Annual Financial Report
27/03/2025 07:00
FIDELITY JAPAN TRUST PLC Final Results for the year ended 31 December 2024 Financial Highlights: During the year ended 31 December 2024, Fidelity Japan Trust PLC (“the Company”) reported a Net Asset Value (NAV) total return of -1.8% while the Reference Index, the TOPIX Total Return Index (in sterling terms), rose +10.0%. Over the same period, the ordinary share price total return of the Company was -5.7%. Following news of the retirement of Nicholas Price at the end of 2025, his Assistant Portfolio Manager, Ying Lu, will become the Portfolio Manager of the company with effect from 1 October 2025. The Board is proposing an unconditional tender offer of 100% of the Company’s issued share capital following the three years to 31 December 2027. Contacts For further information, please contact: George Bayer Company Secretary 0207 961 4240 FIL Investments International CHAIRMAN’S STATEMENT I am pleased to present the Annual Report of Fidelity Japan Trust PLC for the year ended 31 December 2024. However, it is disappointing to report that it proved to be another difficult year for the investment style of the Company notwithstanding a positive return for the overall market. The TOPIX Total Return Index (the Reference Index) rose by 10.0% over the year in sterling terms. By comparison, the Company’s net asset value (NAV) fell by 1.8% over the year and the share price fell by 5.7% reflecting a widening in the discount at which the shares are traded. This now means that the three and five year returns for the Company are disappointingly behind the Index and have also lagged competitor funds. The Company has an all-cap mandate and Nicholas Price, your Portfolio Manager, is not constrained by size or style and can invest across the range of Japanese companies. However, the decision to be overweight in small and mid-cap growth companies, where research is rewarded and where Nicholas and the highly experienced Fidelity team have historically found many of the best opportunities, contributed significantly to the underperformance. The change in interest rates damaged valuations in this part of the market and there were some flaws in stock-picking, as evidenced by the disappointing earnings results from some of the companies involved in the factory automation sector. Illustrative of the challenges of being a growth orientated manager in Japan, it is interesting to note that the MSCI Japan Value Index has risen by 42.2% in sterling terms over the three years to 31 December while the MSCI Japan Growth Index has fallen by 3.7% over the same period. DISCOUNT MANAGEMENT, SHARE REPURCHASES AND TREASURY SHARES The Board has an active approach to discount management, the primary purpose of which is to reduce discount volatility. Over the course of the year, 10,828,535 ordinary shares were repurchased for holding in Treasury, at a cost of £18,857,000. This represented 8.0% of the issued share capital of the Company as at 31 December 2024 and added 1.3% to the NAV total return for the year. Subsequent to the year end and up to the latest practicable date of this report, the Company has repurchased a further 1,532,679 shares at a cost of £2,676,000. Historically, shares bought back were held in Treasury and could be issued at a later date should the share price move to a premium to NAV per ordinary share. As the number of shares held in Treasury equated to 15% of the issued share capital by 20 January 2025, shares repurchased since then have been cancelled. While we would like to see our share price discount to NAV in single figures, discounts have remained wide across the whole investment companies’ universe, averaging 14.7% at the end of 2024. The Company’s shares began the year under review at a 9.5% discount and ended it at 13.1%. At the forthcoming Annual General Meeting (AGM) on 21 May 2025, 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. A sustained reduction in the discount of the Company is only likely if broad investor interest in Japan continues to increase and the investment performance recovers. Meanwhile, the Board and the Manager will continue their efforts to raise the Company’s profile and promote the investment opportunities in the Japanese equity market. ONGOING CHARGES RATIO The ongoing charges ratio for the year, including the variable element, is 0.83% (2023: 0.84%). This comprises a fixed charge of 1.03% (2023: 0.99%) and a variable credit of 0.20% (2023: 0.15%), the maximum refund under the variable fee arrangement. The variable management fee credit is due to the Company’s underperformance in comparison to its Reference Index on a rolling three-year basis. The Board believes that the variable fee arrangement whereby the Manager is rewarded for outperformance, but shareholders are rebated if the portfolio underperforms, is a significant corporate governance benefit for investors. GEARING The Board continues to believe that gearing is a distinct advantage of the investment trust structure and will benefit the performance of the Company. The Company’s use of long Contracts for Difference (CFDs) is a differentiating factor, providing more flexibility and at a low-er cost than traditional bank debt. The level of gearing remained fairly constant in the year under review, beginning 2024 at 23.1% and standing at 24.0% at the year end. UNLISTED COMPANIES While there is authority from shareholders for the Company to invest up to 20% of its assets in unlisted companies, the Board has limited the proportion of the portfolio held in unlisted companies to a maximum of 10% while the IPO market in Japan remains lacklustre. The actual exposure to unlisted holdings at the end of the year was 6.6% of net assets (2023: 6.3%) across a total of seven companies. This is unchanged from last year. Twice yearly, the Audit Committee meets specifically to review the unlisted investments together with Fidelity’s Fair Value Committee, Fidelity’s unlisted Asian investments specialist and representatives from Kroll, the independent valuation specialists. Further details can be found in the Portfolio Manager’s Review below. DUE DILIGENCE TRIP As detailed in the half-yearly report for the six months ended 30 June 2024, the Board was pleased to undertake a due diligence trip to Japan last June, spending time with the investment management and analyst teams and meeting some of the Company’s investments with them. The visit was invaluable in terms of giving the Board an understanding of the depth of analyst resources supporting the Portfolio Manager, reinforcing the continued confidence of the Board in Fidelity, Nicholas and the investment team around him, and underscoring our belief that the Company will benefit when there is a market rotation back into growth orientated stocks and some of the medium-sized and smaller companies held in the portfolio. BOARD OF DIRECTORS As covered in the 2023 Annual Report, Dominic Ziegler retired from the Board at the May 2024 AGM after nine years of excellent service. Seiichi Fukuyama joined the Board as a non-executive Director with effect from 1 March 2024 and was elected by shareholders at the AGM in May 2024. There have been no other changes to the Board over the year. All five Directors will be standing for re-election at the AGM on 21 May 2025 and their biographies can be found in the Annual Report. Between them they have a wide range of appropriate skills and experience and the diversity of perspectives necessary to form a balanced Board for the Company. ANNUAL GENERAL MEETING Once again, we will be holding a ‘hybrid’ AGM, allowing attendance and voting in real time online as well as in person. The AGM is a valuable opportunity for us as a Board to engage with shareholders. Nicholas Price will be making a presentation, considering the year under review, and outlining the opportunities in the market and prospects for the year ahead. The Board and Nicholas will be very happy to answer questions from shareholders attending both in person and virtually. Japanese refreshments will be served to attendees, and we look forward to seeing many of you there. Further details of the AGM are set out in the Annual Report. PORTFOLIO MANAGER CHANGE AND CONTINUATION VOTE The Board has recently been notified that the Portfolio Manager, Nicholas Price, plans to retire at the end of this calendar year after a 30 year career with Fidelity in Japan. His Assistant Portfolio Manager, Ying Lu, will become the Company’s Portfolio Manager with effect from 1 October 2025. Nicholas will continue to work with Ying until the end of the year. Ying has been working closely with Nicholas for the past three years and so we do not expect any change in the approach to the investment management of the Company. The Board continues to believe that the Fidelity investment team in Japan is one of the best resourced in the industry. We also believe that we will see a reversion to a market environment where the investment style of the Fidelity team will once again generate the significant outperformance that we have seen in the past and particularly the years ended 2019 and 2020. Illustrating how quickly things can change, it is worth noting that in December 2024 alone, the NAV of the Company rose by 5.2% and the share price by 5.8% against an Index increase of 0.9%. Notwithstanding our strong backing for Nicholas and the Fidelity team, we recognise that continued underperformance would be unacceptable to our shareholders. Accordingly, linked to the vote for the continuation of the Company at the forthcoming AGM, we are proposing an unconditional tender offer of 100% of the Company’s issued share capital (excluding shares held in Treasury) following the three years to 31 December 2027. The tender will be at a price close to NAV. Shareholders may ask why the Board is recommending continuation without an immediate cash exit after this period of underperformance. Investment performance has an element of cyclicality, outcomes are unpredictable and investing requires an ability to withstand the gyrations of the markets and take a long-term view. The question for the Board and shareholders is whether a well-resourced and experienced team with a strong historic track record should be dismissed based on the last three years, or whether there is a strong possibility that the current growth-oriented portfolio, highly differentiated from the Reference Index, will emerge from its recent trough/doldrums and deliver the sorts of returns that we and shareholders expect. The Board has taken this view. The tender offer will be in place for the Company’s Annual General Meeting to be held in May 2028. ARTICLES OF ASSOCIATION The Board is proposing to extend the time period to draw up proposals regarding the Company’s voluntary liquidation and/or reorganisation and hold a general meeting at which they are submitted to members in the event of an unsuccessful continuation vote, from three to six months. The proposed new time period, which runs from the date of the general meeting at which the unsuccessful vote occurs, is felt to provide a more practicable period to allow proposals to be fully considered and to be in line with market practice. We have also taken the opportunity to make other changes of a minor, clarificatory or technical nature, including clarifications in relation to hybrid general meetings to follow how practice has developed. However, the amendments do not provide for, and the Board has no intention to move to, fully virtual meetings. A full tracked version of all the changes proposed to the Articles is available at www.fidelity.co.uk/japan. The principal changes proposed to the Articles are set out in more detail in the Annual Report. OUTLOOK As mentioned, the Company has generated significant outperformance in the past, and we have every reason to believe that Nicholas, Ying and the Fidelity investment team will do so again. While underperformance is always disappointing, it is at least understandable in times where a tried-and-tested investment approach is at odds with the prevailing market mood. The team are resolute in their commitment to identifying companies where the market is underestimating or mispricing future growth, including those which may be at an early stage of their development, and their bottom-up stock selection approach and multi-cap focus has the full backing of the Board. Where share prices have declined, this has only served to make low valuations even more compelling for businesses with good long-term growth prospects. The broadening out of the TSE reforms remains encouraging and should lead to a clear improvement in capital efficiency and shareholder returns in companies further down the market cap scale than those that have led the performance of the broad Japanese market in the past two years. Meanwhile, valuations of growth stocks remain low in historical terms and relative to other markets, despite the Japanese market featuring many companies positively exposed to global megatrends such as the growth of artificial intelligence. The Bank of Japan seems committed to a return to positive interest rates, and a sustained but modest level of inflation in both wages and prices could boost consumer and business confidence. Another area of support for the market can be seen in the increase in merger and acquisition activity in Japan, most notably being the recent US$47 billion bid for convenience store operator 7-Eleven by the Canadian company that owns rival retailer Circle K. Your Board remains focused on ensuring the Company returns to delivering strong investment performance and is confident that the portfolio is well placed to benefit from this more positive outlook for the Japanese market. DAVID GRAHAM Chairman 26 March 2025 PORTFOLIO MANAGER’S REVIEW QUESTION The performance for the year under review has remained challenging given the positive headlines of recovery in Japan. Why is that and what were the key drivers of the Japanese stock market? ANSWER It is disappointing to report to our shareholders on another year of poor performance against favourable headlines in Japan and the country being in a new bull market, driven by corporate governance reforms, a weak yen boosting profits and increasing activist and private equity involvement creating a more dynamic market for corporate control. On why the Company could not capture this beta, I would say that being on the ground in Japan, my bottom-up approach tends to focus on relatively lesser-known growth companies, often mid-caps with strong business models, new technology companies or those having strong positions in emerging growth markets. By buying these companies at cheap valuations, I am aiming to find future drivers of long-term performance for the Company. However, the short-term attention of the market since the 2023 implementation of the Tokyo Stock Exchange (TSE) reforms has been on low price-to-book ratio, ex-growth and old economy large-cap companies, often with large cash balances, which can be persuaded into doing large buybacks and increasing leverage. As this drives up short-term shareholder returns, there has been a large allocation of capital and market capitalisation away from growth areas of the market to companies that do not need that capital. Thereby, while most of the companies in the portfolio have executed well in terms of profit growth, the valuation contraction in the mid-cap segment of the portfolio has meant that the premium paid historically for sustainable mid-term higher return and growth companies has been effectively wiped out, at least temporarily. QUESTION What were the key contributors and detractors for the performance of the Company in the year to 31 December 2024? ANSWER The major contributors to performance over the year included Ryohin Keikaku, operator of the MUJI brand of general merchandise stores. Management is executing incredibly well, and the business is generating double-digit sales growth domestically and in China, where a combination of internal initiatives and macro factors are supporting a pickup in demand. In Japan, strong sales growth, underpinned by successful new products, and price hikes are leading to lower discounts and higher profit margins. Sanrio is a Japanese entertainment company that sells ‘Hello Kitty and friends’ merchandise and operates ‘Hello Kitty’ theme parks. The company is ideally placed to capture the structural growth of the Japanese character intellectual property (IP) market and its strategies in the licensing business are working very well in both North America and China, which contributed to an improvement in its overall profitability. Sanrio recently upgraded its full-year guidance and I expect the company to deliver double-digit profit growth over the next two to three years, justifying its valuation premium. Recruit Holdings, a global media and staffing company, made progress in improving the monetisation of its online job-matching platform “Indeed” and that helped to offset slowing job openings in the US. The company’s commitment to enhancing capital efficiency and increasing shareholder returns provided further share price support. Among financials, mega bank Mizuho Financial Group reported fiscal 2024 interim results that exceeded consensus forecasts due to a combination of higher interest rates, growth in non-interest income and the unwinding of cross shareholdings. The company announced a share buyback and dividend hike alongside its earnings release, and as a relative laggard it is starting to catch up with its peers in terms of earnings and stock price performance. The most significant detractors from performance over the 12-month review period included Mitsui High-tec, a leading supplier of hybrid/EV motor cores and leadframes, which is an essential component that connects semiconductor chips and external circuitry. Prolonged inventory adjustments of leadframes and sluggish demand for motor cores prompted the company to announce a downward revision to its full-year earnings forecast. However, leadframes appear to be at the bottom of the cycle and renewed growth in the motor core segment, supported by further hybrid penetration, is expected to lead to a recovery in earnings and a rerating from its current 10x price-to-earnings level. Harmonic Drive Systems, a leading manufacturer of mechatronic drive systems and precision gears for industrial robots, negatively revised its fiscal 2024 earnings guidance due to the slow pace of recovery in the factory automation (FA) sector, which reflects protracted inventory destocking. We retain our view that a sequential improvement in orders and an upturn in valuations will take place in 2025. Funeral services operator Kosaido Holdings was a strong performer in 2023 but faced profit taking at the start of the review year. Its share price came under further pressure following the resignation of its President and CEO, Hiroshi Kurosawa. Despite the change in management, we expect the company’s efforts to expand capacity and maximise its existing crematorium facilities to support future earnings growth. Given the largely predictable nature of the funeral business cash flows, we believe that it is substantially undervalued versus other similar listed businesses. Bicycle component maker Shimano negatively revised its full-year profit forecasts due to currency losses. However, inventory adjustments were expected to finish by year-end and demand in key markets is set to normalise. The ten highest stock contributors and detractors to the NAV total return on a relative basis are shown in the Annual Report. QUESTION How has the Company’s portfolio changed over the period? Are there any sectors in which you are particularly interested? ANSWER Against this backdrop, the task has been to continuously re-test arguments for holding every name in the portfolio and selling those that do not exhibit the excellent execution/valuation anomalies that underpin our investment approach. I believe that these future drivers of performance will work when fundamentals reassert themselves. In the short-term, the market is a voting machine but over the longer-term it is a weighing machine, and cheap mid-cap growth with favourable fundamentals will find favour again. As such, I expect a clear mean reversion in the performance of mid-cap companies, which account for around 50% of the Company’s active weight. With the guidance of the Board, I have also placed renewed emphasis on the Company being an all-cap portfolio that will do well even if a large-cap market continues to dominate. I have re-allocated the capital from names that did not meet our criteria to larger-cap growth names such as Recruit Holdings and Ajinomoto in the food sector. Given the interest rate regime change in Japan, I have also added to financials names such as Sompo Holdings and Mizuho Financial Group. This has created a better sectoral balance in the portfolio, while maintaining an 80% (ungeared) active money ratio but having around half of the portfolio in larger caps. In this way, I anticipate that we will be able to deliver better performance in a large-cap dominated market and still maintain the ability to outperform strongly when the market favours stocks further down the market-cap scale through our core bottom-up stock picking process. QUESTION Tokyo Stock Exchange (TSE) initiatives for corporate reform have initially been concentrated in large-cap companies. What are your expectations for growth names and mid-cap companies in 2025? ANSWER So far, the highest disclosure rates have been concentrated in large-cap, low price-to-book companies in sectors including banks, shipping, utilities and commodities. However, the TSE-led reforms are broadening out across the market. Through our engagements, we are seeing growth and mid-cap companies becoming more active in their shareholder returns. Given that mid/small-caps have a large presence both in absolute numbers and the proportion that trade below book value, there are grounds for optimism. Many mid/small-cap companies have solid balance sheets with high net cash to market capitalisation ratios, which means that they can easily conduct share buybacks to improve their returns on equity (RoE). As we have already seen among larger companies, higher rates of disclosure translate into better share price performance, and in 2025 mid/small-caps are likely to emulate these trends. From a valuation perspective, Japanese mid/small-caps are trading at a steep price-to-book discount to the larger-cap indices and have lost the price-earnings premium that was a constant feature of the past decade or so. As we have seen in the past, when the valuation cycle widens to such an extreme level, it tends to snap back and compliance with the TSE reforms can prompt this. Interestingly, in addition to a rise in share buybacks, we are seeing a clear increase in corporate activity through management buyouts, tender offers and mergers and acquisitions (M&A) more broadly. As noted by KKR founder Henry Kravis, Japan has more than 3x the number of listed subsidiaries than the US and more than half of the listed companies trade below book. There is also an increased focus on the need to accelerate the unwinding of cross shareholdings. In a historically overcapitalised market, where there is a clear drive to improve capital efficiency and restructure balance sheets, this trend of de-equitisation is positive for the mid-to-long term outlook. Question What engagements did you conduct over the year? Answer In 2024, the engagement team in Tokyo, led by our Head of Engagement, conducted 100 meetings (in addition to our fundamental research meetings), covering 22 names held by the Company. Against a backdrop of increasing governance reform under the auspices of the TSE, the majority of the engagements were focused on governance, capital allocation and long-term strategy. In terms of specific engagements with investee companies, we worked with Riken Keiki, a world leader in gas detectors, to develop its capital strategy and tackle its low price-to-book ratio. The company has an excellent business model with stable long-term profit and free cashflow growth among Prime companies, but its price-to-book ratio is low, and the denominator of returns on equity (RoE) is inflated due to excessive equity capital in pursuit of stability, resulting in poor capital efficiency. The company understands the points raised and is preparing to respond to the TSE. We requested the company to strengthen its investor relations (IR) activities, especially to increase the number of IR meetings from twice a year to avoid inadvertent underperformance of the stock price. In September, our engagement team met with a senior managing director from Uyemura, a niche mid-cap chemicals company focused on cutting edge plating for printed wiring boards and electronic components used in smartphones and cars, to follow up on an earlier meeting in 2023. The company has high margins, strong cashflow generation capabilities, and large cash balances, but a low third-party rating and low capital efficiency are impacting its valuation. The company has shown tangible progress and enhanced its governance checks, for example by creating a nomination & renumeration committee, as well as increasing buybacks. We believe that Uyemura’s initiatives are better than disclosed and with time and enhancements to their disclosure, this can improve further. Around the same time, we engaged with industrial electronics company Mitsubishi Electric. In terms of its business strategy, we discussed the company’s efforts to implement structural changes, moving from a pure hardware player to a software and solutions provider, and bridge the profitability gap with its US and European peers. We explained that the current level of disclosure is insufficient to accurately gauge its progress on reforms and that information at a segmental level would enable investors to assess the capital efficiency of its various businesses and thereby attain a holistic view of its overall portfolio. On the governance side, we spoke about the need to address the company’s cross shareholdings and the low valuations of its listed subsidiaries. Management agreed and it was reassuring to hear that they had identified the same issues internally. At the same time, we encouraged the company to establish a clear dividend policy given its ability to generate stable free cashflows, a move that would provide reassurance to investors should the cyclical environment change. Question What is your approach to gearing? And what impact did it have on returns during the year? Answer The level of gearing was little changed over the year and closed the year at 24.0% (versus 23.1% at the end of 2023). If we see a sustained uptrend in Japanese stocks, then I would be inclined to reduce the level of gearing employed. However, I am happy with where market valuations currently stand, and the leverage is deployed in stable growth companies rather than high beta names. So, overall, I am comfortable with the Company’s current positioning. Over the course of 2024, the CFDs had a modest positive impact on absolute returns, notably through the exposure to speciality retailer Ryohin Keikaku and HR company Recruit Holdings. Question How has the Company’s exposure to unlisted companies changed during the year under review? Answer As always, we continue to evaluate new opportunities, while maintaining a disciplined approach towards valuations. At the end of the review period, we continued to hold seven unlisted names, representing 6.6% of net assets. While there were no changes during the review period, we expect specific unlisted companies held in the portfolio to list in 2025. Question There are many geopolitical uncertainties in 2025. What will you be focusing on in the year ahead? Answer Turning to the outlook for 2025, there are many geopolitical uncertainties and unknowns, so I am focusing stock selection based on individual company’s self-reliance and growth drivers, and where the market is substantially mis-pricing the growth potential. Ryohin Keikaku, which runs the MUJI brand, is one such stock. Under a new management team, it has substantially transformed its marketing and development and internal management systems, and with successful products starting to emerge, it has substantial room to increase profitability as it ramps up changes to its supply chain management. Our internal estimates are substantially ahead of the street and the stock trades at around half the multiple of its domestic counter parts such as Fast Retailing (Uniqlo) despite faster growth, leaving significant upside potential for the stock in the year ahead. Another example is Recruit Holdings, which owns a job platform called “Indeed”. The key catalyst for Recruit as a dominant global job platform with pricing power is to raise its take rate from the current low 1% to 2-3% over the mid-term, which would substantially boost its earnings outlook versus consensus. Among mega-cap financials, insurer Sompo Holdings with better balance sheet management is offering an 8% total shareholder return and remains very discounted to its global and domestic peers. Within the mid-cap space, many double-digit growers – such as Kosaido Holdings (funerals), Mizuno (sports) and Premium Group (auto finance) – are all trading at deeply discounted price-to-earnings valuations and are potential sources of future performance as their earnings growth continues to come through. One top active position is Osaka Soda whose performance was poor in 2024 after strong gains in 2023. We think the market is underestimating the potential of its silica gel which is used in the GLP-1 market for obesity drugs. The company will also benefit when generics start to appear from 2026 and massively increase the size of the branded drugs market. I would also add that I expect some of the unlisted companies held in the portfolio to list in 2025, which may offer some upside versus their current assessed valuations. In particular, I would highlight the position in GO Inc, the largest taxi ride hailing app in Japan with 75% market share, which is growing rapidly and recently announced an exclusive tie up with Waymo in self-driving taxis in Japan. Question The Company’s underperformance compared to the Reference Index this year and over the longer-term is disappointing for shareholders. What have been the key drivers and what are your expectations for the coming months? Answer What can we learn from looking at past performance? From January 2019 to January 2022, the Company’s cumulative relative return was up by 45% but from January 2022 to December 2024 it was down by 35% relative to the market, giving up most of the gains from the previous three years. In the first period, an overweight exposure to the cyclical technology sector, which enjoyed a post-COVID boom, and bottom-up stock selection generally added a lot of value. The main detractors were more expensive internet-related names, which did well at the beginning of the pandemic but declined afterward especially as valuation multiples came down. Turning to the second period, bottom-up stock selection was broadly negative, as was sector selection (especially being underweight in banks and insurance). In terms of stock selection, there were two main buckets of underperformance: China-related factory automation (FA) companies and small-cap internet-related names that experienced a contraction in their valuation multiples. Where are we now with this? For the names that I continued to hold in the internet space, such as Raksul, the valuations are in line with the market despite their much higher earnings growth rates, so the upside/downside risks are now skewed to the upside. Similarly, for FA names such as MISUMI Group, most of them have re-oriented their businesses away from China over the last two years to other Asian countries, and to the US, and are growing again. They remain under-owned and offer an attractive risk-reward balance for 2025. In this second period and looking specifically at 2024 performance, stock selection was negatively impacted by weaker sentiment towards the FA space and the recovery potential for names such as Harmonic Drive Systems, as well as Mitsui High-tec in the automobile sector. These factors negated the strong performance of some of the unique names in the portfolio, such as Sanrio (anime characters) and Yonex (sports equipment). Our analysis shows that most of the underperformance was due to temporary one-off issues and that the companies are already recovering as we enter 2025. As such, they are worthwhile retaining to enjoy a large upside potential to mid-term earnings from hybrid cars for Mitsui High-tec and a recovery in the robot market and the growth of humanoid robots for Harmonic Drive Systems. As detailed above, reorientating the portfolio further towards an all-cap focus, I have increased the Company’s positions in high-conviction names such as Ryohin Keikaku (MUJI) and Olympus (endoscopes) by using the proceeds from selling some of the older poorly performing positions (Kansai Paint and Oriental Land) and some profit taking in strong performers (Tokyo Electron and other semiconductor-related names), and combined with a more diversified sector allocation, I am confident that this will pay off in better performance in 2025. NICHOLAS PRICE Portfolio Manager 26 March 2025 Strategic Report Principal Risks and Uncertainties and Risk Management As 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 uncertainties 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. These are set out below. The Manager also has responsibility for risk management for the Company. It works with the Board to identify and manage the principal and emerging risks and uncertainties and to ensure that the Board can continue to meet its UK corporate governance obligations. The Board considers the risks listed below as the principal risks and uncertainties faced by the Company.
| Principal Risks | Mitigation |
| Geopolitical Risk Geopolitical risk is the potential for political, socio-economic and cultural events, trends and developments to have an adverse effect on the Company’s assets. In Asia, the key geopolitical risks stem from China and the tensions with the United States over trade and the future of Taiwan; and the potential of North Korean aggression and its impact on the region. In addition, there is threat from the new administration of President Trump that significant tariffs may be introduced on certain Japanese imports, including autos. Elsewhere, there is increased global economic uncertainty from the ongoing war in Ukraine and continued conflict in the Middle East. | The Board is provided with a detailed investment review which covers material economic, market and legislative changes at each Board meeting as well as receiving periodic updates from economic and political commentators in the region. Although it is unclear how long the war in Ukraine and the temporary ceasefire in the Middle East conflict will last amid evolving foreign policies for crisis talks sparked by President Trump’s administration, the direct impact for Japan is not significant. The impact on the Company’s portfolio of holdings is also relatively limited. However, the ramifications of a global downturn could have a significant impact on the Japanese economy. The Portfolio Manager’s Review above provides further detail on some of the risk factors. |
| Investment Performance and Gearing Risks The portfolio is actively managed and performance risk is inherent in the investment process. The achievement of the Company’s investment performance objective relative to the market requires the taking of risk, such as strategy, asset allocation and stock selection, and may lead to NAV and share price underperformance compared to the Reference Index. The portfolio has unlisted investments which, by their very nature, involve a higher degree of valuation and performance uncertainties, liquidity risks and possible delays in listing until market conditions are favourable. | The Portfolio Manager is responsible for actively monitoring the portfolio selected in accordance with the asset allocation parameters and seeks to ensure that individual stocks meet an acceptable risk/reward profile. The emphasis is on long-term results as the Company is more exposed to volatility in the shorter-term. The Board closely monitors the valuations of the unlisted investments through the Manager’s Fair Value Committee, which includes input from Fidelity’s analysts covering the unlisted companies as well as Fidelity’s unlisted investments specialist. In addition, advice is obtained from a third-party valuation specialist company (Kroll). Details of the unlisted investments valuation process is in in the Annual Report. The Board sets limits and guidelines for the Portfolio Manager as to how much of the Company’s net assets can be held in unlisted securities. The limit approved by shareholders is 20% of net assets. As at 31 December 2024, the Company’s unlisted investments represented 6.6% of net assets. |
| The Company has the option to make use of loan facilities or to use CFDs to invest in equities. The principal risk is that the Portfolio Manager may fail to use gearing effectively. Other risks are that the cost of gearing may be too high or that the term of the gearing is inappropriate in relation to market conditions. | The Company gears through the use of long CFDs which are currently cheaper than bank loans and provide greater flexibility. The Board regularly considers the level of gearing and gearing risk and sets limits within which the Portfolio Manager must operate. |
| Natural Disaster Risk Japan is extremely vulnerable to earthquakes and tsunamis. Depending on the magnitude of such events, positions in the portfolio may be affected. The Manager could also be impacted from an operational perspective if the epicentre is in or near Tokyo. | Whilst natural disasters cannot be averted, the Board is comfortable that the Manager has a robust business continuity plan in place. |
| Market, Economic and Currency Risks The Company’s assets consist mainly of listed securities. Therefore, its principal risks include market related risks such as market downturn, interest rate movements, deflation/inflation and exchange rate movements. The Portfolio Manager’s success or failure to protect and increase the Company’s assets against this background is core to the Company’s continued success. Most of the Company’s assets and income are denominated in yen. However, the functional currency of the Company in which it reports its results is sterling. Consequently, it is subject to currency risk on exchange rate movements between the yen and sterling. | These risks are somewhat mitigated by the Company’s investment trust structure which means no forced sales will need to take place to deal with any redemptions. Therefore, investments can be held over a longer time horizon. Risks to which the Company is exposed in the market risk category are included in Note 16 to the Financial Statements below together with summaries of the policies for managing these risks. It is the Company’s policy not to hedge against currency risks. Further details can be found in Note 16 to the Financial Statements below. |
| Competition Risks and Marketplace Threats There are increased threats facing the Company within the current market environment of increased mergers and acquisitions activity. Other external pressures include the Company’s ability to maintain and grow the business, and a loss of shareholders if the demand for investment trusts decline and the demand for passive funds and holistic/digital finance offerings continue to increase. | The Board, the Company’s Broker and Manager closely monitor industry activity and the peer group, and an annual review of strategy is undertaken by the Board, to ensure that the Company continues to offer a relevant product to shareholders. |
| Discount Control and Demand Risks There is a risk that the Company’s shares trade at a persistent and significant discount to the NAV. | The market value of the Company’s shares and its discount to NAV are factors which are not wholly within the Board’s total control. The Company’s share price, NAV and discount volatility are monitored daily by the Manager and the Company’s Broker and considered by the Board regularly. The Board endeavours to exercise some short-term influence over the discount through share repurchases, but it can prove challenging if market sentiment is not supportive of Japanese equities. |
| There is a risk that the demand for the Company’s shares may fall due to poor performance, changes in investor sentiment and attitudes towards investment in Japan. | The demand for shares is influenced by the appeal of Japanese markets and through good performance and an active investor relations program. The Board reviews analysis of the shareholder register at each Board meeting which allows the Board to monitor the relevance of the Company’s mandate to shareholders and remain abreast of market sentiment. |
| Key Person Risk The loss of the Portfolio Manager or other key individuals could lead to potential performance, operational or regulatory issues. There is a risk that the Manager has an inadequate succession plan for key individuals, particularly the Portfolio Manager with stock selection expertise in Japanese markets. | The Manager identifies key dependencies which are then addressed through succession plans. Fidelity has succession plans in place for portfolio managers. The Board meets regularly with the Portfolio Manager and key members of the investment team to gauge any dissatisfaction or potential flight risk. The investment team in Japan work closely in a collaborative manner and fully understand the investment approach of the Portfolio Manager. |
| Legislation, Taxation and Regulatory Risks There is a risk that the changes in legislation, taxation, regulation or other external influence that require changes to the nature of the Company’s business. A breach of Section 1158 of the Corporation Tax Act 2010 by the Company could lead to a loss of investment trust status, resulting in the Company being subject to tax on capital gains. | Regulatory changes for investment companies are monitored regularly by the Board and managed through active engagement with regulators and trade bodies by the Manager and also by the AIC. |
| Recently, there have been increased concerns around investment cost disclosures and its impact in the industry. | The Government and regulator have announced a temporary exemption for investment companies from the EU cost disclosure requirements. |
| Business Continuity Risk There continues to be increased focus from financial services regulators around the world on the contingency plans of regulated financial firms. The top risks globally are cybersecurity, geopolitical events, outages, fire events and natural disasters. There are also ongoing risks from the war in Ukraine and conflict in the Middle East, specifically regarding cyberattacks and the potential loss of power and/or broadband services. | The Manager continues to take all necessary and reasonable steps to assure operational resilience and to meet its regulatory obligations, assess its ability to continue operating and the steps it needs to take to support its clients, including the Board, and has an appropriate control environment in place. The Manager has provided the Board with assurance that the Company has appropriate operational resilience and business continuity plans and the provision of services has continued to be supplied without interruption. Risks associated with these services are generally rated as low, but the financial consequences could be serious, including reputational damage to the Company. These are mitigated through operational resilience frameworks and subject to a risk-based programme of risk oversight and internal audits by the Manager. The Manager’s internal controls reports are received by the Board on an annual basis and any concerns are investigated. |
| The Company relies on a number of third-party service providers, principally the Registrar, Custodian and Depositary. They are all subject to a risk-based programme of risk oversight and internal audits by the Manager and their own internal controls reports are received by the Board on an annual basis and any concerns are investigated. | The third-party service providers have also confirmed the implementation of appropriate measures to ensure no business disruption. |
| Cybercrime and Information Security Risks The operational risk and business impact from heightened external levels of cybercrime and the risk of data loss is significant. Cybercrime threats evolve rapidly. A cyberattack could result in the loss of confidential information or cause a significant disruption to the Company’s operations. Risks also remain due to military conflicts and geopolitical tensions, including the war in Ukraine and conflict in the Middle East and the trend to more working from home following the pandemic. These primarily relate to phishing, ransomware, remote access threats, extortion and denial-of-services attacks, threats from highly organised criminal networks and sophisticated ransomware operators. | The Manager’s technology risk management teams have developed and implemented a number of initiatives and controls in order to provide enhanced mitigating protection to this ever-increasing threat, and also potentially addressing the risks of AI. The risks are continuously re-assessed by Fidelity’s information security teams and risk frameworks are continuously enhanced with the implementation of additional tools and processes, including improvements to existing ones. Fidelity has dedicated cybersecurity and technology teams which provide continuous oversight, regular awareness updates and best practice guidance. The Board receives regular updates from the Manager in respect of the type and possible scale of cyberattacks. The Manager has dedicated detect and respond resources specifically to monitor the cyber threats associated within the workplace and there are a number of mitigating actions in place, including control strengthening, geo-blocking and phishing mitigants, combined with enhanced resilience and recovery options. The Company’s third-party service providers are also subject to oversight and provide assurances and have similar control measures in place to detect and respond to cyber threats and activity. |
| Environmental, Social and Governance (ESG)Risks There is a risk that the value of the assets of the Company are negatively impacted by ESG related risks, including climate change risk from extreme weather events. Japan has a material exposure to earthquakes. This may impact global supply chains for companies and customers. ESG risks also include investor expectations and how the Company is positioned from a marketing perspective. | Whilst Fidelity considers ESG factors in its investment decision-making process, the Company does not carry the label. ESG integration is carried out at the fundamental research analyst level within its investment teams, primarily through Fidelity’s Proprietary Sustainability Rating which 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. The Portfolio Manager may consider the effects of ESG when making investment decisions. ESG ratings of the companies within the Company’s portfolio compared to ESG ratings of the companies within the Company’s portfolio compared to the MSCI ratings are provided in the Annual Report. |
| Year ended 31 December 2024 | Year ended 31 December 2023 | ||||||
Notes | Revenue £’000 | Capital £’000 | Total £’000 | Revenue £’000 | Capital £’000 | Total £’000 | |
| (Losses)/gains on investments | 9 | – | (11,906) | (11,906) | – | 12,376 | 12,376 |
| Gains on derivative instruments | 10 | – | 3,028 | 3,028 | – | 14,299 | 14,299 |
| Income | 3 | 4,095 | – | 4,095 | 4,218 | – | 4,218 |
| Investment management fees | 4 | (330) | (847) | (1,177) | (344) | (1,018) | (1,362) |
| Other expenses | 5 | (764) | (13) | (777) | (708) | (4) | (712) |
| Foreign exchange losses | – | (233) | (233) | – | (642) | (642) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return/(loss) on ordinary activities before finance costs and taxation | 3,001 | (9,971) | (6,970) | 3,166 | 25,011 | 28,177 | |
| Finance costs | 6 | (39) | (158) | (197) | (27) | (106) | (133) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return/(loss) on ordinary activities before taxation | 2,962 | (10,129) | (7,167) | 3,139 | 24,905 | 28,044 | |
| Taxation on return on ordinary activities | 7 | (356) | – | (356) | (347) | – | (347) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net return/(loss) on ordinary activities after taxation for the year | 2,606 | (10,129) | (7,523) | 2,792 | 24,905 | 27,697 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
| Return/(loss) per ordinary share | 8 | 2.17p | (8.43p) | (6.26p) | 2.17p | 19.33p | 21.50p |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
Note | Share capita £’000 | Share premium account £’000 | Capital redemption reserve £’000 | Other reserve £’000 | Capital reserve £’000 | Revenue reserve £’000 | Total shareholders’ funds £’000 | |
| Total shareholders’ funds at 31 December 2023 | 34,041 | 20,722 | 2,767 | 40,382 | 165,416 | (5,535) | 257,793 | |
| Repurchase of ordinary shares | 13 | – | – | – | (18,857) | – | – | (18,857) |
| Net (loss)/return on ordinary activities after taxation for the year | – | – | – | – | (10,129) | 2,606 | (7,523) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total shareholders’ funds at 31 December 2024 | 34,041 | 20,722 | 2,767 | 21,525 | 155,287 | (2,929) | 231,413 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| Total shareholders’ funds at 31 December 2022 | 34,041 | 20,722 | 2,767 | 46,658 | 140,511 | (8,327) | 236,372 | |
| Repurchase of ordinary shares | 13 | – | – | – | (6,276) | – | – | (6,276 |
| Net return on ordinary activities after taxation for the year | – | – | – | – | 24,905 | 2,792 | 27,697 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total shareholders’ funds at 31 December 2023 | 34,041 | 20,722 | 2,767 | 40,382 | 165,416 | (5,535) | 257,793 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
Notes | 2024 £’000 | 2023 £’000 | |
| Fixed assets | |||
| Investments | 9 | 228,344 | 253,843 |
| Current assets | |||
| Derivative instruments | 10 | 1,457 | 1,216 |
| Debtors | 11 | 669 | 708 |
| Cash collateral held with brokers | 16 | 223 | – |
| Cash at bank | 1,897 | 3,073 | |
| --------------- | --------------- | ||
| 4,246 | 4,997 | ||
| ========= | ========= | ||
| Current liabilities | |||
| Derivative instruments | 10 | (142) | (53) |
| Other creditors | 12 | (1,035) | (994) |
| --------------- | --------------- | ||
| (1,177) | (1,047) | ||
| --------------- | --------------- | ||
| Net current assets | 3,069 | 3,950 | |
| ========= | ========= | ||
| Net assets | 231,413 | 257,793 | |
| ========= | ========= | ||
| Capital and reserves | |||
| Share capital | 13 | 34,041 | 34,041 |
| Share premium account | 14 | 20,722 | 20,722 |
| Capital redemption reserve | 14 | 2,767 | 2,767 |
| Other reserve | 14 | 21,525 | 40,382 |
| Capital reserve | 14 | 155,287 | 165,416 |
| Revenue reserve | 14 | (2,929) | (5,535) |
| --------------- | --------------- | ||
| Total shareholders’ funds | 231,413 | 257,793 | |
| ========= | ========= | ||
| Net asset value per ordinary share | 15 | 200.78p | 204.46p |
| ========= | ========= |
| Year ended 31.12.24 £’000 | Year ended 31.12.23 £’000 | |
| Investment income | ||
| Overseas dividends | 3,563 | 2,625 |
| Derivative income | ||
| Dividends received on long CFDs | 530 | 743 |
| Other interest | ||
| Interest received on bank deposits | 2 | – |
| --------------- | --------------- | |
| Total income | 4,095 | 4,218 |
| ========= | ========= |
| Year ended 31 December 2024 | Year ended 31 December 2023 | |||||
| Revenue £’000 | Capital £’000 | Total £’000 | Revenue £’000 | Capital £’000 | Total £’000 | |
| Investment management fees – base | 330 | 1,318 | 1,648 | 344 | 1,377 | 1,721 |
| Investment management fees – variable1 | – | (471) | (471) | – | (359) | (359) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| 330 | 847 | 1,177 | 344 | 1,018 | 1,362 | |
| ========= | ========= | ========= | ========= | ========= | ========= | |
| Year ended 31.12.24 £’000 | Year ended 31.12.23 £’000 | |
| Allocated to revenue: | ||
| AIC fees | 19 | 18 |
| Secretarial and administration fees payable to the Investment Manager | 50 | 50 |
| Custody fees | 13 | 13 |
| Depositary fees | 22 | 24 |
| Directors’ expenses | 75 | 43 |
| Directors’ fees1 | 177 | 160 |
| Legal and professional fees | 67 | 70 |
| Marketing expenses | 175 | 166 |
| Printing and publication expenses | 67 | 61 |
| Registrars’ fees | 35 | 33 |
| Other expenses | 13 | 17 |
| Fees payable to the Company’s Independent Auditor for the audit of the Financial Statements | 55 | 53 |
| --------------- | --------------- | |
| 764 | 708 | |
| --------------- | --------------- | |
| Allocated to capital: | ||
| Legal and professional fees – unlisted investments | 13 | 4 |
| --------------- | --------------- | |
| Other expenses | 777 | 712 |
| ========= | ========= |
| Year ended 31 December 2024 | Year ended 31 December 2023 | |||||
| Revenue £’000 | Capital £’000 | Total £’000 | Revenue £’000 | Capital £’000 | Total £’000 | |
| Interest paid on long CFDs | 37 | 150 | 187 | 24 | 94 | 118 |
| Interest paid on collateral and deposits1 | 2 | 8 | 10 | 3 | 12 | 15 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| 39 | 158 | 197 | 27 | 106 | 133 | |
| ========= | ========= | ========= | ========= | ========= | ========= | |
| Year ended 31.12.24 £’000 | Year ended 31.12.23 £’000 | |
| a) Analysis of the taxation charge for the year | ||
| Overseas taxation | 356 | 347 |
| --------------- | --------------- | |
| Taxation charge for the year (see Note 7b) | 356 | 347 |
| ========= | ========= |
| Year ended 31.12.24 £’000 | Year ended 31.12.23 £’000 | |
| Net (loss)/return on ordinary activities before taxation | (7,167) | 28,044 |
| --------------- | --------------- | |
| Net (loss)/return on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 25% (2023: blended rate of 23.52%) | (1,762) | 6,596 |
| Effects of: | ||
| Capital losses/(gains) not taxable1 | 2,278 | (6,123) |
| Income not taxable | (891) | (817) |
| Expenses not deductible | 38 | 23 |
| Excess management expenses not utilised | 367 | 321 |
| Overseas taxation | 356 | 347 |
| --------------- | --------------- | |
| Taxation charge for the year (see Note 7a) | 356 | 347 |
| ========= | ========= |
| Year ended 31.12.24 | Year ended 31.12.23 | |
| Revenue return per ordinary share | 2.17p | 2.17p |
| Capital (loss)/return per ordinary share | (8.43p) | 19.33p |
| --------------- | --------------- | |
| Total (loss)/return per ordinary share | (6.26p) | 21.50p |
| ========= | ========= |
| £’000 | £’000 | |
| Net revenue return on ordinary activities after taxation | 2,606 | 2,792 |
| Net capital (loss)/return on ordinary activities after taxation | (10,129) | 24,905 |
| --------------- | --------------- | |
| Net total (loss)/return on ordinary activities after taxation | (7,523) | 27,697 |
| ========= | ========= |
| Number | Number | |
| Weighted average number of ordinary shares held outside of Treasury | 120,169,404 | 128,843,583 |
| ========== | ========== |
| 2024 £’000 | 2023 £’000 | |
| Listed investments | 213,026 | 237,440 |
| Unlisted investments | 15,318 | 16,403 |
| --------------- | --------------- | |
| Investments at fair value | 228,344 | 253,843 |
| ========= | ========= | |
| Opening book cost | 244,383 | 242,067 |
| Opening investment holding gains/(losses) | 9,460 | (11,387) |
| --------------- | --------------- | |
| Opening fair value | 253,843 | 230,680 |
| ========= | ========= | |
| Movements in the year | ||
| Purchases at cost | 186,791 | 158,947 |
| Sales – proceeds | (200,384) | (148,160) |
| (Losses)/gains on investments | (11,906) | 12,376 |
| --------------- | --------------- | |
| Closing fair value | 228,344 | 253,843 |
| ========= | ========= | |
| Closing book cost | 222,161 | 244,383 |
| Closing investment holding gains | 6,183 | 9,460 |
| --------------- | --------------- | |
| Closing fair value | 228,344 | 253,843 |
| ========= | ========= |
| Year ended 31.12.24 £’000 | Year ended 31.12.23 £’000 | |
| Purchases transaction costs | 69 | 57 |
| Sales transaction costs | 94 | 63 |
| --------------- | --------------- | |
| 163 | 120 | |
| ========= | ========= |
| Year ended 31.12.24 £’000 | Year ended 31.12.23 £’000 | |
| Gains on derivative instruments | ||
| Gains on long CFD positions closed | 2,876 | 12,874 |
| Movement in investment holding gains on long CFDs | 152 | 1,425 |
| --------------- | --------------- | |
| 3,028 | 14,299 | |
| ========= | ========= |
| 2024 | 2023 | |||
Fair value £’000 | Portfolio exposure £’000 | Fair value £’000 | Portfolio exposure £’000 | |
| Derivative instrument assets – long CFDs | 1,457 | 50,375 | 1,216 | 41,568 |
| Derivative instrument liabilities – long CFDs | (142) | 8,254 | (53) | 21,953 |
| --------------- | --------------- | --------------- | --------------- | |
| 1,315 | 58,629 | 1,163 | 63,521 | |
| ========= | ========= | ========= | ========= | |
| 2024 £’000 | 2023 £’000 | |
| Securities sold for future settlement | 372 | 361 |
| Accrued income | 199 | 249 |
| Other debtors and prepayments | 98 | 98 |
| --------------- | --------------- | |
| 669 | 708 | |
| ========= | ========= |
| 2024 £’000 | 2023 £’000 | |
| Securities purchased for future settlement | 383 | 438 |
| Creditors and accruals | 329 | 285 |
| Amounts payable for repurchase of shares | 323 | 271 |
| --------------- | --------------- | |
| 1,035 | 994 | |
| ========= | ========= |
| 2024 | 2023 | |||
Number of shares | Nominal value £’000 | Number of shares | Nominal value £’000 | |
| Issued, allotted and fully paid | ||||
| Ordinary shares of 25 pence each held outside of Treasury | ||||
| Beginning of the year | 126,086,249 | 31,521 | 129,701,893 | 32,425 |
| Ordinary shares repurchased into Treasury | (10,828,535) | (2,707) | (3,615,644) | (904) |
| ----------------- | ----------------- | ----------------- | ----------------- | |
| End of the year | 115,257,714 | 28,814 | 126,086,249 | 31,521 |
| ========== | ========== | ========== | ========== | |
| Issued, allotted and fully paid | ||||
| Ordinary shares of 25 pence each held in Treasury1 | ||||
| Beginning of the year | 10,075,446 | 2,520 | 6,459,802 | 1,616 |
| Ordinary shares repurchased into Treasury | 10,828,535 | 2,707 | 3,615,644 | 904 |
| ----------------- | ----------------- | ----------------- | ----------------- | |
| End of the year | 20,903,981 | 5,227 | 10,075,446 | 2,520 |
| ========== | ========== | ========== | ========== | |
| Total share capital | 34,041 | 34,041 | ||
| ========== | ========== | |||
Share capital £’000 | Share premium account £’000 | Capital redemption reserve £’000 | Other reserve £’000 | Capital reserve £’000 | Revenue reserve £’000 | Total shareholders’ funds £’000 | |
| At 1 January 2024 | 34,041 | 20,722 | 2,767 | 40,382 | 165,416 | (5,535) | 257,793 |
| Losses on investments (see Note 9) | – | – | – | – | (11,906) | – | (11,906) |
| Gains on derivative instruments (see Note 10) | – | – | – | – | 3,028 | – | 3,028 |
| Foreign exchange losses | – | – | – | – | (233) | – | (233) |
| Investment management fees (see Note 4) | – | – | – | – | (847) | – | (847) |
| Other expenses (see Note 5) | – | – | – | – | (13) | – | (13) |
| Finance costs (see Note 6) | – | – | – | – | (158) | – | (158) |
| Revenue return on ordinary activities after taxation for the year | – | – | – | – | – | 2,606 | 2,606 |
| Repurchase of ordinary shares (see Note 13) | – | – | – | (18,857) | – | – | (18,857) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| At 31 December 2024 | 34,041 | 20,722 | 2,767 | 21,525 | 155,287 | (2,929) | 231,413 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
Share capital £’000 | Share premium account £’000 | Capital redemption reserve £’000 | Other reserve £’000 | Capital reserve £’000 | Revenue reserve £’000 | Total shareholders’ funds £’000 | |
| At 1 January 2023 | 34,041 | 20,722 | 2,767 | 46,658 | 140,511 | (8,327) | 236,372 |
| Gains on investments (see Note 9) | – | – | – | – | 12,376 | – | 12,376 |
| Gains on derivative instruments (see Note 10) | – | – | – | – | 14,299 | – | 14,299 |
| Foreign exchange losses | – | – | – | – | (642) | – | (642) |
| Investment management fees (see Note 4) | – | – | – | – | (1,018) | – | (1,018) |
| Other expenses (see Note 5) | – | – | – | – | (4) | – | (4) |
| Finance costs (see Note 6) | – | – | – | – | (106) | – | (106) |
| Revenue return on ordinary activities after taxation for the year | – | – | – | – | – | 2,792 | 2,792 |
| Repurchase of ordinary shares (see Note 13) | – | – | – | (6,276) | – | – | (6,276) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| At 31 December 2023 | 34,041 | 20,722 | 2,767 | 40,382 | 165,416 | (5,535) | 257,793 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
| 2024 | 2023 | |
| Total shareholders’ funds | £231,413,000 | £257,793,000 |
| Ordinary shares held outside of Treasury at year end | 115,257,714 | 126,086,249 |
| Net asset value per ordinary share | 200.78p | 204.46p |
| =========== | ============ |
| 2024 £’000 | 2023 £’000 | |
| Exposure to financial instruments that bear interest | ||
| Long CFDs – Portfolio exposure less fair value | 57,314 | 62,358 |
| --------------- | --------------- | |
| 57,314 | 62,358 | |
| ========= | ========= | |
| Exposure to financial instruments that earn interest | ||
| Cash collateral held with brokers | 223 | – |
| Cash at bank | 1,897 | 3,073 |
| --------------- | --------------- | |
| 2,120 | 3,073 | |
| ========= | ========= | |
| Net exposure to financial instruments that bear interest | 55,194 | 59,285 |
| ========= | ========= |
| 2024 | |||||
Currency | Investments held at fair value £’000 | Long exposure to derivative instruments £’000 | Debtors1 £’000 | Cash at bank £’000 | Total £’000 |
| Japanese yen | 228,344 | 58,629 | 794 | 1,897 | 289,664 |
| UK sterling | – | – | 98 | – | 98 |
| --------------- | --------------- | --------------- | --------------- | --------------- | |
| 228,344 | 58,629 | 892 | 1,897 | 289,762 | |
| ========= | ========= | ========= | ========= | ========= | |
| 2023 | |||||
Currency | Investments held at fair value £’000 | Long exposure to derivative instruments £’000 | Debtor £’000 | Cash at bank £’000 | Total £’000 |
| Japanese yen | 253,843 | 63,521 | 610 | 2,950 | 320,924 |
| UK sterling | – | – | 98 | 123 | 221 |
| --------------- | --------------- | --------------- | --------------- | --------------- | |
| 253,843 | 63,521 | 708 | 3,073 | 321,145 | |
| ========= | ========= | ========= | ========= | ========= | |
Currency | 2024 Other creditors £’000 | 2023 Other creditors £’000 |
| Japanese yen | 383 | 439 |
| UK sterling | 652 | 555 |
| --------------- | --------------- | |
| 1,035 | 994 | |
| ========= | ========= |
| Classification | Input |
| Level 1 | Valued using quoted prices in active markets for identical assets |
| Level 2 | Valued by reference to inputs other than quoted prices included in level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly |
| Level 3 | Valued by reference to valuation techniques using inputs that are not based on observable market data |
| 2024 | ||||
Financial assets at fair value through profit or loss | Level 1 £’000 | Level 2 £’000 | Level 3 £’000 | Total £’000 228,344 |
| Investments | 213,026 | – | 15,318 | |
| Derivative instrument assets | – | 1,457 | – | 1,457 |
| --------------- | --------------- | --------------- | --------------- | |
| 213,026 | 1,457 | 15,318 | 229,801 | |
| ========= | ========= | ========= | ========= | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | – | (142) | – | (142) |
| ========= | ========= | ========= | ========= | |
| 2023 | ||||
Financial assets at fair value through profit or loss | Level 1 £’000 | Level 2 £’000 | Level 3 £’000 | Total £’000 |
| Investments | 237,440 | – | 16,403 | 253,843 |
| Derivative instrument assets | – | 1,216 | – | 1,216 |
| --------------- | --------------- | --------------- | --------------- | |
| 237,440 | 1,216 | 16,403 | 255,059 | |
| ========= | ========= | ========= | ========= | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | – | (53) | – | (53) |
| ========= | ========= | ========= | ========= | |
Name | Business | Book cost £’000 | 2024 Level 3 £’000 | 2022 Level 3 £’000 |
| Asoview | Online booking website for leisure facilities | 6,602 | 6,114 | 5,740 |
| GO Inc | Japan’s largest ride-hailing company | 2,378 | 2,905 | 2,487 |
| Studyplus | Online educational company | 2,257 | 1,960 | 2,110 |
| iYell | Mortgage Fintech company | 2,641 | 1,652 | 2,189 |
| Moneytree | Developer of personal asset management applications | 3,016 | 1,042 | 1,832 |
| Spiber | Bio-tech company | 2,512 | 1,014 | 1,011 |
| Yoriso | Online funeral planning platform | 2,627 | 631 | 1,034 |
| --------------- | --------------- | --------------- | ||
| End of the year | 22,033 | 15,318 | 16,403 | |
| ========= | ========= | ========= |
Movements in level 3 financial instruments during the year: | Year ended 31.12.24 Level 3 £’000 | Year ended 31.12.23 Level 3 £’000 |
| Beginning of the year | 16,403 | 18,933 |
| Purchases at cost | – | 2,378 |
| Sales proceeds – Innophys | – | (274) |
| Sales loss – Innophys | – | (639) |
| Movement in investment holding losses (including foreign exchange movement) | (1,085) | (3,995) |
| --------------- | --------------- | |
| End of the year | 15,318 | 16,403 |
| ========= | ========= |
| 2024 | 2023 | |
| Investment management fees (£’000) | 1,648 | 1,721 |
| Other expenses (£’000) | 777 | 712 |
| --------------- | --------------- | |
| Ongoing charges (£’000) | 2,425 | 2,433 |
| Variable management fee (£’000) | (471) | (359) |
| Average net assets (£’000) | 235,249 | 245,972 |
| Ongoing charges ratio | 1.03% | 0.99% |
| Ongoing charges ratio including variable management fee | 0.83% | 0.84% |
| ========= | ========= |
2024 | Net asset value per ordinary share | Ordinary share price |
| 31 December 2023 | 204.46p | 185.00p |
| 31 December 2024 | 200.78p | 174.50p |
| --------------- | --------------- | |
| Total return for the year | -1.8% | -5.7% |
| ========= | ========= |
2023 | Net asset value per ordinary share | Ordinary share price |
| 31 December 2022 | 182.24p | 164.75p |
| 31 December 2023 | 204.46p | 185.00p |
| --------------- | --------------- | |
| Total return for the year | +12.2% | +12.3% |
| ========= | ========= |