ATLANTIS JAPAN GROWTH FUND LIMITED
(“AJGF” or the “Company”)
(a closed-ended investment company incorporated in Guernsey with registration number
30709)
LEI
5493004IW0LDG0OPGL69
Annual Results for
the financial year ended 30 April
2022
5 July 2021
(Classified Regulated Information,
under DTR 6 Annex 1 section 1.1)
The financial information set out below does not constitute the
Company's statutory accounts for the financial year ended
30 April 2022. All figures are based
on the audited financial statements for the financial year ended
30 April 2022.
The financial information for the financial year ended
30 April 2022 noted below is derived
from the financial statements delivered to the UK Listing
Authority.
The annual report and audited financial statements for the
financial year ended 30 April 2022
will shortly be posted to shareholders and will also be available
on the company website: www.atlantisjapangrowthfundlimited.com
INTRODUCTION
INVESTMENT OBJECTIVE
Atlantis Japan Growth Fund Limited (the “Company”) aims to
achieve long term capital growth through investment wholly or
mainly in listed Japanese equities.
INVESTMENT POLICY
The Company may invest up to 100% of its gross assets in
companies quoted on any Japanese stock exchange including, without
limitation, the Tokyo Stock Exchange Prime, Standard and Growth
sections, or the regional stock exchanges of Fukuoka, Nagoya and Sapporo. The Company’s benchmark index is the
TOPIX Total Return index “benchmark total return index” and the
Company will not be restricted to investing in constituent
companies of the benchmark.
The Company may also invest up to 20% of its Net Asset Value
(the “NAV”) at the time of investment in companies listed or traded
on other stock exchanges but which are either controlled and
managed from Japan or which have a
material exposure to the Japanese economy.
The Company may also invest up to 10% of its NAV at the time of
investment in securities which are neither listed nor traded on any
stock exchange or over-the-counter market.
In general, investments will be made in equity shares of
investee companies, or in debt issued by investee companies.
However, the Company may also invest up to 20% of its NAV at the
time of investment in equity warrants and convertible debt.
The Company will not invest in more than 10% of any class of
securities of an investee company. The Company will not invest in
derivative instruments save for the purpose of efficient portfolio
management.
The Company may not invest more than 10% in aggregate of the
value of its total assets in other listed closed-ended investment
funds except in the case of investment in closed-ended investment
funds which themselves have published investment policies to invest
no more than 15% of their total assets in other listed closed-ended
investment funds, in which case the limit is 15%.
The Company may borrow, with a view to enhancing capital
returns, up to a maximum of an amount not exceeding 20% of NAV at
the time of borrowing.
No material change will be made to the investment policy without
the approval of shareholders by ordinary resolution.
The management and impact of the risks associated with the
investment policies are described in detail in the Notes to the
Financial Statements (see Note 15).
INVESTMENT MANAGER AND INVESTMENT
ADVISER
Quaero Capital LLP has been the appointed Investment Manager of
the Company since 1 August 2014.
Atlantis Investment Research Corporation (“AIRC”) has been the
appointed Investment Adviser to the Company since 1 August 2014.
AIRC, established in Tokyo,
through Taeko Setaishi as lead adviser, and her colleagues, advises
the Investment Manager on the day-to-day conduct of the Company’s
investment business, the role it has played since the launch of the
Company in May 1996.
DIVIDEND POLICY
There are regular quarterly dividend payments of 1% of the
Company’s NAV (based on the average daily NAV in the final month of
the financial year). The dividends will be paid out of capital
reserves and will be paid in March, June, September and December
(please see Dividend Policy below for further details).
Chairman’s Statement
For the financial year ended
30 April 2022
After enjoying several years of handsome returns, the past year
has been one of the most challenging for global equity markets
since the 2008 global financial crisis, seeing the nascent hopes
for recovery overwhelmed by Russia’s invasion of Ukraine and rising energy prices. Our thoughts
are very much with those affected directly by such geopolitical
turmoil. Japan has not been immune
to such spasms and, having taken steps back from the stringent
Covid restrictions, is now faced with the twin challenges of rising
inflationary pressures and slower global growth. In such an
environment, the Company finished its financial year on
30 April 2022 with its shares 26.9%
lower than a year earlier, underperforming the Company’s benchmark,
the Topix Total Return (TR) Index (which saw a 5% decline in
sterling terms). This very much reflected the growth style of the
Company, with a continued focus on investing in those companies
that will deliver sustainable earnings growth over the long-term.
Despite such a challenging market for growth investors, the
Company’s 32.4% performance over 5 years compares favourably with
the Topix (TR) sterling return of 22.6%. The Company paid out four
regular quarterly dividends of 1% of the Company’s net asset value
(“NAV”), calculated on the average daily NAV of April 2021. Further, at the end of the financial
year, the Company’s discount was 12.2% against 9.2% a year
earlier.
MARKET AND PERFORMANCE
The Japanese market, like many of the developed markets, saw a
persistent rotation between growth and cyclical companies over the
past 12 months. This came as investors sought to account for the
geopolitical tensions, rising inflation and the subsequent impact
on the interest rate cycle that helped drive a re-rating of growth
companies. The Company’s performance in the first half of the
financial year was steady, driven by the chosen thematic exposure
to global leaders in the renewable energy, electronic component and
biotech spaces. In the second half of the year, performance was
disproportionately affected by a continued shift out of growth
stocks into value shares, one of the factors driving outperformance
of those cyclicals geared to the modest global economic
recovery.
DIVIDEND POLICY
The quarterly dividend is set at 1% of the average daily NAV per
share in the final month of the preceding financial year and is
paid out of capital resources at the end of each calendar quarter.
The Board continues to believe that the new dividend policy is the
fairer way to distribute capital to all shareholders, compared to
the previously employed redemption mechanism. The September 2021, December
2021, March 2022 and
June 2022 dividend payments were paid
to registered shareholders at the rate of 2.88p per share, based on
the average daily NAV per share in the final month of the Company’s
financial year ended 30 April 2021.
The average NAV per share for the month of April 2022 was 215p and so the new quarterly
dividend rate will be at 2.15p for the four dividends payable at
the end of September 2022,
December 2022, March 2023 and June
2023.
Environmental, Social and Governance
(ESG) Investment
Investing responsibly is at the centre of the Company’s
investment philosophy and process. In 2015 the Company’s investment
manager, Quaero Capital, became a signatory to the UNPRI to
demonstrate commitment to responsible investment. Quaero Capital
has since joined the Institutional Investor Group for Climate
Change (IIGCC) and the Carbon Disclosure Project (CDP), as it looks
to understand and adopt best practice to address climate change. As
long-term investors it is fundamentally important that we
understand the environmental, social and governance risks and
opportunities affecting the companies in which we invest. Strong
relationships built over many years in the market enable us to use
our position as long-term investors to encourage transparency and
flag areas of high ESG risk.
BOARD COMPOSITION
As the Board reported last year, I will be stepping down in 2023
as Chairman of the Company and am working with my successor,
Michael Moule, to ensure a smooth
transition and a focus on refreshing board membership. Michael has
been a director since February 2018
and we look forward to his continued stewardship focus as he takes
up the new role with effect from next year’s AGM.
All Directors are subject to annual re-election at the AGM,
which will be held at The Cavalry & Guards Club on 8 September 2022.
DISCOUNT MANAGEMENT AND SHARE BUY
BACKS
In order to assist in managing the discount at which the
Company’s shares trade and to enhance the NAV per share of
remaining shareholders, the Company has authority to buy back
shares. The Board renewed its existing powers to buy back shares at
the 2020 AGM. The Board reviews the discount level on a regular
basis and will opportunistically buy back stock if the discount is
perceived to be too wide.
The discount widened over the period from 9.2% to 12.2%. As part
of its discount management policy, during the financial year ended
30 April 2022, the Company exercised
its authority to buy back 378,000 shares for holding in Treasury,
which represented 0.81% of the issued share capital.
At the 2019 AGM, the Board announced that a Continuation Vote
will be called every fourth year. Hence, the next Continuation Vote
will be held at the 2023 AGM.
GEARING
Gearing is defined as the ratio of a company’s long-term debt,
less cash held, compared to its equity capital, expressed as a
percentage. The effect of gearing is that, in rising markets, the
Company tends to benefit from any growth of the Company’s
investment portfolio above the cost of payment of the prior ranking
entitlements of any lenders and other creditors. Conversely, in
falling markets the Company suffers more if the Company’s
investment portfolio underperforms the cost of those prior
entitlements.
In order to improve the potential for capital returns to
shareholders, the Company currently has access to an overdraft
facility with the Company’s Depositary, Northern Trust
(Guernsey) Limited, for up to ¥1.5
billion. As at 30 April 2022 the
Company’s net gearing level (being the amount of drawn-down bank
debt less the cash held on the balance sheet) was 5.0% compared to
0.4% at the end of the prior reporting period.
The Directors consider it a priority that the Company’s level of
gearing should be maintained at appropriate levels with sufficient
flexibility to enable the Company to adapt at short notice to
changes in market conditions. The Board reviews the Company’s level
of gearing on a regular basis. The current maximum that has been
set is 20% of the Company’s net assets. The Investment Adviser is
encouraged to use the gearing facility and the Company’s cash
reserves in order to enhance returns for shareholders.
ONGOING CHARGES AND INVESTMENT
MANAGEMENT FEE
The Board continues to look very closely at the level of ongoing
charges incurred by the Company and for the financial year ended
30 April 2022 the ongoing charges
were 1.65% (30 April 2021: 1.58%).
The Board will remain vigilant in seeking opportunities for
reductions. Details of the ongoing charges are shown in Note 19 to
the Financial Statements.
A tiered structure for investment management fees was put in
place with effect from 5 July 2019,
with a fee of 1% on the first £125m of net assets, 0.85% on net
assets between £125m and £175m and 0.70% on net assets above
£175m.
OUTLOOK
Uncertainty over the outcome and timing of the war in
Ukraine will continue to weigh on
sentiment in global markets, particularly as to how the impact on
inflation and economic growth of disrupted global supply chains
will play out for corporate earnings. Japan’s economic outlook has
remained more resilient than many of the developed economies and it
is encouraging to see positive growth forecasts being released by
corporates for the next Fiscal Year. Ongoing corporate governance
reforms are also creating more value for minority shareholders.
These factors support the valuation argument for Japan with relatively attractive PER, PBR and
yield comparables particularly as our Investment Adviser ekes out
those overlooked growth opportunities. Key focuses of attention
will be on how the upcoming July Upper House elections will impact
stimulus policies and the pressure on the Bank of Japan to respond to inflationary pressures,
currently reflected in widening interest rate differentials and a
twenty year low for the yen versus US dollar. Yen weakness has been
a challenge for some Japanese companies but is also helping to
boost corporate earnings for others. It is not just the
exporters who have benefited, since cost inflation has helped many
companies to increase product prices in a way that they were unable
to do before.
The Company retains, as a key pillar to its investment style, a
focus on a long-term growth trajectory. Your Directors and I
believe that this places it in a strong position to benefit from
exposure to growth-orientated businesses, companies with
sustainable competitive advantages and that have strong free cash
flow. This will help drive long-term performance of the Company.
The Investment Adviser’s focus on growth factors has served the
Company and its shareholders well over the 26 year life of the
Company, and the Board remains confident that this approach will
reward shareholders as we maintain a focus on generating returns
over the long-term.
Noel
Lamb
5 July 2022
Investment Adviser’s Report
For the financial year ended
30 April 2022
Performance
The Company’s Net Asset Value (NAV) per share, calculated in
sterling, ended the financial year at 210.73p, down 21.3% YoY on a
total return basis, versus the Topix Total Return Index decline of
5.0%. The Company’s discount to NAV ended the period at -12.2%,
widening from -9.2%.
At the end of the period, the Company’s net gearing was 5.0%,
which was an increase from the previous year’s level of 0.4%. The
Japanese yen also continued to weaken over the year, from ¥151.48
to ¥164.11, incurring an 8.3% loss in value versus sterling.
As at the end of April 2022, the
Company’s portfolio held 66 stocks, which is the same number as at
the previous year. Sectors that contributed positively included
Other Financing Business, Marine Transportation and Wholesale
Trade. There were strong contributions from software testing
specialist SHIFT (3697 JP), semiconductor manufacturing gas
purveyor Japan Material Co (6055 JP) and niche pre-owned auto
insurance and warranty provider Premium Group Co (7199 JP). Sectors
that underperformed included Services, Information &
Communication and Machinery. Stocks that underperformed included
the investor relations consultant IR Japan Holding (6035 JP),
precision small motor specialist Nidec (6594 JP), and mergers and
acquisitions specialist Nihon M&A Center (2127 JP).
Three factors weighed on the Company’s performance. The first
was the persistent sell-off in growth and technology stocks. The
second was the technical impact of the restructuring of the Tokyo
Stock Exchange section categories, effective from April 2022. This intensified the sell-off in
Japanese small caps which had already been hit by a global
sell-off. The third was the lead up to and invasion of Ukraine in February, which exacerbated
volatility and the shift from growth to value compounded by the
acceleration of inflation and global monetary tightening.
The portfolio remains entirely invested in the equities of
listed Japanese companies and J-REITS. The Company has no exposure
to foreign exchange hedges, nor does it take positions in
convertible bonds or other types of structured financial
products.
Market comment
At the beginning of the financial year, the Japanese market had
been adjusting to the persistence of the pandemic: new variants;
supply chain disruptions; component shortages; rising input costs;
inflationary pressures; and US and EU monetary policy diverging
from the Bank of Japan’s (“BoJ”) easy stance. There was a brief
rally early in the financial year in anticipation of further policy
initiatives from the new government under Prime Minister
Fumio Kishida. His administration
then lost momentum from the new year which contributed to some of
the market gyration between growth and value styles from month to
month.. Inflationary pressures increased globally, including in
Japan on the producer price level
as well as on supermarket shelves (though core inflation data
excluding fresh food and energy remained well below the BoJ’s 2%
target). Encouragingly, corporate earnings trends were fairly
steady as companies reined in spending, started passing on rising
input costs by increasing prices, restructured where needed and
focused on driving profitable areas of their businesses.
Whatever hopes there were of getting inflation under control and
seeing a return to normalcy by easing supply chain bottlenecks,
were quickly upended by the invasion of Ukraine and the zero-Covid lockdowns in
China. Monetary policy between
Japan and the US diverged further
and the yen weakened dramatically after the Fed raised its
benchmark interest rate in March, while the BoJ confirmed its
near-zero rate policy. The persistence of the Ukraine crisis has led commodity prices to
soar. Despite such uncertainties, we did see foreign investor
activity shift to modest net buying of Japanese equities in April –
the last month of the Company’s financial year – though volumes
were lower than in previous years. As at the end of the Company’s
financial year, the Topix (Prime) Index is on a forward PER of
14.07x and PBR of 1.16x, which are attractive valuations on a
historical basis and relative to other markets.
Economic Outlook
Following Russia’s invasion of Ukraine, Oil rose to over $100/bl and the Japanese yen briefly surpassed
JPY130/USD and JPY165/GBP. The weaker Japanese yen benefits
exporters and the repatriation of profits into yen, but severely
impacts costs for importers of oil, commodities and various
components. That said, restrictions are being eased for inbound
travel and the economy is opening back up from this summer.
Corporate balance sheets remain strong and while companies are
understandably guiding conservatively due to geopolitical
uncertainties, for many manufacturing sectors order backlogs remain
high which provides a measure of visibility and confidence.
Inventories along the supply chain are also trending at a low
level, and employment is robust in Japan as well as in key destination markets
for Japanese companies such as in the US. Although supply chain
disruptions could still negatively impact upcoming data points such
as industrial production, GDP and consumer spending, the most
recently published manufacturing PMI series for May was 53.3, down
from 53.5 in April. This is still comfortably above 50, indicating
on the whole that the benefits of the weaker yen are offsetting the
negative impact on raw materials costs. Key factors going forward
include the reopening of the economy, resumption of travel in and
out of Japan, and efforts to
reduce supply chain bottlenecks.
Investment Adviser’s Strategy
Given continued geopolitical uncertainty, it is difficult to
predict how the inflation picture will change in the coming months.
However, there is some expectation of reaching a near-term peak, as
supply chains improve and normal economic activity returns. The
Investment Adviser is taking a measured approach focusing on both
companies with limited exposure to overseas markets as well as
those benefiting from structural change and growth areas such as in
technology, manufacturing and workflow efficiency, work-style
reform, healthcare, infrastructure and unique new business models.
The Investment Adviser notes that companies have started to raise
prices, particularly from the start of the new Japanese fiscal year
in April. This is helping to offset rising materials and input
costs, which is a positive sign for maintaining profit margins and
the ability to weather inflationary pressures. Initial impressions
of favourable retail sales, customer footfall traffic, domestic
travel, hospitality and dining during the recent Japanese Golden
Week holiday at the end of April and beginning of May bode well for
the economic outlook. The government’s extraordinary economic
package and its commitment to supporting the growth of new
technologies should also help stabilize the economy and market
during these difficult times. The Investment Adviser has not
changed its basic approach of frequently meeting with company
managements to test their progress and continues to employ a
bottom-up approach in its fundamental analysis.
Atlantis Investment Research
Corporation
5 July 2022
Alternative Investment Fund Manager’s Report
For the financial year ended
30 April 2022
Quaero Capital LLP, which is registered in England as a limited liability partnership,
was authorised on 22 July 2014 by the
Financial Conduct Authority of the UK as the Company’s Alternative
Investment Fund Manager (the “AIFM”) for the purposes of the
Alternative Investment Fund Managers Directive (“AIFMD” or the
“Directive”).
As the Company’s AIFM, Quaero Capital LLP is required to make
available an annual report for each financial year of the Company
containing the following:
i. A balance sheet or a statement of
assets and liabilities (see Statement of Financial Position
below).
ii. An income and expenditure account for the
financial year (see Statement of Comprehensive Income below).
iii. A report on the activities of the financial
year including an overview of the investment activities and
financial performance over the year (see Chairman’s Statement
above, Investment Adviser’s Report above, Details of Ten Largest
Investments below, Schedule of Investments below and Directors’
Report and Statement of Directors’ Responsibilities below).
iv. Details of material changes to the information
set out under Article 23 of the Directive. To satisfy this
requirement, Quaero Capital LLP publishes an Investor Disclosure
Document available at www.atlantisjapangrowthfund.com.
v. Certain disclosures in relation to the
remuneration of Quaero Capital LLP. To meet these requirements,
details of Quaero
Capital LLP’s remuneration policy and remuneration disclosures in
respect of Quaero
Capital
LLP’s reporting period for the financial year ended 31 March 2022 are available at
www.atlantisjapangrowthfund.com/literature.
vi. Details of the leverage employed by the Company.
Using the methodologies prescribed under the Directive, the
leverage of the Company is disclosed in the following table:
|
Commitment leverage as at
30 April 2022 |
Gross
leverage as at
30 April 2022 |
| Leverage ratio |
1.05:1 |
1.05:1 |
Quaero Capital LLP
5 July 2022
Nidec (54,000 shares)
Nidec is the world`s leading manufacturer of electric motors
from miniature to large sizes, and of brushless motors which reduce
noise and vibration. In the past, the more expensive brushless
motors were used mainly for higher-end products such as PCs, but a
shift in focus across all industries and product categories has
increased Nidec’s total addressable market significantly. In
addition to being used in various household appliances, Nidec
motors are used in numerous industrial and machinery applications
which require higher levels of precision and efficiency. They are
also expanding into supplying motors for EVs. The company has grown
both organically and with an aggressive M&A strategy under the
leadership of founder and Chairman Shigenobu Nagamori who recently returned to his
role as CEO to guide the company through the current difficult
conditions resulting from the pandemic and war in Ukraine. He replaces Jun Seki, the former
Nissan executive, who continues to head the automotive segment.
This has been performing well and is a critical part of Nidec’s
long-term growth strategy to expand in electronic vehicle drive
components such as e-Axles. Nidec has a proven track record for
innovation and execution as a premier low-cost mass producer, and
offers high growth potential.
Fair value of £2,823,582 representing 3.2% of Net Asset Value
(30 April 2021: 4.7%)
Tokyo Electron (7,500 shares)
Tokyo Electron is a leading global assembler of semiconductor
production equipment (SPE) with high market share in front-end
processes such as coater/developers (100% market share for extreme
ultraviolet lithography (EUV)), etching including for 3D NAND
memory, deposition and cleaning systems. In the recent past
semiconductors were used mainly to store and process data, while
humans created and analyzed the data. With highspeed and real-time
requirements of new technologies such as AI and Big Data,
semiconductors are now being used to create, detect, analyze and
act on data without human intervention. Over the next 5
years, global data volume is expected to increase fourfold with
approximately three-quarters created and used by semiconductors.
Global semiconductor revenues are expected to grow 2-3 times over
the next 5 years. Tokyo Electron’s high market share in SPE
processes for EUV and 3D NAND stacking that is essential for rising
data workloads, as well as having launched two new production
facilities in 2020, put it in a strong position to grow faster than
the market. In FY21 ending March
2022, Tokyo Electron achieved record net profit, after tax,
of JPY437bn.
Fair value of £2,547,988 representing 2.9% of Net Asset Value
(30 April 2021: 5.2%)
S-Pool (310,000 shares)
S-Pool is a niche staffing company for call centres, mobile
phone stores, other retail stores and e-commerce. It is known for
placing personnel with special needs and disabilities. The company
also runs farms on which it employs people with disabilities, and
coordinates with local governments and businesses interested in
hiring special needs people. The company is involved in training,
staff education, making referrals, and is developing a recruitment
agency as a new service. It also dispatches personnel for nursing
care, long-term care and childcare facilities. The company also
runs logistics outsourcing services for warehouses, and employment
process support services. It is expanding into new areas such as
Environment Management Support Services and a wide range of
Administrative and Business Process Organization services. The
company is enjoying double digit sales and profit growth. Due to
the nature of its business the firm is known as an ESG and
sustainable growth play and organizes its business model around
solving various social and corporate issues.
Fair value of £2,484,854 representing 2.9% of Net Asset Value
(30 April 2021: 1.5%)
Industrial & Infrastructure Fund
Investment Reits (2,000 shares)
Industrial Infrastructure is a real estate investment trust that
invests in logistics facilities and infrastructure properties, such
as aircraft maintenance hangers at Haneda Airport. The REIT was
established in 2017 and was sponsored by Mitsubishi Corp and UBS
Realty (name changed to KJR Management in April 2022), known for strength in ESG and
responsible investment. It was the first Japanese REIT to be a
signatory of the Montreal Carbon Pledge and UN Environment
Programme Finance Initiative and has received various ESG awards.
The REIT can acquire properties and favourable financing through
its sponsor network. It also has a lower cost of equity which gives
it an edge over peers. Its current forward dividend yield is 3.38%
and has an annualized dividend growth target of 4%. As a result of
its low funding cost advantage and ability to secure quality
investments, it consistently trades at a premium to NAV per share
(currently around 1.43x as of 31 May). Logistics and infrastructure
are a long-term structural growth area in Japan and the Industrial & Infrastructure
REIT offers a stable way to participate in this
growth.
Fair value of £2,286,514 representing 2.6% of Net Asset Value
(30 April 2021: 2.3%)
Disco (11,000 shares)
Disco is a semiconductor production equipment maker and holds
the top global share in slicing and dicing, grinding and polishing
equipment for semiconductors, electronic components and silicon
wafers. The stock also offers some defensive qualities as it also
has non-integrated circuit (IC) customers that provides some
counter-cyclical protection, and it has a large consumables and
maintenance business that generates steady recurring revenues.
Disco has benefited from the extension of the current semiconductor
cycle and the continued excess demand conditions in maintenance,
parts and consumables. Due to the acute semiconductor shortages as
a result of the pandemic, and more recently the war in Ukraine, the Japanese government is supporting
the onshoring of semiconductor production and strengthening of the
industry and supply chains in Japan as a strategic initiative. The same
phenomenon is occurring in other countries which is benefiting
Disco. The company is also a weak yen beneficiary and has a large
orderbook giving it visibility on steady sales growth for the next
few years regardless of where we are in the cycle.
Fair value of £2,162,207 representing 2.5% of Net Asset Value
(30 April 2021: 2.2%)
Wacom (370,000 shares)
Wacom is the leader in graphic tablets and has a 60% global
market share. The company dominates the professional design and
drafting industry, and is expanding into new applications in the
education and industrial markets. The company supplies digital pen
(stylus) technology solutions to customers such as Samsung (which
is a 5% owner), Lenovo, Dell, Google and Microsoft. The company has
long since been recognized as a leader in this area, but with CEO
Nobutaka Ide taking the helm in 2018
with a background in marketing, it has been repositioning itself as
a partner and solutions provider to global technology firms for
digital pens rather than just as a component supplier. There have
been efforts by some of the bigger players such as Apple to
establish their own stylus as the industry de facto standard. This
has not materialized, as other large players resisted letting their
competitor be the standard-setter. The company expects double digit
growth over the next several years.
Fair value of £2,143,347 representing 2.4% of Net Asset Value
(30 April 2021: 0.7%)
Sony (30,000 shares)
Sony is Japan’s leading consumer electronics and media company
and also a leading producer of semiconductor complementary metal
oxide semiconductor (CMOS) sensors which are essential for cameras.
It is the only global player that has a strong presence in
hardware, games, movies, TV, and semiconductors, and it has
demonstrated superior management and execution capability in its
recovery over the last decade. It competes with big global tech
giants like Samsung, Microsoft, Apple, and Disney and yet is
trading at less than 5% of the valuation (USD 112.6bil) of some of these companies (e.g.,
Apple at USD 2.4tril). Sony has both
the content and the delivery mechanisms and devices to distribute,
and a proven track record. It has opportunities in streaming across
all genres (film, music, games), autonomous drive and EVs, sensors,
AR/VR, healthcare, and many other areas. While there are concerns
of slowing consumer demand if global economic conditions worsen
during a period of inflation, these remain structural long-term
growth areas, and Sony is at a much lower overall valuation than
global peers. Sony is on a forward PER of 16.5x and is projecting
profit growth of 7-10% for the next 2-3 years.
Fair value of £2,061,169 representing 2.3% of Net Asset Value
(30 April 2021: 2.0%)
Schedule of Investments
As at 30 April
2022
|
|
|
|
|
|
|
|
Fair
value |
|
|
|
Holdings |
|
Financial assets at fair value through profit or loss |
|
£
'000 |
|
% of
NAV |
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks:
1.92% (30 April 2021: 0.00%) |
|
|
|
|
|
|
220,000 |
|
Keiyo
Bank |
|
|
|
|
671 |
|
0.77 |
|
42,000 |
|
Sumitomo
Mitsui Financial |
|
|
|
1,007 |
|
1.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals: 3.58% (30 April 2021: 4.51%) |
|
|
|
|
|
|
16,000 |
|
Shin-Etsu
Chemical |
|
|
|
|
1,762 |
|
2.02 |
|
90,000 |
|
Tri
Chemical Laboratories |
|
|
|
1,361 |
|
1.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction: 1.46% (30 April 2021: 0.68%) |
|
|
|
|
|
180,000 |
|
Besterra |
|
|
|
|
1,271 |
|
1.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric Appliances: 20.10% (30 April 2021: 21.93%) |
|
|
|
|
|
140,000 |
|
Chino |
|
|
|
|
|
1,379 |
|
1.58 |
|
6,000 |
|
Keyence
Corporation |
|
|
|
|
1,942 |
|
2.22 |
|
25,000 |
|
Kohoku
Kogyo |
|
|
|
|
1,110 |
|
1.27 |
|
12,000 |
|
Lasertec |
|
|
|
|
1,302 |
|
1.49 |
|
54,000 |
|
Nidec |
|
|
|
|
|
2,824 |
|
3.24 |
|
70,000 |
|
Optex |
|
|
|
|
|
738 |
|
0.85 |
|
45,000 |
|
Oxide |
|
|
|
|
|
1,496 |
|
1.71 |
|
30,000 |
|
Sony |
|
|
|
|
|
2,061 |
|
2.36 |
|
7,500 |
|
Tokyo
Electron |
|
|
|
|
2,548 |
|
2.92 |
|
370,000 |
|
Wacom |
|
|
|
|
2,143 |
|
2.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric Power & Gas: 0.00% (30 April 2021: 4.10%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information & Communication: 18.32% (30 April 2021:
14.45%) |
|
|
|
|
7,000 |
|
GMO
Financial Gate |
|
|
|
|
559 |
|
0.64 |
|
90,000 |
|
GMO
Internet |
|
|
|
|
1,447 |
|
1.66 |
|
18,000 |
|
Hikari
Tsushin |
|
|
|
|
1,681 |
|
1.93 |
|
55,000 |
|
Internet
Initiative Japan |
|
|
|
|
1,384 |
|
1.59 |
|
95,000 |
|
Plus Alpha
Consulting |
|
|
|
|
1,360 |
|
1.56 |
|
130,000 |
|
PR
TIMES |
|
|
|
|
1,713 |
|
1.96 |
|
110,000 |
|
SB
Technology |
|
|
|
|
1,517 |
|
1.74 |
|
24,000 |
|
Shift |
|
|
|
|
|
3,646 |
|
4.18 |
|
60,000 |
|
Simplex |
|
|
|
|
631 |
|
0.72 |
|
40,000 |
|
ULS |
|
|
|
|
|
975 |
|
1.12 |
|
55,000 |
|
VisasQ |
|
|
|
|
1,061 |
|
1.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery: 8.69% (30 April 2021: 11.60%) |
|
|
|
|
|
|
40,000 |
|
Daifuku |
|
|
|
|
1,972 |
|
2.26 |
|
11,000 |
|
Disco |
|
|
|
|
|
2,162 |
|
2.48 |
|
65,000 |
|
Giken |
|
|
|
|
|
1,419 |
|
1.63 |
|
170,000 |
|
Okada
Aiyon |
|
|
|
|
1,610 |
|
1.84 |
|
200,000 |
|
Yamashin-Filter |
|
|
|
|
424 |
|
0.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine
Transportation: 1.99% (30 April 2021: 0.00%) |
|
|
|
|
|
30,000 |
|
Nippon
Yusen |
|
|
|
|
1,738 |
|
1.99 |
|
|
Metal
Products: 0.93% (30 April 2021: 0.56%) |
|
|
|
|
|
70,000 |
|
SUMCO |
|
|
|
|
813 |
|
0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonferrous Metals: 2.24% (30 April 2021: 0.00%) |
|
|
|
|
|
50,000 |
|
Nippon
Denkai |
|
|
|
|
1,098 |
|
1.26 |
|
80,000 |
|
SWCC
Showa |
|
|
|
|
856 |
|
0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Financing Business: 3.26% (30 April 2021: 1.50%) |
|
|
|
|
|
120,000 |
|
Premium |
|
|
|
|
2,847 |
|
3.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Products: 1.84% (30 April 2021: 1.88%) |
|
|
|
|
|
15,000 |
|
Furuya
Metal |
|
|
|
|
863 |
|
0.99 |
|
50,000 |
|
Snow
Peak |
|
|
|
|
740 |
|
0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical: 2.86% (30 April 2021: 7.49%) |
|
|
|
|
|
75,000 |
|
CellSource |
|
|
|
|
1,773 |
|
2.03 |
|
60,000 |
|
Mizuho
Medy |
|
|
|
|
727 |
|
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Precision Instruments: 4.49% (30 April 2021: 3.73%) |
|
|
|
|
|
130,000 |
|
Asahi
Intecc |
|
|
|
|
2,022 |
|
2.32 |
|
110,000 |
|
Hirayama |
|
|
|
|
866 |
|
0.99 |
|
100,000 |
|
Topcon |
|
|
|
|
1,029 |
|
1.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate: 8.53% (30 April 2021: 5.58%) |
|
|
|
|
|
|
220,000 |
|
&Do
Holdings |
|
|
|
|
1,218 |
|
1.40 |
|
70,000 |
|
Aoyama
Zaisan Networks |
|
|
|
523 |
|
0.60 |
|
2,000 |
|
Industrial & Infrastructure Fund Investment Reits |
|
2,287 |
|
2.62 |
|
620 |
|
Japan
Logistics Fund Reits |
|
|
|
1,207 |
|
1.38 |
|
50,000 |
|
Katitas |
|
|
|
|
|
932 |
|
1.07 |
|
2,000 |
|
Renewable
Japan Energy Infrastructure Fund |
|
|
1,271 |
|
1.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rubber
Products: 0.00% (30 April 2021: 0.51%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities & Commodity Futures: 0.00% (30 April 2021:
0.24%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services: 20.49% (30 April 2021: 21.62%) |
|
|
|
|
|
|
42,000 |
|
Amvis
Holdings |
|
|
|
|
1,319 |
|
1.51 |
|
220,000 |
|
Bell
System24 Holdings |
|
|
|
2,018 |
|
2.31 |
|
40,000 |
|
Bengo4.com |
|
|
|
|
829 |
|
0.95 |
|
80,000 |
|
Creek
& River |
|
|
|
|
1,032 |
|
1.18 |
|
20,000 |
|
Daiseki |
|
|
|
|
575 |
|
0.66 |
|
50,000 |
|
Funai
Soken |
|
|
|
|
667 |
|
0.76 |
|
90,000 |
|
Japan
Elevator Service Holdings |
|
|
945 |
|
1.08 |
|
250,000 |
|
Japan
Material |
|
|
|
|
3,024 |
|
3.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services: 20.49% (30 April 2021: 21.62%) |
|
|
|
|
|
|
110,000 |
|
Kanamoto |
|
|
|
|
1,309 |
|
1.50 |
|
29,000 |
|
M3 |
|
|
|
|
|
746 |
|
0.85 |
|
90,000 |
|
Nihon
M&A Center |
|
|
|
|
889 |
|
1.02 |
|
45,000 |
|
Recruit
Holdings |
|
|
|
|
1,328 |
|
1.52 |
|
310,000 |
|
S-Pool |
|
|
|
|
|
2,485 |
|
2.85 |
|
45,000 |
|
Writeup |
|
|
|
|
738 |
|
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation Equipment: 1.67% (30 April 2021: 0.00%) |
|
|
|
|
30,000 |
|
Denso |
|
|
|
|
|
1,462 |
|
1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Trade: 2.49% (30 April 2021: 0.00%) |
|
|
|
|
|
160,000 |
|
Bike O |
|
|
|
|
|
1,112 |
|
1.27 |
|
55,000 |
|
Mitsui |
|
|
|
|
|
1,061 |
|
1.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Japan (30 April 2021: 100.38%) |
|
|
91,525 |
|
104.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
listed equities (30 April 2021: 100.38%) |
|
91,525 |
|
104.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments held at fair value through profit or loss |
|
|
|
|
91,525 |
|
104.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents (30 April 2021: (0.56%)) |
|
(4,533) |
|
(5.19) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
net assets (30 April 2021: 0.18%) |
|
|
287 |
|
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets attributable to equity shareholders |
|
87,279 |
|
100.00 |
|
|
|
|
|
|
|
|
|
|
|
Board of Directors
For the financial year ended
30 April 2022
NOEL LAMB (Chairman,
appointed to the Board on 1 February
2011 and appointed as Chairman on 1
May 2014), British, graduated from Exeter College, Oxford
University and a barrister-at-law. He joined Lazard Brothers & Co Limited in 1987 and
from 1992 to 1997 he was the managing director of Lazard Japan
Asset Management where he was the fund manager for their Japanese
equities. In 1997, he moved to the Russell Investment Group where
he established the investment management capability of Russell in
London. In 2002, he was promoted
to Chief Investment Officer in North
America where he managed assets of $150bn until his departure in 2008. In 2020, he
was appointed as a director of Guinness Asset Management Funds and
in January 2022 as chairman of
Rockwood Strategic plc.
PHILIP EHRMANN FCSI
(appointed to the Board on 25 October 2013), British,
graduated from the London School of
Economics with a BSc in Economics. He started his investment
career in 1981 specialising in the North American market before
heading up Emerging Markets for Invesco Asset Management. In 1995
he joined Gartmore Investment Management to undertake a similar
role, before becoming Head of Pacific & Emerging Markets.
Whilst at Gartmore he managed the Gartmore Asia Pacific Trust plc,
a pan-Asian Investment Trust. In 2006 he moved to Jupiter Asset
Management where he was Co-Head of Asia. At the beginning of 2015 he joined
Manulife Asset Management as a Senior Managing Director,
responsible for overseeing Global Emerging Markets equity
portfolios.
RICHARD PAVRY (appointed to the Board on 1 August 2016), British, is the Chief Executive
Officer at Devon Equity Management Limited. Richard graduated in
Natural Sciences from Cambridge
University before converting to law. He began his
career as a solicitor with Simmons & Simmons, moving to Jupiter
Asset Management in 2000 where he served as head of investment
trusts. He moved to Devon Equity Management Limited in November
2019. Richard has previously served as a non-executive
director of Jupiter Second Split Trust plc and is Chairman of Devon
Equity Funds SICAV.
MICHAEL MOULE (appointed
to the Board on 5 February 2018),
British, has a close connection to investment trusts and global
investment having managed The City of London Investment Trust plc,
The Bankers Investment Trust plc and The Law Debenture Corporation
plc during an extensive City career with Touche Remnant and Henderson Global Investors.
He was until May 2022 a member of the
Investment Committee of The Open University, and was previously
Chairman of Polar Capital Technology Trust plc.
YUKI SOGA (appointed to
the Board on 1 July 2021), Japanese,
currently residing in London.
Schooled in the UK and a graduate of Somerville College, Oxford,
she has spent most of her career to date working in Tokyo. Yuki commenced her career with lawyers
Clifford Chance and Herbert Smith and then researched quoted
Japanese equities for Arcus and Macquarie. She subsequently became
a partner at Indus Capital Tokyo. Since June
2020 Yuki has been running her own research and consulting
business.
Strategic Report
For the financial year ended
30 April 2022
The Strategic Report provides shareholders with enhanced
transparency and oversight capabilities when assessing how
directors have performed their duties to promote the continued
success of the company for shareholders’ collective benefit. This
is achieved by providing context to the financial statements,
analysis of past performance and insights into the decisions taken
to maintain future performance.
The Directors submit their Strategic Report, Directors’ Report
and Statement of Directors’ Responsibilities, together with the
Company’s Statement of Comprehensive Income, Statement of Changes
in Equity, Statement of Financial Position, Statements of Cash
Flows and the related Notes for the financial year ended
30 April 2022, together the “Audited
Financial Statements”. These Audited Financial Statements give a
true and fair view and have been properly prepared, in accordance
with International Financial Reporting Standards as adopted by the
European Union ("IFRS").
THE COMPANY
Atlantis Japan Growth Fund Limited (the “Company”) was
incorporated in Guernsey on
13 March 1996. The Company commenced
activities on 10 May 1996. The
Company is an authorised closed-ended investment scheme registered
and domiciled in P.O. Box 255, Trafalgar Court, Les Banques, St
Peter Port, Guernsey, GY1 3QL,
Channel Islands. The Company’s
equity shares are traded on the London Stock Exchange.
As an investment trust, the Company is classified as an
Alternative Investment Fund whose Alternative Investment Fund
Manager (AIFM), Quaero Capital LLP, is required to be authorised
and regulated by the Financial Conduct Authority. The Company is
itself subject to the UKLA Listing Rules, Prospectus Rules,
Disclosure Guidance and Transparency Rules (“DTR”) and the rules of
the London Stock Exchange.
INVESTMENT OBJECTIVE AND POLICY
The Company’s investment objective and policy are set out
above.
The Company’s investment activities are managed by Quaero
Capital LLP (“Investment Manager”) with the administration
delegated to Northern Trust International Fund Administration
Services (Guernsey) Limited.
KEY PERFORMANCE INDICATORS
(“KPIs”)
At each Board meeting, the Board considers a number of
performance measures to assess the Company’s success in achieving
its objectives. Below are the main KPIs which have been identified
by the Board for determining the progress of the Company:
· Change in Net Asset Value (“NAV”);
· Discount to the NAV;
· Share price; and
· Ongoing charges.
RESULTS AND DIVIDENDS
The results for the financial year are set out in the Statement
of Comprehensive Income below.
As a UK investment trust the Company is subject to the
provisions of the Corporation Tax Act 2010. Section 1158 includes a
retention test which states that the Company should not retain in
respect of any accounting period an amount which is greater than
15% of its income. This has been modified for accounting periods
beginning on or after 28 June 2013
such that a negative balance on a company's revenue reserve is
taken into account when calculating the amount of distributable
income. This is not relevant for the financial year ended
30 April 2022 (30 April 2021: not relevant).
Distributions of £4,511,513 were made during the financial year
(30 April 2021: £3,711,357) and the
Company met the retention test for the financial year ended
30 April 2022.
For more information please also refer to Packaged Retail and
Insurance-based Investment Products (“PRIIPs”) regulations
below.
CAPITAL VALUES
At 30 April 2022, the value of net
assets attributable to shareholders was £87,278,759 (30 April 2021: £116,501,330) and the NAV per
share was £2.11 (30 April 2021:
£2.79).
BUSINESS REVIEW AND TAX STATUS
The Company has been formally accepted into the investment trust
company regime, subject to the Company continuing to submit
appropriate annual tax filings to HM Revenue and Customs. In the
opinion of the Directors, the Company has conducted its affairs so
as to enable it to maintain ongoing investment trust status,
subject to completion of the relevant tax work.
DIVIDEND POLICY
There is a regular dividend paid to all shareholders on a
quarterly basis set at 1% of net asset value at the close of the
preceding financial year. The June
2021 dividend was made at the rate of 2.17p per share, being
1% of the average daily NAV per share in the final month of our
financial year ended the 30 April
2020. The quarterly dividend will be paid out of capital
resources at the end of each calendar quarter. The September 2021, December
2021 and March 2022 dividend
payments were made at the rate of 2.88p per share, being the
average daily NAV per share in the final month of our financial
year ended 30 April 2021. As a result
of the Company’s performance over the year to April 2022, the average NAV per share for the
month of April 2022 was 215p and so
the new quarterly dividend rate will be at 2.15p for the four
dividends payable at the end of September
2022, December 2022,
March 2023 and June 2023.
SHARE BUY-BACKS
The Company has been granted the authority to make market
purchases of up to a maximum of 14.99% of the aggregate number of
ordinary shares in issue at a price not exceeding the higher of (i)
5% above the average of the mid-market values of the ordinary
shares for the five business days before the purchase is made, or
(ii) the higher of the price of the last independent trade and the
highest current investment bid for the ordinary shares.
In deciding whether to make any such purchases the Directors
will have regard to what they believe to be in the best interests
of shareholders as a whole, to the applicable legal requirements
and any other requirements in the Articles. The making and timing
of any buy-backs will be at the absolute discretion of the Board
and not at the option of the shareholders, and is expressly subject
to the Company having sufficient surplus cash resources available
(excluding borrowed moneys).
The Board believes that the effective use of treasury shares can
assist the Company in improving liquidity in the Company’s ordinary
shares, managing any imbalance between supply and demand and
minimising the volatility of the discount at which the ordinary
shares trade to their NAV for the benefit of shareholders. It is
believed that this facility gives the Company the ability to sell
ordinary shares held in treasury quickly and cost effectively, and
provides the Company with additional flexibility in the management
of the capital base. During the financial year ended 30 April 2022, 378,000 shares were purchased into
treasury (30 April 2021: None). The
number of shares held in treasury at 30
April 2022 is 5,065,186 (30 April
2021: 4,687,186), the percentage of treasury shares in total
is 10.9% (30 April 2021: 10.1%).
The Board shall have regard to current market practice for the
re-issuance of treasury shares by investment trusts and the
recommendations of the Investment Manager and the Financial
Adviser. The Board’s current policy is that any ordinary shares
held in treasury will not be resold by the Company at a discount to
the Investment Manager and the Financial Adviser’s estimate of the
prevailing NAV per ordinary share as at the date of issue. The
Board will make an announcement of any change in its policy for the
re-issuance of ordinary shares from treasury via a Regulatory
Information Service approved by the Financial Conduct Authority
(“FCA”).
VIABILITY STATEMENT
In accordance with the AIC Code, the Board has assessed the
prospects of the Company over the next three years from the date of
this document. The Company’s investment objective is to achieve
long-term capital growth and the Board regards the Company as a
long-term investment.
The Board has considered the Company’s business model including
its investment objective and investment policy as well as the
principal risks and uncertainties that may affect the Company as
detailed below. The Board, in its assessment of the viability of
the Company, has considered each of the Company’s principal risks
as referred to below, in particular the impact of a significant
fall in the Japanese equity market on the value of the Company’s
investment portfolio. The Board has noted that the Company holds a
highly liquid portfolio invested predominantly in listed equities
and no significant increase to ongoing charges or operational
expenses is anticipated. Details of the ongoing charges are shown
in Note 19 to the Financial Statements.
After making reasonable inquiries and assessing all data
relating to the Company’s liquidity, particularly its holding of
significant liquid level 1 assets, the Directors believe that the
Company has adequate resources to continue in operational existence
until the next continuation vote and do not consider there to be
any threat from COVID-19 or other issues.
The Directors also review the level of the discount or premium
between the middle market price of the Company’s ordinary shares
and their NAV on a regular basis. The Directors have powers granted
to them at the last annual general meeting to purchase ordinary
shares and either cancel or hold them in treasury as a method of
controlling the discount to NAV and enhancing shareholder
value.
The Board has therefore concluded, based on the Company’s
processes for monitoring operating costs, share price discount, the
Investment Manager’s compliance with the investment objective,
asset allocation, the portfolio risk profile, gearing, counterparty
exposure, liquidity risk and financial controls, that there is a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the next
three years.
GOING CONCERN
As outlined in the Viability Statement above, the Directors
believe that the Company has adequate resources to continue in
operational existence for the next twelve months from the date of
approval of the Financial Statements. Whilst the Company is obliged
to hold a continuation vote every four years, the Directors do not
believe this should automatically trigger the adoption of a basis
other than going concern basis in line with the Association of
Investment Companies (“AIC”) Statement of Recommended Practice
(“SORP”) which states that it is more appropriate to prepare
financial statements on a going concern basis unless a continuation
vote has already been triggered and shareholders have voted against
continuation. The Directors have also considered the results of the
most resent continuation vote held at the 2021 annual general,
meeting whereby the resolution was passed for the Company to
continue in existence from the date of authorisation of the
financial statements. As noted above in the Company’s Viability
Statement, there are no material uncertainties relating to events
or conditions that may cast significant doubt as to the ability of
the Company to continue to meet its ongoing obligations.
After making enquiries and given the nature of the Company and
its investment, and having carried out an assessment
of the impact of COVID-19 on
the Company, the Directors are satisfied that it is
appropriate to continue to adopt the
going concern basis in preparing
these Financial Statements. The Company’s Investment Shares
are liquid and can be converted to cash to meet liabilities as they
fall due. The Board considers this to be sufficient for normal
requirements. After due consideration, the Directors consider that
the Company is able to continue for the foreseeable future from the
date of authorisation of the financial statements.
PRINCIPAL RISKS AND UNCERTANTIES
As an investment trust, the Company invests in securities for
the long term. The financial investments held as assets by the
Company comprise equity shares (see the Schedule of Investments
above for a breakdown). As such, the holding of securities,
investing activities and financing associated with the
implementation of the investment policy involve certain inherent
risks. Events may occur that could result in either a reduction in
the Company’s net assets or a reduction of revenue profits
available for distribution.
Principal risks should include, but are not necessarily limited
to, those that could result in events or circumstances that might
threaten the company’s business model, future performance,
solvency, liquidity and reputation. In deciding which risks are
principal risks companies should consider the potential impact and
probability of the related events or circumstances, and the
timescale over which they may occur.
The Board has carried out a robust assessment of the principal
and emerging risks facing the Company and prepares and reviews
regularly a risk matrix which documents the significant risks.
These risks have remained substantially unchanged since the prior
year with minor adjustment to accommodate unforeseen global events
such as COVID-19 and the war in Ukraine.
The risk matrix document considers the following
information:
· Identifying and reporting changes in the
risk environment;
· Identifying and reporting changes in the
operational controls;
· Identifying and reporting on the
effectiveness of controls and remediation of errors arising;
and
· Reviewing the risks faced by the Company and
the controls in place to address those risks.
Performance
Inappropriate investment policies and processes may result in
under-performance against the prescribed benchmark index and the
Company’s peer group. The Board manages these risks by ensuring a
diversification of investments and regularly reviewing the
portfolio asset allocation and investment process. The Board also
regularly monitors the Company’s investment performance against a
number of indices and the AIC Japanese smaller companies’
sub-sector peer group. In addition, certain investment restrictions
have been set and these are monitored as appropriate.
Discount
A disproportionate widening of the discount relative to the
Company’s peers could result in loss of value for shareholders. The
Board reviews the discount level regularly.
Up until September 2019, the
Company operated a shareholder-approved discount control mechanism
whereby the Company held a continuation vote if the shares traded,
on average, at a discount of more than 10% to the NAV per share
during any rolling 90 day period in normal market conditions. If
the obligation to hold a continuation vote was triggered, the vote
was held no later than the next practicable annual general meeting
of the Company.
Regulatory
The Company operates in a complex regulatory environment and
faces a number of regulatory risks. Breaches of regulations, such
as Section 1158 of the Corporation Tax Act 2010, the Companies
(Guernsey) Law, 2008, the UKLA
Listing Rules and the Disclosure and Transparency Rules (“DTR”),
could lead to a number of detrimental outcomes and reputational
damage. The Company conforms with the Alternative Investment Fund
Managers Directive (“AIFMD”). The Board relies on the services of
the Administrator, Northern Trust International Fund Administration
Services (Guernsey) Limited, and
its professional advisers to ensure compliance with the Companies
(Guernsey) Law, 2008, the
Protection of Investors (Bailiwick of Guernsey) Law, 2020 (“POI Law”), the
Authorised Closed-Ended Investment Scheme Rules and Guidance, 2021
(“Authorised Closed-ended Rules”), the UKLA Listing Rules and
Prospectus Rules, the DTR and the rules of the London Stock
Exchange.
Operational
Like most other investment trust companies, the Company has no
employees. The Company therefore relies upon the services provided
by third parties and is dependent on the control systems of the
Investment Manager, Investment Adviser, Company’s Administrator and
Depositary. The security, for example, of the Company’s assets,
dealing procedures, accounting records and maintenance of
regulatory and legal requirements depends on the effective
operation of these systems. These are regularly tested, monitored
and are reviewed by the Directors at the quarterly board
meetings.
Financial
The financial risks faced by the Company, including the impact
of changes in Japanese equity market prices on the value of the
Company’s investments, are disclosed in Note 15 to the Financial
Statements. The financial risks disclosed in Note 15 are detailed
for compliance with IFRS.
Global Events
COVID-19 continues to affect the global economy and this may
negatively impact the Company’s performance. In responding to the
risks of COVID-19, the Directors have established business
continuity plans and have inquired and are satisfied that service
providers have a process in place to continue to provide required
services to the Company and maintain compliance with laws and
regulations in the face of the challenges encountered.
The current geopolitical tension caused by the Russian invasion
of Ukraine is creating uncertainty
in the markets and directly impacting energy costs.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
(“ESG”) POLICIES
Although the Company does not have specific ESG or
sustainability objectives. the Board is convinced that integrating
ESG risks into the Company’s financial analysis will support making
better decisions for its shareholders. As a long-term investor it
is fundamentally important that the Company understands the
environmental, social and governance risks and opportunities
affecting its investments. Strong relationships built over many
years in the market enable the Company to use its position to
encourage transparency and flag areas of high ESG risk.
The Investment Manager, in consultation with the Investment
Adviser, operates an exclusion policy which incorporates exclusion
lists to screen investments across all applicable investment
strategies. These exclusion lists include any companies involved in
the production or distribution of indiscriminate and controversial
weapons, in line with international convention. Additionally,
companies whose conduct is in systematic and severe breach of UN
Global Compact principles are also excluded from investment
consideration. So too are companies that have a significant part of
their business exposed to coal mining and coal powered energy
without any public plans for significant reduction.
The Investment Manager and the Investment Adviser support all
the Principles of the Japan Stewardship Code for responsible
institutional investors and seek to fulfil their stewardship
responsibilities under the Code. Whilst using both external and
internal analysis, the Investment Manager, in consultation with the
Investment Adviser, seeks to vote on all investee companies’
matters in line with its responsible investment philosophy with the
aim of contributing positively and promoting the sustainable growth
and long-term success of investee companies and stakeholders.
The Investment Manager is a signatory/member of the
following:
· UN PRI
(United Nations Principles for Responsible Investment) to
demonstrate commitment to responsible investment. The PRI acts in
the long-term interests of its signatories, of the financial
markets and economies in which they operate and ultimately of the
environment and society.
· IIGCC (Institutional Investors Group
on Climate Change), which looks to influence corporations to
address long term risks associated with climate change.
· CDP (Carbon Disclosure Project), which
looks to influence companies to disclose their carbon footprint and
address risks associated with climate change. The project also
provides a wealth of environmental data reported by companies.
· TCFD (Task Force for Climate-related
Financial Disclosure). The Investment Manager has signed the
statement of support for the Financial Stability Board’s Task Force
on Climate-related Financial Disclosures. As such as it will make
annual disclosures in line with the recommendation in its annual
Sustainability Report, outlining its strategy and its targets.
FUTURE PROSPECTS
Please see the Chairman’s Statement above and the Investment
Advisors Report above for more information on the future prospects
of the Company.
SECTION 172 STATEMENT
Section 172 of the Companies Act 2006 (“UK Companies Act”)
applies directly to UK domiciled companies. Nonetheless, the
intention of the AIC Code is that the matters set out in section
172 are reported on by all London
listed investment companies, irrespective of domicile, provided
that this does not conflict with local company law.
Section 172 states that: A director of a company must act in the
way he or she considers, in good faith, would be most likely to
promote the success of the company for the benefit of its members
as a whole, and in doing so have regard (amongst other matters) to
the following six items:
| (a) the likely
consequences of any decision in the long term, |
In managing the
Company, the aim of the Board, Investment Manager and Investment
Adviser is always to ensure the long-term sustainable success of
the Company and, therefore, the likely long-term consequences of
any decision are a key consideration. In managing the Company
during the year under review, the Board acted in the way which it
considered, in good faith, would be most likely to promote the
Company’s long-term sustainable success and to achieve its wider
objectives for the benefit of Shareholders as a whole, having had
regard to the Company’s wider stakeholders and the other matters
set out in section 172 of the UK Companies Act. |
| (b) the interests of
the company’s employees, |
The Company does not
have any employees. |
| (c) the need to foster
the company’s business relationships with suppliers, customers and
others, |
The Board’s approach
is described under “Shareholders Relations” below. |
| (d) the impact of the
company’s operations on the community and the environment, |
The Board’s approach
is described under “Environmental, Social and Corporate Governance
Policies” above. |
| (e) the desirability
of the company maintaining a reputation for high standards of
business conduct, and |
The Board’s approach
is described under “Environmental, Social and Corporate Governance
Policies” above. |
| (f) the need to act
fairly as between members of the company. |
The Board’s approach
is described under “Shareholders Relations” below. |
Noel
Lamb
Philip Ehrmann
Chairman
Director
5 July 2022
Directors’ Report and Statement of Directors’ Responsibilities
For the financial year ended
30 April 2022
The Directors are pleased to present their twenty sixth Annual
Report and Audited Financial Statements of the Company for the
financial year ended 30 April
2022.
PRINCIPAL ACTIVITY
The Company is a Guernsey
registered authorised closed-ended investment company with UK
investment trust status traded on the London Stock Exchange. The
Company has a premium listing in the Official List. Trading in the
Company’s ordinary shares commenced on 10
May 1996.
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
The Directors are responsible for preparing Financial Statements
for each financial year which give a true and fair view of the
state of affairs of the Company and of the profit or loss of the
Company for that financial year. In preparing these Financial
Statements, the Directors are required to:
– select suitable accounting policies
and then apply them consistently;
– make judgements and estimates that are
reasonable and prudent;
– state whether applicable accounting
standards have been followed subject to any material departures
disclosed and explained in the Financial
Statements;
– prepare the Financial Statements on a
going concern basis unless it is inappropriate to presume that the
Company will continue in business.
We confirm, to the best of our knowledge, that:
– this Annual Report and Audited
Financial Statements, prepared in accordance with IFRS and
applicable Guernsey law, give a
true and fair view of the assets, liabilities, financial position
and assesses the Company’s position, performance, business model
and strategy of the Company; and
– this Annual Report and Audited
Financial Statements include information detailed in the Directors'
Report, the Investment Adviser’s Report and Notes to the Financial
Statements, which provides a fair review of the information
required by:
a) DTR 4.1.8 of the DTR, being a fair review of the
Company’s business and a description of the principal risks and
uncertainties facing the Company;
b) DTR 4.1.11 of the DTR,
being an indication of important events that have occurred since
the beginning of the financial year, the likely future development
of the Company, the Company’s use of financial instruments and,
where material, the Company’s financial risk management objectives
and policies and its exposure to price risk, credit risk, liquidity
risk and cash flow risk.
In the opinion of the Directors, the Annual Report and Audited
Financial Statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Company’s position, performance,
business model and strategy.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Financial Statements comply with the Companies (Guernsey) Law, 2008 (the “Companies Law”) and
the POI. 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 Directors’
Report and other information included in the Annual Report is
prepared in accordance with company law applicable in Guernsey. They are also responsible for
ensuring that the Annual Report includes information required by
the UKLA Listing Rules and the DTR.
The Directors who held office at the date of the approval of the
Financial Statements confirm that, so far as they are aware:
– There is no relevant audit information
of which the Company’s auditor is unaware; and
– Each Director has taken all the steps
they ought to have taken as Directors to make themselves aware of
any relevant audit information and to establish that the Company’s
auditor is aware of that information.
The Directors confirm that these Financial Statements comply
with these requirements.
In respect of the UK Criminal Finances Act 2017, which has
introduced a new corporate criminal offence of “failing to take
reasonable steps to prevent the facilitation of tax evasion”, the
Board confirms that it is committed to zero tolerance towards the
criminal facilitation of tax evasion.
PREPARATION OF FINANCIAL
STATEMENTS
The Financial Statements of the Company have been prepared in
accordance with IFRS.
SIGNIFICANT SHAREHOLDINGS
In accordance with the Company's Articles of Association the
Directors have the ability to request nominee shareholders to
disclose the beneficial shareholders they represent. Based on the
information received the following shareholders had a holding in
the Company in excess of 3% as at 30 April
2022.
|
Shareholder |
|
% |
|
Ordinary Shares |
| 1607 Capital
Partners |
|
23.35 |
|
9,731,003 |
| Allspring
Global Investments |
15.38 |
|
6,410,130 |
| Lazard Asset
Management |
|
6.21 |
|
2,588,903 |
| Hargreaves
Lansdown Asset Management |
5.24 |
|
2,186,032 |
| Premier Miton
Investors |
|
4.21 |
|
1,755,000 |
| Canaccord
Genuity Wealth Management |
4.12 |
|
1,715,561 |
| Interactive
Investor |
|
3.38 |
|
1,409,917 |
The Company has not received any notifications of changes to the
above mentioned holdings from 30 April
2022 to date of approval of the financial statements.
SECRETARY
The Secretary is Northern Trust International Fund
Administration Services (Guernsey)
Limited.
INDEPENDENT AUDITOR
Grant Thornton Limited were re-appointed as the independent
auditor at the Annual General Meeting, and Grant Thornton Limited
have indicated their willingness to be re-appointed in office.
Resolutions to re-appointing the Independent Auditor and
authorising the Directors to fix their remuneration will be
proposed at the Annual General Meeting.
CORPORATE GOVERNANCE AND SHAREHOLDER
RELATIONS
Details of the Company’s compliance with corporate governance
best practice, including information on relations with
shareholders, are set out in the Corporate Governance Statement
below and this statement forms part of the Directors’ Report.
ALTERNATIVE INVESTMENT FUND MANAGERS
DIRECTIVE
The Company has entered into the arrangements necessary to
ensure compliance with the AIFM Directive. Following a review of
the Company's management arrangements, the Board approved the
appointment of Quaero Capital LLP ("Quaero") as the Company's
Alternative Investment Fund Manager on the terms of and subject to
the conditions of the Investment Management Agreement between the
Company and Quaero.
The Board has also appointed Northern Trust (Guernsey) Limited (the "Depositary") to act as
the Company's depositary (as required by the AIFM Directive) on the
terms and subject to the conditions of a Depositary Agreement
between the Company, Quaero and the Depositary.
International Tax Reporting
For the purposes of the US Foreign Account Tax Compliance Act,
the Company registered with the US Internal Revenue Services
(“IRS”) as a Guernsey reporting
Foreign Financial Institution (“FFI”), received a Global
Intermediary Identification Number PYT2PS.99999.SL.831, and can be
found on the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and Development
(“OECD”), which has been adopted by Guernsey and which came into effect on
1 January 2016. The Board has taken
the necessary action to ensure that the Company is compliant with
Guernsey regulations and guidance
in this regard.
Noel
Lamb
Philip Ehrmann
Chairman
Director
5 July 2022
Directors’ Remuneration Report
For the financial year ended
30 April 2022
The Board has approved this report, in accordance with the rules
covering good communication to shareholders, as opposed to the
requirements and format of a typical listed company Directors’
Remuneration Report. An ordinary resolution for the approval of
this report will be put to the members at the forthcoming annual
general meeting.
REMUNERATION COMMITTEE
The Board as a whole fulfils the function of a Remuneration
Committee. The Company’s Financial Adviser, Corporate Broker and
Company Secretary will be asked to provide advice when the
Directors consider the level of Directors’ fees.
POLICY ON DIRECTORS’ FEES
The Board’s policy is that the remuneration of non-executive
Directors should reflect the experience of the Board as a whole and
be fair and comparable to that of other investment trusts that are
similar in size, have a similar capital structure and have a
similar investment objective.
The fees for the non-executive Directors are determined within
the limits of £200,000 set out in the Company’s Articles of
Incorporation. The Directors are not eligible for bonuses, pension
benefits, share options, long-term incentive schemes or other
benefits.
DIRECTORS’ SERVICE CONTRACTS
It is the Board’s policy that none of the Directors have a
service contract. Directors are appointed initially until the
following annual general meeting when, under the Company’s Articles
of Incorporation, it is required that they be re-elected by
shareholders. Thereafter, two Directors shall retire by rotation,
or if only one Director is subject to retire by rotation they shall
retire. The retiring Directors will then be eligible for
reappointment having been considered for reappointment by the
Chairman and other Directors. Notwithstanding the foregoing
provisions of the Company's Articles of Incorporation, the Board is
recommending that all Directors be subject to re-election as laid
out in AIC Code at the forthcoming annual general meeting.
DIRECTORS’ EMOLUMENTS FOR THE
FINANCIAL YEAR
The Directors who served in the financial year are entitled to
the following emoluments in the form of fees:
|
|
|
|
|
Year
ended |
|
Year
ended |
|
|
|
|
|
30
April 2022 |
|
30
April 2021 |
| Regular
fees |
|
|
|
£ |
|
£ |
| Noel Lamb |
|
|
|
|
34,000 |
|
33,000 |
| Richard
Pavry |
|
|
|
26,000 |
|
26,000 |
| Philip
Ehrmann |
|
|
|
29,000 |
|
28,500 |
| Michael
Moule |
|
|
|
26,000 |
|
26,000 |
| Yuki Soga
(appointed 1 July 2021) |
|
|
21,667 |
|
- |
|
|
|
|
|
136,667 |
|
113,500 |
|
|
|
|
|
|
|
|
DIRECTORS’ INTERESTS
The Directors listed above are all members of the Board at the
financial year end 30 April 2022.
Certain Directors had a beneficial interest in the Company by
way of their investment in the ordinary shares of the Company.
The details of these interests as at 30
April 2022 and 30 April 2021
are as follows:
|
|
|
|
|
Ordinary Shares |
|
Ordinary Shares |
|
|
|
|
|
30
April 2022 |
|
30
April 2021 |
| Noel Lamb |
|
|
|
|
30,000 |
|
23,250 |
| Richard
Pavry |
|
|
|
40,000 |
|
40,000 |
| Philip
Ehrmann |
|
|
|
50,000 |
|
50,000 |
| Michael
Moule |
|
|
|
50,000 |
|
40,000 |
As at the date of this report, there were no changes to the
Directors’ interests.
There were no relevant contracts in force during or at the end
of the financial year in which any Director had an interest. There
are no service contracts in issue in respect of the Company’s
Directors.
No Directors had a non-beneficial interest in the Company during
the financial year under review.
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC
COMPANIES LISTED ON RECOGNISED STOCK EXCHANGES
The following summarises the Directors’ directorships in other
public companies:
| Noel
Lamb |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Company
Name |
|
|
|
|
Stock
Exchange |
| Rockwood
Strategic plc |
|
|
|
London |
|
|
|
|
|
|
|
|
None of the other Directors held directorships in other public
companies during the financial year under review.
APPROVAL
A resolution for the approval of the Directors’ Remuneration
Report for the financial year ended 30 April
2022 will be proposed at the annual general meeting.
By order of the Board
Noel
Lamb
Philip Ehrmann
Chairman
Director
5 July 2022
Corporate Governance
For the financial year ended
30 April 2022
INTRODUCTION
The following Corporate Governance statement forms part of the
Directors’ Report above (DTR 7.2.1). The Board of the Company has
considered the principles and provisions of the February 2019 edition of the AIC Code of
Corporate Governance (the “AIC Code”). The AIC Code addresses all
the principles set out in the UK Corporate Governance Code 2018
(the “UK Code”), as well as setting out additional principles and
provisions on issues that are of specific relevance to the
Company.
The Company is subject to the Guernsey Financial Services
Commission ("GFSC") Code of Corporate Governance (the "GFSC Code")
and reports against the AIC Code which is deemed to comply with the
GFSC Code.
The Company has complied with the provisions of the AIC Code and
the relevant provisions of the UK Code throughout the financial
year, except as set out below:
– the role of the chief executive
– executive directors’ remuneration
– the need for an internal audit
function
– the need to appoint a senior
independent director
– the need to appoint a nomination
committee or management engagement committee
– the whistle blowing policy
The Board considers these provisions are not relevant to the
position of the Company, being an externally managed investment
company. The Company has therefore not reported further in respect
of these provisions. The Directors are non-executive and the
Company does not have employees, hence no whistle-blowing policy is
required. However, the Directors note that the Company’s service
providers have whistle blowing policies in place.
The AIC Code is available on the AIC website
(www.theaic.co.uk). It includes an explanation of how the
AIC Code adapts the Principles and Provisions set out in the UK
Code to make them relevant for investment companies.
THE BOARD
Disclosures under the AIC Code
The Board comprises five independent non-executive Directors
including the Chairman, Noel Lamb.
Due to the size of the Company, the nature of its activities and
the fact that all of the Directors are independent, the Board does
not consider it necessary to appoint a senior independent
Director.
The Board has not appointed a remuneration committee but,
comprising wholly independent Directors, the whole Board considers
these matters regularly. The Board considers agenda items formally
laid out in the Notice and Agenda, which are formally circulated to
the Board in advance of the meeting as part of the Board
papers.
The primary focus at board meetings is a review of investment
performance and associated matters such as the discount,
redemptions, gearing, asset allocation, marketing and investor
relations, peer group information and industry issues. There were
five board meetings (1 May 2020-30 April 2021: four), three Audit
Committee meetings (1 May 2020-30 April 2021: two) and six other
committee meetings (1 May 2020-30 April 2021: six) held during the
financial year 1 May 2021 to
30 April 2022. The table below shows
the number of formal meetings attended by each Director during the
financial year:
| Director |
Board
Meetings Attended |
Audit
Committee Meetings Attended |
Board
Committee Meetings Attended |
| Noel Lamb |
5/5 |
3/3 |
6/6 |
| Philip Ehrmann |
5/5 |
3/3 |
1/6 |
| Richard Pavry |
5/5 |
3/3 |
1/6 |
| Michael Moule |
5/5 |
3/3 |
4/6 |
| Yuki Soga (appointed 1
July 2021) |
4/5 |
3/3 |
-/6 |
Directors are appointed initially until the following annual
general meeting when, under the Company’s Articles of
Incorporation, it is required that they be re-elected by
shareholders. Thereafter, two Directors shall retire by rotation,
or if only one Director is subject to retire by rotation he shall
retire. The retiring Directors will then be eligible for
reappointment having been considered for reappointment by the
Chairman and other Directors. The Board is recommending that all
Directors be subject to re-election as laid out in AIC Code at the
forthcoming AGM.
The Board evaluates its performance and considers the tenure of
each Director including the Chairman on an annual basis, and
considers that the mix of skills, experience, ages and length of
service to be appropriate to the requirements of the Company. The
Directors can also provide feedback to the Chairman at the regular
quarterly board meetings, audit committee and other committee
meetings.
When considering succession planning, the Board bears in mind
the balance of skills, knowledge, sector experience and diversity
existing on the Board. The Board has noted amendments to the AIC
code to strengthen the principle on boardroom diversity following
the Davies Report. The Board considers diversity as part of the
annual performance evaluation and it is felt that there is a range
of backgrounds and each Director brings different qualities to the
Board and its discussions. It is not felt appropriate for the
Company to have set targets in relation to diversity; candidates
will be assessed in relation to the relevant needs of the Company
at the time of appointment. A good knowledge of investment
management generally, Japanese investment management specifically
and investment trust industry matters and sophisticated investor
concerns relevant to the Company will nevertheless remain the key
criteria by which new Board candidates will be assessed. The Board
will recommend when the recruitment of additional non-executive
Directors is required. Once a decision is made to recruit
additional Directors to the Board each Director is invited to
submit nominations and these are considered in accordance with the
Board’s agreed procedures. The Board may also use independent
external agencies as and when the requirement to recruit an
additional Board member becomes necessary.
The Board embraces the principles of the AIC Code but, with
regard to its provisions concerning Director tenure, is of the
opinion that an individual’s independence cannot be arbitrarily
determined on the basis of a set period of time. The Company’s
investment objective is to achieve long term capital growth and it
benefits from having long serving Directors with a detailed
knowledge of the Company’s operations to effectively oversee its
management on behalf of shareholders. The Company therefore does
not impose fixed term limits on Directors’ tenure as this would
result in a loss of experience and knowledge without any assurance
of increased independence. The Board, collectively and
individually, firmly believes in the continued independence of its
members. The Board confirms that the performance of all Directors
has been subject to formal evaluation and that they continue to be
effective in their role. The Board firmly recommends to
shareholders that all Directors should be re-elected.
There is an agreed procedure for Directors to take independent
professional advice if necessary, and at the Company’s expense.
This is in addition to the access which every Director has to the
advice of the Company Secretary. The Company has taken out
insurance through Bartlett Group Limited in respect of the
Directors’ liability. For the financial year ended 30 April 2022 the charge was £6,383 (30 April 2021: £5,205).
INTERNAL CONTROLS
The Board has delegated the responsibility for the management of
the Company’s investment portfolio, the provision of depositary
services and the administration, registrar and corporate
secretarial functions including the independent calculation of the
Company’s NAV and the production of the Annual Report and Audited
Financial Statements. The Annual Report and Audited Financial
Statements are also independently reviewed by the Audit Committee.
Whilst the Board delegates responsibility, it retains
responsibility for the functions it delegates and is responsible
for the risk management and systems of internal control. Formal
contractual agreements have been put in place between the Company
and providers of these services.
The Board directly on an ongoing basis and via its Audit
Committee has implemented a system to identify and manage the risks
inherent in such contractual arrangements by assessing and
evaluating the performance of the service providers, including
financial, operational and compliance controls and risk management
systems.
On an ongoing basis compliance reports are provided at each
Board meeting from the Administrator, Northern Trust International
Fund Administration Services (Guernsey) Limited, and the Audit Committee
reviews the Service Organisation Controls (SOC 1) report on this
service provider.
The extent and quality of the systems of internal control and
compliance adopted by the Investment Manager and the Investment
Adviser are also reviewed on a regular basis, and the primary focus
at each Board meeting is a review of investment performance and
associated matters such as gearing, asset allocation, marketing and
investment relations, peer group information and industry issues.
The Board also closely monitors the level of discount and has the
ability to buy back shares in the market.
The Board believes that it has implemented an effective system
for the assessment of risk, but the Company has no staff, has no
internal audit function and can only give reasonable but not
absolute assurance that there has been no material financial
misstatement or loss.
COMMITTEES
The Board has established an Audit Committee which is described
below.
The Board has not appointed a Management Engagement Committee or
Nomination Committee but has chosen to assess and review the
performance of the Board and contractual arrangements with the
Investment Manager, Investment Adviser and service providers to the
Company on an annual basis by the entire Board who are independent
non-executive Directors. Details of the Investment Management
Agreement are shown in Note 6 to the Financial Statements.
Audit Committee
The Audit Committee operates within defined terms of reference.
The Audit Committee’s responsibilities include, but are not limited
to (see below for more details):
– review of draft annual and interim
report and financial statements;
– review of independence, objectivity,
qualifications and experience of the auditor; and
– review of audit fees.
The Audit Committee is appointed by the Board and comprises Mr
Ehrmann as Chairman, Mr Pavry, Mr Lamb, Mr Moule and Ms Soga.
In accordance with the AIC Code, the Board has determined that
Mr Ehrmann has recent and relevant financial experience. All other
members of the Audit Committee are deemed to have the necessary
ability and experience to understand the Financial Statements. For
more information on the Audit Committee, including their relevant
sector experience, please see above.
The Chairman is also a member of the Audit Committee and in
accordance with the AIC Code, the Board has deemed this appropriate
as all of the other members of the Audit Committee are independent
non-executive Directors and the Chairman may not be the Chairman of
the Audit Committee.
The function of the Audit Committee is to ensure that the
Company maintains the highest standards of integrity, financial
reporting and internal control.
The Audit Committee meets with the Company’s external auditor
annually to review the Audited Financial Statements.
The Audit Committee meets at least twice a year and may meet
more frequently if the Audit Committee deems necessary or if
required by the Company’s auditor.
The Company’s auditor is advised of the timing of the Audit
Committee Meetings. The Audit Committee has access to the
Compliance officers of the Investment Manager, the Administrator
and the Depositary.
The Company Secretary is the Secretary of the Audit Committee
and attends all meetings of the Audit Committee.
The Audit Committee is authorised by the Board to investigate
any activity within its terms of reference. It is authorised to
obtain outside legal or other independent professional advice and
to secure the attendance of outsiders with relevant experience and
expertise if it considers this necessary.
SHAREHOLDER RELATIONS
The Board monitors the trading activity and shareholder profile
on a regular basis and maintains contact with the Company’s
stockbroker to ascertain the views of shareholders. Shareholders
where possible are contacted directly on a regular basis, and
shareholders are invited to attend the Company’s annual general
meeting in person and ask questions of the Board and Investment
Adviser. Following the annual general meeting each year the
Investment Adviser gives a presentation to the shareholders.
The Company reports to shareholders twice a year and a proxy
voting card is sent to shareholders with the Annual Report and
Audited Financial Statements. The Registrar monitors the voting of
the shareholders and proxy voting is taken into consideration when
votes are cast at the annual general meeting. Shareholders may
contact the Directors via the Company Secretary. In addition,
estimated NAVs are published on a daily basis and monthly
factsheets are published on the Investment Manager's website at
www.atlantisjapangrowthfund.com.
EVALUATION OF PERFORMANCE OF
INVESTMENT MANAGER AND INVESTMENT ADVISER
The investment performance is reviewed at each regular Board
meeting at which representatives of the Investment Manager and
Investment Adviser are required to provide answers to any questions
raised by the Board. The Board has instigated an annual formal
review of the Investment Manager and Investment Adviser which
includes consideration of:
– performance compared with benchmark
and peer group;
– investment resources dedicated to the
Company;
– investment management fee arrangements
and notice period compared with peer group; and
– marketing effort and resources
provided to the Company.
In the opinion of the Directors the continuing appointment of
the Investment Manager and Investment Adviser on the terms agreed
is in the interests of the Company’s shareholders as a whole.
By order of the Board
Noel
Lamb
Philip Ehrmann
Chairman
Director
5 July 2022
Audit Committee Report
For the financial year ended
30 April 2022
On the following pages, we present the Audit Committee's Report,
setting out the responsibilities of the Audit Committee and its key
activities for the financial year ended 30
April 2022.
The Audit Committee has continued its detailed scrutiny of the
appropriateness of the Company’s system of risk management and
internal controls, the robustness and integrity of the Company’s
financial reporting, along with the external audit process. The
Committee has devoted time to ensuring that controls and processes
have been properly established, documented and implemented.
During the course of the financial year, the information that
the Audit Committee has received has been timely and clear and has
enabled the Audit Committee to discharge its duties
effectively.
The Audit Committee supports the aims of the UK Code, the AIC
code and the best practice recommendations of other corporate
governance organisations and the Association of Investment
Companies (“AIC”), and believes that reporting against the revised
AIC Code allows the Audit Committee to further strengthen its role
as a key independent oversight Committee.
ROLE AND RESPONSIBILITIES
The primary function of the Audit Committee is to assist the
Board in fulfilling its oversight responsibilities. This includes
reviewing the financial reports and other financial information
before publication.
In addition, the Audit Committee reviews the systems of internal
controls on a continuing basis that the Investment Manager and the
Board have established with respect to finance, accounting, risk
management, compliance, fraud and audit. The Committee also reviews
the accounting and financial reporting processes, along with
reviewing the roles, independence and effectiveness of the external
auditor.
The ultimate responsibility for reviewing and approving the
Annual Report and Audited Financial Statements remains with the
Board.
The Audit Committee's full terms of reference can be obtained by
contacting the Company's Administrator.
RISK MANAGEMENT AND INTERNAL
CONTROL
The Board, as a whole, including the Audit Committee members,
considers the nature and extent of the Company’s risk management
framework and the risk profile that is acceptable in order to
achieve the Company’s strategic objectives. As a result, it is
considered that the Board has fulfilled its obligations under the
AIC Code.
The Audit Committee continues to be responsible for reviewing
the adequacy and effectiveness of the Company’s on-going risk
management systems and processes. Its system of internal controls,
along with its design and operating effectiveness, is subject to
review by the Audit Committee through reports received from the
Investment Manager, Investment Adviser and Depositary, along with
those from the Administrator and external auditor.
The Audit Committee has reviewed the need for an internal audit
function and has decided that the systems and procedures employed
by the Investment Manager, Investment Adviser, Administrator and
Depositary provide sufficient assurance that a sound system of risk
management and internal control, which safeguards shareholders’
investments and the Company’s assets, is maintained. An internal
audit function is therefore considered unnecessary.
FRAUD, BRIBERY AND CORRUPTION
The Audit Committee has relied on the overarching requirement
placed on all service providers under the relevant agreements to
comply with applicable law. The Audit Committee reviews the service
provider policies and receives a confirmation from all service
providers that there have been no instances of fraud or
bribery.
FINANCIAL REPORTING AND SIGNIFICANT
FINANCIAL ISSUES
The Audit Committee assesses whether suitable accounting
policies have been adopted. The Audit Committee reviews accounting
papers prepared by the Investment Manager and Administrator which
provide details on the main financial reporting judgements.
The Audit Committee also reviews reports by the external auditor
which highlight any issues with respect to the work undertaken on
the audit.
The significant issues considered during the financial year by
the Audit Committee in relation to the Financial Statements and how
they were addressed is detailed below:
(i) Valuation of Investments:
The Company’s investments had a fair value of £91,525,470 as at
30 April 2022 and represent a
substantial portion of the assets of the Company. As such this is
the largest factor in relation to the consideration of the
Financial Statements. These investments are valued in accordance
with the Significant Accounting Policies set out in Note 2 (f) to
the Financial Statements. The Audit Committee considered the
valuation of the investments held by the Company as at 30 April 2022 to be correct from information
provided by the Investment Manager, Investment Adviser, Depositary
and Administrator on their processes for the valuation of these
investments.
(ii) Income Recognition:
The Audit Committee considered the income from investments
recorded in the Financial Statements for the financial year ended
30 April 2022. Income from
investments is recognised in accordance with the Significant
Accounting Policies set out in Note 2 (d). The Audit Committee
reviewed information obtained from the Investment Manager and was
satisfied that income (excluding net realised and unrealised
gains/losses on investments), having arisen solely from dividends
declared by listed equities, was correctly stated in the Financial
Statements.
(iii) Review of the Financial Statements:
At the request of the Audit Committee, the Administrator
confirmed that it was not aware of any material misstatements,
including matters relating to Financial Statements presentation. At
the Audit Committee meeting to review the Annual Report and Audited
Financial Statements, the Audit Committee received and reviewed the
audit findings report from the external auditor. On the basis of
its review of this report, the Audit Committee is satisfied that
the external auditor has fulfilled its responsibilities with
diligence and professional scepticism. The Audit Committee advised
the Board that these Annual Report and Audited Financial
Statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Company’s position, performance, business model and strategy.
The Audit Committee will consider and make recommendations to the
Board in relation to the appointment and re-appointment of the
Company’s external auditor. The Audit Committee will discuss with
the external auditor concerning such issues as compliance with
accounting standards and any proposals which the external auditor
has made regarding internal auditing procedures.
(iv) COVID-19
COVID-19 continues to adversely affected the global economy and
this may negatively impact the Company’s performance.
The Audit Committee is satisfied that appropriate disclosures
have been included in the Financial Statements.
EXTERNAL AUDITOR
The Audit Committee has responsibility for making a
recommendation on the appointment, reappointment and removal of the
external auditor.
During the financial year the Audit Committee received and
reviewed the audit plan, audit findings report and audit report
from the external Auditor. To assess the effectiveness of the
external audit process, the auditor was asked to articulate the
steps that they have taken to ensure objectivity and independence,
including where the auditor provides non-audit services. The Audit
Committee also reviewed the work done during the financial year by
the external auditor as part of the audit process and from time to
time compares their effectiveness as well as their costs with the
benefit of the experience they have had in other investment
management houses and relevant contexts. These steps enable the
Audit Committee to monitor the auditor’s performance, behaviour and
effectiveness during the exercise of their duties, which informs
the decision to recommend reappointment on an annual basis. The
Audit Committee under its terms of reference reviews the
appointment and re-appointment of the external auditor typically at
its December meeting in advance of the reviewing the audit approach
for the Annual Report and Audited Financial Statements.
The Committee ensures that auditor objectivity and independence
are safeguarded by requiring pre-approval by the Committee for all
non-audit services provided to the Company, which takes into
consideration:
– confirmation from the auditor that
they have adequate arrangements in place to safeguard their
objectivity and independence in carrying out such work, within the
meaning of the regulatory and professional requirements to which
they are subject;
– the fees to be incurred, relative to
the audit fees;
– the nature of the non-audit services;
and
– whether the auditor’s skills and
experience make it the most suitable supplier of such services and
whether they are in a position to provide them.
The following table summarises the remuneration paid for
services of Grant Thornton Limited during the financial year ended
30 April 2022 and 30 April 2021.
|
|
|
|
|
|
For
the financial year ended 30 April 2022 |
|
|
|
|
|
|
£ |
| Annual audit |
|
|
|
|
|
36,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the financial year ended 30 April 2021 |
|
|
|
|
|
|
£ |
| Annual audit |
|
|
|
|
|
35,000 |
For any questions on the activities of the Audit Committee not
addressed in the foregoing, a member of the Audit Committee will
attend each annual general meeting to respond to such
questions.
The Audit Committee Report was approved on 5 July 2022 and signed on behalf of the Audit
Committee by:
Philip Ehrmann
Chairman, Audit Committee
Depositary Statement
For the financial year ended
30 April 2022
REPORT OF THE DEPOSITARY TO THE
SHAREHOLDERS
Northern Trust (Guernsey)
Limited has been appointed as Depositary to Atlantis Japan Growth
Fund Limited (the “Company”) in accordance with the requirements of
Article 36 and Articles 21(7), (8) and (9) of the Directive
2011/61/EU of the European Parliament and of the Council of
8 June 2011 on Alternative Investment
Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and
Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the “AIFM
Directive”).
We have enquired into the conduct of Quaero Capital LLP (the
“AIFM”) for the financial year ended 30
April 2022, in our capacity as Depositary to the
Company.
This report, including the review provided below, has been
prepared solely for the shareholders of the Company. We do not, in
giving this report, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown.
Our obligations as Depositary are stipulated in the relevant
provisions of the AIFM Directive and the relevant sections of
Commission Delegated Regulation (EU) No 231/2013 (collectively the
“AIFMD legislation”).
Amongst these obligations is the requirement to enquire into the
conduct of the AIFM and the Company and their delegates in each
annual accounting period.
Our report shall state whether, in our view, the Company has
been managed in that period in accordance with the AIFMD
legislation. It is the overall responsibility of the AIFM to comply
with these provisions. If the AIFM or their delegates have not so
complied, we, as the Depositary, will state why this is the case
and outline the steps which we have taken to rectify the
situation.
BASIS OF DEPOSITARY REVIEW
The Depositary conducts such reviews as it, in its reasonable
discretion, considers necessary in order to comply with its
obligations and to ensure that, in all material respects, the
Company has been managed (i) in accordance with the limitations
imposed on its investment and borrowing powers by the provisions of
its constitutional documentation and the appropriate regulations
and (ii) otherwise in accordance with the constitutional
documentation and the appropriate regulations. Such reviews vary
based on the type of company, the assets in which a company invests
and the processes used, or experts required, in order to value such
assets.
REVIEW
In our view, the Company has been managed during the year, in
all material respects:
(i) in accordance with the limitations imposed on the investment
and borrowing powers of the Company by the constitutional document
and by the AIFMD legislation; and
(ii) otherwise in accordance with the provisions of the
constitutional document and the AIFMD legislation.
For and on behalf of
Northern Trust (Guernsey)
Limited
5 July 2022
Independent Auditor’s Report to the Members of Atlantis Japan
Growth Fund Limited
For the financial year ended
30 April 2022
Opinion
We have audited the financial statements of Atlantis Japan
Growth Fund Limited (the ‘Company’) for the year ended 30 April 2022, which comprise the Statement of
Comprehensive Income, the Statement of Changes in Equity, the
Statement of Financial Position, the Statement of Cash Flows and
notes to the financial statements, including a summary of
significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and
International Financial Reporting Standards as adopted by the
European Union (IFRSs).
In our opinion, the financial statements:
· give a true and fair view of the state of
the Company’s affairs as at 30 April
2022 and of its loss for the year then ended;
· are in accordance with IFRSs; and
· comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
‘Auditor’s responsibilities for the audit of the financial
statements’ section of our report. We are independent of the
Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in Guernsey, including the FRC’s Ethical Standard
as applied to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Conclusions relating to going
concern
We are responsible for concluding on the appropriateness of the
directors’ use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant
doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to
draw attention in our report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to
modify the auditor’s opinion. Our conclusions are based on the
audit evidence obtained up to the date of our report. However,
future events or conditions may cause the Company to cease to
continue as a going concern.
Our evaluation of the directors’ assessment of the Company’s
ability to continue to adopt the going concern basis of accounting
included:
· We assessed the determination made by the
Board of Directors that the Company is a going concern and hence
the appropriateness of the financial statements to be prepared on
going concern basis;
· Evaluation of the Company’s liquidity,
solvency and ability to meet its ongoing liabilities as they fall
due, in what we believed would be the Company’s worst-case
scenario;
· We obtained management’s assessment of going
concern and corroborated management’s key assertion that
investments held could easily be converted to cash (if required),
by review of the frequency of investment trading activity during
the year and shortly after the year end;
· We challenged the appropriateness of
management’s key assertions by challenging the assumptions used
including their expectation on the impact of the continuing
challenge of Covid-19 and the impact of the Russian/Ukraine crisis on the markets; and
· We assessed the disclosures in the financial
statements relating to going concern to ensure they were fair,
balanced and understandable and in compliance with IAS 1
‘Presentation of Financial Statements’.
In our evaluation of the directors’ conclusions, we considered
the inherent risks associated with the Company’s business model
including effects arising from macro-economic uncertainties such as
Covid-19, we assessed and challenged the reasonableness of
estimates made by the directors and the related disclosures and
analysed how those risks might affect the Company’s financial
resources or ability to continue operations over the going concern
period.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
In relation to the Company’s reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the directors’ statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
The responsibilities of the directors with respect to going
concern are described in the ‘Responsibilities of directors for the
financial statements’ section of this report.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those that had
the greatest effect on:
Ø the overall audit strategy;
Ø the allocation of resources in the audit; and
Ø directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
In the graph below, we have presented the key audit matters,
significant risks and other risks relevant to the audit.
| Key Audit Matter |
How our scope addressed the matter |
Existence and
valuation of the portfolio of investments
The portfolio of investments is fully comprised of quoted
investments which are held by an external Custodian and valued
using publicly available quoted market prices, in accordance with
IFRS 9 Financial Instruments and IFRS 13 Fair Value
Measurement.
Whilst the valuation of these investments is not considered
complex, nor does it involve significant judgements and estimates
to be made by management, the market value of investments is
material to the Company, as they represent 105% of the net asset
value as at 30 April 2022 and represent a balance considerably
larger than any other reported balance within the Company’s
financial statements. |
In responding to the
key audit matter, we performed the following audit procedures:
o We obtained an understanding of the
internal control environment and inspected the Administrator’s
‘System and Organization Controls (SOC 1) Report’ and associated
Independent Service Auditor Report to identify if controls
applicable to the audit of the existence and valuation of
investment balances had been included within the SOC 1 report,
tested by the Independent Service Auditor and that they were
concluded as operating effectively during the year;
o We agreed all the shares/units held
within the investment portfolio to third party confirmation
obtained from the Custodian;
o We compared the value per share/unit of
each investment held within the investment portfolio to prices
stated on publicly available pricing sources.
o We selected a sample of investment sales
and purchases which occurred during the year and agreed the
transactions selected to supporting contracts and cash
payments/receipts; and |
| Due to the financial significance of
the investments held at the year-end, an error or misstatement
regarding the recognition/ inclusion of a single investment could
lead to a material misstatement within the financial statements. As
the risk of potential financial statement impact was considered
high, the existence and valuation of the portfolio of investments
was considered to be the most significant assessed risk of material
misstatement. |
o Where applicable, we assessed the
foreign exchange rate applied to convert the value of all
investments to GBP and concluded on whether the foreign exchange
rate applied was reasonable in comparison to publicly available
rates. |
Relevant
disclosures in the Annual Report and Audited Financial
Statements
o Audit committee report
o Financial Statements: note 2(f), Investments held at fair
value through profit and loss; note 15, Financial risk management
objectives and policies and note 16, Investments held at fair value
through profit or loss. |
Our results
Based on our work, we did not find any material misstatement
relating to the valuation and existence of investments.
|
Our application of materiality
We apply the concept of materiality both in planning and
performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if
any, on the financial statements and in forming the opinion in the
auditor’s report.
Materiality was determined as follows:
| Materiality measure |
| Materiality for financial
statements as a whole |
We define materiality as the
magnitude of misstatement in the financial statements that,
individually or in the aggregate, could reasonably be expected to
influence the economic decisions of the users of these financial
statements. We use materiality in determining the nature, timing
and extent of our audit work. |
| Materiality threshold |
£873,000, which is 1% of the
Company’s net asset value as at 30 April 2022. |
| Significant judgements
made by auditor in determining materiality |
In determining
materiality, we made the following significant judgements:
Ø A key performance indicator/metric for users of the financial
statements is net asset value of the Company, specifically
the change in net asset value per share. It is indicated in the
Strategic Report that the Board considers the change in Net Asset
Value as a measure in assessing the Company’s success in achieving
its objectives.
Ø Significant income and consequently profit/loss for the year is
dependent upon the transactions within, and the valuation of, the
investment portfolio.
Ø Net asset value is the generally accepted measure used for
similar companies within the industry.
Materiality for the current year is lower than the level that we
determined for the year ended 30 April 2021 to reflect the decrease
in net asset value as at 30 April 2022 compared to the net asset
value as at 30 April 2021. |
| Performance materiality used to
drive the extent of our testing |
We set performance materiality at an
amount less than materiality for the financial statements as a
whole to reduce to an appropriately low level the probability that
the aggregate of uncorrected and undetected misstatements exceeds
materiality for the financial statements as a whole. |
| Performance materiality
threshold |
£611,000, which is 70% of financial
statement materiality. |
| Significant judgements
made by the auditor in determining the performance materiality |
In
determining performance materiality, we made the following
significant judgements:
Ø No misstatements or control deficiencies were identified in the
prior year audit and our assessment of the control environment in
the current year, concluded there were strong controls around the
relevant business processes and financial reporting
activities. |
| Specific
materiality |
We determine specific
materiality for one or more particular classes of transactions,
account balances or disclosures for which misstatements of lesser
amounts than materiality for the financial statements as a whole
could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial statements.
Our assessment did not highlight any particular classes of
transactions, account balances or disclosures where a lower level
of specifically materiality was required. |
| Communication of misstatements to
the audit committee |
We determine a threshold for
reporting unadjusted differences to the audit committee. |
| Threshold for communication |
Misstatements below £43,600 and
misstatements that, in our view, warrant reporting on qualitative
grounds. |
The graph below illustrates how performance materiality
interacts with our overall materiality and the tolerance for
potential uncorrected misstatements.
An overview of the scope of our
audit
The day-to-day management of the Company’s investment portfolio,
the custody of its investments and the maintenance of the Company’s
accounting records is outsourced to third-party service providers.
Accordingly, our audit work is focussed on obtaining an
understanding of, and evaluating, internal controls at the
Company and the third-party service providers (which included
obtaining the SOC 1 Report of the Administrator), and inspecting
records and documents held by these third-party service providers.
The Company engages an investment manager, Quaero Capital LLP, to
manage the investment portfolio. We had interaction with the
investment manager which included correspondence on Company
performance, in completing aspects of our audit work.
We undertook substantive testing on significant transactions,
balances and disclosures, the extent of which was based on various
factors such as our overall assessment of the control environment,
the effectiveness of controls over individual systems and the
management of specific risks. The majority of our substantive
testing focused on the audit of the investment portfolio and
associated disclosures as at the reporting date and the movement in
investment holdings during the year. There were no changes in
approach from the previous period.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the Annual
Report and Audited Financial Statements, other than the financial
statements and our auditor’s report thereon. Our opinion on the
financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to
report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
· proper accounting records have not
been kept by the Company; or
· the Company’s financial statements are
not in agreement with the accounting records; or
· we have not obtained all the
information and explanations, which to the best of our knowledge
and belief, are necessary for the purposes of our audit.
Corporate governance statement
The Listing Rules require us to review the directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the Company’s
compliance with the provisions of the UK Corporate Governance Code
specified for our review. The Company has also reported compliance
against the GFSC Finance Sector Code of Corporate Governance and
the AIC Code of Corporate Governance (the “Code”) which has been
endorsed by the UK Financial Reporting Council as being consistent
with the UK Corporate Governance Code to meet the Company’s
obligations, as an investment company, under the Listing Rules of
the FCA. Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
· the directors’ statement in the financial
statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting in preparing the
financial statements and the directors’ identification of any
material uncertainties to the Company’s ability to continue to do
so over a period of at least twelve months from the date of
approval of the financial statements;
· the directors’ explanation in the Annual
Report and Audited Financial Statements as to how they have
assessed the prospects of the Company, over what period they have
done so and why they consider that period to be appropriate, and
their statement as to whether they have a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any
necessary qualifications or assumptions;
· the directors’ statement that they consider
the annual report and financial statements taken as a whole is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s performance,
business model and strategy;
· the directors’ confirmation in the annual
report that they have carried out a robust assessment of the
principal and emerging risks facing the Company (including the
impact of Covid-19) and the disclosures in the annual report that
describe the principal risks, procedures to identify emerging risks
and an explanation of how they are being managed or mitigated
(including the impact of Covid-19);
· the section of the annual report that
describes the review of the effectiveness of Company’s risk
management and internal control systems, covering all material
controls, including financial, operational and compliance controls;
and
· the section of the annual report describing
the work of the audit committee, including significant issues that
the audit committee considered relating to the financial statements
and how these issues were addressed.
Responsibilities of directors for the
financial statements
As explained more fully in the statement of directors’
responsibilities, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Explanation as to what extent the
audit was considered capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. Owing to the
inherent limitations of an audit, there is an unavoidable risk that
material misstatements in the financial statements may not be
detected, even though the audit is properly planned and performed
in accordance with the ISAs (UK).
The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
· We obtained an understanding of the legal
and regulatory frameworks applicable to the Company and the
investment industry in which it operates, becoming familiar with
applicable laws and regulations. We determined that the following
laws and regulations were most significant:
o IFRSs;
o The Companies (Guernsey) Law, 2008;
o The Protection of Investors (Bailiwick of Guernsey) Law, 2020;
o The UK Corporate Governance Code;
o The Association of Investment Companies (AIC) Code of
Corporate Governance and GFSC Finance Sector Code of Corporate
Governance.
o FCA Listing Rules;
o FCA Disclosure Guidance and Transparency Rules;
o The Authorised Closed—Ended Investment Scheme Rules and
Guidance 2021;
o The Alternative Investment Fund Managers Directive;
and
o Applicable tax legislation in Guernsey and the United Kingdom.
· We obtained an understanding of how the
Company is complying with those legal and regulatory frameworks by
making inquiries of management and those responsible for legal and
compliance procedures. We corroborated our inquiries through our
review of board minutes and reports prepared for Board meetings and
Audit Committee meetings.
· In assessing the potential risks of material
misstatement we:
o Obtained an understanding of the Company’s operations,
including the nature of its revenue sources and investment
operations and of its objectives and strategies to understand the
classes of transactions, account balances, expected financial
statement disclosures and business risks that may result in risks
of material misstatement;
o Obtained an understanding of the applicable statutory
provisions;
o Reviewed the policies and procedures implemented by the
Company to review and monitor compliance with its regulatory
requirements; and
o Reviewed compliance reports prepared by the
Administrator/Secretary and presented to the Board throughout the
year.
· We assessed the susceptibility of the
Company’s financial statements to material misstatement, including
how fraud might occur. We also considered investor focus and
management remuneration which may create an incentive for
management to manipulate profit. We considered the possibility of
fraud through management override and, based on our understanding,
we designed and incorporated the following audit procedures into
our audit strategy to identify instances of fraud and
non-compliance with relevant laws and regulations:
o Identifying and assessing relevant controls management
has in place to prevent and detect fraud;
o Identifying and testing journal entries, in particular
any journal entries posted with unusual account combinations;
and
o Assessing the extent of compliance with the relevant
laws and regulations as part of our procedures on the related
financial statement item.
· These audit procedures were designed to
provide reasonable assurance that the financial statements were
free from fraud or error. The risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting
one resulting from error and detecting irregularities that result
from fraud is inherently more difficult than detecting those that
result from error, as fraud may involve collusion, deliberate
concealment, forgery or intentional misrepresentations. Also, the
further removed non-compliance with laws and regulations is from
events and transactions reflected in the financial statements, the
less likely we would become aware of it.
· It was assessed and concluded that the
engagement team collectively have the appropriate competence and
capabilities to recognise non-compliance with laws and
regulations.
· Relevant laws and regulations and potential
fraud risks were communicated to all engagement team members. We
remained alert to any indications of fraud or non-compliance with
laws and regulations throughout the audit.
Other matters which we are required to
address
Following the recommendation of the audit committee, we were
appointed by the Members on 9 September
2021 to audit the financial statements for the year ended
30 April 2022 and subsequent
financial periods.
The period of total uninterrupted engagement including previous
renewals and reappointments of the firm is 3 years, covering the
periods ended 30 April 2020 to
30 April 2022.
The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Company and we remain independent of the
Company in conducting our audit.
Our audit opinion is consistent with the additional report to
the audit committee.
Use of our report
This report is made solely to the Company’s members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been
undertaken so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Cyril Swale
For and on behalf of Grant Thornton Limited
Chartered Accountants
St Peter Port
Guernsey
Date: 5 July 2022
Statement of Comprehensive Income
For the financial year ended
30 April 2022
|
|
30 April 2022 |
|
30 April 2021 |
|
|
|
Revenue |
Capital |
Total |
|
Revenue |
Capital |
Total |
|
Notes |
|
£'000 |
£'000 |
£'000 |
|
£'000 |
£'000 |
£'000 |
|
Income |
|
|
|
|
|
|
|
| 4 |
Net (losses)/gains on
investments held at fair value through profit or loss |
- |
(23,473) |
(23,473) |
|
- |
23,423 |
23,423 |
|
Net gains/(losses) on
foreign exchange |
- |
46 |
46 |
|
- |
(261) |
(261) |
|
Dividend income |
1,589 |
- |
1,589 |
|
1,203 |
- |
1,203 |
|
|
|
|
|
|
|
|
|
|
|
1,589 |
(23,427) |
(21,838) |
|
1,203 |
23,162 |
24,365 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
| 6 |
Investment management
fees |
(1,107) |
- |
(1,107) |
|
(1,187) |
- |
(1,187) |
| 7 |
Depositary fees |
(95) |
- |
(95) |
|
(101) |
- |
(101) |
| 8 |
Administration
fees |
(140) |
- |
(140) |
|
(150) |
- |
(150) |
|
Registrar and transfer
agent fees |
- |
- |
- |
|
(13) |
- |
(13) |
| 9 |
Directors' fees and
expenses |
(144) |
- |
(144) |
|
(124) |
- |
(124) |
|
Insurance fees |
(6) |
- |
(6) |
|
(5) |
- |
(5) |
|
Audit fees |
(43) |
- |
(43) |
|
(38) |
- |
(38) |
|
Printing and
advertising fees |
(12) |
- |
(12) |
|
(6) |
- |
(6) |
|
Legal and professional
fees |
(92) |
- |
(92) |
|
(79) |
- |
(79) |
|
Listing fees |
- |
- |
- |
|
(19) |
- |
(19) |
| 10 |
Research costs |
(101) |
- |
(101) |
|
(97) |
- |
(97) |
|
Miscellaneous
expenses |
(89) |
- |
(89) |
|
(54) |
- |
(54) |
|
|
|
|
|
|
|
|
|
|
|
(1,829) |
- |
(1,829) |
|
(1,873) |
- |
(1,873) |
|
|
|
|
|
|
|
|
|
|
Finance
cost |
|
|
|
|
|
|
|
|
Interest expense and
bank charges |
(21) |
- |
(21) |
|
(9) |
- |
(9) |
|
|
|
|
|
|
|
|
|
|
(Loss)/profit
before taxation |
(261) |
(23,427) |
(23,688) |
|
(679) |
23,162 |
22,483 |
|
|
|
|
|
|
|
|
|
| 11 |
Taxation |
(243) |
- |
(243) |
|
(184) |
- |
(184) |
|
(Loss)/profit for the financial year |
|
|
|
|
|
|
|
|
(504) |
(23,427) |
(23,931) |
|
(863) |
23,162 |
22,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
(loss)/income for the financial year |
(504) |
(23,427) |
(23,931) |
|
(863) |
23,162 |
22,299 |
|
|
|
|
|
|
|
|
|
| 12 |
(Deficit)/earnings
per ordinary share |
£(0.012) |
£(0.562) |
£(0.574) |
|
£(0.021) |
£0.554 |
£0.533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In arriving at the result for the financial year, all amounts
above relate to continuing activities. During the financial year no
other comprehensive income was required to be accounted for.
The total column in this statement represents the Company’s
Statement of Comprehensive Income, prepared in accordance with
IFRS. The supplementary revenue and capital columns are both
prepared under guidance published by the Association of Investment
Companies.
The notes below form an integral part
of these financial statements.
Statement of Changes in Equity
For the financial year ended
30 April 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
Capital |
|
Capital |
|
other |
|
|
|
|
|
|
Ordinary Share |
|
Share |
|
Revenue |
|
reserve/ |
|
reserve/ |
|
reserve/ |
|
comprehensive |
|
|
|
|
|
|
capital |
|
premium |
|
reserve |
|
realised |
|
unrealised |
|
exchange |
|
income |
|
Total |
|
|
Notes |
|
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
|
Balances at 1 May
2021 |
|
- |
|
- |
|
(25,337) |
|
89,356 |
|
60,776 |
|
(14,437) |
|
6,143 |
|
116,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movements during
the financial year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 14 |
Shares bought into
treasury |
|
- |
|
- |
|
- |
|
(779) |
|
- |
|
- |
|
- |
|
(779) |
|
| 4 |
Net unrealised loss on
investments held at fair value through profit or loss |
|
- |
|
- |
|
- |
|
30,434 |
|
(30,434) |
|
- |
|
- |
|
- |
|
|
Net gain on foreign
exchange |
|
- |
|
- |
|
- |
|
(46) |
|
- |
|
46 |
|
- |
|
- |
|
| 18 |
Distributions to
shareholders |
|
- |
|
- |
|
- |
|
(4,512) |
|
- |
|
- |
|
- |
|
(4,512) |
|
|
Total comprehensive
loss |
|
- |
|
- |
|
(504) |
|
(23,427) |
|
- |
|
- |
|
- |
|
(23,931) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at 30
April 2022 |
|
- |
|
- |
|
(25,841) |
|
91,026 |
|
30,342 |
|
(14,391) |
|
6,143 |
|
87,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes below form an integral part
of these financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
Capital |
|
Capital |
|
other |
|
|
|
|
|
Ordinary Share |
|
Share |
|
Revenue |
|
reserve/ |
|
reserve/ |
|
reserve/ |
|
comprehensive |
|
|
|
|
|
capital |
|
premium |
|
reserve |
|
realised |
|
unrealised |
|
exchange |
|
income |
|
Total |
|
Notes |
|
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
Balances at 1 May
2020 |
|
- |
|
- |
|
(24,474) |
|
75,176 |
|
55,244 |
|
(14,176) |
|
6,143 |
|
97,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movements during
the financial year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4 |
Net unrealised gain on
investments held at fair value through profit or loss |
|
- |
|
- |
|
- |
|
(5,532) |
|
5,532 |
|
- |
|
- |
|
- |
|
Net loss on foreign
exchange |
|
- |
|
- |
|
- |
|
261 |
|
- |
|
(261) |
|
- |
|
- |
| 18 |
Distributions to
shareholders |
|
- |
|
- |
|
- |
|
(3,711) |
|
- |
|
- |
|
- |
|
(3,711) |
|
Total comprehensive
income |
|
- |
|
- |
|
(863) |
|
23,162 |
|
- |
|
- |
|
- |
|
22,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at 30
April 2021 |
|
- |
|
- |
|
(25,337) |
|
89,356 |
|
60,776 |
|
(14,437) |
|
6,143 |
|
116,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes below form an integral part
of these financial statements.
Statement of Financial Position
As at 30 April
2022
|
|
|
30
April 2022 |
|
30
April 2021 |
|
Notes |
|
|
£'000 |
|
£'000 |
|
Non-current
assets |
|
|
|
|
|
15,16 |
Investments held at
fair value through profit or loss |
|
91,525 |
|
116,946 |
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
Cash and cash
equivalents |
|
72 |
|
12 |
|
Due from brokers |
|
- |
|
322 |
|
Dividends
receivable |
|
622 |
|
398 |
|
Prepaid expenses and
other receivables |
|
5 |
|
25 |
|
|
|
699 |
|
757 |
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
Bank overdraft |
|
(4,605) |
|
(667) |
|
Due to brokers |
|
(107) |
|
(291) |
|
Payables and accrued
expenses |
|
(233) |
|
(244) |
|
|
|
|
|
|
|
|
|
(4,945) |
|
(1,202) |
|
|
|
|
|
|
|
Net current
liabilities |
|
(4,246) |
|
(445) |
|
|
|
|
|
|
|
Non-current
liabilities |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
| 17 |
Net assets |
|
87,279 |
|
116,501 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Ordinary share
capital |
|
- |
|
- |
|
Share premium |
|
- |
|
- |
|
Revenue reserve |
|
(25,841) |
|
(29,048) |
|
Capital reserve |
|
106,977 |
|
139,406 |
|
Accumulated other
comprehensive income |
|
6,143 |
|
6,143 |
|
|
|
|
|
|
|
Net assets
attributable to equity shareholders |
|
87,279 |
|
116,501 |
|
|
|
|
|
|
| 17 |
Net asset value per
ordinary share* |
|
£2.11 |
|
£2.79 |
|
|
|
|
|
|
Approved by the Board and authorised for issue on 5 July 2022 and signed on its behalf by:
Noel
Lamb
Philip Ehrmann
Chairman
Director
The notes below form an integral part
of these financial statements.
Statement of Cash Flows
For the financial year ended
30 April 2022
|
|
|
30
April 2022 |
|
30
April 2021 |
|
|
|
£'000 |
|
£'000 |
|
Notes |
|
|
|
|
|
|
Cash flows from
operating activities |
|
|
|
|
|
Profit before
taxation |
|
(23,688) |
|
22,483 |
|
Adjustments to
reconcile profit before taxation to net cash flows from operating
activities |
|
|
|
|
| 4 |
Net realised gains on
investments held at fair value through profit or loss |
|
(6,961) |
|
(17,891) |
| 4 |
Net unrealised
losess/(gains) on investments held at fair value through profit or
loss |
|
30,434 |
|
(5,532) |
|
Net exchange gains on
cash and cash equivalents |
|
- |
|
9 |
|
Interest expense and
bank charges |
|
21 |
|
9 |
|
Increase in due from
brokers |
|
322 |
|
(32) |
|
(Increase)/decrease in
dividends receivable |
|
(224) |
|
14 |
|
Decrease/(increase) in
prepaid expenses and other receivables |
|
20 |
|
(8) |
|
Decrease in due to
brokers |
|
(184) |
|
(257) |
|
(Decrease)/increase in
payables and accrued expenses |
|
(11) |
|
5 |
| 11 |
Taxation paid |
|
(243) |
|
(184) |
|
|
|
(514) |
|
(1,384) |
|
|
|
|
|
|
| 16 |
Purchase of
investments |
|
(55,642) |
|
(52,294) |
| 16 |
Sale of
investments |
|
57,590 |
|
53,568 |
|
|
|
1,948 |
|
1,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
inflow/(outflow) from operating activities |
|
1,434 |
|
(110) |
|
|
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
|
Interest paid |
|
(21) |
|
(9) |
| 18 |
Distributions paid to
shareholders |
|
(4,512) |
|
(3,711) |
| 18 |
Redemptions |
|
(779) |
|
- |
|
|
|
|
|
|
|
Net cash outflow
from financing activities |
|
(5,312) |
|
(3,720) |
|
|
|
|
|
|
|
Net decrease in
cash and cash equivalents |
|
(3,878) |
|
(3,830) |
|
|
|
|
|
|
|
Net exchange losses on
cash and cash equivalents |
|
- |
|
(9) |
|
Cash and cash
equivalents at beginning of financial year |
|
(655) |
|
3,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of financial year |
|
(4,533) |
|
(655) |
|
|
|
|
|
|
The notes below form an integral part
of these financial statements.
Notes to the Financial Statements
For the financial year ended
30 April 2022
1. GENERAL
INFORMATION
Atlantis Japan Growth Fund Limited (the “Company”) was
incorporated in Guernsey on
13 March 1996. The Company commenced
activities on 10 May 1996. The
Company is an authorised closed-ended investment scheme registered
and domiciled in P.O. Box 255, Trafalgar Court, Les Banques, St
Peter Port, Guernsey, GY1 3QL,
Channel Islands. The Company’s
equity shares are traded on the London Stock Exchange.
As an investment trust, the Company is not regulated as a
collective investment scheme by the Financial Conduct Authority.
However, it is subject to the UKLA Listing Rules, Prospectus Rules,
Disclosure Guidance and Transparency Rules and the rules of the
London Stock Exchange.
The Company’s investment objective is to achieve long term
capital growth through investing wholly or mainly in listed
Japanese equities.
The Company’s investment activities are managed by Quaero
Capital LLP (“Investment Manager”) with the administration
delegated to Northern Trust International Fund Administration
Services (Guernsey) Limited.
2. SIGNIFICANT ACCOUNTING
POLICIES
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all the financial years presented,
unless otherwise stated.
a) Basis of preparation
The Financial Statements of the Company have been prepared in
accordance with IFRS. The Financial Statements have been prepared
under the historical cost convention, as modified by the
revaluation of investments held at fair value through profit or
loss, and in accordance with the Association of Investment
Companies (“AIC”) Statement of Recommended Practice (“SORP”) for
Investment Trust Companies and Venture Capital Trusts to the extent
it is not in conflict with IFRS and the Company’s Principal
Documents.
The preparation of the Financial Statements in conformity with
IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and the
reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from those estimates. As at the financial
year ended 30 April 2022, the
Company, being solely invested in listed equities, did not hold any
investment requiring the use of significant estimation to determine
their value. There were no other significant estimates for the
financial year ended 30 April
2022.
The significant accounting policies adopted are consistent with
those of the previous financial year.
New standards not yet adopted
There were no new standards or interpretations effective for the
first time for periods beginning on or after 1 May 2021 that had a significant effect on the
Company's Financial Statements. Furthermore, none of the amendments
to standards that are effective from that date had a significant
effect on these Financial Statements.
Other accounting standards and interpretations have been
published and will be mandatory for the Company's accounting
periods beginning on or after 1 May
2022 or later periods. On review of the future standards and
interpretations, the impact of these standards is not expected to
be material to the reported results and financial position of the
Company.
Critical judgements
The Board consider GBP the currency that most faithfully
represents the economic effect of the underlying transactions,
events and conditions. GBP is the currency in which the Company
measures its performance. This determination also considers the
competitive environment in which the Company is compared to other
European investment products. The presentation currency for these
financial statements is GBP.
b) Going concern
The Financial Statements have been prepared on a going concern
basis in line with the Directors’ belief that the Company will
continue in business for the foreseeable future from the date of
authorisation of the financial statements (refer above for more
details).
After making reasonable inquiries and assessing all data
relating to the Company’s liquidity, particularly its holding of
significant liquid level 1 assets, the Directors believe that the
Company has adequate resources to continue in operational existence
for the foreseeable future and do not consider there to be any
threat, from COVID-19 or other issues, to the going concern status
of the Company. For these reasons, the Directors have adopted the
going concern basis in preparing the Financial Statements.
c) Presentation of the Statement of
Comprehensive Income
In order to better reflect the activities of an investment trust
company, supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented alongside the Statement of Comprehensive
Income.
d) Income recognition
Dividend income arising on the Company’s investments is
accounted for gross of withholding tax on an ex-dividend basis or
when the right to receive payment is established.
e) Expenses
All expenses are recognised in the Statement of Comprehensive
Income on an accruals basis.
f) Investments held at fair value
through profit or loss
(i)
Classification and Measurement
The Company classifies its investments based on both the
Company’s business model for managing those financial assets and
the contractual cash flow characteristics of those financial
assets. The portfolio of the financial assets is managed and
performance is evaluated on a fair value basis. The Company is
primarily focussed on fair value information and uses that
information to assess the assets’ performance and to make
decisions.
The Company classifies its entire investment portfolio as
financial assets or liabilities as fair value through profit or
loss. This includes forward currency contracts of which none were
held at the financial year end (30 April
2021: Nil). All financial assets are mandatorily measured as
at fair value through profit or loss with no assets being
designated.
The Company’s policy requires the Investment Manager and the
Directors to evaluate the information about these financial assets
and liabilities on a fair value basis together with other related
financial information.
(ii) Recognition
and Measurement
Investments are initially recognised at the trade date of
purchase. They are included initially at fair value, which is taken
to be their cost (excluding expenses incidental to the acquisition
which are written off in the Statement of Comprehensive Income, and
allocated to the capital column of the Statement of Comprehensive
Income at the time of acquisition).
Investments are de-recognised when the rights to receive cash
flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
Gains and losses on investments are included in the Statement of
Comprehensive Income as capital.
(iii) Fair Value
Measurement
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value of
financial assets and liabilities traded in active markets (such as
transferable securities and financial derivative instruments traded
publicly) are based on quoted market prices at the close of trading
on the reporting date.
If a quoted market price is not available on a recognised stock
exchange or from a broker/dealer for non-exchange traded financial
instruments, the fair value of the instrument is estimated using
valuation techniques, including the use of recent arm’s length
market transactions, reference to the current fair value of another
instrument that is substantially the same, discounted cash flow
techniques, option pricing models or any other valuation technique
that provides a reliable estimate of prices obtained in actual
market transactions.
The fair value of financial derivative instruments, that are not
exchange-traded, is estimated at the amount that the Company would
receive or pay to terminate the contract at the reporting date,
taking into account current market conditions (volatility,
appropriate yield curve) and the current creditworthiness of the
counterparties. Realised gains and losses on investment disposals
are calculated using the weighted average cost method.
g) Due from and due to brokers
Amounts due from and to brokers represent receivables for
securities sold and payables for securities purchased that have
been contracted for but not yet settled or delivered on the
Statement of Financial Position date respectively. These amounts
are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method.
At each reporting date, the Company shall measure the loss
allowance on the amounts due from broker at an amount equal to the
lifetime expected credit losses if the credit risk has increased
significantly since initial recognition. If, at the reporting date,
the credit risk has not increased significantly since initial
recognition, the Company shall measure the loss allowance at an
amount equal to 12 month expected credit losses. Significant
financial difficulties of the broker, probability that the broker
will enter bankruptcy or financial reorganisation, and default in
payments are all considered indicators that a loss allowance may be
required. If the credit risk increases to the point that it is
considered to be credit impaired interest income will be calculated
based on the gross carrying amount adjusted for the loss allowance.
A significant increase in credit risk is defined by management as
any contractual payment which is more than 30 days past due. Any
contractual payment is more than 90 days past due is considered
credit impaired.
The effective interest method is a method of calculating the
amortised cost of a financial asset or financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
throughout the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the
effective interest rate, the Company estimates cash flows
considering all contractual terms of the financial instrument but
does not consider future credit losses. The calculation includes
all fees and points paid or received between parties to the
contract that are an integral part of the effective interest rate,
transaction costs and all other premiums or discounts.
h) Other receivables
Other receivables are amounts due in the ordinary course of
business. If collection is expected in one year or less, they are
classified as current assets. If not, they are presented as
non-current assets. Other receivables are recognised initially at
fair value and subsequently measured at amortised cost using the
effective interest method.
i) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and
short-term deposits with an original maturity of three months or
less.
For the purposes of the Statement of Cash Flows, cash and cash
equivalents consist of cash and cash equivalents, as defined above,
net of outstanding bank overdrafts.
IAS 7 requires disclosures that:
• Enable users of the financial statements to
evaluate changes in liabilities arising from financing activities;
and
• Provide a reconciliation of the opening and
closing balances of liabilities arising from financing activities
in the statement of financial position is suggested although not
mandatory.
These requirements have been met as part of the Statement of
Changes in Equity for share capital transactions attributable to
holders of ordinary shares and Note 13 (Loans Payable).
j) Other payables and accrued
expenses
Other payables and accrued expenses are obligations to pay for
services that have been acquired in the ordinary course of
business. Other payables are classified as current liabilities if
payment is due within one year or less. If not, they are presented
as non-current liabilities. Other payables are recognised initially
at fair value and subsequently measured at amortised cost using the
effective interest method.
k) Loans payable
All loans are initially recognised at cost, being the fair value
of the consideration received, less issue costs where applicable.
After initial recognition, all interest bearing loans and
borrowings are subsequently measured at amortised cost. Amortised
cost is calculated by taking into account discount or premium on
settlement. Any costs of arranging any interest-bearing loans are
capitalised and amortised over the life of the loan.
The Company’s loans are denominated in JPY. Gains and losses on
foreign exchange on loans are included in the Statement of
Comprehensive Income as capital.
l) Foreign currencies
The Company’s investments are predominately denominated in JPY.
The Company’s obligation to shareholders is denominated in GBP and,
when appropriate, the Company may hedge the exchange rate risk from
JPY to GBP. Therefore, the Company’s functional currency is GBP.
The Company’s presentation currency is GBP.
At each Statement of Financial Position date, assets and
liabilities, which are denominated in foreign currencies, are
translated into the functional currency at the closing rates of
exchange. Transactions involving currencies other than the
functional currency are recorded at the exchange rates prevailing
on the dates of the transactions. Resulting exchange differences
are recognised in profit or loss in the Statement of Comprehensive
Income.
Foreign exchange gains and losses relating to cash and cash
equivalents are presented in the Statement of Comprehensive Income
within “Net gains/(losses) on foreign exchange”.
m) Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax. In addition, the Company incurs withholding taxes
imposed by certain countries on dividend and interest income. Such
income is recognised gross of the taxes and the corresponding
withholding tax is recognised as a tax expense.
The tax currently payable is based on the taxable profit for the
financial year. Any taxable profit differs from the net profit, if
any, as reported in the Statement of Comprehensive Income because
it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible.
The Company’s liability for current tax is calculated using tax
rates that were applicable at the Statement of Financial Position
date.
In line with the provisions of the AIC SORP, the allocation
method used to calculate tax relief on expenses presented against
capital returns in the supplementary information in the Statement
of Comprehensive Income is the “marginal basis”.
Under this basis, if taxable income is capable of being offset
entirely by expenses presented in the revenue return column of the
Statement of Comprehensive Income, then no tax relief is
transferred to the capital return column.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the Financial Statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. A deferred tax liability is
recognised in full for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Investment trusts
which have approval as such under Section 1158 of the Corporation
Tax Act 2010 are not liable for taxation on capital gains.
The carrying amount of deferred tax assets is reviewed at each
Statement of Financial Position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are enacted or
substantively enacted in the period when the liability is settled
or the asset is realised. Deferred tax is charged or credited in
the Statement of Comprehensive Income, except when it relates to
items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity.
n) Capital reserve
The capital reserve distinguishes between gains/(losses) on
sales or disposals and valuation gains/(losses) on investments. The
capital reserve consists of realised gains/(losses) on investments,
movement in valuation of gains/(losses) on investments and
gains/(losses) relating to foreign exchange. This is a
distributable reserve which may be utilised for the repurchase of
share capital and for distributions to shareholders by way of
Dividend.
o) Share premium
Share Premium Account represents the excess of the issue price
over the par value on shares issued.
p) Revenue reserve
Revenue reserve is a distributable reserve and is the
undistributed income of the Company.
q) Accumulated other comprehensive
income
Historical exchange differences on the translation of assets,
liabilities, income and expenses from functional to presentation
currency are recognised in accumulated other comprehensive
income.
r) Treasury shares
Where the Company purchases its own share capital (whether into
treasury or cancellation), the consideration paid, which includes
any directly attributable costs (net of income taxes), is
recognised as a deduction from equity shareholders’ funds through
the capital reserve, which is a distributable reserve.
When such shares are subsequently sold or reissued, the
consideration received, net of any directly attributable
incremental transaction costs and the related income tax effects,
is recognised as an increase in equity and proceeds from the
reissue of treasury shares are transferred to/from the capital
reserve.
Shares held in treasury are not taken into account in
determining earnings per share detailed in Statement of
Comprehensive Income and NAV per share detailed in Note 17.
s) Offsetting of financial assets and
liabilities
Financial assets and liabilities are offset and the net amount
reported in the Statement of Financial Position when there is a
legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis or realise the asset
and settle the liability simultaneously. The legally enforceable
right must not be contingent on future events and must be
enforceable in the normal course of business and in the event of
default, insolvency or bankruptcy of the Company or the
counterparty.
t) Ordinary shares
The Company’s ordinary shares were redeemable in the capital of
the Company at no par value and are classified as equity in
accordance with the Company's Articles of Incorporation.
u) Subscriber shares
The Company's subscriber shares are classified as equity in
accordance with the Company's Articles of Incorporation. These
shares do not participate in the profits of the Company. For more
information please see Note 14.
v) Dividend distribution
Dividend distribution to the Company's shareholders is
recognised as a liability in the Company's financial statements and
disclosed in the Statement of Changes in Equity in the period in
which the dividends are approved by the Board.
3. OPERATING SEGMENTS
The Board makes the strategic resource allocations on behalf of
the Company and is responsible for the Company’s entire portfolio.
The Board is of the opinion that the Company is engaged in a single
geographic and economic segment business. The asset allocation
decisions are based on a single, integrated investment strategy,
and the Company’s performance is evaluated on an overall basis.
The internal reporting provided to the Directors for the
Company’s assets, liabilities and performance is prepared on a
consistent basis with the measurement and recognition principles of
IFRS.
The fair value of the financial instruments held by the Company
and the equivalent percentages of the total value of the Company
are reported in the Schedule of Investments above.
4. NET GAINS ON
INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
|
|
30
April 2022 |
|
30
April 2021 |
|
|
£'000 |
|
£'000 |
| Realised gains on
investments held at fair value through profit or loss |
|
19,240 |
|
19,817 |
| Realised losses on
investments held at fair value through profit or loss |
|
(12,279) |
|
(1,926) |
| Net realised gains
on investments held at fair value through profit or loss |
|
6,961 |
|
17,891 |
|
|
|
|
|
| Unrealised gains on
investments held at fair value through profit or loss |
|
9,256 |
|
18,850 |
| Unrealised losses on
investments held at fair value through profit or loss |
|
(39,690) |
|
(13,318) |
| Net unrealised
(losses)/gains on investments held at fair value through profit or
loss |
|
(30,434) |
|
5,532 |
|
|
|
|
|
| Net (losses)/gains on
investments held at fair value through profit or loss |
|
(23,473) |
|
23,423 |
5. RELATED PARTY
DISCLOSURE
The Investment Manager, Investment Adviser, Depositary,
Administrator and Directors are considered related parties to the
Company under IAS 24 as they have the ability to control, or
exercise significant influence over, the Company in making
financial or operational decisions. See Notes 6 to 9 for details of
transactions with these related parties during the financial year
ended 30 April 2022.
The Company has a credit facility with the Depositary, Northern
Trust Guernsey (limited). Please see Note 13 for details.
Certain Directors had a beneficial interest in the Company by
way of their investment in the ordinary shares of the Company.
The details of these interests as at 30
April 2022 and 30 April 2021
are as follows:
|
|
|
|
|
Ordinary Shares |
|
Ordinary Shares |
|
|
|
|
|
30
April 2022 |
|
30
April 2021 |
| Noel Lamb |
|
|
|
|
30,000 |
|
23,250 |
| Richard
Pavry |
|
|
|
40,000 |
|
40,000 |
| Philip
Ehrmann |
|
|
|
50,000 |
|
50,000 |
| Michael
Moule |
|
|
|
50,000 |
|
40,000 |
The above interests of the Directors were unchanged as at the
date of this report. Remuneration paid to the Directors during the
year is detailed in note 9.
As at 30 April 2022, a family
member of the President of the Investment Adviser held 900,800
(30 April 2021: 900,800) ordinary
shares of the Company.
6. INVESTMENT MANAGEMENT
AND INVESTMENT ADVISER FEES
Under the terms of the Investment Management Agreement, the
Investment Manager, Quaero Capital LLP, will continue in office
until a resignation is tendered or the contract is terminated. In
both circumstances, a resignation or termination must be given with
a notice period which must not be less than three months, and be in
accordance with the Investment Management Agreement.
The Company pays to the Investment Manager a fee accrued daily
and paid monthly in arrears at the annual rate of 1% of the daily
NAV of the Company on the first £125m of net assets, 0.85% on net
assets between £125m and £175m and 0.70% on net assets above £175m
with effect from 5 July 2019.
The Investment Adviser Fees are 75% of the total Investment
Management Fees and are paid by the Investment Manager.
For the financial year ended 30 April
2022, total investment management fees were £1,106,750
(30 April 2021: £1,186,901), of which
£71,043 (30 April 2021: £100,170) is
due and payable as at that date. Of the total investment management
fees, £276,688 (30 April 2021:
£296,725) was due to the Investment Manager, with £53,282
(30 April 2021: £25,043) payable as
at 30 April 2022.
For the financial year ended 30 April
2022, total investment adviser fees were £830,062
(30 April 2021: £890,176), with
£17,761 (30 April 2021: £75,127)
payable as at 30 April 2022.
7. DEPOSITARY FEES
Under the terms of the Depositary Agreement, fees are payable to
the Depositary, Northern Trust (Guernsey) Limited, monthly in arrears, on the
Gross Asset Value (Net Asset Value before investment management
fees) of the Company as at the last business day of the month at an
annual rate of:
Gross Asset
Value
Annual Rate
Up to $50,000,000
0.035%
$50,000,001 to $100,000,000
0.025%
Thereafter
0.015%
The Depositary is also entitled to a global custody fee of 0.03%
per annum of the NAV of the Company, subject to a minimum fee of
$20,000, and transaction fees as per
the Depositary Agreement.
For the financial year ended 30 April
2022, total depositary fees were £94,579 (30 April 2021: £101,476), of which £18,034
(30 April 2021: £23,251) was due and
payable as at that date.
8. ADMINISTRATION
FEES
Under the terms of the Administration Agreement, the Company
pays to the Administrator, Northern Trust International Fund
Administration Services (Guernsey)
Limited, a fee accrued weekly and paid monthly in arrears at the
annual rate of:
NAV
Annual Rate
Up to $50,000,000
0.18%
$50,000,001 to $100,000,000
0.135%
$100,000,001 to $200,000,000
0.0675%
Thereafter
0.02%
For the financial year ended 30 April
2022, total administration fees were £140,342 (30 April 2021: £149,549), of which £21,552
(30 April 2021: £12,406) was due and
payable as at that date.
9. DIRECTORS’ FEES AND
EXPENSES
Each of the Directors is entitled to receive a fee from the
Company, being £36,000 per annum for the Chairman, £30,00 per annum
for the Chairman of the Audit Committee and £26,000 per annum for
each of the other Directors. In addition, the Company reimburses
all reasonably incurred out-of-pocket expenses of the
Directors.
For the financial year ended 30 April
2022, total directors’ fees and expenses were £148,146
(30 April 2021: £124,484), of which
£8,910 (30 April 2021: £7,589) was
due and payable as at that date.
10.
RESEARCH COSTS
In line with the introduction of revised rules in respect of the
use of dealing commission as part of the implementation of the
Directive 2014/65/EU on Markets in Financial Instruments and
amending Directive 2004/39/EC (“MiFID II”), effective from
3 January 2018, the Investment
Manager no longer pays for its investment research via dealing
commission.
The Investment Manager has established a research budget whereby
the Company will pay for research services independently of trade
execution. All transactions are placed and executed on the basis
that best execution is achieved. Research costs incurred from
1 May 2021 to 30 April 2022 amounted to £100,611 (30 April 2021: £96,740).
11.
TAXATION
The Company is exempt from taxation in Guernsey under the provisions of The Income
Tax (Exempt Bodies) (Guernsey)
Ordinance, 1989 and has paid an annual exemption fee of £1,200
(30 April 2021: £1,200), however the
Company is subject to UK tax being a UK tax resident to comply with
the Section 1158 of the Corporation Tax Act 2010. The main rate of
corporation tax in the UK was 19% effective from 1 April 2017 and effective 1 April 2023 the rate will increase to 25%.
|
|
30
April 2022 |
|
30
April 2021 |
|
|
£'000 |
|
£'000 |
|
|
|
|
|
| Irrecoverable overseas
tax |
|
243 |
|
184 |
| Tax charge in
respect of the current year |
|
243 |
|
184 |
|
|
|
|
|
Current taxation
The current taxation charge for the financial year is different
from the standard rate of corporation tax in the UK. The
differences are explained in the following table:
|
|
30
April 2022 |
|
30
April 2021 |
|
|
£'000 |
|
£'000 |
|
|
|
|
|
| (Loss)/profit before
tax |
|
(23,688) |
|
22,483 |
| Capital gain/(loss)
for the financial year |
|
23,427 |
|
(23,162) |
| Revenue loss for the
financial year |
|
(261) |
|
(679) |
|
|
|
|
|
|
|
30
April 2022 |
|
30
April 2021 |
|
|
£'000 |
|
£'000 |
| Theoretical tax at UK
corporation tax rate of 19% (30 April 2021 -19%) |
|
(50) |
|
(129) |
|
|
|
|
|
| Effects of: |
|
|
|
|
| Excess management
expenses |
|
96 |
|
164 |
| Notional relief for
overseas tax suffered |
|
(46) |
|
(35) |
| Overseas tax written
off |
|
243 |
|
184 |
| Actual current tax
charge |
|
243 |
|
184 |
|
|
|
|
|
The Company is an investment trust and therefore is not taxable
on capital gains.
Factors that may affect future tax
charges
As at 30 April 2022, the Company
has excess management expenses of £11,170,418 that are available to
offset future taxable revenue. Whilst this represents management’s
best estimate based on the carried forward balance in the previous
financial year of £39,614,339 the estimated value could differ from
actual amounts. However, the potential impact is not expected to be
significant.
A deferred tax asset has not been recognised in respect of these
amounts as they will be recoverable only to the extent that there
is sufficient future taxable revenue.
12.
EARNINGS/(DEFICIT) PER ORDINARY SHARE
The earnings/(deficit) per ordinary share figure is based on the
loss for the financial year of £23,930,408 (30 April 2021: profit of £22,298,614) divided by
the weighted average number of shares (excluding shares held in
treasury) in issue during the financial year ended 30 April 2022, being 41,416,570 (30 April 2021: 41,794,570).
|
|
30
April 2022 |
|
30
April 2021 |
|
|
£'000 |
|
£'000 |
|
|
|
|
|
| Net revenue loss |
|
(504) |
|
(863) |
| Net capital
(loss)/profit |
|
(23,427) |
|
23,162 |
| Net total
(loss)/profit |
|
(23,931) |
|
22,299 |
|
|
|
|
|
| Weighted average
number of ordinary shares |
|
|
|
|
| in issue during the
financial year |
|
41,716,040 |
|
41,794,570 |
|
|
|
|
|
|
|
£ |
|
£ |
| Revenue loss per
ordinary share |
|
(0.012) |
|
(0.021) |
| Capital (loss)/profit
per ordinary share |
|
(0.562) |
|
0.554 |
| Total (loss)/profit
per ordinary share |
|
(0.574) |
|
0.533 |
The revenue loss per ordinary share and capital loss per
ordinary share figure is based on the net revenue loss for the
financial year of £503,939 (30 April
2021: loss of £861,793), the net capital loss of £23,426,469
(30 April 2021: profit of
£23,160,407) respectively and 41,416,570 being the weighted average
number of shares in issue (excluding shares held in treasury)
during the financial year ended 30 April
2022 (30 April 2021:
41,794,570).
As at 30 April 2022, basic and
diluted earnings/deficit per share are the same as no dilutive
instruments are in issue.
13.
LOANS PAYABLE
As at 30 April 2022, the Company
had drawn down ¥752,724,992 (£4,609,310) on the credit facility
(30 April 2021: not drawn down).
¥1,500,000,000 (£9,911,569) is borrowable under the terms of the
facility agreement. Under the terms of the facility agreement with
NTGL, the Company is required to comply with the following
financial covenant:
Borrowings on the accounts in the name of the borrower may not
exceed at any time the lesser of (a) 20% of the value of
unencumbered, listed and daily priced assets held in custody by the
Depositary for the borrower or (b) 100% of any borrowing limit set
out in the constitutional documents of such borrower.
The Company complied with all of the above financial covenants
during the financial years ended 30 April
2022 and 30 April 2021.
14.
SHARE CAPITAL AND SHARE PREMIUM
Authorised
The Company is authorised to issue an unlimited number of
ordinary shares of no par value. The Company has issued two
subscriber shares for the purposes of incorporation of the Company.
The subscriber shares do not participate in the profits of the
Company.
The Company may also issue C shares being a convertible share in
the capital of the Company of no par value. C shares shall not have
the right to attend or vote at any general meeting of the Company.
The holders of C shares of the relevant class shall be entitled, in
that capacity, to receive a special dividend of such amount as the
Directors may resolve to pay out of the net assets attributable to
the relevant C share class and from income received and accrued
attributable to the relevant C share class for the period up to the
conversion date payable on a date falling before, on or after the
conversion date as the Directors may determine. There are no C
shares currently in issue.
The rights which the ordinary shares confer upon the holders
thereof are as follows:
Voting rights
On a show of hands, every member who is present shall have one
vote and, on a poll, a member present in person or by proxy shall
be entitled to one vote per ordinary share held.
Entitlement to dividends
The Company may declare dividends in respect of the ordinary
shares which are paid out of capital reserves. Treasury shares do
not confer an entitlement to any dividends declared.
Rights in a winding-up
The holders of ordinary shares will be entitled to share in the
NAV of the Company as determined by the Liquidator.
| Issued Ordinary
Shares |
|
|
|
|
|
|
Number of
Shares |
|
Share
Capital |
|
Share
Premium |
|
|
|
£'000 |
|
£'000 |
|
|
|
|
|
|
| In issue at 30 April
2022 |
41,416,570 |
|
- |
|
- |
|
|
|
|
|
|
| In issue at 30 April
2021 |
41,794,570 |
|
- |
|
- |
|
|
|
|
|
|
|
|
Number of Shares |
|
Number of Shares |
|
|
30
April 2022 |
|
30
April 2021 |
| Shares of no par
value |
|
|
|
|
| Issued shares at the
start of the financial year |
|
41,794,570 |
|
41,794,570 |
| Purchase of shares
into treasury |
|
(378,000) |
|
- |
| Number
of shares at the end of the financial year |
41,416,570 |
|
41,794,570 |
|
|
|
|
|
| Shares held in
treasury |
|
|
|
|
| Opening balance |
|
4,687,186 |
|
4,687,186 |
| Shares
bought into treasury during the financial year |
378,000 |
|
- |
| Number
of shares at the end of the financial year |
5,065,186 |
|
4,687,186 |
During the financial year ended 30 April
2022, 378,000 of shares were purchased into treasury for
consideration of £778,650 (30 April
2021: £nil).
Shareholders are entitled to receive any dividends or other
distributions out of profits lawfully available for distribution
and on winding up they are entitled to the surplus assets remaining
after payment of all the creditors of the Company. The shares
redeemed in the current financial year were cancelled
immediately.
15.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
In accordance with its investment objective and policies, the
Company holds financial instruments which at any one time may
comprise the following:
- securities held in accordance
with the investment objective and policies;
- cash and cash equivalents and
short-term receivables and payables arising directly from
operations;
- loans used to finance investment
activity; and
- derivative instruments for the
purposes of efficient portfolio management only.
The financial instruments held by the Company principally
comprise equities listed on the stock markets in Japan, including, without limitation, the
Tokyo Stock Exchange categorised as Prime, Standard and Growth
sections, or the regional stock exchanges of Fukuoka, Nagoya and Sapporo.
The specific risks arising from the Company's exposure to these
instruments, and the Investment Manager/Investment Adviser's
policies for managing these risks, which have been applied
throughout the financial year, are summarised below.
Capital management
The Company’s objectives when managing capital are to safeguard
the Company's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
The Company may not borrow or otherwise use leverage exceeding
20% of its net assets for investment purposes, to settle facilities
for specific investments, such as bridge financing. In connection
with the facility agreement, the Company has entered into an
English law, multicurrency, and revolving credit facility with NTGL
(see Note 13).
As at 30 April 2022, the Company
had a commitment leverage ratio of 1.05:1 and a gross leverage
ratio of 1.05:1.
The Company does not have any externally imposed capital
requirements apart from the fact that it should not retain more
than 15% of income, in order to comply with Section 1158 of
Corporation Tax Act 2010. The Company has complied with this
requirement.
The Company is a closed-ended investment company. The Company’s
capital is represented by ordinary shares of no par and each share
carries one vote. They are entitled to dividends when declared.
There were 378,000 shares repurchased into treasury during the
financial year ended 30 April 2022
(30 April 2021: None).
Market risk
The Company's investment portfolio - particularly its equity
investments - is exposed to market price fluctuations which are
monitored by the Investment Manager/Investment Adviser in pursuance
of the investment objective and policies.
At 30 April 2022, the Company’s
market price risk is affected by three main components: changes in
market prices, currency exchange rates and interest rate risk.
Currency exchange rate movements and interest rate movements, which
are dealt with under the relevant headings below, primarily affect
the fair values of the Company’s exposures to equity securities,
related derivatives and other instruments. Changes in market prices
primarily affect the fair value of the Company’s exposures to
equity securities, related derivatives and other instruments.
Exceptional risks associated with investment in Japanese smaller
companies may include:
- greater price volatility,
substantially less liquidity and significantly smaller market
capitalisation; and
- more substantial government
intervention in the economy, including restrictions on investing in
companies or in industries deemed sensitive to relevant national
interests.
Market price sensitivity analysis
If the price of each of the equity securities to which the
Company had exposure at 30 April 2022
had increased or decreased by 5% with all other variables held
constant, this would have increased or decreased profit and net
assets attributable to equity shareholders of the Company by:
|
|
30
April 2022 |
|
30
April 2021 |
|
|
+/- |
|
+/- |
| NAV |
|
£4,576,274 |
|
£5,847,307 |
| NAV per share |
|
£0.11 |
|
£0.14 |
|
|
|
|
|
| Total comprehensive
income |
|
£4,576,274 |
|
£5,847,307 |
| Earnings per
share |
|
£0.11 |
|
£0.14 |
Foreign currency risk
The Company principally invests in securities denominated in
currencies other than GBP, the functional currency of the Company.
Therefore, the Statement of Financial Position will be affected by
movements in the exchange rates of such currencies against the GBP.
The Investment Manager/Investment Adviser has the power to manage
exposure to currency movements by using forward currency contracts.
No such instruments were held as at 30 April
2022 (30 April 2021:
None).
It is not the present intention of the Directors to hedge the
currency exposure of the Company, but the Directors reserve the
right to do so in the future if they consider this to be
desirable.
The treatment of currency transactions other than in GBP is set
out in Note 2(l) to the Financial Statements.
As at 30 April 2022, the Company
has a USD cash exposure in GBP terms of £4,757 (30 April 2021: £9,456).
The Company's net JPY exposure in GBP terms is set out in the
following table:
| As at 30 April
2022 |
|
|
|
|
|
|
|
|
|
|
£'000 |
| Assets |
|
|
|
|
|
|
Investments held at fair value through profit or loss |
|
|
91,525 |
| Dividends
receivable |
|
|
|
|
622 |
| Total
assets |
|
|
|
|
92,147 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
| Bank overdraft |
|
|
|
|
(4,609) |
| Due to brokers |
|
|
|
|
(107) |
| Payables and accrued
expenses |
|
|
|
|
(4) |
| Total
liabilities |
|
|
|
|
(4,720) |
|
|
|
|
|
|
| Total net
assets |
|
|
|
|
87,427 |
|
|
|
|
|
|
|
|
|
|
The Company's net JPY exposure in GBP terms is set out in the
following table:
| As at 30 April
2021 |
|
|
|
|
|
|
|
|
|
|
£'000 |
| Assets |
|
|
|
|
|
|
Investments held at fair value through profit or loss |
|
|
116,946 |
| Due from brokers |
|
|
|
|
322 |
| Dividends
receivable |
|
|
|
|
398 |
| Total
assets |
|
|
|
|
117,666 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
| Bank overdraft |
|
|
|
|
(677) |
| Due to brokers |
|
|
|
|
(291) |
| Total
liabilities |
|
|
|
|
(968) |
|
|
|
|
|
|
| Total net
assets |
|
|
|
|
116,698 |
Foreign currency sensitivity
analysis
If the exchange rate at 30 April
2022, between the functional currency and all other
currencies had increased or decreased by a 5% currency movement
with all other variables held constant, this would have increased
or reduced profit and net assets attributable to equity
shareholders of the Company by:
|
|
30
April 2022 |
|
30
April 2021 |
|
|
+/- |
|
+/- |
| NAV |
|
£4,371,610 |
|
£5,835,372 |
| NAV per share |
|
£0.11 |
|
£0.14 |
|
|
|
|
|
| Total comprehensive
income |
|
£4,371,610 |
|
£5,835,372 |
| Earnings per
share |
|
£0.11 |
|
£0.14 |
No benchmark is used in the calculation of the above
information. The only foreign currency the Company has a
significant exposure to is JPY, hence the above foreign currency
sensitivity analysis has not been disclosed on a currency by
currency basis.
Interest rate risk
Substantially all the Company’s assets and liabilities are
non-interest bearing and any excess cash and cash equivalents are
invested at short-term market interest rates.
As at 30 April 2022, the Company
has a small exposure to interest rate risk regarding the loan
facility and cash and cash equivalents.
Increases in interest rates may increase the costs of the
Company's borrowings. The rate of interest is the rate per annum
equivalent to the Bank of Japan Official base rate plus 1.25% and
will be calculated on the amount for the time being outstanding on
each account based upon the number of days elapsed and a year of
365 days. The currency base lending rate is subject to a floor of
zero. Interest on the loan is payable monthly in arrears. As at
30 April 2022, the interest accrued
on the loan was £nil (30 April 2021:
£nil).
The following disclosures exclude prepayments and taxation
receivables and payables:
|
Less
than |
|
1
month to |
|
|
|
1
month |
|
1
year |
|
Total |
| As at 30 April
2022 |
£'000 |
|
£'000 |
|
£'000 |
|
|
|
|
|
|
| Financial
assets |
|
|
|
|
|
| Cash and cash
equivalents |
72 |
|
- |
|
72 |
|
|
|
|
|
|
| Financial
liabilities |
|
|
|
|
|
| Bank overdraft |
(4,605) |
|
- |
|
(4,605) |
|
|
|
|
|
|
| Net financial
assets/(liabilities) |
(4,533) |
|
- |
|
(4,533) |
|
|
|
|
|
|
|
Less
than |
|
1
month to |
|
|
|
1
month |
|
1
year |
|
Total |
| As at 30 April
2021 |
£'000 |
|
£'000 |
|
£'000 |
|
|
|
|
|
|
| Financial
assets |
|
|
|
|
|
| Cash and cash
equivalents |
12 |
|
- |
|
12 |
|
|
|
|
|
|
| Financial
liabilities |
|
|
|
|
|
| Bank overdraft |
(667) |
|
- |
|
(667) |
|
|
|
|
|
|
| Net financial
assets/(liabilities) |
(655) |
|
- |
|
(655) |
|
|
|
|
|
|
The cash flow interest rate risk comprises those assets and
liabilities with a floating interest rate, for example cash
deposits at local market rates. Cash and cash equivalents earn
interest at the prevailing market interest rate. Although this
portion of the NAV is not subject to fair value risk as a result of
possible fluctuations in the prevailing market interest rates, the
future cashflows of the Company could be adversely or positively
impacted by decreases or increases in those prevailing market
interest rates.
The fair value interest rate risk comprises those assets and
liabilities with a fixed interest rate, for example loans payable
and loan interest payable.
Fair value
All assets and liabilities are carried at fair value with the
exception of short term receivables and payables and cash and cash
equivalents, which are carried at amortised cost.
Short term receivables and
payables
Receivables and payables do not carry interest and are short
term in nature. They are stated at amortised cost, as reduced by
appropriate allowances for irrecoverable amounts in the case of
receivables.
Liquidity risk
Liquidity risk is the risk that the Company will encounter in
realising assets or otherwise raising funds to meet financial
commitments.
As at 30 April 2022, the Company
had drawn down ¥752,724,992 (£4,609,310) on the credit facility
(30 April 2021: not drawn down). In
connection with the facility agreement, the Company has entered
into an English law, multicurrency, and revolving credit facility
with NTGL.
The loan may be used for the following purposes:
- the acquisition of investments
in accordance with the investment policy; and
- its working capital requirements
in the ordinary course of business.
The loan must be repaid on the earliest of the day on which
written demand is made by NTGL for repayment or the day on which an
automatic repayment event occurs (such as insolvency).
The Company invests primarily in listed securities which are
liquid in nature.
The Company’s liquidity risk is managed by the Investment
Manager who monitors the cash positions on a regular basis.
The maturity analysis of the Company’s financial liabilities
(excluding tax balances) is set out in the following table:
|
|
|
Up to
1 year |
|
1 to
5 |
|
|
|
|
|
or on
demand |
|
years |
|
Total |
| As at 30 April
2022 |
|
|
£'000 |
|
£'000 |
|
£'000 |
|
|
|
|
|
|
|
|
| Financial
liabilities |
|
|
|
|
|
|
|
| Bank overdraft |
|
|
(4,605) |
|
- |
|
(4,605) |
| Other financial
liabilities |
|
|
(340) |
|
- |
|
(340) |
| Total financial
liabilities |
|
|
(4,945) |
|
- |
|
(4,945) |
|
|
|
|
|
|
|
|
| As at 30 April
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financial
liabilities |
|
|
|
|
|
|
|
| Bank overdraft |
|
|
(667) |
|
- |
|
(667) |
| Other financial
liabilities |
|
|
(535) |
|
- |
|
(535) |
| Total financial
liabilities |
|
|
(1,202) |
|
- |
|
(1,202) |
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company.
In accordance with the investment restrictions as described in
its prospectus and investment policy, the Company may not invest
more than 10% of the Company’s gross assets in securities of any
one company or issuer. However, this restriction shall not apply to
securities issued or guaranteed by a government or government
agency of the Japanese or US Governments. In adhering to these
investment restrictions, the Company mitigates the risk of any
significant concentration of credit risk arising on broker and
dividend receivables.
As the Company invests primarily in publicly traded equity
securities the Company is not exposed to credit risk from these
positions. However, the Company will be exposed to a credit risk on
parties with whom it trades and will bear the risk of settlement
default. The Company minimises concentrations of credit risk by
undertaking transactions with a number of regulated counterparties
on recognised and reputable exchanges. All transactions in listed
securities are settled/paid for upon delivery using approved
brokers. The risk of default is considered minimal, as delivery of
securities sold is only made once the broker has made payment.
Payment is made on a purchase once the securities have been
received from the broker. The trade will fail if either party fails
to meet its obligation. The Company is exposed to credit risk on
cash and investment balances held with the Depositary. The
Investment Manager regularly reviews concentrations of credit
risk.
All of the cash assets are held with the Northern Trust Company
(“NTC”). Cash deposited with NTC is deposited as banker and is held
on its Statement of Financial Position. Accordingly, in accordance
with usual banking practice, NTC’s liability to the Company in
respect of such cash deposits shall be that of debtor and the
Company will rank as a general creditor of NTC. The financial
assets are held with the Depositary, Northern Trust (Guernsey) Limited.
These assets are held distinct and separately from the
proprietary assets of the Depositary. Securities are clearly
recorded to ensure they are held on behalf of the Company.
Bankruptcy or insolvency of the Depositary and, or one of its
agents or affiliates may cause the Company’s rights with respect to
the securities held by the Depositary to be delayed or limited.
NTC is a wholly owned subsidiary of Northern Trust Corporation.
As at 30 April 2022, Northern Trust
Corporation had a long term rating from Standard & Poor’s of A+
(30 April 2021: A+). Risk is managed
by monitoring the credit quality and financial positions of the
Depositary the Company uses. Northern Trust acts as its own
sub-depositary in the US, the UK, Ireland and Canada. In all other markets Northern Trust
appoints a local sub-depositary. Northern Trust continually reviews
its sub-depositary network to ensure clients have access to the
most efficient, creditworthy and cost-effective provider in each
market.
The securities held by the Company are legally held with the
Depositary, which holds the securities in segregated accounts, and
subject to any security given by the Company to secure its
overdraft facilities, the Company’s securities should be returned
to the Company in the event of the insolvency of the Depositary or
its appointed agents, although it may take time for the Company to
prove its entitlement to the securities and for them to be released
by the liquidator of the insolvent institution. The Company will
however only rank as an unsecured creditor in relation to any cash
deposited or derivative positions with the Depositary, their
related companies and their appointed agents, and is therefore
subject to the credit risk of the relevant institution in this
respect.
The assets exposed to credit risk at financial year end amounted
to £71,870 (30 April 2021:
£333,544).
Fair value hierarchy
The fair value of investments traded in active markets (such as
publicly traded derivatives and trading securities) are based on
quoted market prices at the close of trading on the Statement of
Financial Position date. The quoted market price used for
investments held by the Company is the last traded price; the
appropriate quoted market price for financial liabilities is the
current asking price.
A financial instrument is regarded as quoted in an active market
if quoted prices are readily and regularly available from an
exchange, dealer, broker, industry group, pricing service, or
regulatory agency, and those prices represent actual and regularly
occurring market transactions on an arm’s length basis.
The fair value of investments that are not traded in an active
market is determined by using valuation techniques.
For instruments for which there is no active market, the Company
may use internally developed models, which are usually based on
valuation methods and techniques generally recognised as standard
within the industry. Valuation models may be used primarily to
value unlisted equity, debt securities and other debt instruments
for which markets were or have been inactive during the financial
year. Some of the inputs to these models may not be market
observable and are therefore estimated based on assumptions. These
instruments would be categorised as level 2.
The following table sets out fair value measurements using the
IFRS 13 fair value hierarchies:
| At 30 April
2022 |
|
|
|
|
|
|
|
| Investments at fair
value through profit or loss |
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
| Equity
investments |
91,525 |
|
- |
|
- |
|
91,525 |
|
91,525 |
|
- |
|
- |
|
91,525 |
|
|
|
|
|
|
|
|
| At 30 April
2021 |
|
|
|
|
|
|
|
| Investments at fair
value through profit or loss |
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
| Equity
investments |
116,946 |
|
- |
|
- |
|
116,946 |
|
116,946 |
|
- |
|
- |
|
116,946 |
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 or liabilities.
· Level 2 - valued by reference to
valuation techniques using observable inputs other than quoted
prices included within level 1.
· Level 3 - valued by reference to
valuation techniques using inputs that are not based on observable
market data.
16.
INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
|
|
30
April 2022 |
|
30
April 2021 |
|
|
£'000 |
|
£'000 |
|
|
|
|
|
| Opening book cost |
|
77,919 |
|
61,302 |
| Purchases at cost |
|
55,642 |
|
52,294 |
| Proceeds on sale |
|
(57,590) |
|
(53,568) |
| Realised gains |
|
6,961 |
|
17,891 |
| Closing book
cost |
|
82,932 |
|
77,919 |
| Unrealised gains on
investments |
|
8,593 |
|
39,027 |
| Fair value |
|
91,525 |
|
116,946 |
17. NAV
HISTORY
|
|
30
April 2022 |
|
30
April 2021 |
|
30
April 2020 |
|
|
|
|
|
|
|
| NAV |
|
£87,278,759 |
|
£116,501,330 |
|
£97,913,074 |
| Number of Shares in
Issue excluding treasury shares |
|
41,416,570 |
|
41,794,570 |
|
41,794,570 |
| NAV per Ordinary
Share |
|
£2.11 |
|
£2.79 |
|
£2.34 |
18.
DIVIDENDS
All amounts held in the Company’s revenue reserve are
distributable to shareholders by way of dividends. There are
regular quarterly payments of 1% of the company’s NAV (based on the
average daily NAV in the final month of the financial year). These
will be paid in March, June, September and December.
The Company declared the following dividends during the
financial year ended 30 April
2022:
| Date |
Dividend rate per share (pence) |
Dividend (£) |
Record date |
Ex-dividend date |
Pay
date |
| 24 May 2021 |
2.17 |
906,942 |
4 June
2021 |
3 June
2021 |
30 June
2021 |
| 25 August 2021 |
2.88 |
1,203,684 |
3
September 2021 |
2
September 2021 |
30
September 2021 |
| 23 November 2021 |
2.88 |
1,201,956 |
3
December 2021 |
2
December 2021 |
31
December 2021 |
| 24 February 2022 |
2.88 |
1,198,932 |
4 March
2022 |
3 March
2022 |
31 March
2022 |
19.
ONGOING CHARGES
The ongoing charges using the AIC recommended methodology were
1.65% for the financial year ended 30 April
2022 (30 April 2021: 1.58%).
Of the £1,828,253 expenses in the Statement of Comprehensive
Income, excluded from the calculation of ongoing charges, are £nil
considered by the Directors to be non-recurring (30 April 2021: £nil).
20. EXCHANGE RATES
The following exchange rates were used at the reporting date to
convert the assets and liabilities of the Company:
|
|
30
April 2022 |
|
30
April 2021 |
|
30
April 2020 |
|
|
GBP |
|
GBP |
|
GBP |
| USD |
|
$1.2555 |
|
$1.3846 |
|
$1.2614 |
| JPY |
|
¥162.6627 |
|
¥151.3383 |
|
¥134.8825 |
The following average exchange rates were used during the
financial year to convert the transactions of the Company:
|
|
30
April 2022 |
|
30
April 2021 |
|
30
April 2020 |
|
|
GBP |
|
GBP |
|
GBP |
| USD |
|
$1.3591 |
|
$1.3195 |
|
$1.2666 |
| JPY |
|
¥154.4499 |
|
¥140.0542 |
|
¥137.3435 |
21. CHANGES IN THE
PORTFOLIO
A list, specifying for each investment the total purchases and
sales which took place during the financial year ended 30 April 2022, may be obtained, upon request, at
the registered office of the Company.
22.
EVENTS DURING THE FINANCIAL YEAR
Yuki Soga was appointed as a
Director on 1 July 2021.
There were no other significant events during the financial year
which require adjustment to or additional disclosure in the
Financial Statements.
23.
EVENTS AFTER THE FINANCIAL YEAR
There were no significant events subsequent to the financial
year which require adjustment to or additional disclosure in the
Financial Statements.
24.
ULTIMATE CONTROLLING PARTY
There is no one ultimate controlling party over the Company.