreign currency risk may impact the Company:

· Movements in exchange rates affecting the value of investments and long CFDs;

· Movements in exchange rates affecting short-term timing differences; and

· Movements in exchange rates affecting income received.

Currency exposure of financial assetsThe currency exposure profile of the Company’s financial assets is shown below:

1 Debtors include cash collateral held with brokers.

Currency exposure of financial liabilitiesThe currency profile of these financial liabilities is shown below:

Other price riskOther price risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Board meets at least quarterly to consider the asset allocation of the portfolio and the risk associated with particular industry sectors within the parameters of the investment objective. The Portfolio Manager is responsible for actively managing and monitoring the existing portfolio, selected in accordance with the overall asset allocation parameters described above, and seeks to ensure that individual stocks also meet an acceptable risk/reward profile.

Liquidity riskLiquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with financial liabilities. The Company’s assets mainly comprise readily realisable securities and derivative instruments which can be sold easily to meet funding commitments if necessary. Short-term flexibility, if required, is achieved by the use of a bank overdraft.

Liquidity risk exposureAt 31 December 2021, the undiscounted gross cash outflows of the financial liabilities were all repayable within one year and consisted of derivative instrument liabilities of £717,000 (2020: £91,000), bank overdraft of £11,000 (2020: £nil) and other creditors of £629,000 (2020: £1,062,000).

Counterparty riskThe long CFDs in which the Company invests are not traded on an exchange but instead are traded between counterparties based on contractual relationships, under the terms outlined in the International Swaps and Derivatives Association’s (“ISDA”) market standard derivative legal documentation. As a result, the Company is subject to the risk that a counterparty may not perform its obligations under the related contract. In accordance with the risk management process which the Manager employs, the Manager will seek to minimise such risk by only entering into transactions with counterparties which it believes to have an adequate credit rating at the time the transaction is entered into, by ensuring that formal legal agreements covering the terms of the contract are entered into in advance, and through adopting a counterparty risk framework which measures, monitors and manages counterparty risk, by the use of internal and external credit agency ratings and by evaluating derivative instrument credit risk exposure.

Cash collateralFor derivative transactions, collateral is used to reduce the risk of both parties to the contract. Collateral is managed on a daily basis for all relevant transactions. At 31 December 2021, £370,000 (2020: £1,082,000) was held by UBS AG in cash denominated in Japanese yen in a segregated collateral account on behalf of the Company, to reduce the credit risk exposure of the Company’s net unrealised profits on derivative positions. At 31 December 2021, £nil (2020: £21,000), shown as cash collateral held with brokers on the Balance Sheet, was held by the Company in a segregated collateral account on behalf of the brokers, to reduce the credit risk exposure of the Company’s net unrealised losses on derivative positions. At 31 December 2020, the collateral comprised of: J.P. Morgan Securities plc £21,000 in cash denominated in Japanese yen.

Credit riskFinancial instruments may be adversely affected if any of the institutions with which money is deposited suffer insolvency or other financial difficulties. All transactions are carried out with brokers that have been approved by the Manager and are settled on a delivery versus payment basis. Limits are set on the amount that may be due from any one broker and are kept under review by the Manager. Exposure to credit risk arises on unsettled security transactions and long CFD contracts and cash at bank.

Derivative instrument riskThe risks and risk management processes which result from the use of long CFDs are included within the risk categories disclosed above. Long CFDs are used by the Manager to gain unfunded long exposure to equity markets, sectors or single stocks. Unfunded exposure is exposure gained without an initial outflow of capital. The risk and performance contribution of long CFDs held in the Company’s portfolio is overseen by the Manager’s experienced, specialist derivative instruments team that uses portfolio risk assessment and construction tools to manage risk and investment performance.

RISK SENSITIVITY ANALYSISInterest rate risk sensitivity analysisBased on the financial instruments held and interest rates at 31 December 2021, an increase of 0.25% in interest rates throughout the year, with all other variables held constant, would have decreased the Company’s net return on ordinary activities after taxation for the year and decreased the net assets of the Company by £169,000 (2020: decreased the Company’s net return and decreased the net assets by £180,000). A decrease of 0.25% in interest rates throughout the year would have had an equal but opposite effect.

Foreign currency risk sensitivity analysisBased on the financial instruments held and currency exchange rates at 31 December 2021, a 10% strengthening of the sterling exchange rate against the yen, with all other variables held constant, would have decreased the Company’s net return on ordinary activities after taxation for the year and decreased the Company’s net assets of the Company by £35,030,000 (2020: decreased the Company’s net return and decreased the net assets by £35,047,000). A 10% weakening of the sterling exchange rate against the yen would have increased the Company’s net return on ordinary activities after taxation for the year and increased the net assets of the Company by £42,814,000 (2020: increased the Company’s net return and increased the net assets by £42,836,000).

Other price risk – exposure to investments sensitivity analysisBased on the listed investments held and share prices at 31 December 2021, an increase of 10% in share prices, with all other variables held constant, would have increased the Company’s net return on ordinary activities after taxation for the year and increased the net assets of the Company by £29,054,000 (2020: increased the Company’s net return and increased the net assets by £29,750,000). A decrease of 10% in share prices would have had an equal and opposite effect.

Based on the unlisted investments held and share prices at 31 December 2021, an increase of 10% in share prices, with all other variables held constant, would have increased the Company’s net return on ordinary activities after taxation for the year and increased the net assets of the Company by £1,720,000 (2020: increased the Company’s net return and increased the net assets by £550,000). A decrease of 10% in share prices would have had an equal and opposite effect.

Other price risk – net exposure to derivative instruments sensitivity analysisBased on the long CFDs held and share prices at 31 December 2021, an increase of 10% in the share prices underlying the long CFDs, with all other variables held constant, would have increased the Company’s net return on ordinary activities after taxation for the year and increased the net assets of the Company by £7,262,000 (2020: increased the Company’s net return and increased the net assets by £7,829,000). A decrease of 10% in share prices would have had an equal and opposite effect.

Fair Value of Financial Assets and LiabilitiesFinancial assets and liabilities are stated in the Balance Sheet at values which are not materially different to their fair values. As explained in Notes 2 (j) and (k) above, investments and derivative instruments are shown at fair value. In the case of cash at bank, book value approximates to fair value due to the short maturity of the instruments.

Fair Value HierarchyThe Company is required to disclose the fair value hierarchy that classifies its financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The valuation techniques used by the Company are explained in Notes 2 (j) and (k) above. The table below sets out the Company’s fair value hierarchy:

The table below sets out the movements in level 3 financial instruments during the year:

* Financial instruments are transferred out of level 3 when they become listed.

AsoviewAsoview is an online booking website for leisure facilities. The valuation at 31 December 2021 is based on the cost of the investment when it was purchased in December 2021. As at 31 December 2021, its fair value was £6,415,000.

MoneytreeMoneytree develops personal asset management applications and provides household account book applications and expense payment applications in Japan. During the year, the Company increased its shareholding by subscribing to a further round of fundraising. The valuation at 31 December 2021 is based on analysis of the company’s financial reports, the macro-environment and benchmarking the position to a range of comparable market data. As at 31 December 2021, its fair value was £2,641,000 (2020: £1,595,000).

iYelliYell is a Japanese mortgage Fintech company. The valuation at 31 December 2021 is based on the cost of the investment when it was purchased in December 2021. As at 31 December 2021, its fair value was £2,566,000.

YorisoYoriso is a leading online funeral planning platform in Japan. The valuation at 31 December 2021 is based on analysis of the company’s financial reports, the macro-environment and benchmarking the position to a range of comparable market data. As at 31 December 2021, its fair value was £2,557,000.

SpiberSpiber is a bio-tech company which produces synthetic spider silk fibres from protein. The valuation at 31 December 2021 is based on the cost of the investment when it was purchased in September 2021 with consideration as to whether there have been any significant developments impacting the performance and future prospects of the company. As at 31 December 2021, its fair value was £2,436,000.

InnophysInnophys develops elderly-care and welfare equipment designed to be used as an exoskeleton for physical support in Japan. The valuation at 31 December 2021 is based on analysis of the company’s financial reports, the macro-environment, benchmarking the position to a range of comparable market data and consideration given to the continuing impact of COVID-19. As at 31 December 2021, its fair value was £586,000 (2020: £738,000).

17 CAPITAL RESOURCES AND GEARINGThe Company does not have any externally imposed capital requirements. The financial resources of the Company comprise its share capital and reserves, as disclosed in the Balance Sheet and its gearing which is achieved through the use of long CFDs. Financial resources are managed in accordance with the Company’s investment policy and in pursuit of its objective, both of which are detailed in the Strategic Report. The principal risks and their management are disclosed in the Strategic Report and in Note 16 above.

18 TRANSACTIONS WITH THE MANAGER AND RELATED PARTIESFIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management and the role of company secretary to FIL Investments International (“FII”), the Investment Manager. Both companies are Fidelity group companies.

Details of the current fee arrangements are given in the Directors’ Report and in Note 4 above. During the year, fees for portfolio management services of £2,877,000 (2020: £2,035,000) and secretarial and administration fees of £50,000 (2020: £50,000) were payable to FII. At the Balance Sheet date, fees for portfolio management services of £245,000 (2020: £232,000) and secretarial and administration fees of £25,000 (2020: £13,000) were accrued and included in other creditors. FII also provides the Company with marketing services. The total amount payable for these services during the year was £130,000 (2020: £97,000). At the Balance Sheet date, marketing services of £4,000 (2020: £6,000) were accrued and included in other creditors.

Disclosures of the Directors’ interests in the ordinary shares of the Company and Directors’ fees and taxable expenses relating to reasonable travel expenses paid to the Directors are given in the Directors’ Remuneration Report. In addition to the fees and taxable expenses disclosed in the Directors’ Remuneration Report, £12,000 (2020: £15,000) of Employers’ National Insurance Contributions was also paid by the Company. As at 31 December 2021, Directors’ fees of £10,000 (2020: £14,000) were accrued and payable.

ALTERNATIVE PERFORMANCE MEASURES

DISCOUNT/PREMIUMThe discount/premium is considered to be an Alternative Performance Measure. It is the difference between the NAV of the Company and the ordinary share price and is expressed as a percentage of the NAV. Details of the Company’s discount/premium are on the Financial Highlights and both are defined in the Glossary of Terms in the Annual Report.

TOTAL RETURNTotal return is considered to be an Alternative Performance Measure.

The tables below provide information relating to the NAVs and share prices of the Company and the total returns for the years ended 31 December 2021 and 31 December 2020.

Ongoing chargesOngoing charges are considered to be an Alternative Performance Measure. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and other expenses expressed as a percentage of the average net asset values throughout the year.

GearingGearing is considered to be an Alternative Performance Measure. See the Fair Value and Portfolio Exposure of Investments table in the Annual Report for details of the Company’s gearing.

Revenue, Capital and Total Returns

Revenue, capital and total returns are considered to be Alternative Performance Measures. See the Income Statement and Note 8 for further details.

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 December 2021 are an abridged version of the Company's full Annual Report and Financial Statements, which have been approved and audited with an unqualified report. The 2020 and 2021 statutory accounts received unqualified reports from the Company's Auditor and did not include any reference to matters to which the Auditor drew attention by way of emphasis without qualifying the reports and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2020 is derived from the statutory accounts for 2020 which have been delivered to the Registrar of Companies. The 2021 Financial Statements will be filed with the Registrar of Companies in due course.

A copy of the above results announcement will be available on the Company's website at www.fidelity.co.uk/japan within two working days.

A copy of the Annual Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at: www.morningstar.co.uk/uk/NSM

The Annual Report will be posted to shareholders in April 2022 and additional copies will be available from the registered office of the Company and on the Company's website: www.fidelity.co.uk/europe where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

ENDS