Nippon Active Value - Final Results for the year ended 31 December 2022
06/04/2023 07:00
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RNS Number : 5602V Nippon Active Value Fund PLC 06 April 2023
LEI: 213800JOFEGZJYS21P75
6 April 2023
Nippon Active Value Fund plc
Final Results for the year ended 31 December 2022
Nippon Active Value Fund plc ("NAVF" or the "Company") is pleased to announce
its audited results for the year from 1 January 2022 to 31 December 2022.
Investment Objective
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 31 December At 31 December
2022 2021
Net assets - (millions) £158.7 £156.0
Net asset value ("NAV") per Ordinary Share ("Share") - (pence)(1) 140.5 137.90
Share price - (pence) 117.5 134.00
Share price discount to NAV(2) 16.3% 2.8%
Ongoing charges(2) 1.41% 1.37%
Performance Summary
For the year to 31 December For the year to 31 December
2022 2021
NAV total return per Share(2) +3.5% +22.3%
Share price total return per Share(2) -10.9% +26.8%
MSCI Japan Small Cap index (sterling terms) -1.6% -1.4%
Source: Bloomberg
1. This is measured on a cum income basis.
2. These are Alternative Performance Measures ("APMs"), which is "a
financial measure of historical or future financial performance, financial
position, or cash flows, 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 at the end of this report.
3. Total returns are stated in GBP, including dividend reinvested.
Chairman's Statement
Overview of the Year
I am pleased to present the third annual report of Nippon Active Value Fund
plc (the "Company" or "NAVF"), covering the period from 1st January 2022 to 31
December 2022 (the "Year").
At the end of the Year total assets were £158.7 million and NAV per Share was
140.5p, reflecting a rise of +3.5% over the Year and a cumulative increase of
+43.7% since the Company's launch on 21 February 2020. While we do not target
a particular index benchmark, for comparison, the MSCI Japan Small Cap Index
returned -1.6% in sterling terms over the Year and +7.4% since the launch
date. The returns since inception assume dividends were reinvested.
The closing share price on 31 December 2022 was 117.5p, reflecting a discount
of 16.4% to NAV. The average discount to NAV over the Year was 8.9% and the
Shares traded in wide range from a premium of 5.2% to a discount of 16.7% to
NAV. Since the end of the Year the discount has narrowed and stood at 6.7% as
at 3(rd) April 2023, the latest practicable date before publishing this
report.
Global markets struggled through the Year in the face of geopolitical
tensions, rising inflation and corresponding interest rate increases and
general nervousness resulted in outflows from open-ended funds and wider
discounts in closed-end equity funds. One factor specific to Japan was the
weakness of the yen. Although consumer price inflation in Japan also rose, to
4% in December, the Bank of Japan continued to intervene in bond markets to
keep rates within a tight range around its target 10-year rate of 0%. Since
2016, the Central Bank has kept that range at 0.25% around the target. As
rates rose elsewhere, the interest rate differential put extreme pressure on
the yen, which fell to its lowest point against the US dollar in over 30
years. Market commentators generally expected the Governor of the Bank of
Japan ('BOJ') to maintain the policy for the duration of his tenure, which is
scheduled to end in the first quarter of 2023. As reiterated in the most
recent Interim Report, the Company does not hedge the currency and the returns
reflect the full impact of the yen's weakness. In mid-December the central
bank unexpectedly announced it would allow bonds to trade within 0.5% of the
target, though the target was held at 0%. The yen bounced by more than 4%
against the USD on the day of the announcement. December's volatility provides
an illustration of the added risks hedging at this point would entail.
Your Company's portfolio is a concentrated one, with a focus on undervalued
targets, mostly small market capitalisation stocks, where engagement with
management could unlock value to all shareholders. We expect returns to be
relatively lowly correlated to the broader market.
We utilise the research input of our sub-advisors at Dalton KK in Tokyo and
now have two members of the Rising Sun Management team based in Tokyo. With
the re-opening of Japan's borders the overseas-based officers have also been
able to arrange in-person meetings with target companies. Their report, which
follows, includes highlights of the Year's engagement.
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's compliance with the
rules relating to investment trusts.
The Board is pleased to have declared on 5 April 2023, an interim dividend for
the year ended 31 December 2022 of 3.20 pence (2021: 1.95 pence) per Ordinary
Share. The dividend will be payable on 26 May 2023 to Shareholders who appear
on the register by close of business on 21 April 2023, with an ex-dividend
date of 20 April 2023. The Board will not target a dividend for future years
but will substantially pay out distributable income for any particular period
by way of dividend.
Co-Investment
As detailed in previous reports, from time to time the Company invests
alongside other vehicles advised by Rising Sun Management. In mid-2022 we also
announced a memorandum of understanding with Dalton Investments, to allow
holdings in common. This enables NAVF to build significant positions in
slightly larger companies in which NAVF on its own would not be able to build
a large enough position to command the attention of management. At the end of
2022 your Company held thirteen investments also owned by Dalton or
RSM-advised entities.
Gearing
The Company has arranged a borrowing facility of £30 million to provide the
Investment Adviser with flexibility to gear the portfolio when appropriate. At
the end of December 2022, this facility had not been drawn down and the
portfolio held £31,738,000 (31 December 2021: £15,815,000) in cash. As at 3
April 2023, the latest practicable date prior to publication of this report
cash comprised 30.4% of the Company's assets.
Japanese Corporate Governance Developments
The trend of increasing shareholder activism is intact and there are
increasing numbers of domestic participants. According to IR Japan, the number
of activist funds operating in Japan has risen from 17 in 2017 to 65 in May
2022. While U.S. and European funds are still the largest group, over that
period domestic activist funds have increased from fewer than 5 to 18. The
number of shareholder proposals presented to AGMs in 2022 rose by 80% to 293
and the number of companies subject to proposals rose by 60%, to 77. About
half of the proposals are related to balance sheet efficiency such as share
buybacks or dividend increases. More of them were supported by over 20% of
shareholders compared to 2021, (26 vs 13). This Company was among those
submitting resolutions and examples are included in the Investment Adviser's
Report which follows.
The first stage of the reorganisation of the Tokyo Stock Exchange has begun.
There is an extended transition period before companies that fail to meet the
new listing criteria are excluded from the new Prime Market, but more details
were clarified in 2022 and progress, though slow, has begun. Our Investment
Adviser expects that the possibility of an eventual demotion from the more
prestigious market segment will encourage target companies to support
recommendations designed to increase their market capitalisation and returns
to all stakeholders.
Annual General Meeting (the "AGM")
Your Company's AGM is scheduled for 8 June 2023 at 4pm to be held at the
Company's registered office located at Apex Group, 6(th) 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
Meeting. For more details, please see below 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 at navfcosec@apexfs.group .
Outlook
The Company seeks to take advantage of the corporate governance reforms in
Japan introduced over the past fifteen years and we believe that an activist
strategy will continue to generate superior returns compared to the broader
market.
Rising Sun Management focuses on companies that have excess capital over and
above that required for the operation of their business and seeks to persuade
companies to distribute excess cash to shareholders by repurchasing their
shares in the market or paying out larger cash dividends. We have begun to see
the benefits of co-investment with other funds, as described below in the
Investment Adviser's Report.
We remain confident of the potential for significant returns from our current
investment portfolio and of the prospects of identifying attractive new
targets. Our Investment Adviser will continue to seek out undervalued
opportunities with the potential to unlock value to all Shareholders, a
strategy which we believe can generate strong absolute returns in a wide range
of market environments.
Rosemary Morgan
Chairman
5 April 2023
Investment Adviser's Report
Performance since inception (excluding dividends re-invested)
Cumulative
Period JPY Sterling/Yen FX Change GBP JPY FX GBP
21 February 2020 to 12. 1.39% 13.58% 12.19% 1.39% 13.58%
31 December 2020
Year Ending 3 -12.77% 21.41% 50.54% -12.64% 37.90%
31 December 2021
%
1st Quarter - -2.28% -7.30% 42.99% -15.15% 27.84%
31 March 2022
%
2(nd) Quarter -3.07% -5.33% 39.76% -18.73% 21.03%
30 June 2022 -%
3(rd) Quarter 6 2.24% 8.37% 48.33% -17.17% 31.16%
30 September 2022
%
4(th) Quarter 9 1.90% 7.09% 56.04% -15.58% 40.46%
31 December 2022
%
Year Ending -1.79% 1.86% 56.04% -15.58% 40.46%
31 December 2022 %
Overview
Thanks to Russia's invasion of Ukraine, 2022 was, as the late Queen once said,
an 'annus horribilis' for most of the world, and for markets in particular.
Japan was no exception. The benchmark Nikkei index was down 9.4% over the
course of the year, while the MSCI Japanese Smaller Companies index (which,
though not a comparator for the Company, at least incorporates the sea in
which NAVF fishes, was off 11.7% in yen terms) over the same period. And the
Yen suffered the largest decline against major currencies for 40 years.
Against this difficult backdrop, NAVF did well. It was the top performing
Japanese (Japanese Smaller companies peer group) fund in the UK, even with a
discount to NAV averaging over 10% and an additional cumulative currency drag
of another 25% or so. The Net Asset Value per share (NAV) on 4(th) January
2022, the first trading day of the year, was 136.81p, by 30(th) December it
had reached 140.46p and net assets under management (AUM) totalled
£158,744,650. The good news is that 2023 has started much better for the
Company. As of 3 April 2023 (the last practicable date) the Company's NAV is
above 151.71p and AUM are over £171.5 million.
Portfolio Composition
In my interim half-year report, I described the success we have enjoyed with
several companies who have acted, in one way or another, to improve their
capital allocation policies following our prompting with written submissions
at their Annual General Meetings (AGMs). The most successful of these, because
they did everything we recommended and more, was Mitsuboshi Belting. On 7(th)
September 2022 I gave an interview to Kohei Onishi, a journalist with the
Nikkei in Tokyo, and we spoke, amongst other topics, about Mitsuboshi Belting.
Afterwards, Onishi-san, in further research for his article, followed up with
the company directly. They told him that they had considered our
recommendations and had concluded that they were sitting on excess cash that
they were not planning to use in the business. They therefore decided to
institute the changes under discussion - a restricted stock programme, a large
share repurchase and a 100% payout ratio for dividends both now and in the
future - and asked us to withdraw our AGM submission, which we were happy to
do. They now expressed themselves pleased with the constructive dialogue they
had with RSM and I am pleased to say this has continued.
This article appears to have had both a reassuring and galvanizing effect on
several other of our portfolio companies. Daiichi Kensetsu announced a buyback
of 3.45% of outstanding shares. On 31(st) October 2022 Vital KSK announced all
of the following:
§ Paying out a dividend on equity of at least 2%
§ A total pay-out ratio of 50% or more (estimated at Y45 per share,
considering EPS of Y90 per share)
§ Continued share repurchases until reaching the highest PBR among drug
distributors
§ Selling 50% of their current cross-shareholdings within five years
§ Changing their ROE target to 5% in 2023, 5.2% in 2024, and NAVF's
recommended 8% by 2031
§ Creating an Audit Committee and implementing a restricted share
compensation programme (subject to June 2023 approval), as recommended by RSM
§ Declaring the intention to spend Y60bn of surplus net cash with
· Y10 billion of buybacks
· Y30 billion of investments in the Osaka distribution centre and
updates to existing allocations
· Y20 billion growth in capex and M&A
The shares rose by 15% (the maximum allowed) on the day of the announcement.
In the second half of the year we decided to rationalise the portfolio. The
portfolio currently consists of 18 core holdings. There were several reasons
for the choice of stocks to be jettisoned - too illiquid, stocks in FEFTA
Category 3 (the Foreign Exchange and Foreign Trade Act category which imposes
the most restrictions on foreign shareholders), companies that had already
implemented our recommendations and/or reached our target valuation, etc -
but, overriding all of these, was the desire to build up liquidity in the
portfolio to permit the more vigorous pursuit of our goals. It has given us
enhanced capacity to build larger positions, launch tender offers, and
generally speak with a louder, if still 'friendly', voice to our more
recalcitrant management teams.
While we were selling out of the names above, we also added to one or two
favourites, principally Ihara Science (which is discussed below). Our universe
of potential targets for engagement remains in the hundreds, and recent
announcements by the TSE, pushing lowly-valued companies to augment their
share prices so they no longer trade below book value, is yet another
comforting breeze at our backs. The regulators continue, at least as far as
the big picture is concerned, to be the activists' best friends.
Recent Developments
In December, and in anticipation of the retirement of Mr Kuroda as Governor of
the central bank, the Yen started to react to the prospect of higher interest
rates. The long journey towards the normalisation of the currency has begun,
with the conundrum of how to control the unwinding of decades' long
manipulation landed squarely on the shoulders of the newly appointed Mr Ueda.
This is all good news for NAVF and will provide another support to its
valuation, as the currency discount that was such a drag on performance in
2022 gradually unwinds.
Early in the current financial year, NAVF, in conjunction with Michael 1925
and Hikari Acquisition, launched a tender offer (TOB) for between 40-44% of
T&K Toka. The group, in combination with Dalton Investments, who have
owned around 20% of the company's outstanding shares for over twelve years,
sought to help management improve their capital allocation policies.
Regrettably, the TOB has fallen short, but the dialogue will continue, and the
company's cage will continue to be rattled by its largest shareholder(s). The
costs were born by Rosenwald Capital.
Following a presentation from RSM's CIO, Jamie Rosenwald, and our Tokyo-based
partner, Masumi Nishida, in November 2022, the President of Ihara Science,
Tokuo Nakano, has launched an MBO to take the company private. Following Sakai
Ovex, this is the second example of a portfolio company responding positively
to our MBO recommendation.
Outlook
We are encouraged by recent positive comments about the Company in the UK
press. NAVF has recently been tipped by Questor in the Daily Telegraph (for
whom it is the Investment Trust of the Year) and by the Midas column in the
Mail on Sunday. Both these articles will be very helpful in promoting the
Fund's attraction to UK retail investors, whom we have been seeking to target
for some time. Institutional marketing continues, with buyers from as far
afield as Australia and the US showing increasing interest. At the Fund's
third anniversary, it is the top performing Japanese investment trust in the
UK, now with the second lowest discount in the sector. With a large cash
position and plenty of interesting candidates for our attention, there is
everything to play for in a continually improving macro environment. As
markets continue to recover from last year's weakness, it is hoped the
Investment Trust sector will become once more 'in vogue' and that discounts
will begin to narrow. NAVF is in a good position to take advantage of an
improving mood amongst investors, and we aim to grow the fund through new
issuance when appropriate. The fund has been growing steadily, we would like
to see this really accelerate to capitalise on what has already been achieved.
Fingers crossed - 2023 could be shaping up to be an 'annus mirabilis'.
Paul ffolkes Davis
Rising Sun Management Limited
5 April 2023
Portfolio As at 31 December 2022
Top ten holdings as a percentage of net assets as of 31 December 2022
Company Sector %
1. Intage Holdings Industrial 12.0
2. Mitsuboshi Belting Industrial 10.9
3. Ihara Science Engineering 8.7
4. Nippon Fine Chemical Industrial 8.0
5. Ebara Jitsugyo Engineering 7.7
6. Meisei Industrial Industrial 4.4
7. Vital KSK Pharmaceutical 4.3
8. Ishihara Chemical Industrial 3.7
9. Bunka Shutter Industrial 3.5
10. Konishi Industrial 2.9
Sector Breakdown
Sector Percentage
Industrials 42.1%
Materials 20.3%
Communication services 12.1%
Healthcare 4.3%
Financials 2.1%
Cash 19.1%
Investment Policy, Results and Other Information
Investment objective
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.
Investment policy
The Company will invest in a highly concentrated portfolio of shares issued by
quoted companies which have the majority of their operations in, or revenue
derived from Japan, and which the Investment Adviser deems attractive and
undervalued and typically where (i) cash constitutes a significant proportion
of the investee company's market capitalisation; and (ii) the relevant company
has no controlling or majority shareholders.
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 (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); 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.
The Company will not be constrained by any index benchmark in its asset
allocation.
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. In any event, 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 10 per
cent. 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 10 per cent. 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. However, while the
Company's interest in unquoted investments remains above 10 per cent. of its
Net Asset Value, the Company will not be able to make any further investments
in unquoted companies.
Investment restrictions
There are no restrictions placed on the market capitalization of investee
companies, but it is expected that the portfolio will be weighted towards
small cap companies with market capitalization of up to US$1 billion. Once
fully invested, the portfolio is expected to have up to 20 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 large minority stakes of typically 4.9 to 25.0
per cent. in each investee company. Nevertheless, in certain limited
circumstances the Company may acquire a larger stake in an investee company if
the investment case so warrants. 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 Company will comply with the following investment restrictions for so long
as they remain requirements of the Listing Rules (relevant elements of which
the Company has voluntarily undertaken to comply):
· 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 10 per cent., in aggregate, of the value of the total
assets of the Company will be invested in other listed closed-ended investment
funds; 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 invest in cash, cash equivalents, near cash
instruments and money market instruments.
The Company expects to maintain any non-operational cash balances in Japanese
yen.
The Company may also use derivatives for gearing and efficient portfolio
management purposes.
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.
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 2022 were +3.5% and -10.9% respectively
(31 December 2021: +22.3% and +26.8% 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 3.43p (31 December 2021: 2.15p).
(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 16.35%
discount to the NAV as at 31 December 2022 (31 December 2021: discount of
2.83%).
(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 2022, the
Company's ongoing charges figure calculated in accordance with the AIC
methodology was 1.41% (31 December 2021: 1.37%).
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. Broker: 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 relevant briefings 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 Broker review market conditions on an ongoing
basis.
Shares may trade to their NAV through further issues and buy-backs, as
appropriate.
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 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 Advisor 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 Board and AIFM, to add a target company to the
investible universe.
Upon approval of a target company by the Board and AIFM, the Investment
Adviser will send a formal recommendation, outlining the rationale for the
recommendation, along with the size of investment and forward to the AIFM for
consideration.
Upon receipt of approval from the AIFM, the Investment Adviser will arrange
execution.
The Board regularly carries out Investment Process reviews of the Investment
Adviser.
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 weekly 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 Broker monitors and reports
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.
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.
MARKEET 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
resiliency, business continuity planning and the location strategies of our
service providers will come under more scrutiny.
Investors can no longer ignore the impact that the world's changing climate
will have on their portfolio, with the inevitable impact on returns.
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 Advisor and Board as appropriate.
BANKING CRISIS The collapse of Silicon Valley Bank ("SVB") might trigger a new banking EMERGING The Company has no direct exposure to SVB.
crisis, which might directly or indirectly affect the Company's RCF or other
debt facilities. The collapse of a bank could have a drastic domino effect on
other financial institutions.
The Board, the AIFM, the Investment Adviser and the Company's Brokers are
monitoring developments.
GEOOPOLITICAL The war in Ukraine is protracted and/or intensifies; EMERGING The Board, the AIFM, the Investment Adviser and the Company's Brokers are
monitoring developments
Heightened geopolitical concerns in other regions; and
Sustained rises in energy costs, food prices and other material costs
resulting in sharp, sustained increases in inflation.
Viability Statement
The continuation of the Company is subject to the approval of shareholders in
2025 and every second AGM thereafter. The Directors have assessed the
viability of the Company for the period to 31 December 2025 (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 realizable 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 realizable 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, are fair, balanced, and
understandable and provides the information necessary for shareholders to
assess the Company's 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 company's 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
5 April 2023
Statement of Comprehensive Income
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments 3 - 1,274 1,274 - 26,666 26,666
Income 4 5,487 - 5,487 3,512 - 3,512
Foreign exchange gains/(losses) - 938 938 - (1,770) (1,770)
Investment adviser fees 5 (248) (995) (1,243) (216) (863) (1,079)
Other operational expenses 6 (812) - (812) (713) - (713)
Profit before taxation 4,427 1,217 5,644 2,583 24,033 26,616
Taxation 7 (549) - (549) (351) - (351)
Profit and comprehensive income for the year 3,878 1,217 5,095 2,232 24,033 26,265
Earnings per Ordinary Share - Basic and diluted (pence) 12 3.43p 1.08p 4.51p 2.15p 23.11p 25.26p
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 an integral part of these financial statements.
Statement of Financial Position
Non-current assets As at 31 December As at 31 December
2022 2021
£'000 £'000
Note
Investments at fair value through profit or loss 3 126,284 138,626
Current assets
Cash and cash equivalents 31,738 15,815
Trade and other receivables 9 1,240 1,831
32,978 17,646
Current liabilities
Trade and other payables 10 (517) (418)
(517) (418)
Net current assets 32,461 17,228
Net assets 158,745 155,854
Capital and reserves attributable to Shareholders
Share capital 11 1,130 1,130
Share premium 115,349 115,349
Capital reserve 38,324 37,107
Revenue reserve 3,942 2,268
Total equity 158,745 155,854
NAV per Ordinary Share (pence) 13 140.46p 137.90p
Approved by the Board of Directors and authorised for issue on 5 April 2023
and signed on their behalf by:
Rosemary Morgan
Director
Nippon Active Value Fund plc is incorporated in England and Wales with
registration number 12275668.
The notes form an integral part of these financial statements.
Statement of Changes in Equity
Share Capital Revenue
Share capital premium reserve reserve Total
Year ended 31 December 2022 Note £'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
Share Capital Revenue
Share capital premium reserve reserve Total
Year ended 31 December 2021 Note £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2021 1,030 101,970 13,074 912 116,986
Issue of Ordinary Shares 11 100 13,900 - - 14,000
Share issue costs 11 - (521) - - (521)
Profit and comprehensive income for
the year - - 24,033 2,232 26,265
Dividends paid 8
- - - (876) (876)
Balance at 31 December 2021 1,130 115,349 37,107 2,268 155,854
The capital reserve as at 31 December 2022 is split between realised gains of
£48,945,000 and unrealised losses of £10,621,000 (as at 31 December 2021:
realised gains of £20,773,000 and unrealised gains of £16,334,000).
The revenue reserve and realised element of the capital reserve represents the
amount of the Company's retained reserves.
The notes form an integral part of these financial statements.
Statement of Cash Flows
Note Year ended 31 December 2022 Year ended 31 December 2022
Operating activities cash flows
Profit before taxation* 5,644 26,616
Adjustment for:
Gains on (1,274) (26,666)
investments
3
Decrease/(increase) in trade and other receivables 174 (269)
(Decrease)/increase in trade and in other payables (20) 131
Tax withheld on overseas (549) (351)
income
7
Net cash flow from/(used in) operating activities 3,975 (539)
Investing activities cash flows
Purchases of investments (41,052) (39,182)
Sales of investments 55,204 30,288
Net cash flow from/(used in) investing activities 14,152 (8,894)
Financing activities cash flows
Issue of Ordinary Share capital - 14,000
Payment of Ordinary Share issue costs - (521)
Equity dividends (2,204) (876)
paid
8
Net cash flow (used in)/from financing activities (2,204) 12,603
Increase in cash and cash equivalents 15,923 3,170
Cash and cash equivalents at the beginning of the year 15,815 12,645
Cash and cash equivalents at the end of the year 31,738 15,815
* Cash inflow from dividends received for the year is £5,161,000 (31 December
2021: £3,340,000)
The notes form an integral 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.
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.
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 (formerly Sanne Fund Management
(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 (formerly Sanne Fund 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 SIGNIFICANT 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 in July 2022.
Going Concern
The Directors have adopted the going concern basis in preparing the financial
statements. 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.
This assessment took account of Russia's invasion into Ukraine and the
recovery of the Covid-19. These uncertainties have created supply chain
disruption and exacerbated inflationary pressures worldwide. The Directors do
not foresee any immediate material risk to the Company's investment portfolio.
A prolonged and deep market decline could lead to falling values of the
underlying business or interruptions to cashflow, however the Company
currently has more than sufficient liquidity available to meet any future
obligations. An explanation of the market, liquidity and credit risks and how
they are managed is contained in note 15 to the financial statements.
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 2022 were £158,745,000 (31 December 2021: £155,854,000). As at 31
December 2022, the Company held £31,738,000 (31 December 2021: £15,815,000)
in cash. The total expenses for the year ended 31 December 2022 were
£2,055,000 (31 December 2021: £1,792,000), which represented approximately
1.41% (31 December 2021: 1.37%) 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.
New Standards, Interpretations and Amendments adopted from 1 January 2022
A number of new standards, amendments to standards are effective for the
annual periods beginning after 1 January 2022. None of these has a significant
effect on the measurement of the amounts recognised in the financial
statements of the Company.
New Standards and Amendments issued but not yet Effective
The relevant new and amended standards and interpretations that are issued,
but not yet effective, up to the date of issuance of the Company's financial
statements are disclosed below. These standards are not expected to have a
material impact on the entity in future reporting periods and on foreseeable
future transactions.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to
specify the requirements for classifying liabilities as current or
non-current. The amendments are effective for annual reporting periods
beginning on or after 1 January 2023.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it introduces
a definition of 'accounting estimates'. The amendments are effective for
annual reporting periods beginning on or after 1 January 2023.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice
Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice
Statement 2 Making Materiality Judgements. The amendments to IAS 1 are
applicable for annual periods beginning on or after 1 January 2023.
b) Significant 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 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.
Dividend receivable arising from companies with 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 31 December As at 31 December
2022 2021
£'000 £'000
Listed on a recognised overseas exchange 126,284 138,626
Total 126,284 138,626
b) Movements during year
Year ended 31 December 2022 Year ended 31 December 2021
£'000 £'000
Book cost at the beginning of the year 106,935 87,548
Investment holding gains at beginning of the year 31,691 15,357
Valuation at beginning of the year 138,626 102,905
Investment purchases, at cost 41,134 39,160
Investment sales, at cost (42,855) (19,773)
Closing book cost 105,214 106,935
Investment holding gains 21,070 31,691
Closing valuation 126,284 138,626
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 2022
amounted to £36,000 (2021: £39,000) and on investment sales for the year
amounted to £54,000 (2021: £21,000).
c) Gains on investments
Year ended 31 December 2022 Year ended
£'000
31 December 2021
£'000
Realised gains on disposal of investments 11,985 10,391
Investment holding (losses)/ gains (10,621) 16,334
Net transactions costs (90) (59)
Total gains on investments held at fair value 1,274 26,666
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.
Level 1 Level 2 Level 3 Total
As at 31 December 2022 £'000 £'000 £'000 £'000
Assets:
Equity investments 126,284 - - 126,284
Total 126,284 - - 126,284
There were no transfers between levels during the year. There are no Level 3
investments as at 31 December 2022.
Level 1 Level 2 Level 3 Total
As at 31 December 2021 £'000 £'000 £'000 £'000
Assets:
Equity investments 138,626 - - 138,626
Total 138,626 - - 138,626
4. INVESTMENT INCOME
Year ended
Year ended
31 December 2022 £'000 31 December 2021 £'000
Income from investments:
Overseas dividends 5,487 3,512
Total 5,487 3,512
5. INVESTMENT ADVISER FEES
Year ended 31 December 2022 Year ended 31 December 2021
£'000 £'000
Basic fee:
20% charged to revenue 248 216
80% charged to capital 995 863
Total 1,243 1,079
The Company's Investment Adviser is Rising Sun Management Ltd. The Investment
Adviser is entitled, with effect from First Admission, to receive an annual
fee from the Company of 0.85% per annum of NAV.
6. OTHER EXPENSES
Year ended 31 December 2022 Year ended 31 December 2021
£'000 £'000
Directors' fees 157 146
Administration fees 86 84
Auditor's remuneration 45 30
AIFM fees 70 70
Broker retainer fees 50 49
Custodian fees 75 74
D&O insurance 24 17
Marketing fees 51 -
Legal Fees 40 36
Regulatory fees 41 33
Secretarial fees 47 47
Miscellaneous expenses 126 127
Other expenses - Revenue 812 713
7. TAXATION
(a) Analysis of tax charge in the year:
Year ended
31 December 2022 Year ended
31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Overseas withholding tax 549 - 549 351 - 351
Total tax charge for the year (see note 7(b)) 549 - 549 351 - 351
(b) Factors affecting the tax charge for the year:
The tax charge assessed for the year to 31 December 2022 is lower than the
Company's applicable rate of corporation tax of 19% (2021: 19%).
The differences are explained below:
Year ended Year ended
31 December 2022 31 December 2021
Revenue £'000 Capital £'000 Total £000 Revenue £'000 Capital £'000 Total £000
Profit before taxation 4,427 1,217 5,644 2,583 24,033 26,616
UK corporation tax at 19% (2021: 19%) 841 231 1,072 491 4,566 5,057
Effects of:
Overseas withholding tax suffered 549 - 549 351 - 351
Non-taxable overseas dividends (1,043) - (1,043) (667) - (667)
Capital gains not subject to tax - (242) (242) - (5,066) (5,066)
Unutilised management expenses 189 189 378 165 164 329
Unutilised finance costs 13 - 13 11 - 11
Foreign exchange losses not subject to tax - (178) (178) - 336 336
Total tax charge 549 - 549 351 - 351
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
£1,339,000 (2021: £825,000) based on the long-term prospective corporation
tax rate of 25% (2021: 25%). The March 2021 Budget announced an increase to
the main rate of corporation tax to 25% from 1st April 2023.
This increase in the standard rate of corporation tax was substantively
enacted on 24 May 2021 and became effective from 2 June 2021. This asset has
accumulated because deductible expenses exceeded taxable income for the year
ended 31 December 2022. 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 2022 31 December 2021
Pence per Pence per
Type - respective financial year end- dividend rate (pence)
Ordinary share £'000 Ordinary share £'000
Interim dividend - paid on 26 April 2022 (2021: paid on 30 April 2021) 1.95p 0.85p 876
2,204
Total 1.95p 876
2,204 0.85p
(ii). The dividend relating to the year ended 31 December 2022, 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 2021 31 December 2022
Pence per Pence per
Ordinary share £'000 Ordinary share £'000
Interim dividend - payable 26 May 1.95p 2,204
2023* (2021: paid 26 April 2022) 3.20p 3,617
Total 3.20p 3,617 1.95p 2,204
*Not included as a liability in the year ended 31 December 2022 accounts.
The Directors have declared an interim dividend for the financial year ended
31 December 2022 of 3.20p per Ordinary Share. The dividend will be paid on 26
May 2023 to Shareholders on the register at the close of business on 21 April
2023.
9. TRADE AND OTHER RECEIVABLES
As at 31 December As at 31 December
2022 2021
Trade receivables 773 1,190
Accrued income 212 435
Other receivables 255 206
Total 1,240 1,831
10. TRADE AND OTHER PAYABLES
As at 31 December As at 31 December
2022 2021
£'000 £'000
Amounts falling due within one year:
Trade payables 256 138
Accrued expenses 261 280
Total 517 418
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 2022 31 December 2021
No. of shares £'000 No. of shares £'000
Allotted, issued & fully paid:
Opening balance 113,021,433 1,130 103,000,001 1,030
Ordinary Shares of 1p each ('Ordinary Shares') - -
Issued 10,021,432 100
Closing balance 113,021,433 1,130 113,021,433 1,130
Share capital movement during the year
Year ended Year
31 December 2022 ended
31 December 2021
No. of shares Nominal value of shares No. of shares Nominal value of shares
£ £
Allotted, issued & fully paid:
Opening balance 113,021,433 1,130,214.33 103,000,001 1,030,000.01
- - 10,021,432* 100,214.32
Closing balance 113,021,433 1,130,214.33 113,021,433 1,130,214.33
* Fundraise on 22 November 2021
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 £5,095,000 (2021:
26,265,000).
Based on the weighted average number of Ordinary Shares in issue for the year
to 31 December 2022 of 113,021,433 (2021: 103,985,715), the returns per share
were as follows:
Year ended Year ended
31 December 2022 31 December 2021
Revenue £'000 Capital £'000 Total £000 Revenue £'000 Capital £'000 Total £000
Return per Ordinary Share 3.43p 1.08p 4.51p 2.15p 23.11p 25.26p
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 31 December As at 31 December
2022 2021
NAV (£) 158,745,000 155,854,000
Ordinary Shares in issue 113,021,433 113,021,433
NAV per Ordinary Share 140.46p 137.90p
14. RELATED PARTY TRANSACTIONS
Transactions with the Investment Adviser
The fees for the year are disclosed in note 5 and amounts outstanding at the
year ended 31 December 2022 were £ nil.
A key member of the RSM team is a major shareholder of Rosenwald Capital
Management, Inc.
Rosenwald Capital Management Inc, receives dividends paid by the Company based
on its shareholding.
Directors' fees and shareholdings
Directors' fees are payable at the rate of £27,810 per annum for each
Director other than the Chairman, who is entitled to receive £41,000. The
Chairman of the Audit Committee is also entitled to an additional fee of
£5,190 per annum.
The Directors had the following shareholdings in the Company, all of which
were beneficially owned.
As at As at
31 December 31 December
2022 2021
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 27,000 27,000
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. 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 31 December As at 31 December
2022 2021
£'000 £'000
Portfolio of investments: yen 126,284 138,626
Trade and other receivables: yen 985 1,625
Cash: yen 31,762 15,131
Total 159,031 155,382
Foreign currency sensitivity
If the Japanese yen had appreciated or depreciated by 10% as at 31 December
2022 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
2022 2022 2021 2021
£'000 £'000 £'000 £'000
Impact on portfolio - increase/(decrease) 12,628 (12,628) 13,863 (13,863)
Impact on NAV - increase/(decrease) 15,903 (15,903) 15,538 (15,538)
(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 2022 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 31 As at 31
December December
2022 2021
£'000 £'000
Exposure to floating interest rates:
Floating rate on cash balance: yen 31,762 15,131
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 2022
comprises its holdings in equity investments as follows:
As at As at 31 December
31 December
2022 2021
£'000 £'000
Investments held at fair value through profit or loss 126,284 138,626
The effect on the portfolio of a 10.0% 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 £12,628,000 (2021: £13,862,000).
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 2022, based on the earliest date on which payment can be required,
were as follows:
As at 31 December As at 31
December
2021
2022
less than 3 months less than 3 months
Creditors: amounts falling due within one year - -
Trade and other payables 517 418
Total 517 418
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 will be reviewed
on a regular basis by the Investment Adviser and/or the Board.
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 2022 was as follows:
As at 31 December As at 31 December
2021 2022
£'000 £'000
Cash at bank 31,738 15,815
Trade and other receivables 1,240 1,831
Total 32,978 17,646
(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.
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 2022 comprises called-up share capital
and reserves totalling £158,745,000 (2021: £155,854,000).
The Board regularly monitors, and has complied with, the externally imposed
capital requirements.
15. POST YEAR END EVENTS
Since 31 December 2022, 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 2022 (Pence)
NAV per Ordinary Share a 140.46
Share price b 117.50
Discount (b÷a)-1 16.35%
As at 31 December 2021 (Pence)
NAV per Ordinary Share a 137.9
Share price b 134.0
Discount (b÷a)-1 2.83%
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 2022 Share price NAV
Opening (pence) a 134.0 137.9
Closing (pence) b 117.5 140.5
Movement (b÷a)-1 c -12.3% 1.9%
Dividend reinvestment factor d 1.4% 1.6%
Total return (c+d) -10.9% 3.5%
Year end 31 December 2021 Share price NAV
Opening (pence) a 106.5 113.6
Closing (pence) b 134.0 137.9
Movement (b÷a)-1 c 25.8% 21.4%
Dividend reinvestment factor d 1.0% 0.9%
Total return (c+d) 26.8% 22.3%
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 2022
Average NAV a 145,955,840
Annual expenses b 2,055,000
Ongoing charges (b÷a) 1.41%
Year end 31 December 2021
Average NAV a 130,449,346
Annual expenses b 1,792,000
Ongoing charges (b÷a) 1.37%
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory accounts. The
financial information for 2022 is derived from the statutory accounts for
2022, which will be delivered to the registrar of companies. The statutory
accounts for 2021 have been delivered to the registrar of companies. The
auditors have reported on the 2021 and 2022 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 2022 was approved on 5 April
2023. 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 6th Floor, 125 London Wall, London,
EC2Y 5AS on 8 June 2022 at 4 pm.
Even if shareholders 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 in the Annual Report and
Accounts.
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 6 June 2022.
6 April 2023
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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