Half-year Report
01/08/2023 07:00
FIDELITY JAPAN TRUST PLC
Half-Yearly Results for the six months ended 30 June 2023 (unaudited)
Financial Highlights:
* The net asset value (“NAV”) of the Company increased by +5.3% and the
ordinary share price return was +3.8% for the six months ended 30 June 2023,
compared to the Reference Index (TOPIX Total Return Index) (in sterling terms)
which rose by +6.0%.
* At the end of the reporting period, gearing within the portfolio was at
23.0% compared to 20.8% at the same time last year, reflecting bottom-up
conviction in investment opportunities and accompanying
valuations.
* Stock selection in semiconductor-related companies and digital content were
the key drivers of returns.
* The Company remains overweight in the chemical, services and retail sectors
and increased exposure to electric appliances.
Contacts
For further information, please contact:
Smita Amin
Company Secretary
01737 836347
FIL Investments International
Chairman’s Statement
After such a challenging year for the Japanese stock market in 2022, it is
heartening to see something of a recovery in the first half of 2023. The TOPIX
Total Return Index, the Japanese market index, rose by 22.7% in yen terms over
the six months to 30 June 2023. However, over the same period, the yen
weakened by 13.6% against sterling due to the continued wide divergence in
interest rates between Japan and the UK. As a result, the return of the TOPIX
Total Return Index (in sterling terms), the Company’s Reference Index, was
just 6.0%. Compared to this, the net asset value of Fidelity Japan Trust PLC
marginally underperformed with a rise of 5.3%. The share price of the Company
rose by 3.8% over the same period, reflecting a widening in the discount at
which the shares of the Company trade from 9.6% to 10.9%.
A fuller commentary on both the portfolio and Japanese economy may be found in
the Portfolio Manager’s Review below.
DISCOUNT MANAGEMENT, SHARE REPURCHASES AND TREASURY SHARES
The Board has an active discount management policy, the primary purpose of
which is to reduce discount volatility. The Board’s intention is to aim to
manage the discount so that it remains in single digits in normal market
conditions. However, at this reporting period end, markets were particularly
volatile, and discounts have been wide across the entire investment companies
sector. This is particularly frustrating given the stronger performance of the
Company relative to other Japanese investment companies.
As part of the discount management policy, 587,834 ordinary shares were
repurchased for holding in Treasury in the review period at a cost of
£1,029,000. This represents 0.4% of the issued share capital. Since the
period end and up to the date of this report, a further 717,834 ordinary
shares have been repurchased at a cost of £1,244,000.
Gearing
The Company continues to gear the portfolio through the use of long Contracts
for Difference (CFDs). The Board continues to believe that gearing is a
distinct advantage of the investment trust structure and will benefit the
performance of the Company as the market recovers. The Board maintains that
using CFDs provides more flexibility and at a lower cost than traditional bank
debt.
The Portfolio Manager has the discretion to be up to 25% geared. Total
portfolio exposure at the end period end was £304.8m, equating to gearing of
23.0% compared with 20.8% at the end of 2022. As at 27 July 2023, gearing was
23.8%.
Unlisted Companies
The Company is permitted to invest up to 20% of the Company’s net assets in
unlisted companies. The valuation of each unlisted investment is set by the
Manager’s Fair Value Committee and includes input from the analysts covering
the securities, Fidelity’s unlisted specialist and also advised upon by
independent third party valuers, Kroll. Given the volatile market environment,
the investment team has been cautious about committing additional capital to
this market segment and no new unlisted investments have been added to the
Company’s portfolio during the reporting period. One stock has been sold.
The value of unlisted investments was 6.3% of net assets at the period end
compared to 8.0% as at 31 December 2022.
Due Diligence Trip 2023
The Board visited Japan in June 2023, meeting with the Fidelity investment
team, a number of Fidelity analysts and senior management as well as some
external market commentators and senior management of Companies held in the
Fidelity Japan Trust PLC portfolio. The trip gave us reassurance about the
depth of resources supporting Nicholas Price, the Portfolio Manager, and the
investment team and further confidence that the management of Fidelity Japan
Trust PLC is in good hands.
Board Changes
The Board continues to review its composition and effectiveness as well as
considering appropriate succession planning. Dominic Ziegler will complete his
nine-year tenure on the Board in November this year and will step down from
the Board at the conclusion of the Annual General Meeting in May 2024. The
Board will conduct a recruitment exercise to find his replacement in the next
few months.
Outlook
Japan currently has the presidency of the G7 group of developed economies, and
the Hiroshima Summit in May allowed the country to showcase its position as an
increasingly entrepreneurial culture at the centre of Asia. Moves to tackle
the bureaucratic nature of some of Japan’s corporates, which began under the
late Prime Minister Shinzo Abe, have built up steam under current leader Fumio
Kishida, with the Tokyo Stock Exchange setting out an agenda for a more
shareholder-focused approach. This is starting to feed into an increased pace
of share buybacks by major companies, more diverse boards of directors, and an
emerging venture capital ecosystem where companies pushing into new markets
and industries could become the stock market stars of the future. With many
listed Japanese companies having built up significant excess cash –
sometimes as much as 20-30% of their market capitalisation – during the long
years of deflation, we believe the deployment of this cash could have a
meaningful impact on the relative performance of Japan versus other markets in
the months and years ahead. These factors and the lower valuation of Japanese
stocks relative to other markets have all helped to garner significant
interest from international investors which should result in a further rise in
the Japanese stock market during the second half of 2023. A further boost to
the returns of the Company will also come if the yen was to strengthen and if
there is a narrowing of the discount of the share price relative to the net
asset value of the Company.
David Graham
Chairman
31 July 2023
Portfolio Manager’s Review
Market review
The Japanese equity market climbed to a multi-decade high during the period,
registering its strongest first-half performance since the advent of
Abenomics. Extended buying by overseas investors drove share price gains,
though market breadth was limited, and returns were concentrated in large-cap
stocks.
Market participants were encouraged by a steady stream of corporate governance
related developments, spurred by reform measures from the Tokyo Stock
Exchange, and a largely positive domestic earnings season. The Bank of
Japan’s (BoJ) dovish policy stance and a weaker yen also supported the
positive trend in share prices. Japan’s currency came under broad-based
pressure amid renewed monetary policy divergence, breaking through the ¥183
level against the pound for the first time since late 2015.
Value stocks outperformed over the period, led by large-cap names across the
Wholesale Trade, Iron & Steel, Machinery and Electric Appliances sectors.
Trading companies (a highly publicised target of Berkshire Hathaway) and
semiconductor-related firms were among the strongest performers. Conversely,
domestic and defensive industries underperformed the broader market, and
small-cap growth stocks were conspicuous laggards.
On the macroeconomic front, the Japanese economy accelerated over the
January–March quarter, with real GDP coming in at +2.7% annualised. This
compared with consensus forecasts of +1.9%. Domestic demand gained momentum as
the country’s delayed reopening supported growth in consumption and capital
investment. While exports slowed sharply, inbound consumption provided a
tailwind for the economy and retail sales rose sharply in May. Core consumer
inflation remained well above the BoJ’s 2% target, with its version of the
core-core Consumer Price Index (CPI), which excludes energy and fresh food,
coming in at +4.3% in May. This fuelled speculation that the central bank will
positively revise its inflation forecasts in its next quarterly outlook
report.
Portfolio review
In the six months to 30 June 2023, the Company’s net asset value (NAV)
increased by 5.3% in sterling terms, marginally underperforming the Reference
Index, which returned 6.0%. The share price return was 3.8% in the same
period, the result of the discount of the share price to net asset value
widening to 10.9% from 9.6% at the start of the period.
The 13.6% fall in the value of the yen against the pound since the end of last
year weighed on the sterling-based returns of the Company’s NAV, its share
price and the Reference Index. This stems largely from the widening policy
divergence between the BoJ and the Bank of England.
The position in Nihon M&A Center, Japan’s largest provider of merger and
acquisition (M&A) advisory services for small and medium enterprises (SMEs),
was the most significant detractor from performance over the review period. At
the beginning of the year, the company’s quarterly results came in far below
market expectations due to a deterioration in sales and weaker pricing of M&A
deals. At the same time, a new innovative competitor, M&A Research Institute,
delivered stronger than expected earnings across all metrics, reflecting its
superior productivity. While the SME M&A market as a whole remains robust,
centred on business succession demand, company specific factors drove our
decision to reduce the exposure to Nihon M&A Center and initiate a position in
M&A Research Institute.
In the Wholesale Trade sector the holding in MISUMI Group, a leading supplier
of factory automation and machinery parts, underperformed. The company
reported modest growth in monthly sales data, which raised concerns about the
strength of underlying capital expenditure demand. However, the company had
already indicated flat sales in the first half of fiscal 2023, and we expect a
recovery in the order cycle to take hold from the second half of the year.
In the Information & Communication sector, Raksul, a leading
business-to-business (B2B) platform that provides online printing and
marketing/sales support services, faced selling pressure. The stock performed
well in the second half of 2022, supported by positive earnings results and
improved shareholder returns, but succumbed to profit taking in early 2023 as
the market rotated in favour of technology-related cyclicals. We remain
confident in its core printing business, which is recovering strongly as the
effects of the COVID-19 outbreak recede and the number of registered users
continues to grow. We also see the potential for horizontal growth in the
logistics industry.
Elsewhere, Ryohin Keikaku, operator of the Muji brand of general merchandise
stores, struggled in the first half of fiscal 2022 (12 months to August 2023)
and lowered its full-year guidance. Rising procurement costs, exacerbated by a
weak yen and high raw material prices, led to a profit shortfall at its
domestic business. Conversely, the company’s overseas operations generated
revenue and profit growth that exceeded its expectations. Looking ahead, we
expect to see a cyclical recovery in profits, supported by the diminishing
impact of lockdowns in China and improving margins in Japan.
On a positive note, holdings in semiconductor-related companies were among the
key contributors to performance over the period. Shares in semiconductor
production equipment (SPE) maker Tokyo Electron rebounded strongly as the
market shifted its focus from earnings downside this year to a recovery from
2024. Tokyo Electron is a highly competitive player in a structural growth
market, supported by sustained semiconductor demand, technological advances in
chip making and government support amid rising geopolitical tensions.
Meanwhile, fabless semiconductor manufacturer Socionext reported strong
full-year results that exceeded street estimates, driven by automotive-related
orders in the US and data centre/network sales in China. Furthermore,
development efficiency gains contributed to an improvement in margins.
Elsewhere, the position in Tsuburaya Fields Holdings, a digital content and
game machine company, ranked among the standout contributors to performance.
It reported significant increases in quarterly sales and profits, fuelled by
the strong performance of its PS (Pachislot) game machine business, as well as
the growing popularity of its Ultraman character at home and abroad. Against
this backdrop, the company raised its full-year earnings and dividend
guidance. We expect the core of its content and digital business, Tsuburaya
Productions, to contribute significantly to future earnings as its Ultraman
franchise gains popularity overseas.
Portfolio positioning
There has been no significant change in terms of sector level positioning. The
Company remains overweight in the Chemicals, Services and Retail sectors. At
the opposite end of the scale, Transportation Equipment and Banks remain
underweight. There was a moderate increase in the level of gearing over the
six months to 23% from 21% which was, as always, dependent on bottom-up
conviction in the available investment opportunities and accompanying
valuations.
As a result of bottom-up stock selection, there has been an increase in the
active exposure to the Electric Appliances sector. Electronic component makers
have had to deal with a prolonged inventory correction due to a slow recovery
in automobile production and weak final demand for consumer electronics.
However, there are signs that demand is bottoming out and operating rates are
gradually rebounding. We added further weight to long-standing secular growth
names Keyence (factory automation sensors) and Mitsui High-tec (motor cores
for electric vehicles) following a year of quite significant underperformance
in 2022. Meanwhile, we increased the exposure to electronic components maker
Taiyo Yuden, a leading producer of high-end ceramic capacitors for automotive
and smartphone applications.
Examples of under researched small caps that have increased in prominence
within the portfolio this year (and which our Board members met during their
recent due diligence trip to Japan) include Kosaido Holdings and Osaka Soda.
Kosaido Holdings is the dominant provider of crematorium services in Tokyo,
where high costs and local opposition to new facilities create barriers to
entry and where demographic trends support stable trend growth. The
company’s efforts to expand capacity and maximise its existing crematorium
facilities to provide funeral services are supportive of future earnings
growth. Osaka Soda is transforming from a basic chemicals company to a
supplier of value-added functional and healthcare materials. It is the
monopoly supplier of high-grade silica gel, a high-margin purification
material for diabetes drugs. As the prevalence of diabetes continues to
increase globally, Osaka Soda is expanding production capacity to meet the
rising demand from major pharmaceuticals companies.
On the other hand, we sold positions in Rinnai, a producer of high-quality
home gas appliances that is experiencing headwinds from housing/real estate
markets overseas, and Shimadzu, a manufacturer of analytical and measuring
equipment that is facing rising development and personnel costs. We also took
some profits in strong performers such as Tokyo Electron and Tsuburaya Fields
and recycled the proceeds into new names.
At the end of the review period, six unlisted names were held representing
6.3% of the portfolio. The Company’s shares in Innophys, a developer of
exoskeleton support suits, were redeemed via a repurchase plan executed at the
end of March. The company failed to fully execute on its business plan for
wearable muscle suits sales and given the uncertain outlook for the market and
competitive landscape, we first wrote down the asset and then exited in a
trade sale to a corporate. We continue to evaluate new opportunities, while
maintaining a disciplined approach on further investments.
Sustainability and engagement
In the first six months of 2023, the sustainable investing team in Tokyo, led
by our Head of Engagement, conducted 59 engagement meetings (in addition to
our fundamental research meetings), covering 20 names held by the Company.
Themes that formed part of these environmental, social and corporate
governance (ESG) engagements include long-term strategy and capital
allocation, climate change and environmental issues, and human resource
development and gender diversity.
The January–March period, which constitutes the final three months of the
Japanese fiscal year, was a busy period as both corporates and regulators
pushed out initiatives before the end of the year. Notably, reform efforts to
boost capital efficiency in Japan’s stock market started to gain traction.
From the first quarter of this year, the Tokyo Stock Exchange (TSE) requires
most listed firms, especially those trading below book value, to “properly
identify” their cost and efficiency of capital.
We are optimistic that this initiative to tackle companies’ tendency to
de-prioritise cost of equity and returns on invested capital will foster a
permanent change in corporate mentality and create value for shareholders.
This is a matter we have been vocal about given the disproportionately high
number of companies that trade below 1.0x price-to-book ratio on the Japanese
equity market. We are wary of the initiative resulting in a flurry of one-off
share buybacks, so we will be monitoring company responses as well as the
TSE’s commitment to follow through.
Outlook
Japan’s delayed reopening and the return of inbound tourists are driving
growth in consumption and services demand. At the same time, the economy is
transitioning to a moderately inflationary state, as companies are finding it
easier to raise prices and are increasing wages. There is growing pressure on
firms to enhance their corporate value and utilise excess cash to fund growth
investments and shareholder returns. While signs of weakness in China’s
recovery and the risk of a US recession represent potential headwinds that
could prompt a near-term adjustment, this accumulation of positive factors is
supportive of the mid-to-long term outlook for the Japanese market.
NICHOLAS PRICE
Portfolio Manager
31 July 2023
TWENTY LARGEST HOLDINGS AS AT 30 JUNE 2023
The Portfolio Exposures shown below measure exposure to market price movements
as a result of owning shares and derivative instruments. The Fair Value is the
actual value of the portfolio and is the value shown on the Balance Sheet.
Where a Contract for Difference (CFD) is held, the Fair Value reflects the
profit or loss on the contract since it was opened and is based on how much
the share price of the underlying share has moved. Where the Company only
holds shares, the Fair Value and the Portfolio Exposure will be the same.
Company and Sector Fair Value Portfolio Exposure
£’000 £’000 % 1
Exposures – shares unless otherwise stated
NOF (shares and long CFD) 6,374 14,998 6.1
Chemicals
Keyence (shares and long CFD) 2,454 13,962 5.6
Electric Appliances
MISUMI Group (shares and long CFDs) 7,775 13,787 5.6
Wholesale Trade
Tokyo Electron (shares and long CFD) 2,380 13,750 5.5
Electric Appliances
Oriental Land (shares and long CFD) 2,113 13,356 5.4
Services
Mitsui High-tec 10,790 10,790 4.3
Electric Appliances
Ryohin Keikaku (shares and long CFD) 533 9,996 4.0
Retail Trade
Osaka Soda 8,640 8,640 3.5
Chemicals
Tsuburaya Fields Holdings 8,284 8,284 3.3
Wholesale Trade
Harmonic Drive Systems 7,587 7,587 3.1
Machinery
Riken Keiki 6,594 6,594 2.7
Precision Instruments
Kotobuki Spirits 6,531 6,531 2.6
Foods
Descente 6,176 6,176 2.5
Textiles & Apparels
Kansai Paint 6,115 6,115 2.5
Chemicals
Asoview 5,872 5,872 2.4
Unlisted
Socionext 5,521 5,521 2.2
Electric Appliances
JustSystems 5,169 5,169 2.1
Information & Communication
ABC-Mart 5,123 5,123 2.1
Retail Trade
Nojima 4,446 4,446 1.8
Retail Trade
Fast Retailing 4,279 4,279 1.7
Retail Trade
--------------- --------------- ---------------
Twenty largest exposures 112,756 170,976 69.0
Other exposures 131,032 133,866 54.0
--------------- --------------- ---------------
Total Portfolio (including long CFDs) 243,788 304,842 123.0
========= ========= =========
Fair Value and Portfolio Exposure of Investments as at 30 June 2023
Fair Value Portfolio Exposure
£’000 £’000 % 1
Investments 242,990 242,990 98.1
Derivative instrument assets – long CFDs 1,382 33,456 13.5
Derivative instrument liabilities – long CFDs (584) 28,396 11.4
--------------- --------------- ---------------
Total Portfolio (including long CFDs) 243,788 304,842 123.0
========= ========= =========
Shareholders’ Funds 247,752
=========
Gearing 2 23.0%
=========
1 Portfolio Exposure is expressed as a percentage of Shareholders’ Funds.
2 Gearing is the amount by which the Portfolio Exposure exceeds
Shareholders’ Funds expressed as a percentage of Shareholders’ Funds.
Interim Management Report and Directors’ Responsibility Statement
Principal Risks and Uncertainties
The Board, with the assistance of the Manager (FIL Investment Services (UK)
Limited), 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 faced by the Company.
The Board considers that the principal risks and uncertainties faced by the
Company continue to fall into the following categories: geopolitical risk;
natural disaster risk; market, economic and currency risks; investment
performance and gearing risks; discount control and demand risks; key person
risk; operational resilience risk; environmental, social and governance (ESG)
risks; cybercrime risk; and tax and regulatory risks. Information on each of
these risks is given in the Strategic Report section of the Annual Report for
the year ended 31 December 2022. A copy of the Annual Report can be found on
the Company’s pages of the Manager’s website at www.fidelity.co.uk/japan.
While the principal risks and uncertainties are the same as those at the
previous year end, the uncertainty continues to be heightened by geopolitical
and economic and market events, including the ongoing Russia and Ukraine
conflict, continued trade tensions between the US and China and the potential
for North Korean aggression. The Board remains vigilant in monitoring such
risks.
Climate change continues to be a key emerging issue, as well as a principal
risk, that is confronting asset managers and their investors. The Board notes
that the Manager has integrated ESG considerations, including climate change,
into the Company’s investment process. The Board will continue to monitor
how this may potentially impact the Company, the main risk being the impact on
investment valuations and shareholder returns.
Investors should be prepared for market fluctuations and remember that holding
shares in the Company should be considered to be a long-term investment. Risks
are mitigated by the investment trust structure of the Company which means
that no forced sales need to take place to deal with any redemptions.
Therefore, investments in the Company’s portfolio can be held over a
longer-time horizon.
The Manager has appropriate business continuity and operational plans in place
to ensure the uninterrupted provision of services, including investment team
key activities, including those of portfolio managers, analysts and
trading/support functions. It reviews its operational resilience strategies on
an ongoing basis and continues to take all reasonable steps in meeting its
regulatory obligations, the ability to continue operating and the steps it
needs to take to serve and support its clients, including the Board.
The Company’s other third-party service providers also have similar measures
to ensure that business disruption is kept to a minimum.
Transactions with the Manager and Related Parties
The Manager has delegated the Company’s portfolio management and company
secretariat services to FIL Investments International. Transactions with the
Manager and related party transactions with the Directors are disclosed in
Note 12 to the Financial Statements below.
Going Concern Statement
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 and its expenditure and cash flow
projections. The Directors, having considered the liquidity of the Company’s
portfolio of investments (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 can continue in operational existence for
a period of at least twelve months from the date of this Half-Yearly Report.
This conclusion also takes into account the Board’s assessment of the
ongoing risks from the war in Ukraine, significant market events and
regulatory changes.
Accordingly, the Financial Statements of the Company have been prepared on a
going concern basis.
Continuation votes are held every three years and the next continuation vote
will be put to shareholders at the Annual General Meeting in 2025.
By Order of the Board
FIL Investments International
31 July 2023
Directors’ Responsibility Statement
The Disclosure and Transparency Rules (DTR) of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
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 the Financial Reporting
Council’s Standard FRS 104: Interim Financial Reporting; and
* the Chairman’s Statement, the Portfolio Manager’s Review and the Interim
Management Report above include a fair review of the information required by
DTR 4.2.7R and 4.2.8R.
In line with previous years, the Half-Yearly Report has not been audited or
reviewed by the Company’s Independent Auditor.
The Half-Yearly Report was approved by the Board on 31 July 2023 and the above
responsibility statement was signed on its behalf by David Graham, Chairman.
Financial Statements
Income Statement for the six months ended 30 June 2023
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022
unaudited unaudited audited
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Gains/(losses) on investments – 3,951 3,951 – (85,662) (85,662) – (64,577) (64,577)
Gains/(losses) on derivative instruments – 8,271 8,271 – (13,369) (13,369) – (11,568) (11,568)
Income 4 2,226 – 2,226 1,806 – 1,806 3,209 – 3,209
Investment management fees 5 (173) (578) (751) (168) (724) (892) (334) (1,264) (1,598)
Other expenses (376) – (376) (320) – (320) (690) (15) (705)
Foreign exchange losses – (664) (664) – (383) (383) – (365) (365)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities before finance costs and taxation 1,677 10,980 12,657 1,318 (100,138) (98,820) 2,185 (77,789) (75,604)
Finance costs 6 (13) (54) (67) (15) (61) (76) (27) (106) (133)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities before taxation 1,664 10,926 12,590 1,303 (100,199) (98,896) 2,158 (77,895) (75,737)
Taxation on return/(loss) on ordinary activities 7 (181) – (181) (148) – (148) (260) – (260)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net return/(loss) on ordinary activities after taxation for the period 1,483 10,926 12,409 1,155 (100,199) (99,044) 1,898 (77,895) (75,997)
========= ========= ========= ========= ========= ========= ========= ========= =========
Return/(loss) per ordinary share 8 1.14p 8.45p 9.59p 0.89p (77.16p) (76.27p) 1.46p (60.01p) (58.55p)
========= ========= ========= ========= ========= ========= ========= ========= =========
The Company does not have any other comprehensive income. Accordingly the net
return/(loss) on ordinary activities after taxation for the period is also the
total comprehensive income for the period 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 period and all items in the
above statement derive from continuing operations.
Statement of Changes in Equity for the six months ended 30 June 2023
Note Share Share Capital Other Capital Revenue Total
capital premium redemption reserve reserve reserve shareholders’
£’000 account reserve £’000 £’000 £’000 funds
£’000 £’000 £’000
Six months ended 30 June 2023 (unaudited)
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 10 – – – (1,029) – – (1,029)
Net return on ordinary activities after taxation for the period – – – – 10,926 1,483 12,409
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 30 June 2023 34,041 20,722 2,767 45,629 151,437 (6,844) 247,752
========= ========= ========= ========= ========= ========= =========
Six months ended 30 June 2022 (unaudited)
Total shareholders’ funds at 31 December 2021 34,041 20,722 2,767 46,942 218,406 (10,225) 312,653
Repurchase of ordinary shares 10 – – – (77) – – (77)
Net (loss)/return on ordinary activities after taxation for the period – – – – (100,199) 1,155 (99,044)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 30 June 2022 34,041 20,722 2,767 46,865 118,207 (9,070) 213,532
========= ========= ========= ========= ========= ========= =========
Year ended 31 December 2022 (audited)
Total shareholders’ funds at 31 December 2021 34,041 20,722 2,767 46,942 218,406 (10,225) (312,653)
Repurchase of ordinary shares 10 – – – (284) – – (284)
Net (loss)/return on ordinary activities after taxation for the year – – – – (77,895) 1,898 (75,997)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders’ funds at 31 December 2022 34,041 20,722 2,767 46,658 140,511 (8.327) 236,372
========= ========= ========= ========= ========= ========= =========
Balance Sheet as at 30 June 2023
Company Number 2885584
Notes 30.06.23 31.12.22 30.06.22
unaudited audited unaudited
£’000 £’000 £’000
Fixed assets
Investments 9 242,990 230,680 213,610
--------------- --------------- ---------------
Current assets
Derivative instruments 9 1,382 838 1,483
Debtors 1,021 613 1,390
Cash collateral held with brokers 256 276 –
Cash at bank 4,136 5,556 891
--------------- --------------- ---------------
6,795 7,283 3,764
========= ========= =========
Current liabilities
Derivative instruments 9 (584) (1,100) (7)
Other creditors (1,449) (491) (3,835)
--------------- --------------- ---------------
(2,033) (1,591) (3,842)
========= ========= =========
Net current assets/(liabilities) 4,762 5,692 (78)
========= ========= =========
Net assets 247,752 236,372 213,532
========= ========= =========
Capital and reserves
Share capital 10 34,041 34,041 34,041
Share premium account 20,722 20,722 20,722
Capital redemption reserve 2,767 2,767 2,767
Other reserve 45,629 46,658 46,865
Capital reserve 151,437 140,511 118,207
Revenue reserve (6,844) (8,327) (9,070)
--------------- --------------- ---------------
Total shareholders’ funds 247,752 236,372 213,532
========= ========= =========
Net asset value per ordinary share 11 191.89p 182.24p 164.47p
========= ========= =========
Notes to the Financial Statements
1 Principal Activity
Fidelity 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 Publication of Non-statutory Accounts
The Financial Statements in this Half-Yearly Report have not been audited by
the Company’s Independent Auditor and do not constitute statutory accounts
as defined in section 434 of the Companies Act 2006 (the Act). The financial
information for the year ended 31 December 2022 is extracted from the latest
published Financial Statements of the Company. Those Financial Statements were
delivered to the Registrar of Companies and included the Independent
Auditor’s Report which was unqualified and did not contain a statement under
either section 498(2) or 498(3) of the Act.
3 ACCOUNTING POLICIES
(i) Basis of Preparation
The Company has prepared its Financial Statements on a going concern basis and
in accordance with UK Generally Accepted Accounting Practice (UK GAAP) and FRS
102: The Financial Reporting Standard applicable in the UK and Republic of
Ireland, issued by the Financial Reporting Council. The Financial Statements
are also 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 July 2022.
FRS 104: Interim Financial Reporting has also been applied in preparing this
condensed set of Financial Statements. The accounting policies followed are
consistent with those disclosed in the Company’s Annual Report and Financial
Statements for the year ended 31 December 2022.
(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for a period of at least twelve
months from the date of approval of these Financial Statements. Accordingly,
the Directors consider it appropriate to adopt the going concern basis of
accounting in preparing these Financial Statements. This conclusion also takes
into account the Directors’ assessment of the risks faced by the Company as
detailed in the Interim Management Report above.
4 Income
Six months Six months Year
ended ended ended
30.06.23 30.06.22 31.12.22
unaudited unaudited audited
£’000 £’000 £’000
Investment income
Overseas dividends 1,812 1,500 2,625
Derivative income
Dividends received on long CFDs 414 306 584
--------------- --------------- ---------------
Total income 2,226 1,806 3,209
========= ========= =========
No special dividends have been recognised in capital during the period (six
months ended 30 June 2022: £42,000 and year ended 31 December 2022:
£47,000).
5 Investment Management Fees
Revenue Capital Total
£’000 £’000 £’000
Six months ended 30 June 2023 (unaudited)
Investment management fees – base 173 693 866
Investment management fees – variable 1 – (115) (115)
--------------- --------------- ---------------
173 578 751
========= ========= =========
Six months ended 30 June 2022 (unaudited)
Investment management fees – base 168 671 839
Investment management fees – variable 1 – 53 53
--------------- --------------- ---------------
168 724 892
========= ========= =========
Year ended 31 December 2022 (audited)
Investment management fees – base 334 1,336 1,670
Investment management fees – variable 1 – (72) (72)
--------------- --------------- ---------------
334 1,264 1,598
========= ========= =========
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. Since 1 July 2021, the performance period is 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 over a three year rolling period. Fees are
payable monthly in arrears and are calculated on a daily basis.
The base investment management fees have been allocated 80% to capital reserve
in accordance with the Company’s accounting policies.
6 Finance Costs
Revenue Capital Total
£’000 £’000 £’000
Six months ended 30 June 2023 (unaudited)
Interest paid on long CFDs 12 47 59
Interest paid on collateral and deposits 1 1 7 8
--------------- --------------- ---------------
13 54 67
========= ========= =========
Six months ended 30 June 2022 (unaudited)
Interest paid on long CFDs 14 55 69
Interest paid on collateral and deposits 1 1 6 7
--------------- --------------- ---------------
15 61 76
========= ========= =========
Year ended 31 December 2022 (audited)
Interest paid on long CFDs 24 94 118
Interest paid on collateral and deposits 1 3 12 15
--------------- --------------- ---------------
27 106 133
========= ========= =========
1 Due to negative interest rates during the reporting period, the Company
paid interest on its collateral and deposits.
Finance costs have been allocated 80% to capital reserve in accordance with
the Company’s accounting policies.
7 Taxation on Return/(Loss) on Ordinary Activities
Six months Six months Year
ended ended ended
30.06.23 30.06.22 31.12.22
unaudited unaudited audited
£’000 £’000 £’000
Overseas taxation 181 148 260
========= ========= =========
8 Return/(Loss) per Ordinary Share
Six months Six months Year
ended ended ended
30.06.23 30.06.22 31.12.22
unaudited unaudited audited
Revenue return per ordinary share 1.14p 0.89p 1.46p
Capital return/(loss) per ordinary share 8.45p (77.16p) (60.01p)
--------------- --------------- ---------------
Total return/(loss) per ordinary share 9.59p (76.27p) (58.55p)
========= ========= =========
The return/(loss) per ordinary share is based on the net return/(loss) on
ordinary activities after taxation for the period divided by the weighted
average number of ordinary shares held outside of Treasury during the period,
as shown below:
£’000 £’000 £’000
Net revenue return on ordinary activities after taxation 1,483 1,155 1,898
Net capital return/(loss) on ordinary activities after taxation 10,926 (100,199) (77,895)
--------------- --------------- ---------------
Net total return/(loss) on ordinary activities after taxation 12,409 (99,044) (75,997)
========= ========= =========
Number Number Number
Weighted average number of ordinary shares held outside of Treasury during the period 129,357,741 129,862,529 129,812,318
========= ========= =========
9 Fair Value Hierarchy
The 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.
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.
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 as disclosed
in the Company’s Annual Report for the year ended 31 December 2022
(Accounting Policies Notes 2 (j) and 2 (k) on pages 63 and 64). The table
below sets out the Company’s fair value hierarchy:
30 June 2023 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets at fair value through profit or loss
Investments 227,433 – 15,557 242,990
Derivative instrument assets – 1,382 – 1,382
--------------- --------------- --------------- ---------------
227,433 1,382 15,557 244,372
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – (584) – (584)
========= ========= ========= =========
31 December 2022 (audited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets at fair value through profit or loss
Investments 211,747 – 18,933 230,680
Derivative instrument assets – 838 – 838
--------------- --------------- --------------- ---------------
211,747 838 18,933 231,518
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – (1,100) – (1,100)
========= ========= ========= =========
30 June 2022 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets at fair value through profit or loss
Investments 195,805 – 17,805 213,610
Derivative instrument assets – 1,483 – 1,483
--------------- --------------- --------------- ---------------
195,805 1,483 17,805 215,093
========= ========= ========= =========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – (7) – (7)
========= ========= ========= =========
Level 3 Investments (unlisted) 30.06.23 31.12.22 30.06.22
unaudited audited unaudited
£’000 £’000 £’000
Asoview 5,872 6,872 5,690
Moneytree 2,269 2,564 2,523
iYell 1,941 2,469 2,460
Yoriso 2,127 2,516 2,411
Studyplus 2,042 2,402 2,257
Spiber 1,306 1,823 2,115
Innophys 1 287 349
--------------- --------------- ---------------
15,557 18,933 17,805
========= ========= =========
1 The shares held by the Company in Innophys were redeemed in the reporting
period via a repurchase plan.
10 Share Capital
30 June 2023 31 December 2022 30 June 2022
unaudited audited unaudited
Number of £’000 Number of £’000 Number of £’000
shares shares shares
Issued, allotted and fully paid
Ordinary shares of 25 pence each held outside of Treasury
Beginning of the period 129,701,893 32,425 129,876,894 32,469 129,876,894 32,469
Ordinary shares repurchased into Treasury (587,834) (147) (175,001) (44) (50,000) (13)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
End of the period 129,114,059 32,278 129,701,893 32,425 129,826,894 32,456
========== ========== ========== ========== ========== ==========
Ordinary shares of 25 pence each held in Treasury 1
Beginning of the period 6,459,802 1,616 6,284,801 1,572 6,284,801 1,572
Ordinary shares repurchased into Treasury 587,834 147 175,001 44 50,000 13
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
End of the period 7,047,636 1,763 6,459,802 1,616 6,334,801 1,585
========== ========== ========== ========== ========== ==========
Total share capital 34,041 34,041 34,041
========== ========== ==========
1 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 587,834 ordinary shares (year ended 31 December 2022:
175,001 shares and six months ended 30 June 2022: 50,000 shares) and held them
in Treasury. The £1,029,000 (year ended 31 December 2022: £284,000 and six
months ended 30 June 2022: £77,000) cost of repurchase was charged to the
other reserve.
11 Net Asset Value per Ordinary Share
The calculation of the net asset value per ordinary share is based on the
total Shareholders’ funds divided by the number of ordinary shares held
outside of Treasury.
30.06.23 31.12.22 30.06.22
unaudited audited unaudited
Total shareholders’ funds £247,752,000 £236,372,000 £213,532,000
Ordinary shares held outside of Treasury at the period end 129,114,059 129,701,893 129,826,894
Net asset value per ordinary share 191.89p 182.24p 164.47p
========== ========== ==========
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.
12 Transactions with the Manager and Related Parties
FIL Investment Services (UK) Limited is the Company’s Alternative Investment
Fund Manager and has delegated the 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 fee
arrangements are given in Note 5 above.
During the period, fees for portfolio management services of £752,000 (six
months ended 30 June 2022: £892,000 and year ended 31 December 2022:
£1,598,000) and secretarial and administration fees of £25,000 (six months
ended 30 June 2022: £25,000 and year ended 31 December 2022: £50,000) were
payable to FII. At the Balance Sheet date, fees for portfolio management
services of £104,000 (31 December 2022: £102,000 and 30 June 2022:
£104,000) and secretarial and administration fees of £13,000 (31 December
2022: £13,000 and 30 June 2022: £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 period was £101,000 (six months
ended 30 June 2022: £77,000 and year ended 31 December 2022: £177,000). At
the Balance Sheet date, fees for marketing services of £nil (31 December
2022: £39,000 and 30 June 2022: £15,000) were accrued and included in other
creditors.
As at 30 June 2023, the Board consisted of five non-executive Directors (shown
in the Directory in the Half-Yearly Report), all of whom are considered to be
independent by the Board. None of the Directors have a service contract with
the Company. The Chairman receives an annual fee of £40,000, the Audit
Committee Chairman an annual fee of £33,000 and each other Director an annual
fee of £29,000. The following members of the Board hold ordinary shares in
the Company: David Graham 78,489 shares, Sarah MacAulay 181,340 shares, Myra
Chan nil shares, David Barron 19,366 shares and Dominic Ziegler 24,045 shares.
The financial information contained in this Half-Yearly Results Announcement
does not constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The financial information for the six months ended 30 June
2023 and 30 June 2022 has not been audited or reviewed by the Company’s
Independent Auditor.
The information for the year ended 31 December 2022 has been extracted from
the latest published audited financial statements, which have been filed with
the Registrar of Companies, unless otherwise stated. The report of the Auditor
on those financial statements contained no qualification or statement under
sections 498(2) or (3) of the Companies Act 2006.
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.
A copy of the Half-Yearly Report will shortly be submitted to the National
Storage Mechanism and will be available for inspection at
www.morningstar.co.uk/uk/NSM
The Half-Yearly Report will also be available on the Company's website at
www.fidelity.co.uk/japan where up to date information on the Company,
including daily NAV and share prices, factsheets and other information can
also be found.
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