Nippon Active Value - Final Results
03/04/2024 07:00
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RNS Number : 0635J Nippon Active Value Fund PLC 03 April 2024
LEI: 213800JOFEGZJYS21P75
3 April 2024
Nippon Active Value Fund Plc
Final Results for the year ended 31 December 2023
Nippon Active Value Fund plc ("NAVF" or the "Company") is pleased to announce
its audited results for the year from 1 January 2023 to 31 December 2023.
Investment Objective
The investment objective of Nippon Active Value Fund plc ('the Company' or
'NAVF') has been refined to take account of the increased assets under
management and is now as follows:
"The investment objective of the Company is to provide Shareholders with
attractive long-term capital growth primarily through the active management of
a focused portfolio of quoted companies that have the majority of their
operations in, or revenue derived from, Japan, or a majority of whose
consolidated net assets are held in Japan, or that are included in the TOPIX,
and that have been identified by the Investment Adviser as being undervalued."
The previous investment objective of the Company was as follows:
"The investment objective of the Company is to provide Shareholders with
attractive capital growth through the active management of a focused portfolio
of quoted companies which have the majority of their operations in, or revenue
derived from, Japan and that have been identified by the Investment Adviser as
being undervalued".
Financial Information
At At
31 December
31 December
2023
2022
Net assets - (millions) 319.9 158.7
Net asset value ("NAV") per Ordinary Share ("Share") - (pence)(1) 169.2 140.5
Share price - (pence) 162.0 117.5
Share price discount to NAV (%)(2) 4.2 16.3
Ongoing charges (%)(2) 1.17 1.41
========= =========
Performance Summary
For the year ended For the year ended
31 December
31 December
2023
2022
(%)
(%)
NAV total return per Share(2,3) +23.1 +3.5
Share price total return per Share(2,3) +41.1 -10.9
MSCI Japan Small Cap index (sterling terms)(3) +7.8 -1.6
========= =========
Source: Bloomberg
1. This is measured on a cum income basis.
2. These are Alternative Performance Measures ("APMs"), which is a
financial measure of historic or future financial performance, financial
position, or cash other than a financial measure defined or specified in the
applicable financial reporting framework. Definition of these and other APMs
used in this report, together with how these APMs have been calculated are
disclosed further below.
3. Total returns are stated in GBP, including dividend reinvested.
Chairman's Statement
Overview of the Year
I am pleased to present the fourth annual report of Nippon Active Value Fund
plc, covering the period from 1 January to 31 December 2023. This is the first
report since we migrated to the Premium Listing Segment of the Official List
of the Financial Conduct Authority ('FCA') and were appointed as preferred
vehicle for the rollover of abrdn Japan Investment Trust (AJIT) and Atlantis
Japan Growth Fund (AJG), and I would like to welcome both sets of shareholders
to NAVF.
The merger was completed on 10 October 2023 and added £118.4 million to the
Company's net assets. NAVF received the assets in the form of cash and an
in-specie transfer of the underlying investments of AJIT and AJG. The
reorganisation of those holdings to align them with our own portfolio was
completed by the end of November 2023.
Our Board has been augmented by one Director from each company, which we all
felt was important in providing continuity, particularly for our retail
Shareholders. I am delighted to welcome to the Board Claire Boyle and Noel
Lamb, who have been fully involved in the governance of NAVF since October
2023.
At the end of the year total assets were £319.9 million and the net asset
value per share was 169.2p, a rise of 23.1% over the year and a cumulative
increase of 76.9% since the Company's launch on 21 February 2020. Both those
returns assume dividends were reinvested. Since the year end, the Company's
NAV per Share has increased further to 181.4p as at 27 March 2024, being the
latest practicable date, representing a total return of 89.6% since inception.
While we do not target a particular index benchmark, for comparison, the MSCI
Japan Small Cap Index returned +7.8% in sterling terms over the year and
+15.8% between the Company's inception date and 31 December 2023.
The share price returned +41.1% over the year and has risen by 69.7% since
inception (including dividends reinvested). The closing share price on 31
December 2023 was 162.0p, trading at a discount of 4.2% to NAV, a significant
narrowing of the discount compared to the 16.3% for the year ended 31 December
2022. The average discount to NAV over the year was 5.4% and the Shares traded
in a range of a premium of 0.3% to a discount of 17.4%. The discount stood at
1.9% as at 27 March 2024, being the latest practicable date.
Global markets ended the year strongly, as investors had more confidence that
inflation had been brought under control, a recession would be averted and
that interest rates were at or near their peak. A return to modest inflation
in Japan after years of embedded deflation has been seen as positive and the
Nikkei 225 index recently reached its highest levels since 1989 in yen terms.
However, the disappointment that the incoming Governor of the Bank of Japan
would not immediately raise the target yield of Government Bonds contributed
to yet more yen weakness. Our Investment Adviser, Rising Sun Management, does
not normally hedge the currency exposure or seek to take active currency
views, preferring to concentrate its efforts on identifying undervalued stocks
and on engagement with corporate management rather than on macro-economic
analysis.
As an activist manager, our Investment Adviser is not seeking to reflect the
market as a whole or the fundamentals of the Japanese economy. Your Company's
strategy is to invest in a selective portfolio of undervalued companies where
the Investment Adviser believes it can engage with management to improve
shareholder returns. For the Investment Adviser's proposals to carry some
weight with portfolio company management, the Company often needs to build a
significant stake, and as a result the portfolio holdings tend to be in
small-to-medium capitalised stocks.
Our Investment Adviser has two representatives in Tokyo and has a sub-advisory
agreement with Dalton Advisory KK, who assists in identifying potential
targets and in the continuing coverage of portfolio holdings.
Co-Investments
With a larger asset base, and as part of our move to the Premium Listing
Segment of the Official List, we made some changes to our investment objective
and policy, as published in the Company's Prospectus and Circular on 1
September 2023, principally expanding our target universe to include some
exposure to larger companies. However, the focus of the portfolio remains, as
it has been since inception, on smaller companies.
We have a memorandum of understanding in place with other funds advised by the
Investment Adviser and by Dalton Investments Inc, the parent company of Dalton
Advisory KK, with whom we co-invest in opportunities where NAVF as a sole
investor would not be able to build a sufficiently meaningful holding. At the
end of 2023, your Company held 31 investments in common with other entities
advised by RSM or Dalton Investments Inc. An example of the fruits of this
co-operation can be seen in the announcement by T&K Toka of a tender offer
on 22 January 2024. This and other highlights of the year's engagement are
discussed more fully in your Investment Adviser's report, which follows.
Unlisted Investments
As our Investment Adviser explains in its report later, NAVF will have the
opportunity to participate in the unlisted entity which will result from the
T&K Toka tender offer. The investment policy allows us to invest up to 10%
of the portfolio in unlisted investments, and this will be our first such
position. The President of Rising Sun Management ('RSM'), Kazutaka Mizuochi,
will represent NAVF and related parties on the board of the new company.
Japanese Corporate Governance Developments
The strategy at the launch of the Company was designed to capitalise on
developments in Japanese Corporate Governance since the early 2000s. The
regulatory environment continues to provide a supportive background for
activist investors. Most notably in the past year was the Tokyo Stock
Exchange's request, issued in March 2023, that listed companies have a greater
focus on measures to improve mid- to long- term profitability and corporate
value, a principle established in the Stewardship Code of 2014. Other examples
of the government's support for more attention to shareholder rights includes
the recent FSA request for casualty insurers to sell off their
cross-shareholdings, and the promulgation of new rules for unsolicited
takeovers, which require boards to give such bids careful consideration and to
justify their response to such proposals to shareholders.
One of the indicators that activism is more widely embraced is the trend in
the number of shareholder proposals made at annual general meetings. Both the
total number of proposals and the number of companies who received proposals
were at record highs in 2023. NAVF participated, but as the Company's
Tokyo-based advisers explain later in this report, we find that the
conversations we have with our targets at one-on-one meetings are of greater
significance.
Dividend
The Company's intention is to achieve its returns primarily through capital
appreciation. As such, no specific dividend policy has been established and
any distributions will be made entirely at the discretion of the Board, taking
into consideration the requirement to ensure the Company continues to be
approved as an investment trust in accordance with sections 1158 and 1159 of
the Corporation Tax Act 2010.
The Board is pleased to declare an interim dividend for the year ended 31
December 2023 of 1.60p (2022: 3.20p) per Ordinary Share. The dividend will be
payable on 24 May 2024 to Shareholders who appear on the register by close of
business on 19 April 2024, with an ex‑dividend date of 18 April 2024. The
Board will not target a dividend for future years but will tend to pay out
most of the distributable income for any particular period by way of dividend
in order to continue to be approved as an investment trust.
Gearing
In line with the increase in the Company's asset base the borrowing facility
with The Northern Trust Company, London Branch has also been increased to £70
million to provide the Investment Adviser with flexibility to gear the
portfolio when appropriate. At the end of December 2023, this facility had
not been drawn down and the portfolio held £22,257,000 (31 December 2022:
£31,738,000) in cash. As at 27 March 2024, cash comprised 10.0% of the
Company's assets.
Annual General Meeting (the "AGM")
The Company's AGM is scheduled for 6 June 2024 at 2.30pm and is to be held at
the Company's registered office located at Apex Group, 6th Floor, 125 London
Wall, London, EC2Y 5AS. The Board strongly encourages all Shareholders to
exercise their votes by completing their proxy forms in advance of the AGM.
For more details, please see enclosed AGM Notice. Those Shareholders who are
unable to attend the AGM in person are welcome to submit questions to the
Board or their Investment Adviser either by writing to the Company Secretary
by post to the registered office as above or by emailing at
navfcosec@apexfs.group.
Outlook
The Company seeks to take advantage of the corporate governance reforms in
Japan introduced over the past 15 years and we believe that an activist
strategy will continue to generate superior returns compared to the broader
market. The Investment Adviser has demonstrated an enviable ability to seize
this opportunity, has achieved some notable successes within the existing
portfolio and we are extremely pleased with the returns generated in 2023. We
remain confident that the Investment Adviser will continue to identify
attractive new targets within a broader spectrum of the market capitalisation
range and to continue to deliver significant returns for shareholders.
Rosemary Morgan
Chairman
2 April 2024
Investment Adviser's Report
Rising Sun Management's Approach to Activism
In early 2023, the Tokyo Stock Exchange ('TSE') mandated that all companies
disclose information regarding their "Action to Implement Management that is
Conscious of Cost of Capital and Stock Price." While not a catchy title, this
initiative was significant, in that it not only compelled companies to assess
formally and disclose key metrics such as cost of capital and return on equity
('ROE'), but also challenged companies trading with a price/book ('P/B') ratio
persistently below 1.0x to create concrete plans to achieve the magic 1.0x
ratio.
The TSE continued its reform campaign during the week of 15 January 2023 with
two new initiatives: the publication of a list of companies that have complied
with its "capital improvement plans" and the introduction of a new demand that
all companies listed on the Prime Market disclose key information in English,
starting in March 2025.
In a uniquely Japanese way, rather than naming and shaming the companies which
have chosen not to comply, the TSE opted for positive reinforcement by
publishing a list of companies that had chosen to comply. This approach, while
seemingly indirect, effectively creates an implicit "naughty list" for
non-compliant companies, leveraging social pressure and the desire to avoid
reputational damage as powerful motivators for change. The effectiveness of
shame and peer pressure in shaping corporate behaviour in Japan should not be
underestimated.
The TSE list shows that some 851 companies have already made public
disclosures, while another 264 have stated their intention to do so. Rising
Sun Management Ltd, NAVF's Investment Adviser, and Dalton Investments Inc, our
frequent co-investor, have actively engaged with our non-compliant portfolio
companies, urging public disclosure, and even submitting shareholder AGM
proposals for companies which refuse. While the headline numbers are
encouraging, the devil lies in the details, with multiple examples of
companies disclosing plans that were completely lacking in details of concrete
measures.
Both the TSE and engaged market participants such as NAVF's Investment
Adviser, must actively encourage companies to embrace the true spirit of the
TSE's initiative. Pushing for deeper analysis, concrete improvement plans, and
a genuine commitment to shareholder value must remain a top priority.
As of March 2025, a new TSE mandate will require all 1,656 Prime Market
companies to disclose all information that could be seen to have a material
impact on investment decisions, such as changes to earnings forecasts and
M&A announcements, in English. There has yet to be any news regarding the
Standard Market (where English disclosures are much more limited), but it is
our hope that in time the entire market will be compelled to disclose all key
information in English.
Despite the recent excitement surrounding Japanese equities and ongoing
corporate governance reforms, Japan remains a structurally underweight
position in many active manager portfolios. A frequent concern cited by global
investors is that Japanese equities are simply "too hard" due to language and
cultural barriers. While the English disclosure mandate alone will not
eliminate this challenge overnight, we believe it represents a significant
step towards transparency and adherence to international best practices that
can only be seen as a positive for the long-term attractiveness of the
Japanese equity market.
As investors dedicated to active engagement, we have witnessed a remarkable
shift in our dialogues with company management thanks to the TSE's
transformative reforms. Gone are the days when discussions with management
teams revolved solely around revenue growth and profit margins. Today, armed
with the TSE's focus on key metrics like cost of capital and stock valuation,
we find ourselves speaking the same language as company management, for the
first time in our long history of investing in Japan. This new-found alignment
paved the way for our busiest and most successful year of engagement yet in
2023 and continues to shape our priorities for 2024. Below are our key areas
for engagement in 2024:
Themes Proposals
Effective Capital Allocation Formulate, disclose, and commit to a quantitative capital policy that includes
"an appropriate level of financial assets (or capital structure)," "a specific
capital allocation plan for the next three to five years," and "KPIs including
ROIC and ROE and their targets (KGI)."
As a prerequisite for effective capital allocation, ensure that the board of
directors possess an understanding of the fair value of the company's shares.
Reduce policy shareholdings, aiming for zero in the medium to long term.
Strong Alignment of Interest Establish, disclose, and commit to a path towards improving alignment of
interest through stock ownership guidelines.
Specifically, require directors to accumulate ownership worth 3-5 times their
fixed compensation over a reasonable time frame.
Board with High Independence and Diversity Mandate that a least half of the board of directors comprise of independent
outside directors while seeking to increase diversity by including women and
experienced investors.
We commend the significant improvements made by the Tokyo Stock Exchange
("TSE") and remain committed to engaging with regulators, the stock market and
other market participants to advance these reforms. These steps towards
greater transparency and increased focus on minority shareholder rights
undoubtedly represent positive catalysts for the long-term return potential of
the Japanese market. For disciplined, long-term investors like your Company,
the TSE's reforms provide valuable tools in the engagement toolkit, empowering
us to advocate for positive change and unlock excess returns through
engagement with management.
Masumi Nishida, Senior Analyst at Rising Sun Management
Shiro Hayashi, Head of Research at Dalton Advisory KK
Performance Since Initial Listing (Excluding Dividends Re-Invested)
Periodic change Cumulative change
Period JPY sterling/yen GBP JPY sterling/yen GBP
FX
FX
21 February 2020 to Year End December 2020 12.19% 1.39% 13.58% 12.19% 1.39% 13.58%
Year End December 2021 34.18% -12.77% 21.41% 50.54% -12.64% 37.90%
Year End December 2022 3.65% -1.79% 1.86% 56.04% -15.58% 40.46%
--------------- --------------- --------------- --------------- --------------- ---------------
Year End December 2023 36.66% -16.16% 20.50% 110.01% -40.76% 69.25%
========= ========= ========= ========= ========= =========
Introduction
The purpose of this report is to provide an overview of key events and themes
affecting Nippon Active Value Fund plc ("NAVF"), during 2023. We will not
dwell on the merits, or lack of them, of individual holdings, except when they
become the story generating the alpha in our returns. The driver for success
in this fund is not to buy the cheapest or most undervalued stocks (though
this cannot hurt!); it is to identify businesses where our hands-on engagement
can bring about the greatest change in management practices. We like decent
companies, that have too many non-operational assets, whether cash,
cross-shareholdings, or property, on the balance sheet, solely to allow
"salaryman" managers to sleep well at night. Even if these characteristics
reflect poor capital allocation, thus making them worthy of our attention,
they also provide comfortable margins of safety (see below), which help us
sleep well too until we can make something happen to unlock value. In
addition, we look for open share registers, a lack of third-party brokerage
research (especially in English), and demonstrable cheapness of a type that is
likely to attract the attention of the regulators. This last is most
important: we never forget that the largest shareholder across all Japanese
stock exchanges, owning 12-13% of the markets, is the combination of the Bank
of Japan and the state pension fund, in other words "Japan Inc.". When Prime
Minister Shinzo Abe began the corporate governance reform programme in 2014,
he did so out of a position of being the largest investor in a
long-underperforming stock market - one could argue his government was
motivated by self-interest. Ten years later, reform is still in full swing, it
accelerated markedly during 2023, and provided a wind at our back to bring
about change. The wind is now becoming a gale!
Most recently, Hiromi Yamaji was appointed head of the JPX (all the Japanese
stock exchanges). It would not be an exaggeration to suggest he is a man with
a mission. Ex-Nomura, he has clearly stated his goal of improving the capital
allocation processes of listed Japanese companies. In particular, he is
requiring all those with share prices trading below book value, to present a
roadmap as to how they will reach that first hurdle and then go on towards an
appropriate premium to book. Amazingly, for such a mature market, when this
policy was instituted in the Spring of 2023, over half of all listed companies
fell into this category. At RSM we like to think we are activists, but there
can be little doubt that the biggest and most feared activist operating in
Japan today is Yamaji-san. We take our hats off to him!
Abrdn Japan Investment Trust ("AJIT") and Atlantis Japan Growth Fund ("AJG")
The Chairman has spoken about NAVF's successful absorption of two other
investment trusts in her report. Nevertheless, some commentary here might
provide helpful context. In anticipation of the mergers with AJIT and AJG, on
21 September 2023, NAVF was admitted to the Official List of the Financial
Conduct Authority and to trading on the premium segment of the main market for
listed securities of the London Stock Exchange. On 10 October, over 99% of the
shareholders that cast their votes of both AJIT and AJG shareholders voted to
'rollover' the assets of their respective funds into NAVF. As a result, our
AUM burgeoned to £293.8 million, the portfolio to over 130 names and the work
of transitioning began. NAVF received almost £119 million equivalent in the
form of 90 different stocks. We had estimated and announced it would take us
about 60 business days, running both concurrently, to rationalise each
portfolio. We were wrong. The process was completed by 10 November. All
inherited stocks were sold, none retained within the NAVF portfolio. At year
end, the individual stock count stood at 36 (comfortably in the target range
of around 35 we posited in our new investment parameters, also discussed in
the Chairman's report). Cash on hand was at 14.4% (in mid-February 2024 this
had reduced to around 4%).
Discounts in the investment trust industry are currently at their widest
recorded levels since December 2008 according to the Association of Investment
Companies (AIC), with the average at 16.9% at the end of October. With NAVF's
discount consistently around 4% or below over the last few months, we remain
one of the top performing companies in the sector.
The double acquisition of AJIT and AJG is not only unique in the history of UK
investment trusts but has been an unqualified success. NAVF's move is being
heralded as a template for the further consolidation of an asset class badly
in need of rationalisation. Sadly, the remaining three trusts operating in our
space are not likely to offer themselves up to our ministrations, but our door
remains open. This has clearly been an efficient route to growing AUM and the
process has proven less formidable technically than we feared it would be when
we embarked on the process. At the start of January 2023, NAVF's AUM stood at
just under £155 million. At the end of the year, it was £320 million. For
the first time since its launch, NAVF now not only enjoys a considerable
retail component to its share register, but, importantly, thanks to the growth
in assets, the Fund also qualifies for investment by even the largest UK asset
managers. We are no longer small enough to ignore.
Performance
NAVF has no natural benchmark. Over the course of 2023, the MSCI Japan Index
was up 20.3% and the MSCI Japan Smaller Companies Index was up 13.3%. In the
same period NAVF's NAV per share moved 23.1% higher (including dividend) and
its share price improved by 41.1% (helped additionally by the narrowing of the
discount to NAV).
Over the year, the top ten winners making the largest gains, both realised and
unrealised, include:
Intage Holdings, up 39.0%
Ihara Science, up 30.9%
Toyota Industries, up 29.1%
Murakami Corp, up 33.6%
Bunka Shutter, up 19.0%
Mitsuboshi Belting, up 17.8%
Rinnai Corp, up 18.2%
Nippon Fine Chemical, up 21.3%
Ebara Jitsugyo, up 21.3%
Ishihara Chemical, up 31.3%
The worst 10 performers (in reverse order), either net detractors or the
lowest contributors, were:
Topcon Corp, down 9.7%
Katakura Industries, down 1.9%
Teikoku Electric, down 3.2%
Nasu Denki Tekko, down 1.8%
Seven & I Co Ltd, down 0.2%
Medikit Co Ltd, down 1.6%
Super Tool, up 2.1%
Komaihaltec Inc, up 0.6%
Goodspeed Co Ltd, up 3.5%
Denyo Co Ltd, up 9.4%
All returns are expressed in sterling terms.
It is worth remarking that our policy of always seeking a good margin for
safety works. Perhaps, the best illustration of the merits of this approach is
reflected in the performance of our losers. None is a real stinker, with the
possible exception of Topcon. Indeed, four of our bottom 10 stocks actually
turned in a positive performance!
Corporate Engagement
There have been three important liquidity events during the year under review.
RSM believes that NAVF had a hand in bringing them all about.
In November 2022, RSM presented a proposal for a management-led buyout (MBO)
of Ihara Science Corp to Chairman Tokuro Nakano. We were gratified that he
seized upon this suggestion, based on our analysis of more efficient ways for
the company to deploy capital, and immediately took it to his Board. On 9
February 2023 Nakano-san announced his own MBO. After some deliberation,
mainly concerning efforts to be allowed to invest in the go-private Special
Purpose Vehicle, NAVF and its co-investor announced its support for the MBO on
9 March 2023. This was despite a view held by several other investors that
the price offered by the company's tender was not at a sufficient premium and
did not reflect the intrinsic value of the business. We continued to negotiate
with Nakano-san and his advisers for access to the 'back-end' of the deal
until September.
In the event, this effort was unsuccessful and NAVF exited the investment
successfully but with no involvement in the company's future.
After market close on 6 September 2023, Intage Holdings Inc announced a
partial TOB for 50.1% of the company by NTT Docomo at Yen 2400 per share, a
26% premium and record high. Intage Holdings was an original purchase dating
back to inception of NAVF and composed our largest position, representing
c.13% of the portfolio. With other group companies in the concert party, RSM
controlled around 14% of the free float. For us, this move was the culmination
of a long story that began back in December 2020, when we first spoke publicly
about organising an MBO. Our view now was that, although the bid and the price
were welcome, a deal structured along the lines announced would disadvantage
future minority shareholders and was clearly not in the spirit of the latest
METI guidelines. Weighted against our 'righteous indignation' at the retention
of a now clearly useless listing, was the fact that NTT, a company with
absolutely no business overlap with its acquisition, is partially government
owned, leading us to believe nothing would change. Therefore, we resolved not
to tender into a process we did not believe in, but, instead, to sell
discreetly but completely into the market. This was accomplished with great
skill on the part of our head trader by 14 September 2023, giving us an
average exit price of Yen 2185 for the whole position - a return within the
month of over 25% and c.60% YTD and more than doubling our investment since
inception. Finally, a happy ending to a long running saga.
Undoubtedly, the key development in Q4 was the beginning of Bain & Co's
take-over of T&K Toka Co Ltd. Following NAVF's proposed TOB last year, the
CEO chose to resign, and the Board resolved to take the company private under
the auspices of Bain & Co. A requirement for the deal to proceed was that
T&K Toka's holding in its Chinese joint-venture needed to be brought below
30%. Once this was achieved, Bain's tender for the whole company was formally
launched on 22 January 2024.
NAVF was able to announce its participation in the tender offer. Following the
de-listing of T&K Toka, NAVF and its concert party of co-investors will be
offered up to 15% of the unlisted equity in a holding company of the Offering
Vehicle, pro rata to their individual percentage holdings in the public
company. Additionally, pursuant to the tender agreement, Kazutaka Mizuochi,
President of RSM, will be appointed as a director of the private holding
company and be able to represent the interests of the concert party on the
Board.
NAVF's earlier engagement with T&K Toka, including its previous tender
offer, appears to have had the intended effect of prompting management to
assess the strategic future of T&K Toka. Bain's tender offer was
successful and we expect the transaction to complete before the summer of
2024.
It has always been envisaged that NAVF would take minority positions in former
portfolio companies once they were taken private. RSM believes that, from a
performance point of view, the liquidity event associated with a company's
relisting or eventual sale, is likely to prove considerably more profitable
than the sale of existing holdings into public tender offers. Nevertheless,
the overall uplift on NAVF's holding in T&K Toka realised by participating
in the tender is in the region of 40%.
RSM hopes that T&K Toka will establish a precedent in the market and in
the minds of private equity houses taking over our portfolio companies. We
believe that having failed to secure any of the 'back-end' in the
privatisations of Sakai Ovex or Ihara Science (see above), in future our
participation in the private entities following liquidity events should be
easier to achieve.
Outlook
There is plenty going on. We have engaged with most of our portfolio
companies, including, most recently, both Fuji Media Holdings and Toyota
Industries - much larger companies than we have tackled in the past. As ever,
who knows what will happen, but we fervently believe that something will have
to give with each one over the coming months. The regulatory and press
spotlights are becoming effectively impossible for managements exhibiting
shortcomings, as both of these do, to ignore.
RSM principals' recent trip to Tokyo consisted of a multitude of company
visits accompanied by the relevant analysts from Dalton Advisory KK. We were
reassured by the quality of most of our choices; nevertheless, following a
visit to Komaihaltec Inc, we decided to dispose of our position in that
counter. Seeing management in person remains invaluable.
The last issue to mention is becoming distressingly familiar: the yen
continues to weaken. How to tackle the weak yen, and to slowly reverse decades
of negative interest rates, is a major policy headache for Japan's Kishida
administration. Since we do not hedge, our much-anticipated performance boost
from a recovering currency continues to be on hold. At the time of writing in
mid-February 2024, it reached a new low against the US dollar making our
continued out-performance this year even more impressive.
Paul Ffolkes Davis
Rising Sun Management Limited
2 April 2024
Portfolio as at 31 December 2023
Top Ten Holdings as a Percentage of Net Assets as of 31 December 2023
Company Sector %
1. Bunka Shutter Industrials 5.9
2. Fuji Media Holdings Communication Services 5.9
3. Rinnai Consumer Discretionary 5.6
4. Nippon Fine Chemical Materials 4.8
5. Ebara Jitsugyo Industrials 4.5
6. Eiken Chemical Healthcare 4.4
7. Mitsuboshi Belting Industrials 4.1
8. Toyota Industries Industrials 4.0
9. Murakami Consumer Discretionary 3.8
10. ASKA Pharmaceutical Holdings Healthcare 3.4
=========
SECTOR BREAKDOWN
Investment Policy, Results and Other Information
The Company's investment objective and investment policy (including defined
terms) are as set out in its prospectus dated 31 August 2023.
Investment Objective
The investment objective of the Company is to provide Shareholders with
attractive long-term capital growth primarily through the active management of
a focused portfolio of quoted companies that have the majority of their
operations in, or revenue derived from, Japan, or a majority of whose
consolidated net assets are held in Japan, or that are included in the TOPIX,
and that have been identified by the Investment Adviser as being undervalued.
Investment Policy
Asset allocation
The Company will primarily invest in a highly selective portfolio of shares
issued by quoted companies that have the majority of their operations in, or
revenue derived from Japan or a majority of whose consolidated net assets are
held in Japan, or that are included in the TOPIX ("Japanese Shares"), and
which the Investment Adviser deems attractive and undervalued and typically
where (i) cash and other liquid investments, real estate and/or tradeable
securities constitutes a significant proportion of the investee company's
market capitalisation; and (ii) the relevant company has no controlling or
majority shareholders.
The Company may also from time to time obtain exposure to Japanese Shares,
Derivatives (as defined below), cash, cash equivalents, exchange traded funds,
near cash instruments and money market instruments, which may not necessarily
suit activist management by the Investment Adviser, though this will be
opportunistic, including as part of an acquisition of a broader portfolio, and
will not form a core focus for asset allocation on an ongoing basis.
There are no restrictions placed on the market capitalisation of investee
companies; but it is expected that the portfolio will be weighted towards
small-cap and mid-cap companies with market capitalisation of up to US$3
billion. The portfolio is expected to have up to 35 holdings, although there
is no guarantee that this will be the case, and it may contain a lesser or
greater number of holdings at any time.
The Company intends to acquire meaningful minority stakes in each investee
company. The Company will not, however, acquire any stake which could cause a
change in its status as an investment trust under Chapter 4 of Part 24 of the
Corporation Tax Act 2010.
The Board will not set any limits on sector weightings or stock selection
within the portfolio. The Company will not be constrained by any index
benchmark in its asset allocation.
The Company may use derivatives for efficient portfolio management purposes.
Such purposes would include the management of cash received by the Company
upon the occurrence of significant liquidity events (including, without
limitation, the receipt of proceeds of fundraisings, the realisation of
Portfolio assets and other cash-generative events such as the completion of a
management buyout by an investee company). Such derivative contracts may, for
example, give the Company exposure to the whole or a sub-section of the
Japanese stock market until such time as the Investment Adviser determines
that the Company's derivative position should be liquidated and invested in an
investee company in accordance with the Investment Policy (the foregoing
derivative contracts being, for the purposes of this Investment Policy
"Derivatives").
Additionally, while the Company intends that the majority of its investments
will be in quoted companies, it may also make investments in unquoted
companies and the Company may become invested in unquoted companies as a
result of corporate actions or commercial transactions undertaken by quoted
companies. The Company will only make investments in unquoted companies in
order to maintain or improve its position in relation to a business which
operated through a quoted entity at the time of the Company's initial
investment in that business.
Investment restrictions
The Board will apply the following restrictions on the size of its
investments:
· not more than twenty per cent. (20%) of the Gross Asset Value
at the time of investment will be invested in the securities of a single
issuer (such restriction does not, however, apply to investment of cash held
for working capital purposes and pending investment or distribution in near
cash equivalent instruments including securities issued or guaranteed by a
government, government agency or instrumentality of any EU or OECD Member
State or by any supranational authority of which one or more EU or OECD Member
States are members);
· the Company will only make an investment in an unquoted
company if the aggregate interest of the Company in unquoted companies at the
time of such investment is not more than ten per cent. (10%) of the Net Asset
Value of the Company at that time. This will mean if a quoted portfolio
company is delisted or an unquoted investment is revalued with the effect of
increasing the Company's interest in unquoted investments to above ten per
cent. (10%) of the Company's Net Asset Value at that time, the Company will
not be in breach of its Investment Policy and will not have to divest itself
of any unquoted investments. Nevertheless, while the Company's interest in
unquoted investments remains above ten per cent. (10%) of its Net Asset Value,
the Company will not be able to make any further investments in unquoted
companies;
· total net investment Derivative exposure will not exceed
twenty per cent. (20%) of Gross Asset Value at the time of investment; and
· total exposure to any single counterparty which has issued
Derivatives to the Company will not exceed twenty per cent. (20%) of Gross
Asset Value at the time of investment.
The Company will comply with the following investment restrictions for so long
as they remain requirements of the Listing Rules:
· neither the Company, nor any of its subsidiaries will conduct
any trading activity which is significant in the context of the Group as a
whole;
· no more than ten per cent. (10%), in aggregate, of the value
of the total assets of the Company will be invested in other listed
closed-ended investment funds (except to the extent that those investment
funds have stated investment policies to invest no more than fifteen per cent.
(15%) of their total assets in other investment companies which are listed on
the Official List); and
· the Company must, at all times, invest and manage its assets
in a way which is consistent with its object of spreading investment risk and
in accordance with the published Investment Policy.
Treasury policy
Until the Company is fully invested, and pending re-investment or distribution
of cash receipts, the Company will use Derivatives, cash, cash equivalents,
exchange traded funds, near cash instruments and money market instruments in
accordance with the Investment Policy.
The Company expects to maintain any non-operational cash balances in Japanese
yen.
Under the amended Investment Policy, the Company may use Derivatives (as
defined in the Investment Policy) for efficient portfolio management purposes.
Such purposes would include the management of cash received by the Company
upon the occurrence of significant liquidity events (including, without
limitation, the receipt of proceeds of fundraisings, the realisation of
portfolio assets and other cash generative events, such as the completion of a
management buyout by an investee company). Such derivative contracts may, for
example, give the Company exposure to the whole or a sub-section of the
Japanese stock market until such time as the Investment Adviser determines
that the Company's derivative position should be liquidated and invested in an
investee company in accordance with the Investment Policy.
The Board will apply the following restrictions on Derivative exposure:
- total net investment Derivative exposure will not exceed twenty
per cent. (20 per cent.) of Gross Asset Value at the time of investment; and
- total exposure to any single counterparty which has issued
Derivatives to the Company will not exceed twenty per cent. (20 per cent.) of
Gross Asset Value at the time of investment.
The Company's exposure to any investments in Derivatives will be monitored
daily by the Investment Adviser and AIFM and, in the event that any particular
Derivative exposure was determined by the Investment Adviser, the AIFM or the
Board to be inappropriately large, that Derivative exposure would be closed
out as soon as reasonably practicable and in any event within three Business
Days.
Gearing Policy
The Company may use borrowings and other gearing to seek to enhance investment
returns at a level (not exceeding 20 per cent. of the Company's net assets
calculated at the time of drawdown) which the Directors, the AIFM and Rising
Sun consider to be appropriate. It is expected that gearing will primarily
comprise bank borrowings, public bond issuance or private placement
borrowings, although overdraft or revolving credit facilities may be used to
increase acquisition and cash flow flexibility.
Hedging Policy
Although the Company does not currently intend to enter into any arrangements
to hedge its underlying currency exposure to investments denominated in
Japanese yen, it may in future, at its discretion, enter into currency hedging
arrangements using futures, forwards, swaps or other derivative instruments.
Material breach of investment restrictions
In the event of any breach of the investment restrictions applicable to the
Company, Shareholders will be informed of the actions to be taken by Rising
Sun and the Company through a Regulatory Information Service.
Amendment to Investment Policy
No material change will be made to the Investment Policy without the approval
of Shareholders by ordinary resolution and (subject to completion of the
Migration) the FCA in accordance with the Listing Rules.
Dividend Policy
The Company's intention is to look to achieve its results primarily through
capital appreciation. As such, no specific dividend policy has been
established and any distributions will be made entirely at the discretion of
the Board.
Distribution Policy
The Company believes that the substantial undervaluation of Japanese equities,
coupled with an activist strategy designed to unlock underlying value should
allow the Company to achieve significant investment results over time. Given
the nature of this strategy, however, it is possible that such returns could
be "lumpy" and unpredictable. Accordingly, the Company will target results
primarily through capital appreciation. No specific dividend policy will be
established in the first instance and any distributions will be made entirely
at the discretion of the Board.
Notwithstanding the foregoing, the Company will make such distributions as may
be required to ensure compliance with the rules relating to investment trusts.
Key Performance Indicators ("KPIs")
The Board measures the Company's success in attaining its investment objective
by reference to the following KPIs:
(i) Long-term capital growth
The Board considers the NAV and Share price total return figures to be the
best indicator of performance over time and this therefore is the main
indicator of performance used by the Board. The NAV and Share price total
return for the year ended 31 December 2023 were +23.1% and +41.1% respectively
(31 December 2022: +3.5% and -10.9% respectively).
(ii) Revenue return per Share
The Company's revenue return per Ordinary Share based on the weighted average
number of shares in issue during the year was 2.44p (31 December 2022: 3.43p).
(iii) Discount/premium to NAV
The discount/premium relative to the NAV per Share represented by the share
price is closely monitored by the Board. The Share price closed at a 4.2%
discount to the NAV as at 31 December 2023 (31 December 2022: discount of
16.4%).
(iv) Control of the level of ongoing charges
The Board monitors the Company's operating costs carefully. Based on the
Company's average net assets for the year ended 31 December 2023, the
Company's ongoing charges figure calculated in accordance with the AIC
methodology was 1.17% (31 December 2022: 1.41%).
Risks and Risk Management
Principal and Emerging Risks, and Uncertainties
The Company has carried out a robust assessment of its principal and emerging
risks and the procedures in place to identify any emerging risks are described
below.
Procedures to Identify Principal or Emerging Risks
The Board regularly reviews the Company's risk matrix and focuses on ensuring
that the appropriate controls are in place to mitigate each risk. The
experience and knowledge of the Board is important, as is advice received from
the Board's service providers, specifically the Alternative Investment Fund
Manager ("AIFM"), who is responsible for the risk and portfolio management
services and outsources the portfolio management to the Investment Adviser.
The following is a description of the work that each service provider
highlights to the Board on a regular basis.
1. Investment Adviser: the Investment Adviser provides a report to
the Board at least quarterly or periodically as required on industry trends,
insight to future challenges in the Japanese equity sector including the
regulatory, political and economic changes likely to impact the sector;
2. AIFM: following advice from the Investment Adviser and other
service providers, the AIFM maintains a register of identified risks including
emerging risks likely to impact the Company;
3. Brokers: provides advice periodically specific to the Company on
the Company's sector, competitors and the investment company market whilst
working with the Board and Investment Adviser to communicate with
shareholders;
4. Company secretary and auditor: briefs the Board on forthcoming
legislation/regulatory change that might impact on the Company. The auditor
provides their findings at least annually; and
5. Association of Investment Companies ("AIC"): The Company is a
member of the AIC, which provides regular technical updates as well as drawing
members' attention to forthcoming industry and regulatory issues.
Procedure for Oversight
The Board is responsible for the management of risks faced by the Company. The
principal and emerging risks, together with a summary of the processes and
internal controls used to manage and mitigate risks where possible are
outlined below.
RISK Possible consequences Possible Impact Risk Mitigation
MARKET The Company may not meet its investment objective. Low The Investment Adviser has a well-defined investment strategy and process
which is regularly and rigorously reviewed by both the independent Board of
Directors and the AIFM.
The Investment Adviser has a contract in place which defines the duties and
responsibilities of the Investment Adviser and has safeguards in place
including provisions for the termination of the agreement upon 12 months'
notice, not to be served within the first 4 years from First Admission.
The Investment Adviser has stated that it will run a diversified portfolio and
the Board reviews the composition of the portfolio and its performance of the
Company at each Board meeting. A review of transactions is performed at each
quarterly Board meeting.
Management Accounts, and Income and expense forecasts are reviewed at
quarterly Board meetings.
The Investment Adviser sends the Board its monthly newsletter/factsheet and an
investment report on a quarterly basis.
The Board considers the Investment Adviser and the AIFM's appointment on an
annual basis.
MARKET Board fails to monitor whether there is style drift within the investment Low The Investment Adviser provides individual company updates on both existing
process. and target holdings regularly. These updates include key metrics that allow
the Board to monitor whether these companies are consistent with the original
investment thesis.
Details of the portfolio composition are also provided regularly to allow the
Board to see if the portfolio construction is consistent with investment
guidelines.
MARKET The Company's Shares trade at a discount to NAV. High The Investment Adviser, AIFM and Brokers review market conditions and the
discount at which the Company's Shares trade relative to its sector peers on
an ongoing basis.
There is a discount protection mechanism in place whereby the Board will
consider whether, in light of prevailing market conditions, the Company should
purchase its own shares.
MARKET Board fails to monitor the Company's ability to build the Portfolio. Low Investment Advisor/AIFM/Brokers review market conditions on an ongoing basis.
Quarterly meetings with the Investment Adviser to discuss market environment,
team and business dynamics and ongoing viability of the strategy.
The Investment Adviser will inform the AIFM and Board as soon as they are
aware of any issues that might compromise their ability to deliver vs the
strategy.
MARKET Board fails to monitor the execution of the Investment Process. Medium Quarterly meetings with the Investment Adviser that cover implementation of
the Investment Process. The Board relies on the AIFM to monitor the
implementation of individual trades.
If the Investment Adviser considers the opportunity to be appropriate after
their extensive due diligence process, the Investment Adviser will send an
initial recommendation to the AIFM, outlining the rationale for the
recommendation along with the size of the proposed investment, to add a target
company to the investible universe. The Board have granted the AIFM delegated
authority to approve target investments on its behalf, provided those
investments meet a pre-determined set of criteria. Should a target investment
fail to meet this criteria, the recommendation will be referred to the Board.
Upon receipt of approval from the AIFM and/or the Board as required, the
Investment Adviser will arrange execution. The Board regularly carries out
Investment Process reviews of the Investment Adviser and the AIFM notifies the
Board of any new approvals (under their delegated authority) on a monthly
basis.
OPERATIONAL Cyber Security risks could potentially lead to breaches Medium Cyber security policies and procedures are implemented by the Company's key
service providers.
The AIFM has cyber essentials accreditation, which is reviewed on a continuous
basis.
Penetration testing is carried out by the AIFM and Administrator every year.
OPERATIONAL Failure to provide notification of FEFTA/FOREX, FIEA threshold clearances Medium Investment Adviser is tasked with notifying the AIFM at time of trade whenever
along with required information to Hibiya-Nakata to allow for timely filing a deal has caused the holding to surpass a threshold.
with the appropriate regulatory bodies.
Filing is delegated to third party specialist Hibiya-Nakata, the Company's
Tokyo-based legal advisor.
The AIFM performs their own daily review of these limits against a portfolio
that is reconciled to both the Investment Adviser and Custody records.
Once a deal has surpassed a threshold, the AIFM continue to provide
Hibiya-Nakata with any subsequent trades to ensure their records can be as up
to date as possible, this will allow them to act quickly in the event that a
subsequent threshold is passed.
LIQUIDITY It may be difficult for Shareholders to realise their investment and there may Medium Secondary market liquidity can be improved by strong investor communications
not be a liquid market in the Company's Shares. and having active brokers and market makers. The Brokers monitor and report to
the Board as soon as they are aware of any issues.
Funding liquidity to satisfy redemption rights is not applicable, as the
Company is a closed-ended fund.
There is a discount protection mechanism in place whereby the Board will
consider whether, in the light of prevailing market conditions, the Company
should purchase its own shares.
OPERATIONAL A corporate action is missed and the Company suffers a consequential loss. Medium The Custodian (Northern Trust) and Investment Adviser monitor such actions.
Northern Trust is a very large and experienced global custodian and produces
an Internal Controls report which is reported to the Board.
MARKET Climate change has recently become one of the most critical issues confronting Low The Board is also considering the threat posed by the impact on climate change
asset managers and their investors. and its effects on the operations of the Investment Adviser and other major
service providers. As climate change's impact becomes more common, the
Investors can no longer ignore the impact that the world's changing climate resiliency, business continuity planning and the location strategies of our
will have on their portfolio, with the inevitable impact on returns. service providers will come under more scrutiny.
MARKET Interest rate/Inflation Risk/Currency Medium The Company may use derivative instruments such as futures, forwards, swaps or
other derivative instruments, to protect the Company from fluctuations in
foreign exchange rates.
The AIFM constantly monitors risks and impact on portfolio, discussing with
the Investment Adviser and Board as appropriate.
ARTIFICIAL INTELLIGENCE Risks that the emergence of increasingly advanced AI will lead to new risks to Emerging The Company, its advisers and service providers will aim to utilise the power
the Fund, including but not limited to, decline in human autonomy, increased of AI to enhance capabilities, rather than fall foul of the potential pitfalls
cybersecurity vulnerabilities, algorithm perpetuated bias though using its emergence presents. Through careful monitoring of the new technologies
historical data, insufficient training data to perform correctly and algorithm being released into the world, it will be hoped that the Company can utilise
driven price manipulation. AI to its benefit.
GEOPOLITICAL Act of War; Emerging The portfolio is constantly monitored by the Investment Adviser, ensuring the
portfolio avoids any sanction lists and exposures where possible, together
· Sanctions and Restrictions imposed with consideration of any market impacts.
· Volatile markets and general uncertainty · The Board and AIFM continue to monitor events.
· Potential world order change and globalisation. · Registrar will process and audit payments of Dividends to
shareholders in line with regulations.
Viability Statement
The continuation of the Company is subject to the approval of its Shareholders
in 2025 and every second AGM thereafter. The Directors have assessed the
viability of the Company for the period to 31 December 2026 (the "Period").
The Board believes that the Period, being approximately three years, is an
appropriate time horizon over which to assess the viability of the Company,
particularly when taking into account the nature of the Company's investment
strategy and the principal risks outlined above. Based on this assessment, the
Directors have a reasonable expectation that the Company will be able to
continue to operate and to meet its liabilities as they fall due over the
Period.
In their assessment of the prospects of the Company, the Board considered each
of the principal and emerging risks and uncertainties set out above and the
liquidity and solvency of the Company. The Board also considered the Company's
income and expenditure projections and the fact that the majority of the
Company's investments comprise reasonably realisable securities, which could,
if necessary, be sold to meet the Company's funding requirements including
buying back shares in order for the Company's discount control policy to be
achieved. Portfolio changes, market developments, level of premium/discount to
NAV and share buybacks/share issues are discussed at quarterly Board meetings.
The internal control framework of the Company is subject to a formal review on
at least an annual basis.
The level of the ongoing charges is dependent to a large extent on the level
of net assets. The Company's income from investments and cash realisable from
the sale of its investments provide substantial cover to the Company's
operating expenses, and any other costs likely to be faced by the Company over
the Period of their assessment.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report and the
financial statements in accordance with UK adopted international accounting
standards and applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the
Company's financial statements in accordance with UK adopted international
accounting standards. Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the company and of the profit or loss for the
company for that period.
In preparing these financial statements, the Directors are required to:
· Select suitable accounting policies and then apply them
consistently;
· Make judgements and accounting estimates that are reasonable
and prudent;
· State whether they have been prepared in accordance with UK
adopted international accounting standards, subject to any material departures
disclosed and explained in the financial statements;
· Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will continue in
business; and
· Prepare a Directors' report, a Strategic report and
Directors' remuneration report which comply with the requirements of the
Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company transactions and disclose with
reasonable accuracy at any time the financial position of the company and
enable them to ensure that the financial statements comply with the Companies
Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities. The Directors are responsible for ensuring that the
annual report and accounts, taken as a whole, is fair, balanced, and
understandable and provides the information necessary for shareholders to
assess the Company's position and performance, business model and strategy.
Website Publication
The Directors are responsible for ensuring the annual report and the financial
statements are made available on a website. Financial statements are published
on the Company website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and integrity of
the company's website is the responsibility of the directors. The Directors'
responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Directors' Responsibilities Pursuant to DTR4
The Directors confirm to the best of their knowledge:
· The financial statements have been prepared in accordance
with the applicable set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and profit and loss of the
company.
· The Annual Report includes a fair review of the development
and performance of the business and the financial position of the company,
together with a description of the principal risks and uncertainties that they
face.
Directors' Statement as to the Disclosure of Information to Auditors.
All of the current Directors have taken all the steps that they ought to have
taken to make themselves aware of any information needed by the Company's
auditors for the purposes of their audit and to establish that the auditors
are aware of that information. The Directors are not aware of any relevant
audit information of which the auditors are unaware.
For and on Behalf of the Board
Rosemary Morgan
Chairman of the Board of Directors
2 April 2024
Statement of Comprehensive Income
Year ended Year ended
31 December 2023
31 December 2022
Note Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Gains on investments 3 - 48,138 48,138 - 1,274 1,274
Income 4 4,994 - 4,994 5,487 - 5,487
Foreign exchange (loss)/gain - (2,605) (2,605) - 938 938
Investment adviser fees 5 (287) (1,147) (1,434) (248) (995) (1,243)
Other operational expenses 6 (1,031) - (1,031) (812) - (812)
--------------- --------------- --------------- --------------- --------------- ---------------
Profit before taxation 3,676 44,386 48,062 4,427 1,217 5,644
========= ========= ========= ========= ========= =========
Taxation 7 (498) - (498) (549) - (549)
--------------- --------------- --------------- --------------- --------------- ---------------
Profit and comprehensive income for the year 3,178 44,386 47,564 3,878 1,217 5,095
========= ========= ========= ========= ========= =========
Earnings per Ordinary Share - Basic and diluted (pence) 12 2.44p 34.06p 36.50p 3.43p 1.08p 4.51p
========= ========= ========= ========= ========= =========
There is no other comprehensive income and therefore the return for the year
is also the total comprehensive income for the year.
The total column of the above statement is the profit and loss account of the
Company. All revenue and capital items in the above statement derive from
continuing operations.
Both the supplementary revenue and capital columns are both prepared in
accordance with Statement of Recommended Practice ("SORP") issued by
Association of Investment Companies ("AIC").
The notes form part of these financial statements.
Statement of Financial Position
Note As at As at
31 December
31 December
2023
2022
£'000
£'000
Non-current assets
Investments at fair value through profit or loss 3 295,268 126,284
--------------- ---------------
Current assets
Cash and cash equivalents 22,257 31,738
Trade and other receivables 9 2,936 1,240
--------------- ---------------
25,193 32,978
========= =========
Current liabilities
Trade and other payables 10 (523) (517)
--------------- ---------------
24,670 32,461
========= =========
Net current assets 319,938 158,745
========= =========
Net assets
Capital and reserves attributable to Shareholders
Share capital 11 1,891 1,130
Share premium 231,834 115,349
Capital reserve 82,710 38,324
Revenue reserve 3,503 3,942
--------------- ---------------
Total equity 319,938 158,745
========= =========
NAV per Ordinary Share (pence) 13 169.15p 140.46p
========= =========
Approved by the Board of Directors and authorised for issue on 2 April 2024
and signed on their behalf by:
Chetan Ghosh
Director
2 April 2024
Nippon Active Value Fund plc is incorporated in England and Wales with
registration number 12275668.
The notes form part of these financial statements.
Statement of Changes in Equity
Year ended 31 December 2023 Note Share Share Capital Revenue Total
capital
premium
reserve
reserve
£'000
£'000
£'000
£'000
£'000
Balance at 1 January 2023 1,130 115,349 38,324 3,942 158,745
Issue of Ordinary Shares 11 761 117,623 - - 118,384
Share issue costs 11 - (1,138) - - (1,138)
Profit and comprehensive income for the year - - 44,386 3,178 47,564
Dividends paid 8 - - - (3,617) (3,617)
--------------- --------------- --------------- --------------- ---------------
Balance at 31 December 2023 1,891 231,834 82,710 3,503 319,938
========= ========= ========= ========= =========
Year ended 31 December 2022 Note Share Share Capital Revenue Total
capital
premium
reserve
reserve
£'000
£'000
£'000
£'000
£'000
Balance at 1 January 2022 1,130 115,349 37,107 2,268 155,854
Profit and comprehensive income for the year - - 1,217 3,878 5,095
Dividends paid 8 - - - (2,204) (2,204)
--------------- --------------- --------------- --------------- ---------------
Balance at 31 December 2022 1,130 115,349 38,324 3,942 158,745
========= ========= ========= ========= =========
The capital reserve as at 31 December 2023 is split between realised gains of
£29,167,000 and unrealised gains of £53,543,000 (as at 31 December 2022:
realised gains of £17,254,000 and unrealised gains of £21,070,000).
The revenue reserve and realised element of the capital reserve represents the
amount of the Company's retained and distributable reserves.
The notes form part of these financial statements.
Statement of Cash Flows
Note Year ended Year ended
31 December
31 December
2023
2022
£'000
£'000
Operating activities cash flows
Profit before taxation* 48,062 5,644
--------------- ---------------
Adjustment for:
Gains on investments 3 (48,138) (1,274)
(Increase)/decrease in trade and other receivables (624) 174
Increase in trade and in other payables (81) (20)
Tax withheld on overseas income 7 (498) (549)
--------------- ---------------
Net cash flow (used in)/from operating activities (1,279) 3,975
========= =========
Investing activities cash flows
Purchases of investments (338,602) (41,052)
Sales of investments 216,771 55,204
--------------- ---------------
Net cash flow (used in)/from investing activities (121,831) 14,152
========= =========
Financing activities cash flows
Issue of Ordinary Share capital 118,384 -
Ordinary Share issue costs (1,138) -
Equity dividends paid 8 (3,617) (2,204)
--------------- ---------------
Net cash flow from/(used) in financing activities 113,629 (2,204)
========= =========
(Decrease)/increase in cash and cash equivalents (9,481) 15,923
Cash and cash equivalents at the beginning of the year 31,738 15,815
--------------- ---------------
Cash and cash equivalents at the end of the year 22,257 31,738
========= =========
* Cash inflow from dividends received for the year is £4,178,000 (31
December 2022: £5,161,000).
The notes form part of these financial statements.
Notes to the Accounts
1. GENERAL INFORMATION
The Company is a closed-ended investment company incorporated on 22 October
2019 in England and Wales with registered number 12275668 and registered as an
investment company under Section 833 of Companies Act 2006, as amended from
time to time. The Company is an investment trust within the meaning of Chapter
4 of Part 24 of the Corporation Tax Act 2010, as amended. On 21 February 2020,
the Company's shares were admitted to the Specialist Fund Segment of the Main
Market of the London Stock Exchange. On the same day, trading of the Ordinary
Shares commenced on the London Stock Exchange. On 11 October 2023, the
Company's Ordinary Shares were admitted to the Official List of the FCA and
trading on the premium segment of the main market for listed securities of the
London Stock Exchange.
The investment objective of the Company is to provide Shareholders with
attractive long-term capital growth primarily through the active management of
a focused portfolio of quoted companies that have the majority of their
operations in, or revenue derived from, Japan, or a majority of whose
consolidated net assets are held in Japan, or that are included in the TOPIX,
and that have been identified by the Investment Adviser as being undervalued.
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
FundRock Management Company (Guernsey) Limited acts as the Company's
Alternative Investment Fund Manager (the "AIFM") for the purposes of Directive
2011/61/EU on Alternative Investment Fund Managers.
The Company's Investment Adviser is Rising Sun Management Limited.
Apex Listed Companies Services (UK) Limited, the Company's appointed
Administrator, (the "Administrator") provides administrative and company
secretarial services to the Company under the terms of an administration
agreement between the Company and the Administrator.
The Company's registered office is: 6th Floor, 125 London Wall, London EC2Y
5AS.
2. BASIS OF PREPARATION AND MATERIAL ACCOUNTING POLICIES
a) Basis of preparation
Statement of compliance
The financial statements have been prepared in accordance with UK adopted
international accounting standards. The financial statements have also been
prepared as far as is relevant and applicable to the Company in accordance
with the Statement of Recommended Practice ("SORP") issued by Association of
Investment Companies ("AIC") in July 2022.
Going Concern
The Directors have adopted the going concern basis in preparing the financial
statements. The Directors do not foresee any immediate material risk to the
Company's investment portfolio, however, a prolonged and deep market decline
could lead to falling values in the underlying business or interruptions to
cash flow. The following is a summary of the Directors' assessment of the
going concern status of the Company.
The Company's ability to continue as a going concern for the period assessed
by the Directors, being at least 12 months from the date the financial
statements were authorised for issue. The assessment took into consideration
the wars in Ukraine and the Middle East (Israel/Gaza); and the continued
geopolitical tension between the US and China. These uncertainties have
impacted the market at a time when interest rates are high and inflationary
pressures worldwide have negatively impacted global economic growth. Further
details on the impact of the market, liquidity and credit risks and how they
are managed are disclosed in note 15 to the Accounts.
The Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for at least twelve months from
the date of this report. In reaching this conclusion, the Directors have
considered the liquidity of the Company's portfolio of investments as well as
its cash position, income and expense flows. The Company's net assets at 31
December 2023 were £319,938,000 (31 December 2022: £158,745,000). As at 31
December 2023, the Company held £22,257,000 (31 December 2022: £31,738,000)
in cash. The total expenses for the year ended 31 December 2023 were
£2,465,000 (31 December 2022: £2,055,000). The ongoing charges ratio
represented approximately 1.17% (31 December 2022: 1.41%) of average net
assets during the year. At the date of approval of this document, based on the
aggregate of investments and cash held, the Company has substantial operating
expenses cover.
Use of estimates and judgements
The preparation of the financial statements and the manner in which they are
presented requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ from these
estimates. See below paragraph for judgement around determination of the
functional and presentation currency.
Estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the year in which the
estimates are revised and in any future periods affected. There have been no
estimates, judgements or assumptions which have had a significant impact on
the financial statements for the year.
Basis of measurement
The financial statements have been prepared on the historical cost basis
except for financial instruments at fair value through profit or loss, which
are measured at fair value.
Functional and presentation currency
The financial statements are presented in sterling, which is the Company's
functional currency. The Company's investments are denominated in Japanese
yen. However, the Company's Shares are issued in sterling. In addition, a
substantial majority of the Company's expenses are paid in sterling. It is
also expected that the Company's dividend shall be declared and paid in
sterling. All financial information presented in sterling has been rounded to
the nearest thousand pounds.
The Company is required to identify its functional currency, being the
currency of the primary economic environment in which the Company operates.
The Board, having regard to the currency of the Company's share capital and
the predominant currency in which its shareholders operate, has determined
that sterling is the functional currency. Sterling is also the currency in
which the financial statements are presented.
Future Developments in IFRS standards
A number of new standards and/or amendments to standards are effective for the
annual periods beginning after 1 January 2023. None of these are expected to
have a significant effect on the measurement of the amounts recognised in the
financial statements of the Company.
Amendments to IAS 1 Presentation of Financial Statements - Classification of
Liabilities as Current or Non-current
The amendments to IAS 1 clarify that the classification of liabilities as
current or non-current is based on rights that are in existence at the end of
the reporting period, specify that classification is unaffected by
expectations about whether an entity will exercise its right to defer
settlement of a liability, explain that rights are in existence if covenants
are complied with at the end of the reporting period, and introduce a
definition of 'settlement' to make clear that settlement refers to the
transfer to the counterparty of cash, equity instruments, other assets or
services. The amendments are applied retrospectively for annual periods
beginning on or after 1 January 2024, with early application permitted.
Amendments to IAS 1 Presentation of Financial Statements - Non‑current
Liabilities with Covenants
The amendments specify that only covenants that an entity is required to
comply with on or before the end of the reporting period affect the entity's
right to defer settlement of a liability for at least twelve months after the
reporting date (and therefore must be considered in assessing the
classification of the liability as current or noncurrent). Such covenants
affect whether the right exists at the end of the reporting period, even if
compliance with the covenant is assessed only after the reporting date (e.g. a
covenant based on the entity's financial position at the reporting date that
is assessed for compliance only after the reporting date). The amendments are
applied retrospectively for annual reporting periods beginning on or after 1
January 2024. Earlier application of the amendments is permitted.
Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments:
Disclosures - Supplier Finance Arrangements
The amendments add a disclosure objective to IAS 7 stating that an entity is
required to disclose information about its supplier finance arrangements that
enables users of financial statements to assess the effects of those
arrangements on the entity's liabilities and cash flows. In addition, IFRS 7
was amended to add supplier finance arrangements as an example within the
requirements to disclose information about an entity's exposure to
concentration of liquidity risk. The amendments, which contain specific
transition reliefs for the first annual reporting period in which an entity
applies the amendments, are applicable for annual reporting periods beginning
on or after 1 January 2024. Earlier application is permitted.
b) Material accounting policies
The following accounting policies have been applied consistently throughout
the reporting year.
Investments
Upon initial recognition investments are classified by the Company "at fair
value through profit or loss". They are accounted for on the date they are
traded and are included initially at fair value which is taken to be their
cost. Subsequently quoted investments are valued at fair value, which is the
bid market price, or if bid price is unavailable, last traded price on the
relevant exchange. Subsequently investments are revalued at fair value, which
is the bid market price for listed investments over the time until they are
sold, any unrealised gains/losses are included in the fair value of the
investments. Investments are derecognised on the trade date of their disposal,
which is the point where the Company transfers substantially all the risks and
rewards of the ownership of the financial asset.
Changes in the fair value of investments held at fair value through profit or
loss and gains or losses on disposal are included in the capital column of the
Statement of Comprehensive Income within "gains on investments".
Taxation
Investment trusts which have approval under Section 1158 of the Corporation
Tax Act 2010 are not liable for taxation on capital gains. The Company has
been granted approval as an Investment Trust by HMRC.
Irrecoverable withholding tax is recognised on any overseas dividends on an
accruals basis using the applicable rate for the country of origin.
Segmental reporting
The Chief Operating Decision Maker, which is the Board, is of the opinion that
the Company is engaged in a single segment of business. The financial
information used by the Chief Operating Decision Maker to manage the Company
presents the business as a single segment.
Dividends payable
Dividends payable to Shareholders are recognised in the year of the
ex-dividend date.
Income
Income includes investment income from financial assets at fair value through
profit or loss and finance income. Investment income from financial assets at
fair value through profit or loss is recognised in the Statement of
Comprehensive Income within investment income when the Company's right to
receive payments is established.
Dividend income is presented gross of non-recoverable withholding taxes, which
are disclosed separately in the Statement of Comprehensive Income.
Dividends receivable arising from companies within the United Kingdom (UK) are
classified as UK dividend income and all other income is classified as
overseas dividend income.
Special dividends are assessed on their individual merits and may be credited
to the Statement of Comprehensive Income as a capital item if considered to be
closely linked to reconstructions of the investee company or other capital
transactions.
Other income comprises interest earned on cash held on deposit. Other income
is recognised on a receipt basis.
Expenses
All expenses are accounted for on an accrual basis. In respect of the analysis
between revenue and capital items presented within the Statement of
Comprehensive Income, the Investment Adviser's fees are split 20% to revenue
and 80% to capital. All other expenses are recognised as revenue.
Foreign currency
Transactions denominated in foreign currencies are translated into sterling at
the exchange rates as at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the period end are reported
at the rates of exchange prevailing at the period end. Any gain or loss
arising from a change in exchange rates subsequent to the date of the
transaction is included as an exchange gain or loss to capital or revenue in
the Income Statement as appropriate. Foreign exchange movements on investments
are included in the Income Statement within gains on investments.
Cash and cash equivalents
Cash and cash equivalents include deposits held at call with banks and other
short-term deposits with original maturities of three months or less.
Trade and other payables
Trade and other payables are initially recognised at fair value, and
subsequently re-measured at amortised cost using the effective interest method
where necessary.
Nature and purpose of equity and reserves:
Share capital and share premium
Share capital represents the 1p nominal value of the issued share capital.
Ordinary shares are classified as equity. Costs directly attributable to the
issue of new shares (that would have been avoided if there had not been a new
issue of new shares) are recognised against the value of the ordinary share
premium.
The share premium account arose from the net proceeds of new shares and from
the excess proceeds received on the sale of shares from treasury over the
repurchase cost.
Capital reserve
Profits and losses achieved by selling investments, changes in fair value
arising upon the revaluation of investments that remain in the portfolio and
other capital expenditure are all charged to the capital column of the
Statement of Comprehensive Income and allocated to the capital reserve.
The capital reserve reflects any:
· gains or losses on the disposal of investments;
· exchange movements of a capital nature;
· the increases and decreases in the fair value of investments
which have been recognised in the capital column of the income statement; and
· expenses which are capital in nature.
Any gains in the fair value of investments that are not readily convertible to
cash are treated as unrealised gains in the capital reserve.
Revenue reserve
The revenue reserve reflects all income and expenditure recognised in the
revenue column of the income statement and is distributable by way of
dividends.
The Company's distributable reserve consists of the capital reserve
attributable to realised profit and the revenue reserve.
3. INVESTMENTS
(a) Investment at fair value through profit or loss
As at As at
31 December
31 December
2023
2022
£'000
£'000
Listed on a recognised overseas exchange 295,268 126,284
--------------- ---------------
Total 295,268 126,284
========= =========
(b) Movements during year
Year ended Year ended
31 December
31 December
2023
2022
£'000
£'000
Book cost at the beginning of the year 105,214 106,935
Investment holding gains at beginning of the year 21,070 31,691
--------------- ---------------
Valuation at beginning of the year 126,284 138,626
========= =========
Investment purchases, at cost 338,475 41,134
Investment sales, at cost (201,964) (42,855)
--------------- ---------------
Closing book cost 241,725 105,214
========= =========
Investment holding gains 53,543 21,070
--------------- ---------------
Closing valuation 295,268 126,284
========= =========
These investments have been revalued over time and until they were sold any
unrealised gains/(losses) were included in the fair value of the investments.
Transaction costs on investment purchases for the year ended 31 December 2023
amounted to £214,000 (2022: £36,000) and on investment sales for the year
amounted to £159,000 (2022: £54,000).
(c) Gains on investments
Year ended Year ended
31 December
31 December
2023
2022
£'000
£'000
Realised gains on disposal of investments 16,037 11,985
Investment holding gains/(losses) 32,473 (10,621)
Net transactions costs (372) (90)
--------------- ---------------
Total gains on investments held at fair value 48,138 1,274
========= =========
Fair Value Measurements of Financial Assets and Financial Liabilities
The financial assets and liabilities are either carried at their fair value,
or the amount is a reasonable approximation of fair value (due from brokers,
dividends receivable, accrued income, due to brokers, expense accruals and
cash and cash equivalents).
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 as follows:
Level 1 - valued using quoted prices in active markets for identical assets.
Level 2 - valued by reference to valuation techniques using observable inputs
including quoted prices.
Level 3 - valued by reference to valuation techniques using inputs that are
not based on observable market data.
The valuation techniques for investments used by the Company are explained in
the accounting policies notes 2 (b and c).
The table below sets out fair value measurements using the Fair Value
Hierarchy.
As at 31 December 2023 Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Assets:
Equity investments 295,268 - - 295,268
--------------- --------------- --------------- ---------------
Total 295,268 - - 295,268
========= ========= ========= =========
There were no transfers between levels during the year. There are no level 3
investments as at 31 December 2023.
As at 31 December 2022 Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Assets:
Equity investments 126,284 - - 126,284
--------------- --------------- --------------- ---------------
Total 126,284 - - 126,284
========= ========= ========= =========
4. INVESTMENT INCOME
Year ended Year ended
31 December
31 December
2023
2022
£'000
£'000
Income from investments:
Overseas dividends 4,987 5,487
--------------- ---------------
Other income:
Deposit interest 7 -
--------------- ---------------
Total 4,994 5,487
========= =========
5. INVESTMENT ADVISER FEES
Year ended Year ended
31 December
31 December
2023
2022
£'000
£'000
Basic fee:
20% charged to revenue 287 248
80% charged to capital 1,147 995
--------------- ---------------
Total 1,434 1,243
========= =========
The Company's Investment Adviser is Rising Sun Management Ltd. The Investment
Adviser is entitled to receive an annual fee from the Company of 0.85% per
annum of NAV.
There is no performance fee payable to the Investment Adviser.
6. OTHER EXPENSES
Year ended Year ended
31 December
31 December
2023
2022
£'000
£'000
Directors' fees 170 157
Administrator fees 111 86
Auditor's remuneration 44 45
AIFM fees 70 70
Brokers' retainer fees 79 50
Custodian fees 75 75
D&O insurance 12 24
Marketing fees 56 51
Legal Fees 40 40
Regulatory fees 20 41
Secretarial fees 69 60
Miscellaneous expenses 285 113
--------------- ---------------
Total other expenses - Revenue 1,031 812
========= =========
7. TAXATION
(a) Analysis of tax charge in the year:
Year ended Year ended
31 December 2023
31 December 2022
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Overseas withholding tax 498 - 498 549 - 549
--------------- --------------- --------------- --------------- --------------- ---------------
Total tax charge for the year (see note 8(b)) 498 - 498 549 - 549
========= ========= ========= ========= ========= =========
(b) Factors affecting the tax charge for the year:
The effective corporation tax rate for the year is 23.50% (2022: 19.00%). The
tax charge for the Company differs from the charge resulting from applying the
standard rate of UK corporation tax for an investment trust company. The
differences are explained below:
Year ended Year ended
31 December 2023
31 December 2022
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Profit before taxation 3,676 44,386 48,062 4,427 1,217 5,644
Effective corporation tax at 23.50% (2022: 19.00%) 864 10,431 11,295 841 231 1,072
--------------- --------------- --------------- --------------- --------------- ---------------
Effects of:
Overseas withholding tax suffered 498 - 498 549 - 549
Non-taxable overseas dividends (1,172) - (1,172) (1,043) - (1,043)
Capital gains not subject to tax - (11,313) (11,313) - (242) (242)
Deferred tax not recognised 296 270 566 189 189 378
Unutilised finance costs 12 - 12 13 - 13
Foreign exchange gains/(losses) not subject to tax - 612 612 - (178) (178)
--------------- --------------- --------------- --------------- --------------- ---------------
Total tax charge for the year 498 - 498 549 - 549
========= ========= ========= ========= ========= =========
The Company is not liable to pay tax on capital gains due to its status as an
investment trust. The company has an unrecognised deferred tax asset of
£1,954,000 (2022: £1,339,000) based on the long-term prospective corporation
tax rate of 25% (2022: 25%). This asset has accumulated because deductible
expenses exceeded taxable income for the year ended 31 December 2023. No asset
has been recognised in the financial statements because, given the composition
of the Company's portfolio, it is not likely that this asset will be utilised
in the foreseeable future.
8. DIVIDEND
(i). Dividend paid during the year is detailed in the below table:
Year ended Year ended
31 December 2023
31 December 2022
Type - respective financial year end - dividend rate (pence) Pence per £'000 Pence per £'000
Ordinary share
Ordinary share
Interim dividend - paid 26 April 2022 (1.95p per ordinary share) - - 1.95p 2,204
Interim dividend - paid 26 May 2023 (3.2p per ordinary share) 3.20p 3,617 - -
--------------- --------------- --------------- ---------------
Total 3.20p 3,617 1.95p 2,204
========= ========= ========= =========
(ii). The dividend relating to the year ended 31 December 2023, which is
the basis on which the requirements of Section 1159 of the Corporation Tax Act
2010 are considered is detailed below:
Year ended Year ended
31 December 2023
31 December 2022
Type - respective financial year end - dividend rate (pence) Pence per £'000 Pence per £'000
Ordinary share
Ordinary share
Interim dividend - payable 24 May 2024 (2022: paid 26 May 2023)* 1.60p 3,026 3.20p 3,617
--------------- --------------- --------------- ---------------
Total 1.60p 3,026 3.20p 3,617
========= ========= ========= =========
* Not included as a liability in the respective year-end accounts.
The Directors are pleased to declare an interim dividend for the financial
year ended 31 December 2023 of 1.60p per Ordinary Share. The dividend will be
paid on 24 May 2024 to Shareholders on the register at the close of business
on 19 April 2024.
9. TRADE AND OTHER RECEIVABLES
As at As at
31 December
31 December
2023
2022
£'000
£'000
Sales for future settlement 1,845 773
Accrued income 523 212
Other receivables 516 231
Prepayments 52 24
--------------- ---------------
Total 2,936 1,240
========= =========
10. TRADE AND OTHER PAYABLES
As at As at
31 December 2023
31 December 2022
£'000
£'000
Amounts falling due within one year:
Purchases for future settlement 343 256
Accrued expenses 180 261
--------------- ---------------
Total 523 517
========= =========
11. SHARE CAPITAL
Share capital represents the nominal value of shares that have been issued.
The share premium includes any premiums received on issue of share capital.
Any transaction costs associated with the issuing of shares are deducted from
share premium.
Year ended Year ended
31 December 2023
31 December 2022
No. of shares £'000 No. of shares £'000
Allotted, issued & fully paid:
Opening balance 113,021,433 1,130 113,021,433 1,130
Ordinary Shares of 1p each ('Ordinary Shares') issued 76,120,271 761 - -
--------------- --------------- --------------- ---------------
Closing balance 189,141,704 1,891 113,021,433 1,130
========= ========= ========= =========
Scheme of Reconstruction
On 1 September 2023 the Company published details of its Schemes of
Reconstruction (the "Schemes"), the results of which were published on 10
October 2023. As a result of the Schemes, the change in share capital of the
Company was as follows:
Share issue:
abrdn Japan Investment Trust plc ("AJIT") - The Company acquired approximately
£61.6 million of net assets from abrdn Japan Investment Trust plc AJIT in
consideration for the issue of 39,616,423 new Ordinary shares in the Company.
Atlantis Japan Growth Fund Limited ("AJG") - The Company acquired
approximately £56.8 million of net assets from AJG in consideration for the
issue of 36,503,848 new Ordinary shares in the Company.
The cost of implementing the Schemes was £1,138,000.
Rights attaching to the Ordinary Shares
Dividend rights: All Ordinary Shares are entitled to participate in dividends
which the Company declares from time to time in respect of the Ordinary
Shares, proportionate to the amounts paid or credited as paid on such Ordinary
Shares.
Rights as respect to capital: On a winding-up or a return of capital, in the
event that the Directors resolve to make a distribution to Shareholders, all
Ordinary Shares are entitled to a distribution of capital in the same
proportions as capital is attributable to them.
Voting rights: Every Shareholder shall have one vote for each Ordinary Share
held.
12. EARNINGS PER ORDINARY SHARE
Total return per Ordinary Share is based on the return on ordinary activities,
including income, for the year after taxation of £47,564,000 (2022:
5,095,000).
Based on the weighted average number of Ordinary Shares in issue for the year
ended 31 December 2023 of 130,330,974 (2022: 113,021,433), the returns per
share were as follows:
Year ended Year ended
31 December 2023
31 December 2022
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Return per Ordinary Share 2.44p 34.06p 36.50p 3.43p 1.08p 4.51p
========= ========= ========= ========= ========= =========
The Company does not have any dilutive securities therefore basic and diluted
earnings are the same.
13. NET ASSET VALUE PER SHARE
Total equity and the NAV per share attributable to the Ordinary Shareholders
at the year end calculated in accordance with the Articles of Association were
as follows:
As at As at
31 December
31 December
2023
2022
NAV (£) 319,938,000 158,745,000
Ordinary Shares in issue 189,141,704 113,021,433
--------------- ---------------
NAV per Ordinary Share 169.15p 140.46p
========= =========
14. RELATED PARTY TRANSACTIONS
Transactions with the Investment Adviser
The fees for the year are disclosed in note 5 with no amounts outstanding at
the year ended 31 December 2023.
A key member of the RSM team is a major shareholder of Rosenwald Capital
Management, Inc. Further details of Rosenwald Management Inc's shareholding is
disclosed in the Annual Report and Accounts.
Rosenwald Capital Management Inc, receives dividends paid by the Company based
on its shareholding.
Directors' fees and shareholdings
During the year ended 31 December 2023, Directors' fees were paid at a rate of
£27,810 (2022: £27,810) per annum for each Director other than the Chairman,
who was entitled to receive £41,000 (2022: £41,000) and the Chair of the
Audit Committee who was entitled to an additional fee of £5,190 (2022:
£5,190) per annum.
The Board reviewed the rate of Directors' fees in November 2023 and decided
that the fees be increased in line with the average market levels of 6.2% for
Directors and 6.9% for the Chairman (rounded up to the nearest five pounds)
with effect from 1 January 2024.
Position Directors' Fees Directors' Fees Increase in
per annum for the
per annum for the
line with
year ending
year ended
market levels
31 December
31 December
(GBP)
2024
2023
(GBP)
(GBP)
Board Chairman 43,830 41,000 6.9%
Director 29,535 27,810 6.2%
Audit Committee Chair (additional fee) 5,515 5,190 6.2%
========= ========= =========
The Directors had the following shareholdings in the Company, all of which
were beneficially owned.
As at As at
31 December
31 December
2023
2022
Rosemary Morgan 40,000 40,000
Chetan Ghosh 40,000 40,000
Rachel Hill 115,791 115,791
Alicia Ogawa 25,000 25,000
Ayako Weissman 50,000 27,000
Claire Boyle nil n/a
Noel Lamb 35,853 n/a
========= =========
15. FINANCIAL INSTRUMENTS AND CAPITAL DISCLOSURES
Risk Management Policies and Procedures
As an investment trust the Company invests in equities for the long term in
order to achieve its investment objective stated in the Annual Report and
Accounts. In pursuing its investment objective, the Company is exposed to a
variety of risks that could result in either a reduction in the Company's net
assets or a reduction of the profits available for dividends.
These risks include market risk (comprising currency risk, interest rate risk,
and other price risk), liquidity risk, credit risk and the Directors' approach
to the management of them are set out follows.
The objectives, policies and processes for managing the risks and the methods
used to measure the risks, are set out below.
Market risk
Economic conditions
Changes in economic conditions in Japan (for example, interest rates and rates
of inflation, industry conditions, competition, political and diplomatic
events and other factors) and in the countries in which the Company's investee
companies operate could substantially and adversely affect the Company's
prospects.
Sectoral diversification
The Company is not subject to restrictions on the amount it may invest in any
particular sector. Although the portfolio is expected to be diversified in
terms of sector exposures, the Company may have significant exposure to
portfolio companies from certain sectors from time to time. As there is no
hard limit on the amount the Company may invest in any sector the entire
Portfolio may, at certain times, be invested solely in one sector. Greater
concentration of investments in any one sector may result in greater
volatility in the value of the Company's investments and consequently its NAV
and may materially and adversely affect the performance of the Company and
returns to Shareholders.
Management of market risks
The Company is invested in a diversified portfolio of investments.
The Board will not set any limits on sector weightings or stock selection
within the portfolio. The Board will apply the following restrictions on the
size of its investments:
· not more than 30 per cent. of the Gross Asset Value at the
time of investment will be invested in the securities of a single issuer; and
· the value of the four largest investments at the time of
investment will not constitute more than 75 per cent. of the Gross Asset
Value.
(a) Currency risks
The majority of the Company's assets will be denominated in a currency other
than sterling (predominantly in Japanese yen) and changes in the exchange rate
between sterling and Japanese yen may lead to a depreciation of the value of
the Company's assets as expressed in sterling and may reduce the returns to
the Company from its investments and, therefore, negatively impact the level
of dividends paid to Shareholders.
Management of currency risks
The Company does not currently intend to enter into any arrangements to hedge
its underlying currency exposure to investment denominated in Japanese yen,
although the Investment Adviser and the Board may review this from time to
time.
Foreign currency exposures
An analysis of the Company's equity investments that are priced in a foreign
currency is:
As at As at
31 December
31 December
2023
2022
£'000
£'000
Portfolio of investments: yen 295,268 126,284
Trade and other receivables: yen 2,368 985
Cash: yen 22,079 31,762
--------------- ---------------
Total 319,715 159,031
========= =========
Foreign currency sensitivity
If the Japanese yen had appreciated or depreciated by 10% as at 31 December
2023 then the value of the portfolio as at that date would have increased or
decreased as shown below.
Increase in Decrease in Increase in Decrease in
Fair Value
Fair Value
Fair Value
Fair Value
As at
As at
As at
As at
31 December
31 December
31 December
31 December
2023
2023
2022
2022
£'000
£'000
£'000
£'000
Impact on portfolio - increase/(decrease) 29,527 (29,527) 12,628 (12,628)
Impact on NAV - increase/(decrease) 31,972 (31,972) 15,903 (15,903)
========= ========= ========= =========
(b) Interest rate risks
The Company is exposed to interest rate risk specifically through its cash
holdings. Interest rate movements may affect the level of income receivable
from any cash on deposit with banks. The effect of interest rate changes on
the earnings of the companies held within the portfolio may have a significant
impact on the valuation of the Company's investments.
Management of interest rate risks
Prevailing interest rates are taken into account when deciding on borrowings.
Interest rate exposure
The exposure at 31 December 2023 of financial assets and liabilities to
interest rate risk is shown by reference to floating interest rates - when the
interest rate is due to be reset.
As at As at
31 December
31 December
2023
2022
£'000
£'000
Exposure to floating interest rates:
Floating rate on cash balance: yen 22,079 31,762
========= =========
(c) Price risks
Price risk includes changes in market prices, other than those arising from
interest rate risk or currency risk, which may affect the value of equity
investments.
Management of price risk
The Board meets on at least four occasions each year to consider the asset
allocation of the portfolio and the risk associated with particular industry
sectors. The investment management team has responsibility for monitoring the
portfolio, which is selected in accordance with the Company's investment
objective and seeks to ensure that individual stocks meet an acceptable
risk/reward profile.
Price risk exposure
The Company's total exposure to changes in market prices at 31 December 2023
comprises its holdings in equity investments as follows:
As at As at
31 December
31 December
2023
2022
£'000
£'000
Investments held at fair value through profit or loss 295,268 126,284
========= =========
The effect on the portfolio of a 10% increase or decrease in the value of the
Investments held at fair value through profit or loss would have resulted in
an increase or decrease of £29,526,800 (2022: £12,628,000).
Liquidity risks
The securities of small-to-medium-sized (by market capitalisation) companies
may have a more limited secondary market than the securities of larger
companies. Accordingly, it may be more difficult to effect sales of such
securities at an advantageous time or without a substantial drop in price than
securities of a company with a large market capitalisation and broad trading
market. In addition, securities of small-to-medium-sized companies may have
greater price volatility as they can be more vulnerable to adverse market
factors such as unfavourable economic reports.
Management of liquidity risks
The Company's Investment Adviser monitors the liquidity of the Company's
portfolio on a regular basis.
Liquidity risk exposure
The undiscounted gross cash outflows of the financial liabilities as at 31
December 2023, based on the earliest date on which payment can be required,
were as follows:
As at As at
31 December
31 December
2023
2022
less than
less than
3 months
3 months
Creditors: amounts falling due within one year
Trade and other payables 523 517
--------------- ---------------
Total 523 517
========= =========
Liquidity risk is minimised by holding sufficient liquid investments which can
be readily realised to meet liquidity demands. The Company's liquidity risk is
managed on a daily basis by the Investment Adviser in accordance with
established policies and procedures in place. Liquidity risk is not
significant as the majority of the Company's assets are investments in quoted
equities that are readily realisable.
Credit risks
Cash and other assets held by the depositary
Cash and other assets that are required to be held in custody will be held by
the custodian or its sub-custodians. Cash and other assets may not be treated
as segregated assets and will therefore not be segregated from any custodian's
own assets in the event of the insolvency of a custodian.
Cash held with any custodian will not be treated as client money subject to
the rules of the FCA and may be used by a custodian in the course of its own
business. The Company will therefore be subject to the creditworthiness of its
custodians. In the event of the insolvency of a custodian, the Company will
rank as a general creditor in relation thereto and may not be able to recover
such cash in full, or at all.
Management of credit risks
The Company has appointed Northern Trust as its custodian. The credit rating
of Northern Trust was reviewed at the time of appointment and is reviewed on a
regular basis by the Investment Adviser and/or the Board. The Fitch's credit
rating of Northern Trust as at the year end is AA-.
The Investment Adviser monitors the Company's exposure to its counterparties
on a regular basis and the position is reviewed by the directors at Board
meetings.
In summary, the exposure to credit risk as at 31 December 2023 was as follows:
As at As at
31 December
31 December
2023
2022
£'000
£'000
Cash at bank 22,257 31,738
Trade and other receivables 2,936 1,240
--------------- ---------------
Total 25,193 32,978
========= =========
(d) Capital Management Policies and Procedures
The Company's capital management objectives are:
· to ensure that the Company will be able to continue as a
going concern; and
· to provide dividend income combined with capital growth,
mainly through investment in equities listed or quoted in Japan.
The key performance indicators are contained in the strategic report in the
Annual Report and Accounts.
The Company is subject to several externally imposed capital requirements:
· As a public company, the Company has to have a minimum share
capital of £50,000.
· In order to be able to pay dividends out of profits available
for distribution by way of dividends, the Company has to be able to meet one
of the two capital restriction tests imposed on investment companies by
company law.
The Company's capital at 31 December 2023 comprises called-up share capital
and reserves totalling £319,938,000 (2022: £158,745,000).
The Board regularly monitors, and has complied with, the externally imposed
capital requirements.
16. POST YEAR-END EVENTS
Since 31 December 2023, there are no post balance sheet events which would
require adjustment of or disclosure in the financial statements.
Alternative Performance Measures ("APMs")
Discount
The amount, expressed as a percentage, by which the share price is less than
the NAV per Ordinary Share.
As at 31 December 2023 Pence
NAV per Ordinary Share a 169.15
Share price b 162.00
--------------- ---------------
Discount (b÷a)-1 4.2%
========= =========
As at 31 December 2022 (Pence)
NAV per Ordinary Share a 140.46
Share price b 117.50
--------------- ---------------
Discount (b÷a)-1 16.3%
========= =========
Total return
A measure of performance that includes both income and capital returns. This
takes into account capital gains and reinvestment of dividends paid out by the
Company into its Ordinary Shares on the ex-dividend date.
Year end 31 December 2023 Share price NAV
Opening (pence) a 117.50 140.50
Closing (pence) b 162.00 169.15
Movement (b÷a)-1 c 37.90% 20.40%
Dividend reinvestment factor d 3.16% 2.70%
--------------- --------------- ---------------
Total return (c+d) 41.1% 23.1%
========= ========= =========
Year end 31 December 2022 Share price NAV
Opening (pence) a 134.00 137.90
Closing (pence) b 117.50 140.50
Movement (b÷a)-1 c -12.30% 1.90%
Dividend reinvestment factor d 1.40% 1.60%
--------------- --------------- ---------------
Total return (c+d) -10.9% 3.5%
========= ========= =========
Ongoing charges
A measure, expressed as a percentage of average NAV, of the regular, recurring
annual costs of running an investment company.
Year end 31 December 2023
Average NAV a 198,441,000
Annual expenses b 2,329,000
--------------- ---------------
Ongoing charges (b÷a) 1.17%
========= =========
Year end 31 December 2022
Average NAV a 145,955,840
Annualised expenses b 2,055,000
--------------- ---------------
Ongoing charges (b÷a) 1.41%
========= =========
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory accounts. The
financial information for 2023 is derived from the statutory accounts for
2023, which will be delivered to the registrar of companies. The statutory
accounts for 2022 have been delivered to the registrar of companies. The
auditors have reported on the 2022 and 2023 accounts; their reports were
unqualified and did not include a statement under Section 498(2) or (3) of the
Companies Act 2006.
The Annual Report for the year ended 31 December 2023 was approved on 2 April
2024. The full Annual Report can be accessed via the Company's website
at: https://www.nipponactivevaluefund.com/
(https://www.nipponactivevaluefund.com/)
The Annual Report will be submitted to the National Storage Mechanism and will
shortly be available for inspection
at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
This announcement contains regulated information under the Disclosure Guidance
and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING ("AGM")
The AGM of the Company will be held at the offices of Apex, 6th Floor, 125
London Wall, London EC2Y 5AS on Thursday 6 June 2024 at 2.30 p.m. British
Summer Time (BST).
Even if you intend to attend the AGM, all shareholders are encouraged to cast
their vote by proxy and to appoint the "Chair of the Meeting" as their proxy.
Details of how to vote, either electronically, by proxy form or through CREST,
can be found in the Notes to the Notice of AGM.
Shareholders are invited to send any questions for the Board or Investment
Adviser in advance by email to navfcosec@apexfs.group by close of business
on 4 June 2024.
3 April 2024
For further information contact:
Secretary and registered office:
Apex Listed Companies Services (UK) Limited
6th Floor, 125 London Wall, London, EC2Y 5AS
Tel: 020 3327 9720
END
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