Nippon Active . Regulatory News (NAVF)

LEI: 213800JOFEGZJYS21P75

 31 August 2023

Nippon Active Value Fund plc

HALF-YEARLY REPORT

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023

CHAIR'S STATEMENT

Performance

I am pleased to present Nippon Active Value Fund's interim report, covering the period from 1 January 2023 to 30 June 2023.

Over that period, the Company's net asset value total return with dividend reinvested rose by +6.7% while the share price total return with dividend reinvested rose by +23.2%, reflecting a fall in the discount from 16.3% to 3.6%. For comparison, the MSCI Japan Small Cap Index in sterling terms was little changed, rising by a modest +0.4% over the same period. Since the launch of the Company in February 2020 on a dividend reinvested total return basis, the net asset value of the Company has increased by +53.4% and the share price by +45.3%, compared to a return in this index of +8.5%.

During the period under review, the Japanese market rallied to the highest level since 1990 in local currency terms, though the continuation of loose monetary policy contributed to further weakness in the yen. In contrast to concerns in other developed markets about the likelihood of continued increases in interest rates to combat stubborn inflationary pressures, the end of deflation in Japan is positive for the economy, while the end of Covid restrictions in China is positive for Japanese exports and inward bound tourism. Berkshire Hathaway's enthusiasm for Japanese equities, albeit focused on a narrow sector, was widely covered. Overseas investors have been significant net buyers of yen assets, while domestic retail investors responded well to the announcement of an extension of tax-efficient individual investment accounts, NISAs. While increased investment flows have benefited larger companies more than the small to mid-cap equities that are the focus of your Company, continuing news flow about corporate governance initiatives has provided support for an activist approach.

Our Investment Adviser's report follows below.

Corporate Governance Developments

In April 2022, the Japanese Securities Exchange, JPX, introduced a new system of classification for listed equities, which divides listed equities into Prime, Standard and Growth Markets based on criteria including market capitalisation, tradable shares and corporate governance standards. The reorganisation allowed a generous transition period. In January this year JPX clarified the arrangements for ending the transition period and the criteria to be applied in the annual reassessment of eligibility. As part of this they announced that they would require companies trading below book value to provide plans to boost their share price. According to the Financial Times, 53% of companies listed on the Tokyo Stock Exchange trade with a price-to-book ratio of less than 1x and these companies form the core of our target investment universe.

In November 2022, The Ministry of Economy, Trade and Industry (METI) announced a review of Merger and Acquisition Guidelines, which includes a period of public consultation lasting until early August 2023. Our Investment Advisers have participated in the consultation process. METI's stated purpose is to improve transparency and clarity and to encourage the consolidation of industries where there is excess capacity, which all investors would no doubt welcome.

In March this year, the Financial Services Agency announced a review of takeover regulations, including a reassessment of the percentage ownership that would trigger a compulsory takeover bid, currently 66% in on-market transactions and 33% in off-market purchases. We await the outcome of both reviews with interest. Whatever the final result, the inherent value of listed Japanese equities is unarguable and the emphasis by the Stock Exchange on improving outcomes for all shareholders has, we feel, made management more receptive to arguments presented by activist investors for improved capital allocation, particularly in the small and medium cap sectors.

Gearing

The Company has arranged a borrowing facility of £30 million to provide the Investment Adviser with flexibility to temporarily gear the portfolio when appropriate, eg to facilitate takeover initiatives. At 30 June 2023, the portfolio held 0.6% in cash and at 29 August 2023 is approximately 2.3% in cash.

Proposed Merger with abrdn Japan Investment Trust plc (AJIT)

In May 2023, the Company announced that, subject to the approval of the shareholders of both AJIT and NAVF at general meetings, your Company had been selected as the successor vehicle to AJIT pursuant to its proposed s.110 Insolvency Act 1986 member's voluntary liquidation and reconstruction. We are delighted to have been selected. Aside from approval by both sets of shareholders a further condition of the merger was that NAVF move its listing from the Specialist Fund Segment to the Official List and the Premium Segment of the London Stock Exchange, a step which the board was already considering, as a means of improving distribution to retail investors. As part of the migration to the Premium Segment, the Board appointed a second broker, Joh. Berenberg, Gossler & Co. KG, as sponsor and joint broker alongside Shore Capital.

Proposed Merger with Atlantis Japan Growth Fund (AJG)

On 11 August 2023, the Company also announced that, subject to the approval of the shareholders of both AJG and NAVF at general meetings, your Company had been selected as the successor vehicle to AJG pursuant to a scheme of reconstruction and voluntary winding up of AJG pursuant to section 391(1)(b) of the Companies (Guernsey) Law, 2008. We are again delighted to have been selected by the board of AJG.

The resulting expansion of the Company will, we believe, improve the liquidity of our shares as well as expand the universe of potential investment targets to include slightly larger companies.

We are now expecting that the NAVF circular and prospectus required to support the AJIT and AJG mergers

will be published imminently. We are now expecting that all necessary public documents in connection with the AJIT and AJG mergers will be published by the Company, AJIT and AJG in early September.

Outlook

The Company's strategy is to invest in a small number of deeply undervalued companies where there is a strong potential for engagement with management to improve returns to shareholders through, for example, higher dividend payouts or share buy backs. The RSM team continues to identify a number of potential investment opportunities and is encouraged by the responsiveness of many, if not all, of the companies with which they engage. We are encouraged by the more positive sentiment towards Japanese equities this year. Ours is a highly selective, concentrated approach and we expect our returns to be relatively lowly correlated to the market as a whole. Even if global investors' focus shifts away from Japan, we are confident that an activist approach will continue to perform well.

Rosemary Morgan

Chair

30 August 2023

INVESTMENT ADVISER'S REPORT

For the half-year ended 30 June 2023

Performance

1 This is measured on an ex-income basis, excluding dividend reinvested.

Source: Bloomberg

Overview

In her report, the Chair has touched on the Bank of Japan's continued 'loose money' policy, despite what really does appear to be a genuine rise in inflation. The effects of this aberration amongst the world's developed economies are starkly illustrated in the table above. This year alone, we could argue the yen has cost the Fund almost 16.5% of performance and over 40% since we launched in February 2020. Nonetheless, in sterling terms, the capital return of the Fund's NAV is +46.7% (53% including dividends) over the life of the Fund and NAVF is the top performing UK-based Japanese-focused fund over one and three years, a testament to the continued success of the formula we set out initially and from which we have not deviated. Nor will we. Although we have no benchmark, we tend to look at the MSCI Japanese Small Cap Index companies, it is worth noting for completeness that we have also outperformed the TOPIX Small Cap index (TPXSM Index) and the TOPIX Index excluding TOPIX 500. The TOPIX Small Cap Index was up +9.63%2 as of 30th June 2023, since February 21st 2020, the date the Fund listed on the London Stock Exchange.

2 Source: Morningstar

NAVF Returns By Currency (Net Of Fees)

Inception Date: 21/02/2020

Since inception as of 30 June 2023

Source: Bloomberg, company data

I am writing this report towards the end of July and, for the record, on 28th July 2023, the Fund's NAV was 150.06p and Assets Under Management ("AUM") was £169.60 million. Further down below of this report gives a snapshot of the Fund at 30 June 2023.

Merger with abrdn Japan Investment Trust plc

In the first half of this year, performance has mattered even more than usual. The Chair has already discussed the scheme of reconstruction of abrdn Japanese Investment Trust plc (AJIT) via s.110 of the Insolvency Act 1986. As this transaction will transform our business, a fuller account is merited.

As at the end of March this year AJIT was facing a continuation vote following a prolonged period of underperformance. The Board of AJIT, thinking imaginatively, wished to offer shareholders the option of rolling over the majority of their holdings in AJIT into another stronger alternative. Following an in-depth review of managers across the listed Japan sector, NAVF was selected by the AJIT board as the most attractive successor vehicle for their shareholders. The NAVF Board has also agreed to expand and will welcome one of the AJIT Board members, thus ensuring continued representation of AJIT's shareholders' interests. The terms of the proposed deal were announced on 18th May once AJIT had consulted with a number of its major shareholders, who indicated support for the deal.

Merger with Atlantis Growth Fund

As announced on 11 August 2023 and, following a rigorous review process, NAVF has also been selected by Atlantis Japan Growth Fund ("AJG") as the successor vehicle for those AJG shareholders electing (or being deemed to elect) for the rollover option pursuant to a second scheme of reconstruction.

AJG is a long-only, non-activist investor in the Smaller Japanese Companies sector, which like AJIT, is facing a continuation vote, and the Board has determined that its future will be better served by being 'rolled-up' into another, more successful, fund. As announced on 11 August 2023, AJG consulted with a number of its major shareholders who indicated support for the move.

The Rising Sun team are delighted by the confidence shown in their performance by both the boards of AJIT and AJG and by the fact that completion of both schemes, subject to separate shareholder approvals, should increase NAVF's assets under management towards the £300 million mark. Furthermore, as set out in the announcement of 11 August 2023, the terms of the AJIT and AJG mergers are equivalent, including that your Investment Adviser demonstrates its conviction in the future success of NAVF and covers the costs of both up to a cap of £800,000 per scheme.

It is impossible to be certain of the absolute amount that will come across to NAVF on completion of each scheme but, after the proffered 25% cash alternative, we still hope to receive assets in excess of £120 million after expenses. Given the recent strong showing of the Japanese large-caps, we are keen to receive the proceeds in specie - in other words, both the AJIT and AJG portfolios should arrive substantially in the form of the stocks remaining, once any gearing and the cash offer are settled. NAVF will not be 'out of the market', and we can switch the inherited positions into our target portfolio stocks at a time of our choosing.

As at 28th July 2023 NAVF's ordinary shares were trading on a 3.4% discount and have traded at NAV or a small discount since the announcement of the AJIT scheme. We are aware that two impediments to a stronger share rating have been, to date, our size and relative illiquidity. Completion of the AJIT and AJG schemes will help relieve both these concerns at once. In addition, the ownership position of individuals and funds associated with the Investment Adviser, already down to 31% due to the Fund's growth, will be further diluted to levels more in line with market norms.

Migration to the Official List and Premium Segment of the Main Market

Earlier, I described the AJIT deal as transformative. By this, I did not mean solely the increase in NAVF's AUM. A key condition of the terms agreed with the AJIT board was that NAVF would move its listing from the Specialist Fund Segment to the Official List and Premium Segment of the Main Market, something we were intending to do later this year in any event, the AJIT opportunity merely accelerated the timing. Moving to the main board is important and good news. In recent months we have been tipped by, amongst others, Questor, Midas, City Wire, Shares, as well as Money Makers and other investment podcasts - a premium listing will make NAVF both more liquid and easier to buy for retail investors. Our newly appointed second broker, Berenberg, will act as sponsor for our move to the Official List.

Investment Policy

NAVF was established with a mandate to run a selective portfolio of around 20 names in companies of up to US$1 billion market cap equivalent and with no more than 30% in anyone holding. This made perfect sense for a portfolio with a starting value of just over £100 million.

Although we have never approached that kind of concentration in an individual stock, as the portfolio has grown, so has the number of constituent parts. Currently, we have 29 names, not including two TOPIX-related Exchange Traded Funds (see Portfolio Composition below). As a result of the two proposed scheme mergers, and the move to the Premium Segment, we will be proposing some modest revisions to the investment policy, details of which will be set out in the circular to shareholders shortly.

These revisions include a reduced limit on the maximum proportion of the Fund which can be invested in any one name of 20% (down from 30%) which, given the expanding size of the Fund, is still gives us plenty of scope. The greater size of the Fund also behoves us to reconsider the typical number of stocks we will hold, and this will be advanced to around 35. The portfolio will remain selective and focused, while we will be acknowledging the existing direction of travel. Lastly, and more significantly, we have enlarged the core universe of prospective targets to include companies with up to US$3 billion market cap equivalent. This will allow the inclusion of more mid-cap names, providing both greater levels of liquidity and the ability to deploy our larger fund more quickly. NAVF was always conceived as a small and mid-cap fund, so there is no fundamental change in our purposes, nor the way in which we pursue them.

The revisions to the Investment Policy are designed in part to cater for a larger portfolio of assets following the completion of the AJIT and AJG schemes. Notwithstanding this, your Investment Adviser considers that the increased flexibility offered by the revised investment policy, will be for the benefit of shareholders regardless of whether or not the schemes complete.

Portfolio Composition

When writing the first quarter's report, I explained that two actions within the portfolio had resulted in a large influx of cash. These were the successful MBO of Ihara Science, which de-listed in Q2, and the unsuccessful tender offer for T&K Toka. At one point, we had over £40 million of excess liquidity. As the Chair has noted in her report, the Japanese market has been 'running' in recent months, the result of many causes, important amongst which have been: a general recognition of the value proposition of the cheapest market in the developed world, low interest rates and the 'loose' yen policy, and the resultant inflows of foreign funds as they sought to diversify away from China. The temporary solution to get this liquidity to work rapidly was to buy two ETFs geared to the TOPIX index. We recognised that this was sub-optimal and undertook to invest these funds in new and existing targets as quickly as possible.

I am pleased to report that, while on 1st June the ETFs constituted 10.5% of the portfolio, by the end of the month this had fallen to 5.25% (and, at 28th July, it is now only 2.5%). It is worth remarking that the composition of Ihara Science's go-private vehicle is still being structured. Additionally, we note that T&K Toka's CEO has stepped down and, accordingly, the company's future direction is still in the balance.

Outlook

This is the easiest section of any report I have ever written. The outlook is the brightest since NAVF's IPO in 2020. METI's M&A review, the Tokyo Stock Exchange's announced intention to name and shame all companies trading below PBR and requiring them to generate comprehensive plans to plot a path to trading at multiples, and the Corporate Governance programme generally, have never provided a stronger regulatory wind at our back. Where the standard answer to our first entreaties with a new subject used always to be a polite 'no', now they are routinely saying 'let's talk'. We know there continue to be doubters, and that 'I've heard it all before' is a refrain that will take a long time to fade, but, on the ground, we are really beginning to see a sea change. Should both the AJIT and AJG schemes be approved by their respective sets of shareholders leaving us with a nearly £300 million fund, a broader mixture of institutional and retail shareholders, a Premium Segment listing, and the ability to buy bigger positions in slightly bigger companies, NAVF's prospects look better than ever.

Paul ffolkes Davis

Rising Sun Management Limited Investment Adviser

30 August 2023

PORTFOLIO SECTORS BREAKDOWN

As at 30 June 2023

INTERIM MANAGEMENT REPORT

The Directors are required to provide an Interim Management Report in accordance with the Financial Conduct Authority ("FCA") Disclosure Guidance and Transparency Rules ("DTR") and consider the Chair's Statement and the Investment Adviser's Report in this half-yearly report to provide details of the important events which have occurred during the period and their impact on the financial statements. The following statements on related party transactions, going concern and the Directors' Responsibility Statement below, together constitute the Interim Management Report for the Company for the period ended 30 June 2023. The outlook for the Company for the remaining six months of the year ending 31 December 2023 is discussed in the Chair's Statement and the Investment Adviser's Report.

RISKS AND UNCERTAINTIES

The principal and emerging risks and uncertainties facing the Company are detailed in the Company's most recent Annual Report for the year ended 31 December 2022. These remain unchanged during the period under review.

The principal and emerging risks, together with a summary of the processes and internal controls used to manage and mitigate risks where possible are outlined in the Annual Report for the year ended 31 December 2022.

The Board is responsible for the management of risks and uncertainties faced by the Company. The Board relies on the Investment Adviser, who will seek to mitigate these risks through active asset management initiatives and carrying out due diligence work on potential targets before entering into any investments. The principal and emerging risks and uncertainties of the Company are continuously monitored by the Board, with input from the Investment Adviser.

The Board is of the opinion that these principal and emerging risks and uncertainties remain and is very

much applicable to the remaining six months of the Company's financial year.

RELATED PARTY TRANSACTIONS

The Company's Investment Adviser is Rising Sun Management Limited and is considered a related party under the Listing Rules. The Investment Adviser is entitled to receive annual advisory fee calculated as 0.85 per cent. of the Company's net assets (exclusive of VAT). Investment advisory fees paid during the period to 30 June 2023 is £694,000 (30 June 2022: £634,000). There is no performance fee payable to the Investment Adviser.

GOING CONCERN

The Board has a reasonable expectation that the Company has adequate resources to continue in operational existence for at least the following twelve-month period from the date of this report. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income, and expense flows. The Company's net assets as at 30 June 2023 were £165.8 million (31 December 2022: £158.7 million). As at 30 June 2023, the Company held £162.1 million (31 December 2022: £126.2 million) in quoted investments and had cash and cash equivalents of

£1.0 million (31 December 2022: £31.7 million). The total expenses (excluding finance costs and taxation) for the period ended 30 June 2023 is £1.3 million (30 June 2022: £0.8 million).

As a result of the macro-economic situation, including higher inflation and increased interest rates brought about, inter alia, by the Russian invasion of Ukraine and the recovery from the COVID-19 pandemic, the Directors have fully considered each of the Company's investments. However, the Company currently has more than sufficient liquidity available to meet any present and future obligations. In addition, the Board believes that the Company and its key third party service providers have in place appropriate business continuity plans to continue to maintain service levels throughout future pandemics.

DIRECTORS' STATEMENT OF RESPONSIBILITY FOR THE HALF-YEARLY REPORT

The Directors confirm to the best of their knowledge that:

• The condensed set of financial statements contained within the half-yearly report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as required by DTR 4.2.4R.

• The Interim Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FCA's Disclosure Guidance and Transparency Rules.

Rosemary Morgan Chair

For and on behalf of the Board of Directors

30 August 2023

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

The Company's distributable reserves consist of the capital reserve attributable to realised capital profits and revenue reserve.

The notes form part of these interim financial statements.

CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

The notes form part of these interim financial statement.

NOTES TO THE INTERIM FINANCIAL STATEMENTS