TIDMAJIT
RNS Number : 0905B
Aberdeen Japan Investment Trust PLC
08 June 2021
ABERDEEN JAPAN INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT ANNOUNCEMENT FOR THE YEARED 31 MARCH
2021
FINANCIAL HIGHLIGHTS
Net asset value
total return{A} Index total return Share price total
return{A}
Figures to 31 March Figures to 31 March Figures to 31
2021 2021 March 2021
+33.5% +24.8% +35.2%
Return since 8 Return since 8 October Return since 8
October 2013 (change 2013 (change of October 2013 (change
of mandate) +133.0% mandate) +105.2% of mandate) +131.5%
Ongoing charges Discount to net Dividend per share
ratio{A} asset value{A}
Year to 31 March As at 31 March 2021 Year to 31 March
2021 2021
1.04% 9.9% 15.00p
Year to 31 March Year to 31 March
2020 1.04% As at 31 March 2020 10.9% 2020 15.00p
{A} Alternative Performance Measure
STRATEGIC REPORT
CHAIRMAN'S STATEMENT
Overview
The past year, dominated as it has been by the Covid-19 virus,
has felt like a long one. Perhaps surprisingly, given the dramatic
losses just over a year ago when the virus first emerged, it has
been a very positive year for global stock markets as a combination
of strong Central Bank support and successful vaccine programs have
supported financial markets and ongoing economic activity. Japan
has been no exception. Indeed, Japan's indices have risen nearly
25% over the past twelve months and have broken out of the ranges
which have shackled them for years. The domestic market has
benefited from a strong response to the virus itself, well-known
Japanese technological innovation, which has been a key aspect of
business transition this past year, and a stable political
backdrop. Moreover, as recovery has increasingly started to take
hold, Japan's leveraged position to global trade has been a strong
factor in attracting foreign fund flows.
Investment managers have faced the challenging task of working
out which companies would firstly survive, and then thrive, as
events have unfolded. In the first half of the year, when it was
the shares of companies with resilient business models and strong
balance sheets which performed best, your Company's investment
policy of focusing on exactly these sorts of businesses led to very
strong out-performance versus the benchmark and our competitors. In
the second half of the year, we have seen more speculative
investment behaviour, with some very high valuations being ascribed
to less proven companies and only time will tell if these
valuations prove to be justified. However, throughout the year, our
Manager's local presence and in-house research capability has
provided a clear edge in determining the likely winners from this
crisis, notably those with leading e-commerce or digital solution
capabilities, and led to a portfolio performance throughout the
year with which we are very pleased.
Performance
I am pleased to report that the Company's share price and net
asset value have both outperformed the benchmark by a significant
margin, reaffirming the Manager's strategy of selecting well-run
businesses with proven management. The Company's net asset value
total return in sterling terms ("NAV") for the year to 31 March
2021 was 33.5%, a strong gain compared with the Topix benchmark's
total return of 24.8%. The Ordinary Share price total return was
35.2% as the discount to NAV narrowed to 9.9% at 31 March 2021
(2020 - 10.9%). At 4 June 2021, the latest date prior to the
approval of this Report, the discount was 11.6%.
Since the change of mandate to a Japan-only equities strategy in
October 2013, the Company has delivered a NAV total return of
133.0%, compared to a benchmark total return of 105.2%, again in
sterling terms. Further details of the portfolio's performance and
changes to the underlying holdings are set out in the Investment
Manager's Review.
Environmental, Social & Corporate Governance ("ESG")
Over the past year, the portfolio's holdings have continued to
register ESG improvements, including greater transparency in terms
of disclosure, with companies more willing to engage with investors
and the composition of boards growing more inclusive and diverse.
Overall, these developments indicate a change in attitude and
foster progress. Management teams are increasingly aiming to
enhance shareholder value in their day-to-day decisions and at more
strategic policy-making levels. Your Manager has been working with
several companies to encourage them to track key metrics, such as
carbon emissions and carbon intensity, and to disclose this
information regularly with other important information on supply
chain management and health and safety. Meticulously tracking and
then publishing this information will help companies to improve ESG
standards and ensure accountability in pursuing the targets that
they have set. Japanese companies have an added advantage in that
they possess the technology and leading-edge materials to attain
these ESG related goals.
The portfolio's ESG standards, as measured by MSCI ratings, are
higher than the benchmark, with a carbon footprint (measured using
Trucost analytics) less than the broader market. Further
information on the Manager's approach to ESG is included below.
Dividend
The Company's revenue return per share for the financial year
was 6.57p (2020 - 8.08p). An interim dividend of 6.0p has already
been declared and paid. The Board proposes a final dividend of
9.0p, making a total dividend of 15.0p (2020 - 15.0p) for the year
ended 31 March 2021, in line with the Company's enhanced dividend
policy which was introduced for the year ended 31 March 2020. The
dividend comprises 6.5p revenue return and currently 3.0p from
revenue reserves and 5.5p from capital reserves.
The Board believes that a total dividend of 15.0p for the year
balances a prudent retention of capital for future investment, with
a recognition of the importance of income to our shareholders,
particularly in this low interest environment. Good performance,
combined with a regular, sustainable semi-annual dividend, should
allow the Company to broaden the shareholder base and help to
maintain the share price discount to NAV at reasonable levels. The
Board is keen to take advantage of the investment trust structure
to allow the Company to support the enhanced dividend policy.
Gearing
The Company continued to make use of its ability to gear during
the financial year. The Company renewed its loan facility with ING
Bank in January 2021 which comprised two parts: a Yen 1.3 billion
one year fixed term loan, which was fully drawn down; and a Yen 1.0
billion one year floating rate loan facility, of which Yen 400
million was drawn down at the year end.
The Board continues to monitor the level of gearing and
considers a gearing level of around 10% to be appropriate although,
with market fluctuations, this may range between 5% and 15%. Net
gearing at 31 March 2021 was 10.0% (2020 - 13.6%).
Discounts and Share Buybacks
Over the year, discount volatility continued to feature within
the investment trust sector, including the Company's peer group.
The Board monitors the discount level and has in place a mechanism
to buy back shares at certain levels. During the financial year
505,321 shares were bought back into treasury at a cost of GBP3.4
million.
Overall, the discount averaged 8.6% over the last 90 days of the
Company's financial year and there is therefore no requirement
under the articles for the Company to put forward a continuation
vote to shareholders.
Since the end of the financial year, a further 137,232 shares
have been bought back into treasury at a cost of GBP991,000.
The Board
It was with great sadness and regret that I reported that Kevin
Pakenham passed away on 19 July 2020. Kevin had served as a
Director of the Company since 2007. During this time, the Board and
the shareholders benefited hugely from Kevin's significant
knowledge and experience and his special wit and humour. He is
greatly missed.
Following a search involving an external recruitment agency, Sam
Dean was appointed as an independent non-executive Director with
effect from 1 December 2020. Sam has a long career in investment
banking, working in Equity Capital Markets and corporate finance on
behalf of corporate and government clients globally .
The Board members have diverse backgrounds, skills and
experience. The Board's policy on tenure is that the length of
service of a Director is secondary to the contribution that he or
she makes. Tenure will be determined on a case-by-case basis,
consistent with the AIC Code of Corporate Governance. The Board has
a succession plan and evaluates each Director's performance
annually to ensure up-to-date skills and capacity.
Annual General Meeting ("AGM")
At the date of this report, Government guidelines on future
gatherings and social distancing measures are still under review
and there remains a great degree of uncertainty. The Board has
therefore decided to seek to limit attendance at the AGM to the
minimum quorum requirements and requests that shareholders exercise
their votes in advance. Any questions which shareholders may have
should be submitted to the company secretary at
aberdeen.japan@aberdeenstandard.com. A presentation from the
Manager will be uploaded to the Company's website on the day of the
AGM.
One of the resolutions being proposed at this AGM is an
amendment to the Company's articles of association to allow for
virtual shareholder meetings to be held and conducted in a manner
that allows those attending to speak and vote by electronic means.
While the Board does not currently intend to hold meetings in this
way, the resolution would allow this option when in the best
interests of shareholder safety. The amendments do not prevent the
Company from holding physical meetings and the Board's intention is
always to hold a physical AGM when safe and practical to do so.
Outlook
Your Manager continues to engage with Japanese companies for a
more prosperous future: persuading a major carmaker to increase
transparency and improve how it is perceived by the market;
encouraging a mid-sized property firm to scale back its less
profitable operations in order to allow its core business to
thrive; and pressing an equipment maker to create a better
framework to enhance returns. These efforts are aimed at unlocking
value as management teams become more open.
The environment remains uncertain. At the time of writing there
are concerns about the new wave of the pandemic in Japan, the low
levels of vaccination, and the falling popularity of the Government
linked specifically to the Olympics and Paralympics (to which the
Government has renewed their commitment). While Japan continues to
struggle with deflation, there are also worries about the impact on
the global economy if US policy leads to inflationary pressures
which affect Japanese importers and investors, at a time when the
Bank of Japan appears to be moving away from aggressive monetary
stimulus. However, Japan should remain stable politically and
economically. I am confident that the quality of the Company's
underlying holdings, which have proven more than capable of
withstanding the severe tests of the past year, will continue to
create value for shareholders.
Karen Brade
Chairman
7 June 2021
INVESTMENT MANAGER'S REVIEW
Overview
In what was a challenging year for investors, Japanese equities
recorded a double-digit gain in the year under review, but there
were two distinct halves. In the first six months, with a lack of
clarity over the Covid-19, the market was more risk averse and
favoured quality stocks, at a time of uncertainty in the face of a
global pandemic. This benefited your Company's portfolio, which
outpaced the benchmark by a substantial margin. The latter half saw
optimism that the development and rollout of vaccines would
accelerate an end to social and work restrictions and facilitate
global economic recovery. This lifted more cyclical parts of the
market, with an accompanying increase in risk appetite that
favoured the lower quality names that we tend to avoid.
The Japanese market reflected global trends: digitally-enabled
companies initially gained the upper hand over analogue and
valuations of the former group became increasingly extended, while
those of the latter languished. As the year progressed, however, it
became evident that the early prognosis of the pandemic's impact
was harsher than the actual effects. With the approval and rollout
of Covid-19 vaccines in the latter half, albeit slowly in Japan
compared with other developed countries, the bifurcation across
markets started to reverse. We have been taking stock of the new
trends, assessing their effect on the portfolio's underlying
holdings and evaluating opportunities.
Portfolio review
Against this backdrop, we are pleased to report that the
Company's NAV rose by a solid 33.5% while the share price advanced
by 35.2%, both in sterling total return terms.
The ongoing pandemic has had far-reaching effects on all
businesses. In this environment, the Company's focus on well-run
companies, which adapted quickly to changes in the market and which
continue to find ways to create value, contributed to the
outperformance. Importantly, we have observed positive trends in
ESG initiatives across the Company's holdings. These reflect
long-term contacts and dialogue initiated by your Manager, who is
committed to maintaining this approach. The discussions we have had
with portfolio companies include proposals to raise disclosure
standards on their initiatives, to create frameworks for a better
assessment of risk and to improve returns, and to promote more
significant restructuring.
In terms of stock performance, shares of Sanken Electric rose
following the successful listing of its US subsidiary Allegro
Microsystems. This is another positive step towards unlocking the
company's value, a subject which we had discussed with the company
in the past as it moves from a restructuring phase to the pursuit
of growth. Separately, the company also received a tender offer
from an activist hedge fund, highlighting the value that remains
inherent in the company. Speciality chemicals company Shin-Etsu
Chemical saw its shares climb on expectations of brighter prospects
for both its silicon wafer and polyvinyl-chloride manufacturing
businesses. The former is the primary raw material required to make
semiconductors used in most electronic devices, for which we expect
the demand-supply balance to tighten over the medium term.
Meanwhile, fintech firm WealthNavi responded positively as
investors continued to buy into the growth potential of its
robo-advisory business, which targets the expanding segment of
tech-savvy young consumers looking to invest their savings in an
ultra-low interest rate environment. We initiated a holding in the
company through its initial public offering in December.
Elsewhere, factory automation solutions provider Nabtesco
advanced on hopes for increased capital expenditure as economic
conditions improved. Most recently, the company sold its stake in
affiliate Harmonic Drive Systems and dissolved the business
partnership between the two companies. The proceeds are to be used
for share buybacks, debt repayment and growth investments. Capital
allocation is a topic that we often discuss with the company, and
we had questioned the lack of synergy from this partnership.
Nabtesco is a global leader in producing reduction gears for use in
mid-to larger-sized industrial robots, while Harmonic Drive focuses
on smaller robots - and Nabtesco has the technology to expand its
business into Harmonic Drive's domain independently.
The gains from these companies more than offset those that fared
less well. These included Tokio Marine, whose shares were weighed
down by concerns over its exposure to policies related to business
interruption insurance, but which we believe is manageable as the
company has astutely diversified its business risks over the years;
mobile network operator KDDI, which came under government pressure
to cut tariffs, but which has expanded outside its core business
and remains committed to earnings growth and shareholder returns;
and drugstore operator Welcia Holdings, which performed well in the
initial months of the pandemic and has seen a subsequent decline in
growth rate, but which retains the dominant market position and is
seen as a consolidator in a fragmented industry. We remain
confident in the longer-term prospects for these businesses, which
remain buffered by resilient balance sheets.
In other activity, we exited several holdings. Among these were
retail conglomerate Seven & i Holdings, clinical-testing device
maker Sysmex, IT-services providers SCSK and Fujisoft, control
equipment provider Azbil, industrial refrigerator manufacturer
Daiwa Industries, and pharmaceutical firm Shionogi & Co.
We exited Seven & i due to slow progress on restructuring of
non-performing businesses in spite of our continued engagement. We
initially invested in the company with the view that its
core-convenience store business would drive sustained growth,
offsetting weakness from non-core businesses such as department
stores. However, even the core business has faced increasing
competition from drugstores and other retailers. We were also
disappointed by the management's decision to conduct large-scale
overseas M&A, instead of tackling issues at home in spite of
our engagement efforts. We exited Sysmex after the stock re-rated
sharply in 2020, partly due to the company's newly developed
antigen-based Covid-19 testing kit. We assessed that the company's
antigen-based tests could face challenges given their inferior
accuracy rates and longer preparation time required compared to
some of its competing products. While we were still confident on
the company's ability to build upon its dominant positioning in
haematology testing, we could no longer justify the share's high
valuations.
Our assessment on Azbil was similar to that of Sysmex as we felt
that investors were overly optimistic on the company's prospects to
develop and market a specialised air ventilation system to prevent
the spread of COVID inside buildings. We believed that the
technology would be too expensive for landlords to install,
especially as the office space market was softening as more
companies were adopting work-from-home technologies. While we
remained optimistic on the company's ability to grow sales of
ventilation control systems, we could no longer justify the stock's
high valuation after the stock nearly doubled in 2020.
We also exited SCSK in light of better opportunities elsewhere.
While we remained optimistic on the company's ability to benefit
from rising demand for IT services, we believed that it was fully
priced in by the market. At the same time, we identified other more
attractive IT solution businesses with the client base and track
record to capture structural growth opportunities such as digital
government and local 5G.
These exits allowed us to establish positions in more attractive
opportunities across several businesses, including leading IT
solutions provider NEC Corp., which we believe is well-positioned
to benefit from the build-out of Japan's 5G network and the
government's digitalisation efforts. The company is also poised to
expand its business abroad through a partnership with Samsung
Electronics on 5G mobile network systems, as well as providing a
lower-cost solution for telecommunications providers in the
implementation of the new global wireless standard. Similarly,
Murata Manufacturing was another new introduction. Murata is one of
the few electronic component manufacturers in Japan to reinvest
efficiently in its business and grow its margins, which has
translated into the company's leading edge research and
manufacturing capability. We also established a holding in Jeol, a
world-leading maker of multi-beam semiconductor mask-writers, which
are crucial in the production of high-end semiconductors. In
addition to the lucrative mask-writers business, management is keen
to boost profitability by expanding its sales of scientific
instruments to the semiconductor and medical sectors.
We also participated in the initial public offers of both
Coconala and Appier due to their relatively attractive valuations
when compared with their longer-term growth outlooks. Coconala
provides an online-based matching platform for knowledge, skills
and services. The company is entering a virtuous cycle, whereby
more transactions lead to more reviews, leading to clearer
visualisation of sellers' skills and buyers' needs. Appier is an
artificial intelligence-based marketing support tool provider,
enabling its clients to improve data-driven decision making in
digital marketing. Its proprietary algorithms help identify
valuable customers, enabling more targeted ads and coupons to
enhance customer conversion rates.
Outlook
Looking ahead, favourable fundamentals and a recovery in global
trade should provide some tailwinds for Japanese equities, while
improving governance should drive greater shareholder value. Some
trends during the pandemic are likely to remain; for example, the
move to increased working from home, and the increasing shift of
retail to online models. This is clear when we look across the Asia
Pacific region where economies have reopened and social and
business activities have resumed, although some habits formed
during shutdowns persist.
Businesses that have delayed expansion plans seem to be making
up for lost time, resulting in a broad based pick-up in corporate
capital expenditure; there is pent-up demand not only from last
year's business disruption, but also from the geopolitical
uncertainty witnessed in the year before due to US/Chinese trade
tensions. There are, however, risks in this scenario: valuation
disparities have widened amid rising imported cost inflation;
geopolitical tensions remain a challenge; and the anticipated
global recovery is likely to be uneven, given the sharp disparities
between countries in Covid-19 vaccination rates and the consequent
ability to control the social and economic impact of high levels of
virus transmission.
The Japanese Prime Minister Yoshihide Suga has maintained his
predecessor Shinzo Abe's economic policies, but has seen his own
popularity wane over the past six months. His low-key public
persona, lost by-elections, slow and over-bureaucratic vaccination
processes as further waves have gathered momentum, and the
unpopularity of plans to go ahead with the Olympics (due to start
on 23 July) have all been factors. Despite this, the continuity of
economic management and stability of government remains.
From an investment perspective, we have kept our focus on and
commitment to improving your Company's portfolio through these
turbulent times. This includes our continued focus on well run
businesses that are leaders in their segments, and that are linked
to longer-term structural changes in society. Our diligence in
carrying out proprietary research and our continued discussions
around improving governance and good ESG credentials has, to date,
yielded success; the results of many of the underlying companies
held in the Company reaffirm our investment choices, which should
position your company well for a global economy which may well be
on the cusp of recovery.
Aberdeen Standard Investments (Japan) Limited,
Investment Manager
7 June 2021
OVERVIEW OF STRATEGY
Business Model
This report provides shareholders with details of the Company's
business model and strategy as well as the principal risks and
challenges it faces.
The Company is an investment trust which seeks to deliver a
competitive return to its shareholders through the investment of
its funds in accordance with the investment policy as approved by
shareholders.
The Board appoints and oversees an investment manager, decides
the appropriate financial policies to manage the assets and
liabilities of the Company, ensures compliance with legal and
regulatory requirements and reports objectively to shareholders on
performance.
The Directors do not envisage any change in this model in the
foreseeable future.
Investment Objective and Purpose
To achieve long-term capital growth principally through
investment in listed Japanese companies which are believed by the
Investment Manager to have above average prospects for growth.
The Board's strategy is represented by its investment policy,
financial policies, and risk management policies.
Investment Policy
The Company primarily invests in the shares of companies which
are listed in Japan. The portfolio is constructed through the
identification of individual companies of any market capitalisation
and in any business sector, which offer long-term growth
potential.
The portfolio is selected from the 3,500 listed stocks in Japan
and is actively managed to contain between 30 and 70 stocks which,
in the Manager's opinion, represent the best basis for producing
higher returns than those of the market as a whole in the long
term. There will therefore inevitably be periods in which the
Company's portfolio either outperforms or underperforms the market
as represented by the Company's benchmark.
The Board does not impose any restrictions on these shorter term
performance variations from the benchmark, nor any limits on the
concentration of stock or sector weightings within the portfolio,
except that no individual shareholding shall exceed 10% of the
Company's portfolio at the time of purchase, although market
movements may subsequently increase this percentage.
The full text of the Company's investment policy is provided on
page 80 of the published 2021 Annual Report,
Benchmark Index
Topix (in Sterling terms)
Investment Approach
The Investment Manager's investment philosophy is that markets
are not always efficient. The Investment Manager's approach is
therefore that superior investment returns are attainable by
investing in companies with good fundamentals and above average
growth prospects that in the Investment Manager's opinion drive
share prices over the long-term. The Investment Manager follows a
bottom-up investment process based on a disciplined evaluation of
companies through active engagement, at least twice a year, with
management on performance including environmental, social and
governance issues by its fund managers who are based in Japan and
supported by the Manager's Asian investment team in Singapore. The
Manager estimates a company's worth in two stages; quality, defined
by reference to management, business focus, the balance sheet and
corporate governance; and then price, calculated by reference to
key financial ratios, the market, the peer group and business
prospects. The selection of the portfolio of shares is the major
source of the performance of the portfolio, and no stock is bought
without the fund managers having first met management.
Stock selection is key in constructing a diversified portfolio
of companies with macroeconomic, political factors and benchmark
weightings being secondary.
Given the long-term fundamental investment philosophy, the
Manager expects to hold most companies in which the Company invests
for extended periods of time and this accounts for the relatively
low level of activity within the portfolio.
Financial Policies
The Board's main financial policies cover the management of
shareholder capital, risk management of the Company's assets and
liabilities, including currency risk, the use of gearing and the
reporting to shareholders of the Company's performance and
financial position.
Management of Shareholder Capital
The Board's policy for the management of shareholder capital is
primarily to ensure its long term growth. This growth will reflect
both the Manager's investment performance and from time to time the
issue of shares, when sufficient demand exists to do this, without
diluting the value of existing shareholder capital.
The Board's dividend policy is to make distributions on a
semi-annual basis and currently consists of the Company's earnings
for the year, 3.0p released from the revenue reserves and an amount
from the distributable capital reserves.
The Board will authorise the buyback of shares in order to avoid
excessive variability in the discount and if, despite this, the
average discount exceeds 10% during the 90 day period preceding its
financial year end, the Board will offer shareholders the
opportunity to vote on the continuation of the Company at a general
meeting.
Risk Management
The policy for risk management is primarily focused on the
investment risk in the portfolio using the Manager's risk
management systems and risk parameters, overseen by the Board.
Derivatives
The Company may use derivatives from time to time for the
purpose of mitigating risk in its investments. The performance of
the Company is subject to fluctuations in the Yen/GBP exchange
rate. The Company's exposure to Yen fluctuations is partially
offset by the natural hedge provided by any borrowing in Yen as
well as by investments in Japanese companies which have significant
sources of income from exports of goods or from non-Japanese
operations.
The wider corporate risks, including those arising from the
increasingly regulated and competitive marketplace, are managed
directly by the Board. The principal risks are more fully described
under the paragraph 'Principal Risks and Uncertainties'.
Use of Gearing
Gearing is the amount of borrowing used to increase the
Company's portfolio of investments in order to enhance returns when
and to the extent it is considered appropriate to do so or to
finance share buybacks when necessary. The level of borrowing under
the Company's investment policy is subject to a maximum of 25% of
net assets but will normally be set at a stable and lower level
than the maximum. The Board has currently established a gearing
level of around 10% of net assets although, with stock market
fluctuations, this may range between 5% and 15%.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a
material adverse effect on the Company and its business model,
financial position, performance and prospects.
The Board has in place a robust process to identify, assess and
monitor the principal risks and uncertainties facing the Company
and to identify and evaluate newly emerging risks. The Company's
risks are regularly assessed by the Audit Committee and managed by
the Board through the adoption of a risk matrix which identifies
the key risks for the Company, including emerging risks, and covers
strategy, investment management, operations, shareholders,
regulatory and financial obligations and third party service
providers. The principal risks and uncertainties facing the
Company, which have been identified by the Board, are described in
the table below, together with the mitigating actions.
Description Mitigating Action
Market, Economic and Political Risk An explanation of these risks
The Company's assets consist mainly and the management of them is
of listed securities and the principal included in Note 16 to the Financial
risks are therefore market-related. Statements. The Board considers
This includes concerns about stockmarket the composition and diversification
volatility caused by geopolitical of the portfolio by industry,
instability, political change, economic size and growth rates, as well
growth, interest rates, currency, as purchases and sales, at each
and other price risks, as well as meeting, and in monthly papers.
national or global crises that are Individual holdings are discussed
harder to predict and may cause with the Manager, as well as views
major market shocks. by sector and industry.
Investment Strategy Risk The Board regularly reviews and
The Company and its investment objective monitors: the Company's investment
may become unattractive to investors, objective, policy and strategy;
leading to reduced returns for shareholders, the portfolio and its performance;
decreased demand for the Company's longer term trends in investor
shares and possible widening of demand; and the performance of
the share price discount to NAV. the Manager in operating the investment
policy against the long-term objectives
of the Company. If appropriate,
the Board can propose changes
in the investment objective to
shareholders.
Investment Management Risk The Board relies on the Investment
Investment risk arises from the Manager's skills and judgment
Company's exposure to variations to make investment decisions based
of share prices within its portfolio on research and analysis of stocks
in response to individual company and sectors. The Board regularly
and to wider Japanese or international monitors the investment performance
factors. Investment in a focussed of the portfolio and reviews holdings,
portfolio of shares can lead to purchases and sales on a monthly
greater short-term changes in the basis, as well as with the Manager
portfolio's value than in a larger at Board meetings. The Board regularly
portfolio of stocks and these variations reviews performance data and attribution
will be amplified by the use of analysis and other relevant factors
gearing. Inappropriate investment and, were any underperformance
decisions may result in the Company's seen as likely to be sustained,
underperformance against the benchmark would be able to take remedial
index and Peer Group and a widening measures.
of the Company's discount.
ESG Risks The Board supports the Manager's
Excluding from the Company's portfolio active engagement and analysis
those companies which the Manager of ESG and risks associated with
does not feel meet rigorous ESG climate change. The Board reviews
criteria, in accordance with the ESG engagement by the Manager
Manager's policy, could impact the on a quarterly basis, and company
relative performance of the Company research notes in the board papers
in the short-term. However, the address and rate ESG risks for
Board is confident that, in the all new investments.
long-term, companies with strong
ESG profiles will add value for
shareholders. Furthermore, the Board
believes that the Manager's own
ESG credentials will have a beneficial
impact on the attractiveness of
the Company as investors seek to
invest only in companies or funds
which safeguard strong ESG principles.
Covid-19 Pandemic The Manager's robust and disciplined
The Board is cognisant of the risks investment process is focused
arising from the outbreak and spread on long term company fundamentals
of the Coronavirus around the world, including balance sheet strength
including stockmarket instability and deliverability of sustainable
and longer term economic effects, earnings growth. As part of that
and the impact on the operations process, the Manager continues
of the third-party suppliers, including to assess and review the investment
the Manager. risks arising from Covid-19 on
companies in the portfolio, including
but not limited to: employee absence,
reduced demand, supply chain breakdown,
balance sheet strength, ability
to pay dividends, and takes the
necessary investment decisions.
The Manager has business continuity
procedures and contingency arrangements
to ensure they are able to service
their clients, including investment
trusts. The services from third
parties, including the Manager,
have continued to be supplied
effectively and the Board will
continue to monitor arrangements
through regular updates from the
Manager.
Operational Risk The Manager has extensive business
The Company relies on a number of continuity procedures and contingency
third-party service providers, principally arrangements to ensure that they
the Manager, Registrar, Custodian are able to continue to service
and Depositary. their clients. Third parties are
subject to risk-based reviews
by the Manager. The Board reviews
reports on the operation and efficacy
of the risk management and control
systems of the Manager and other
key third- party service providers,
including those relating to cyber
crime.
Regulatory Risk The Board is active in ensuring
The Company operates under a complex that it fully complies with all
regulatory environment. Serious applicable laws and regulation
breaches of regulations, such as and is assisted by the Manager
Section 1158 of the Corporation and other advisers in doing this.
Tax Act 2010, the UKLA Listing Rules, The Board believes that, while
Companies Act 2006 and the Alternative the consequences of non-compliance
Investment Fund Managers Directive can be severe, the control arrangements
could lead to a number of detrimental it has put in place reduce the
outcomes and reputational damage. likelihood of this happening.
Share Price and Discount risk The price of the Company's shares
The principal risks described above and its discount to NAV are not
can affect the movement of the Company's wholly within the Company's control,
share price and in some cases have as both are subject to market
the potential to increase the discount volatility. However, the Board
in the market value of the Company can influence this through the
compared with the NAV. ability to authorise the buyback
of existing shares, when deemed
to be in the best interests of
shareholders. The share price,
NAV and discount are monitored
daily by the Manager and regularly
reviewed by the Board.
Leverage The maximum level of borrowing
The Company may borrow money for permitted by the Company's investment
investment purposes. If investments policy is 25% of net assets. All
fall in value, gearing has the effect borrowing requires prior approval
of magnifying the extent of this of the Board. In order to manage
fall. the level of gearing, the Board
has established a gearing level
of around 10% of net assets although,
with stock market fluctuations,
this may range between 5% and
15%. The Board regularly reviews
the Company's gearing levels and
its compliance with bank covenants.
In all other respects, the Company's principal risks and
uncertainties have not changed materially since the year end.
Promoting the Success of the Company
The Board is required to report on how it has discharged its
duties and responsibilities under section 172 of the Companies Act
2006 (the "s172 Statement"). Under section 172, the Directors have
a duty to promote the success of the Company for the benefit of its
members as a whole, taking into account the likely long term
consequences of decisions, the need to foster relationships with
the Company's stakeholders and the impact of the Company's
operations on the environment.
The Company consists of four Directors and has no employees or
customers in the traditional sense. As the Company has no
employees, the culture of the Company is embodied in the Board of
Directors. The Board seeks to promote a culture of strong
governance and to challenge, in a constructive and respectful way,
the Company's advisers and other stakeholders.
The Board's principal concern has been, and continues to be, the
interests of the Company's shareholders and potential
investors.
The Manager undertakes an annual programme of meetings with the
largest shareholders and investors and reports back to the Board on
issues raised at these meetings. The Investment Manager, who is
based in the Manager's Tokyo office, will attend such meetings. In
normal circumstances, the Board encourage all shareholders to
attend and participate in the Company's AGM in normal circumstances
and shareholders can contact the Directors via the Company
Secretary. Shareholders and investors can obtain up-to-date
information on the Company through its website and the Manager's
information services and have direct access to the Company through
the Manager's customer services team or the Company Secretary.
As an investment trust, a number of the Company's functions are
outsourced to third parties. The key outsourced function is the
provision of investment management services to the Manager and
other stakeholders support the Company by providing secretarial,
administration, depositary, custodial, banking and audit
services.
The Board undertakes a robust evaluation of the Manager,
including investment performance and responsible ownership, to
ensure that the Company's objective of providing sustainable income
and capital growth for its investors is met. The Board typically
visits the Manager's offices in Tokyo on an annual basis. This
enables the Board to conduct due diligence of the fund management
and research teams. During the course of the financial year, a
number of virtual meetings were held between the Board and the
Manager's investment team in Tokyo to review portfolio construction
and sector analysis. The portfolio activities undertaken by the
Manager on behalf of the Company can be found in the Manager's
Review and details of the Board's relationship with the Manager and
other third party providers, including oversight, is provided in
the Statement of Corporate Governance.
Whilst the Company's direct operations are limited, the Board
recognises the importance of considering the impact of the
Company's investment strategy and policy on the wider community and
the environment. The Board believes that its oversight of
environmental, social and governance ("ESG") matters is an
important part of its responsibility to stakeholders, and its
proper consideration aligns with the objective to achieve long-term
capital growth. The Board's review of the Manager includes an
assessment of their ESG approach, which embeds ESG considerations
in the investment process. Further information on how the Manager
addresses ESG is disclosed in the Statement of Corporate Governance
and the Manager's ESG Approach.
During the year, the Board focused on the performance of the
Manager in achieving the Company's investment objective within an
appropriate risk framework. In addition to ensuring that the
Company's investment objective was being pursued, key decisions and
actions undertaken by the Directors during the financial year and
up to the date of this report have included:
- as part of ongoing succession planning and Board refreshment,
the appointment and induction of Sam Dean to the Board with effect
from 1 December 2020.
- renewal of the Company's loan facilities which matured in
January 2021, in order to continue to take advantage of the
Company's investment structure to allow the use of gearing, where
appropriate, to enhance long-term total returns to
shareholders.
- working closely with the Manager to develop communications to
raise the profile of the Company, in order to increase demand for
and improve liquidity in the Company's shares. As part of this
process, a review of external broking services was undertaken,
leading to the appointment in November 2020 of a new corporate
broker, Shore Capital, in order to assist and advise in best
promoting the success of the company to existing and potential
shareholders, and in trading the Company's shares.
- the convening of a General Meeting in May 2020 under the
articles of association, to hold a continuation vote, which was
successfully passed with 89% of the votes in favour.
- the decision to pay an interim dividend of 6.0p per share and
a final dividend of 9.0p, in order to balance the objective of long
term capital growth with the policy of providing a regular and
sustainable dividend for shareholders.
In summary, the Directors are cognisant of their duties under
section 172 and decisions made by the Board take into account the
interests of all of the Company's key stakeholders and reflect the
Board's belief that the long-term sustainable success of the
Company is linked directly to its key stakeholders.
Key Performance Indicators ("KPIs")
Performance is compared against the Company's benchmark index
and its Peer Group. In view of the Manager's style of investing,
there can be, in the short-term, considerable divergence from both
comparators. The Board uses a three year rolling performance for
the following KPIs: total NAV return against the benchmark index
and share price total return compared with the Peer Group. The KPI
for the discount comparison to its Peer Group is over one year. The
Company's Ongoing Charges Ratio is compared with the Peer Group,
taking into account its size, to ensure that total running costs
remain competitive.
KPI Achievement of KPI
Yes
* NAV (total return) relative to the Company's
benchmark index (3 years)
Yes
* Share price (total return) vs Peer Group (3 years)
No
* Discount or premium of the share price to NAV vs Peer
Group on an annual average (1 year).
Yes
* Ongoing Charges Ratio (1 year) ("OCR")
Over the three year period to 31 March 2021, the Company's NAV
and share price return outperformed its KPI.
The discount KPI underperformed. The Company's OCR for the year
ended 31 March 2021 was 1.04%, in line with the previous year and
is competitive within its Peer Group, relative to the size of its
total assets and its fixed costs.
Duration
The Company does not have a fixed life. However, under the
articles of association, if, in the 90 days preceding the Company's
financial year-end (31 March), the Ordinary shares have been
trading, on average, at a discount in excess of 10% to the
underlying NAV over the same period, notice will be given of an
ordinary resolution to be proposed at the following AGM to approve
the continuation of the Company. In the 90 days to 31 March 2021,
the Ordinary shares traded at an average discount of 8.6% to the
underlying NAV and, as such, a continuation vote was not
required.
Board Diversity
The Board recognises the importance of having a diverse group of
Directors with the appropriate mix of competencies and expertise to
allow the Board to fulfil its obligations. At 31 March 2021 there
were two male Directors and two female Directors, all of whom bring
a variety of knowledge, experience and skills and contribute
distinctively to the Board's performance. Further detail is
provided in the Statement of Corporate Governance.
Employee, Environmental, Social & Human Rights Issues
The Company has no employees as it has delegated operational
management to the Manager. There are therefore no disclosures to be
made in respect of employees. Further information on socially
responsible investment can be found in the Manager's ESG Approach
.
Global Greenhouse Gas Emissions and Streamlined Energy and
Carbon Reporting ("SECR")
All of the Company's activities are outsourced to third parties.
The Company therefore has no greenhouse gas emissions to report
from the operations of its business, nor does it have
responsibility for any other emissions producing sources under the
Companies Act 2006 (Strategic Report and Directors' Reports)
Regulations 2013. For the same reason as set out above, the Company
considers itself to be a low energy user under the SECR regulations
and therefore is not required to disclose energy and carbon
information.
Modern Slavery Act
Due to the nature of the Company's business, being a company
that does not offer goods and services to customers, the Board
considers that it is not within the scope of the Modern Slavery Act
2015 because it has no turnover. The Company is therefore not
required to make a slavery and human trafficking statement. In any
event, the Board considers the Company's supply chains, dealing
predominantly with professional advisers and service providers in
the financial services industry, to be low risk in relation to this
matter.
Viability Statement
The Company's business model is designed to deliver long term
capital growth to its shareholders through investment in readily
realisable stocks in the Japanese equity markets. Its plans are
therefore based on having no fixed or limited life provided the
global equity markets continue to operate normally.
The Board has assessed the Company's prospects over a three year
period in accordance with the UK Corporate Governance Code. The
Board considers that this period reflects a balance between looking
out over a long-term horizon and the inherent uncertainties of
looking out further than three years. In assessing the viability of
the Company over the review period the Directors have focused upon
the following factors:
- The ongoing relevance of the Company's investment objective in the current environment;
- The principal risks detailed in the Strategic Report and the
steps taken to mitigate these risks. In particular, the Board has
considered the operational ability of the Company to continue in
the current environment, which has been impacted by the global
Covid-19 pandemic, and the ability of the key third-party suppliers
to continue to provide essential services to the Company. Third
party services have continued to be provided effectively;
- The liquidity of the Company's underlying portfolio. Recent
stress testing has confirmed that shares can be easily liquidated,
despite the more uncertain and volatile economic environment;
- The level of forecast revenue surplus generated by the Company
and its ability to achieve the dividend policy;
- The level of gearing is closely monitored by the Board.
Covenants are actively monitored and there is adequate headroom in
place; and
- The Company has a fixed term loan facility of JPY 1.3 billion
in place until January 2022 and a revolving loan facility of JPY
1.0 billion in place until January 2022. The Company has the
ability to renew or repay its gearing through proceeds from equity
sales.
Accordingly, taking into account the Company's current position
and its prospects, and the potential impact of its principal risks
and uncertainties, the Directors have a reasonable expectation that
the Company will be able to continue in operation and meet its
liabilities as they fall due for a period of three years from the
date of this Report.
In making this assessment, the Board has considered that matters
such as significant economic or stockmarket volatility (including
the possibility of a greater than anticipated economic impact of
the spread of the Covid-19), a substantial reduction in the
liquidity of the portfolio, or changes in investor sentiment could
have an impact on its assessment of the Company's prospects and
viability in the future.
The Strategic Report was approved by the Board of Directors and
signed on its behalf for Aberdeen Japan Investment Trust PLC
by:
Karen Brade,
Chairman
7 June 2021
RESULTS
Financial Highlights
31 March 31 March % change
2021 2020
Total assets (as defined on page 90 of
the published 2021 Annual Report) GBP118,585,000 GBP97,904,000 +21.1
Total equity shareholders' funds (net
assets) GBP107,438,000 GBP85,206,000 +26.1
Market capitalisation GBP96,775,000 GBP75,943,000 +27.4
Share price (mid market) 727.50p 550.00p +32.3
Net asset value per Ordinary share 807.66p 617.09p +30.9
Discount to net asset value{A} 9.9% 10.9%
Net gearing{A} 10.0% 13.6%
Operating costs
Ongoing charges ratio{A} 1.04% 1.04%
Earnings
Total return per Ordinary share 203.49p 19.03p
Revenue return per Ordinary share 6.57p 8.08p
Dividends per Ordinary share{B} 15.00p 15.00p
Revenue reserves (prior to payment of GBP1,758,000 GBP2,361,000
proposed final dividend)
{A} Considered to be an Alternative Performance Measure. See below
for more information.
{B} The figure for dividends reflects the years in which they were
earned
KEY PERFORMANCE INDICATORS
Return since
1 year 3 year 5 year 8 October 2013
return return return (change of mandate)
Net asset value total return{A} +33.5% +23.7% +68.0% +133.0%
Index total return +24.8% +19.5% +72.0% +105.2%
Share price total return{A} +35.2% +31.2% +74.2% +131.5%
Peer Group share price total
return +62.8% +34.4% +122.1% +181.4%
Over period
since
Over Over Over 8 October 2013
1 year 3 years 5 years (change of mandate)
Average discount - Company 12.6% 11.8% 11.7% 10.3%
Average discount - Peer Group 9.1% 7.0% 6.5% 6.3%
{A} Considered to be an Alternative Performance Measure. See below
for further details.
Source: Aberdeen Standard Investments, Lipper & Morningstar.
Based on share price and NAV per Morningstar (ie as available in
the market, not including the annual report NAV).
Peer group is the average of Baillie Gifford Japan, CC Japan Income
& Growth, Fidelity Japan, JP Morgan Japanese and Schroder Japan Growth.
DIVIDS
Rate Ex-dividend Record date Payment date
date
Proposed final dividend 9.00p 24 June 2021 25 June 2021 23 July 2021
2021
Interim dividend 6.00p 3 December 4 December 2020 31 December
2021 2020 2020
Total dividends 2021 15.00p
Final dividend 2020 9.00p 2 July 2020 3 July 2020 31 July 2020
Interim dividend 6.00p 28 November 29 November 20 December
2020 2019 2019 2019
Total dividends 2020 15.00p
INVESTMENT PORTFOLIO
Ten Largest Investments a s at 31 March 2021
Toyota Motor Corporation Sony Corporation
The carmaker has continued to gain The electronics giant has dominant
market share, while cost efficiencies market share in the image sensor
from its global platform structure business, and we are gaining more
protect its margins. It is also confidence in its management and
focused on hybrid technology, given the trajectory of its underlying
rising structural trends such as business fundamentals.
vehicle electrification.
Tokio Marine Holdings, Inc. Shin-Etsu Chemical Company
Tokio Marine is the most progressive Despite the challenging environment,
of the three largest local property the Japanese maker of specialised
and casualty insurers. Of note chemicals remains a leader in
is its positive view on shareholder its industry, due to its technological
returns, which we expect will grow edge and a greater focus on profits
gradually as it makes further inroads than most of its Japanese rivals.
abroad that add value to its business.
Amada Company Asahi Group Holdings
Amada is a sheet-metal machinery Japan's largest brewer is well
maker, with a dominant domestic positioned to achieve growth through
market share, that is making inroads premiumisation, cost synergies
in other parts of the world. It and cross-selling between different
has a strong balance sheet and brands.
its management has been progressive
in returning excess capital to
shareholders.
Recruit Holdings Corporation Nabtesco Corporation
Recruit has a dominant HR platform Nabtesco produces parts for robotics
that drives its growth by capturing and other industrial equipment.
hiring needs of the vast majority Thanks to its technological edge
of SMEs worldwide. It invests in in niche areas, the company has
technology, particularly in job leading market share across its
search, using cash generated from products.
its strong domestic HR and lifestyle-related
media businesses.
Nippon Sanso Holdings Keyence Corporation
Japan's largest industrial gas The leading maker of sensors has
company that is leveraging on domestic a cash generative business and
industry consolidation to expand is backed by a strong balance
its overseas business, where margins sheet and technological expertise.
are higher.
INVESTMENT PORTFOLIO
Other Investments as at 31 March 2021
Valuation Total Valuation
2021 assets 2020
Company Sector GBP'000 % GBP'000
Automobiles and
Toyota Motor Corporation Parts 5,504 4.6 3,393
Sony Corporation Leisure Goods 4,531 3.8 1,957
Tokio Marine Holdings, Inc. Non-life Insurance 4,471 3.8 3,869
Shin-Etsu Chemical Company Chemicals 4,295 3.6 3,973
Amada Company Industrial Engineering 3,973 3.3 2,721
Asahi Group Holdings Beverages 3,389 2.9 -
Industrial Support
Recruit Holdings Corporation Services 3,266 2.8 1,060
Nabtesco Corporation Industrial Engineering 2,975 2.5 1,714
Nippon Sanso Holdings Chemicals 2,924 2.5 -
Electronic and Electrical
Keyence Corporation Equipment 2,835 2.4 3,273
Top ten investments 38,163 32.2
Automobiles and
Stanley Electric Company Parts 2,764 2.3 1,371
Fanuc Corporation Industrial Engineering 2,748 2.3 371
Misumi Group Industrial Engineering 2,733 2.3 2,441
Construction and
Daikin Industries Materials 2,604 2.2 3,304
Finance and Credit
Zenkoku Hosho Company Services 2,581 2.2 -
Automobiles and
Koito Manufacturing Parts 2,497 2.1 -
Real Estate Investment
Tokyu Fudosan Holdings and Services 2,454 2.1 1,730
Technology Hardware
Murata Manufacturing and Equipment 2,274 1.9 -
Telecommunications
KDDI Corporation Service Providers 2,269 1.9 3,841
Resorttrust Travel and Leisure 2,167 1.8 850
Top twenty investments 63,254 53.3
Technology Hardware
Advantest Corporation and Equipment 2,080 1.8 -
USS Company Retailers 2,018 1.7 1,100
Kansai Paint Company General Industrials 1,816 1.5 1,747
Household Goods
Makita Corporation and Home Construction 1,772 1.5 2,105
NEC Networks & System Integration Telecommunications
Corporation Equipment 1,755 1.5 -
Pharmaceuticals
Astellas Pharma and Biotechnology 1,726 1.5 -
Software and Computer
Z Holdings Corporation Services 1,712 1.4 1,336
Yamaha Corporation Leisure Goods 1,711 1.4 1,758
Real Estate Investment
Heiwa Real Estate and Services 1,711 1.4 2,143
Medical Equipment
Hoya Corporation and Services 1,696 1.4 1,416
Top thirty investments 81,251 68.4
Technology Hardware
Sanken Electric and Equipment 1,603 1.4 1,050
Pharmaceuticals
Chugai Pharmaceutical Company and Biotechnology 1,589 1.3 4,619
Investment Banking
WealthNavi and Brokerage Services 1,525 1.3 -
Finance and Credit
Tokyo Century Corporation Services 1,499 1.3 1,129
Nitori Holdings Retailers 1,446 1.2 1,520
Shiseido Company Personal Goods 1,391 1.2 2,023
Personal Care, Drug
Welcia Holdings Company and Grocery Stores 1,280 1.1 2,704
Construction and
Sho-Bond Holdings Company Materials 1,260 1.1 2,072
Technology Hardware
Tokyo Electron and Equipment 1,257 1.1 -
Household Goods
Shoei co and Home Construction 1,246 1.1 -
Top forty investments 95,347 80.5
Pharmaceuticals
Daiichi Sankyo and Biotechnology 1,239 1.0 -
Scroll Corporation Retailers 1,205 1.0 -
Investment Banking
Japan Exchange Group and Brokerage Services 1,168 1.0 2,526
Technology Hardware
NEC Networks and Equipment 1,148 1.0 2,264
Construction and
Takuma Materials 1,061 0.9 -
Valuecommerce Company Media 1,024 0.9 -
Nippon Paint Holdings Company General Industrials 1,017 0.9 2,515
Software and Computer
Sansan Services 991 0.8 511
Taoka Chemical Chemicals 976 0.8 -
Technology Hardware
Elecom Company and Equipment 969 0.8 2,371
Top fifty investments 106,145 89.6
BML Health Care Providers 953 0.8 1,061
Milbon Company Personal Goods 864 0.7 1,089
Medical Equipment
Asahi Intecc Company and Services 849 0.7 2,310
Edulab Consumer Services 821 0.7 -
Software and Computer
Fukui Computer Holdings Services 767 0.6 430
Software and Computer
Zuken Services 715 0.6 526
Software and Computer
Coconala Services 711 0.6 -
Medical Equipment
As One Corporation and Services 629 0.5 1,094
Electronic and Electrical
Jeol Equipment 604 0.5 -
Software and Computer
Otsuka Corporation Services 601 0.5 1,869
Top sixty investments 113,659 95.8
Telecommunications
Okinawa Cellular Telephone Service Providers 600 0.5 403
Investment Banking
Nihon M&A Centre and Brokerage Services 584 0.5 571
Medical Equipment
Menicon Company and Services 577 0.5 -
Pharmaceuticals
Takara Bio and Biotechnology 564 0.5 -
Personal Care, Drug
Pigeon Corporation and Grocery Stores 511 0.4 1,441
Daifuku Industrial Engineering 440 0.4 507
Workman Retailers 421 0.4 -
Software and Computer
Appier Group Services 355 0.3 -
Total investments 117,711 99.3
Net current assets{A} 874 0.7
Total assets 118,585 100.0
{A} Excludes bank loans of GBP11,147,000.
Unless otherwise stated, foreign stock is held and all investments are
equity holdings.
In the 2020 valuation column "-" denotes stock not held at last year
end.
GOING CONCERN
The Company's assets consist of equity shares in companies
listed on recognised stock exchanges and in most circumstances are
realisable within a short timescale. The Board has reviewed the
results of stress testing prepared by the Manager in relation to
the ability of the assets to be realised in the current market
environment.
The Company does not have a fixed life. However, under the
articles of association, if, in the 90 days preceding the Company's
financial year-end (31 March), the Ordinary shares have been
trading, on average, at a discount in excess of 10% to the
underlying NAV over the same period, notice will be given of an
ordinary resolution to be proposed at the following AGM to approve
the continuation of the Company. In the 90 days to 31 March 2021,
the Ordinary shares traded at an average discount of 8.6% to the
underlying NAV. Accordingly, no resolution on the continuation of
the Company will be put to the Company's shareholders at the Annual
General Meeting.
The Company has a fixed term loan facility of JPY 1.3 billion in
place until January 2022 and a revolving loan facility of JPY 1.0
billion in place until January 2022. The Board has set limits for
borrowing and regularly reviews the Company's gearing levels and
its compliance with bank covenants. A replacement option would be
sought in advance of the expiry of the facility in January 2022,
or, should the Board decide not to renew this facility, any
outstanding borrowing would be repaid through the proceeds of
equity sales as required.
The Board has considered the ongoing impact of Covid-19 and
believe that this will have a limited financial impact on the
Company's operational resources and existence. The results of
stress testing prepared by the Manager, which models a sharp
decline in market levels and income, demonstrated that the Company
had the ability to raise sufficient funds so as to remain within
its debt covenants and pay expenses.
Taking the above factors into consideration, the Board has a
reasonable expectation that the Company has adequate resources to
continue in operational existence for a period of at least 12
months from the date of approval of these financial statements.
Accordingly, the Board continues to adopt the going concern basis
in preparing the financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they have
elected to prepare the financial statements in accordance with UK
accounting standards and applicable law, including FRS 102, The
Financial Reporting Standard applicable in the UK and Republic of
Ireland.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing these financial
statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent
- state whether applicable UK accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
- use the going concern basis of accounting unless they either
intend to liquidate the company or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
- the strategic report includes a fair review of the development
and performance of the business and the position of the issuer,
together with a description of the principal risks and
uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
For and on behalf of Aberdeen Japan Investment Trust PLC
Karen Brade,
Chairman
7 June 2021
FINANCIAL STATEMENTS
The following is the unaudited preliminary statement for the
year to 31 March 2021 which was approved by the Board on 7 June
2021.
STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 March Year ended 31 March
2021 2020
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments 10 - 25,747 25,747 - 2,872 2,872
Income 3 1,815 - 1,815 1,981 - 1,981
Exchange gains/(losses) 14 - 1,491 1,491 - (844) (844)
Management fee 4 (275) (412) (687) (254) (381) (635)
Administrative expenses 5 (423) (14) (437) (334) (20) (354)
_____ _____ _______ ______ ______ _____
Net return before finance
costs and taxation 1,117 26,812 27,929 1,393 1,627 3,020
Finance costs 6 (44) (65) (109) (44) (67) (111)
_____ _____ _______ ______ ______ _____
Net return before taxation 1,073 26,747 27,820 1,349 1,560 2,909
Taxation 7 (181) - (181) (198) - (198)
_____ _____ _______ ______ ______ _____
Net return after taxation 892 26,747 27,639 1,151 1,560 2,711
_____ _____ _______ ______ ______ _____
Return per Ordinary share
(pence) 9 6.57 196.92 203.49 8.08 10.95 19.03
_____ _____ _______ ______ ______ _____
The total column of this statement represents the profit and loss
account of the Company.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
STATEMENT OF FINANCIAL POSITION
As at As at
31 March 31 March
2021 2020
Notes GBP'000 GBP'000
Fixed assets
Investments held at fair value through
profit or loss 10 117,711 96,247
___________ ___________
Current assets
Debtors 11 916 982
Cash at bank and in hand 528 1,000
___________ ___________
1,444 1,982
___________ ___________
Creditors: amounts falling due within
one year 12
Foreign currency bank loans (11,147) (12,698)
Other creditors (570) (325)
___________ ___________
(11,717) (13,023)
___________ ___________
Net current liabilities (10,273) (11,041)
___________ ___________
Net assets 107,438 85,206
___________ ___________
Share capital and reserves
Called-up share capital 13 1,582 1,582
Share premium 6,656 6,656
Capital redemption reserve 2,273 2,273
Capital reserve 14 95,169 72,334
Revenue reserve 1,758 2,361
___________ ___________
Equity shareholders' funds 107,438 85,206
___________ ___________
Net asset value per Ordinary share (pence) 15 807.66 617.09
___________ ___________
STATEMENT OF CHANGES IN EQUITY
For the year ended
31 March 2021
Capital
Share Share redemption Capital Revenue
capital premium reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 March
2020 1,582 6,656 2,273 72,334 2,361 85,206
Return after taxation - - - 26,747 892 27,639
Dividends paid 8 - - - (548) (1,495) (2,043)
Purchase of Ordinary
shares to be held
in treasury 13 - - - (3,364) - (3,364)
______ ______ _____ _____ _____ ______
Balance at 31 March
2021 1,582 6,656 2,273 95,169 1,758 107,438
______ ______ _____ _____ _____ ______
For the year ended
31 March 2020
Capital
Share Share redemption Capital Revenue
capital premium reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 March
2019 1,582 6,656 2,273 74,675 2,839 88,025
Return after taxation - - - 1,560 1,151 2,711
Dividends paid 8 - - - - (1,629) (1,629)
Purchase of Ordinary
shares to be held
in treasury 13 - - - (3,901) - (3,901)
______ ______ _____ _____ _____ ______
Balance at 31 March
2020 1,582 6,656 2,273 72,334 2,361 85,206
______ ______ _____ _____ _____ ______
STATEMENT OF CASHFLOWS
Year ended Year ended
31 March 31 March
2021 2020
GBP'000 GBP'000
Operating activities
Net return before taxation 27,820 2,909
Adjustment for:
Gains on investments (25,747) (2,872)
Increase in other creditors 150 41
Finance costs 109 111
Expenses taken to capital reserve 14 20
Foreign exchange (gains)/losses (1,491) 844
Overseas withholding tax (181) (198)
Increase in accrued dividend income (16) (57)
Increase in other debtors (18) (9)
______ ______
Net cash inflow from operating activities 640 789
______ ______
Investing activities
Purchases of investments (59,281) (48,208)
Sales of investments 63,755 52,495
Expenses allocated to capital (14) (20)
______ ______
Net cash inflow from investing activities 4,460 4,267
______ ______
Financing activities
Bank and loan interest paid (107) (111)
Equity dividends paid (2,043) (1,629)
Purchase of own shares to treasury (3,364) (3,901)
______ ______
Net cash outflow from financing activities (5,514) (5,641)
______ ______
Decrease in cash (414) (585)
______ ______
Analysis of changes in cash during the year
Opening balance 1,000 1,516
Effects of exchange rate fluctuations on
cash held (58) 69
Decrease in cash as above (414) (585)
______ ______
Closing balance 528 1,000
______ ______
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2021
1. Principal activity. The Company is a closed-end investment company,
registered in England and Wales No 3582911, with its Ordinary
shares being listed on the London Stock Exchange.
2. Accounting policies
(a) Basis of accounting and going concern. The financial statements
have been prepared in accordance with Financial Reporting
Standard 102 and with the Statement of Recommended Practice
'Financial Statements of Investment Trust Companies and Venture
Capital Trusts' ("SORP") issued by the Association of Investment
Companies ("AIC") in April 2021. Although the SORP is applicable
for accounting periods beginning on or after 1 January 2021
early adoption is encouraged. They have also been prepared
on the assumption that approval as an investment trust will
continue to be granted.
The Company's assets consist mainly of equity shares in companies
listed on a recognised stock exchange and in most circumstances,
including in the current market environment, are considered
to be realisable within a short timescale. The Board has reviewed
the results of stress testing prepared by the Manager in relation
to the ability of the assets to be realised in the current
market environment.
The Company does not have a fixed life. However, under the
Articles of Association, if, in the 90 days preceding the
Company's financial year-end (31 March), the Ordinary shares
have been trading, on average, at a discount in excess of
10% to the underlying NAV over the same period, notice will
be given of an ordinary resolution to be proposed at the following
AGM to approve the continuation of the Company. In the 90
days to 31 March 2021, the Ordinary shares traded at an average
discount of 8.6% to the underlying NAV and therefore there
is no requirement to convene a general meeting of the Company.
The earliest date that the Company may be subject to a further
continuation vote would be at a general meeting of the Company
which would be likely to be held in mid-2022 following the
next review of the discount control mechanism within the Articles.
The Company has a fixed term loan facility of JPY 1.3 billion
and a revolving loan facility of JPY 1.0 billion, both maturing
on 21 January 2022. The Board has set limits for borrowing
and regularly reviews the Company's gearing levels and its
compliance with bank covenants. A replacement option would
be sought in advance of the expiry of the facility in January
2022, or, should the Board decide not to renew this facility,
any outstanding borrowing may be repaid through the proceeds
of equity sales as required.
The Board has considered the ongoing impact of Covid-19 and
believe that this will have a limited financial impact on
the Company's operational resources and existence. The results
of stress testing prepared by the Manager, which models a
sharp decline in market levels and income, demonstrated that
the Company had the ability to raise sufficient funds so as
to remain within its debt covenants and pay expenses.
Taking the above factors into consideration, the Board has
a reasonable expectation that the Company has adequate resources
to continue in operational existence for a period of at least
12 months from the date of approval of these financial statements.
Accordingly, the Board continues to adopt the going concern
basis in preparing the financial statements.
The Company's financial statements are presented in Sterling,
which is also the functional currency as it is the basis upon
which shareholders operate and expenses are generally paid.
All values are rounded to the nearest thousand pounds (GBP'000)
except when otherwise indicated.
The accounting policies applied are unchanged from the prior
year and have been applied consistently.
(b) Valuation of investments. The Company's business is investing
in financial assets with a view to profiting from their total
return in the form of income and capital growth. This portfolio
of financial assets is managed and its performance evaluated
on a fair value basis, in accordance with a documented investment
strategy, and information about the portfolio is provided
internally on that basis to the Company's Board of Directors.
Accordingly, upon initial recognition the Company designates
the investments 'at fair value through profit or loss'. Fair
value is taken to be the investment's cost at the trade date
(excluding expenses incidental to the acquisition which are
written off in the Statement of Comprehensive Income, and
allocated to 'capital' at the time of acquisition).
Subsequent to initial recognition, investments continue to
be designated at fair value through profit or loss, which
is deemed to be bid prices, where the bid price is available,
or otherwise at fair value based on published price quotations.
(c) Income. Dividends, including taxes deducted at source, are
included in revenue by reference to the date on which the
investment is quoted ex-dividend. Special dividends are reviewed
on a case-by-case basis and may be credited to capital, if
circumstances dictate. Dividends receivable on equity shares
where no ex-dividend date is quoted are brought into account
when the Company's right to receive payment is established.
Where the Company has elected to receive its dividends in
the form of additional shares rather than cash, the amount
of the cash dividend is recognised as income. Any excess in
the value of the shares received over the amount of the cash
dividend is recognised in capital reserves. Interest receivable
on bank balances is dealt with on an accruals basis.
Where applicable the dividend income is disclosed net of irrecoverable
taxes deducted at source.
(d) Expenses. All expenses are accounted for on an accruals basis.
Expenses are allocated to revenue in the Statement of Comprehensive
Income except as follows:
* expenses are allocated and borne by capital where a
connection with the maintenance or enhancement of the
value of the investments can be demonstrated. In this
respect, the investment management fee is allocated
40% to revenue and 60% to realised capital reserves
to reflect the Company's investment policy and
prospective income and capital growth; and
* transactions costs are charged to capital.
(e) Taxation. The tax payable is based on the taxable profit
for the year. Taxable profit differs from net profit as reported
in the Statement of Comprehensive Income because it excludes
items of income or expenditure that are taxable or deductible
in other years and it further excludes items that are never
taxable or deductible (see note 7 for a more detailed explanation).
The Company has no liability for current tax.
Deferred taxation. Deferred taxation is provided on all timing
differences, that have originated but not reversed at the
Statement of Financial Position date, where transactions or
events that result in an obligation to pay more or a right
to pay less tax in future have occurred at the Statement of
Financial Position date, measured on an undiscounted basis
and based on tax rates expected to apply in the period that
the timing differences reverse. This is subject to deferred
tax assets only being recognised if it is considered more
likely than not that there will be suitable profits from which
the future reversal of the underlying timing differences can
be deducted. Timing differences are differences arising between
the Company's taxable profits and its results as stated in
the accounts which are capable of reversal in one or more
subsequent periods. Due to the Company's status as an investment
trust company, and the intention to continue to meet the conditions
required to maintain approval for the foreseeable future,
the Company has not provided deferred tax on any capital gains
and losses arising on the revaluation or disposal of investments.
(f) Nature and purpose of reserves
Called-up share capital. The Ordinary share capital on the
Statement of Financial Position relates to the number of shares
in issue and in treasury. Only when the shares are cancelled,
either from treasury or directly, is a transfer made to the
capital redemption reserve. This reserve is not distributable.
Share premium. The balance classified as share premium includes
the premium above nominal value from the proceeds on issue
of any equity share capital comprising Ordinary shares of
10p. This reserve is not distributable.
Capital redemption reserve. The capital redemption reserve
is used to record the amount equivalent to the nominal value
of any of the Company's own shares purchased and cancelled
in order to maintain the Company's capital. This reserve is
not distributable.
Capital reserve. Gains or losses on disposal of investments
and changes in fair values of investments are transferred
to the capital reserve. The capital element of the management
fee and relevant finance costs are charged to this reserve.
Any associated tax relief is also credited to this reserve.
The costs of share buybacks to be held in treasury are also
deducted from this reserve. The capital reserve, to the extent
that the gains are deemed realised, is distributable including
by way of dividend.
Revenue reserve. This reserve reflects all income and costs
which are recognised in the revenue column of the Statement
of Comprehensive Income. The revenue reserve represents the
amount of the Company's reserves distributable by way of dividend.
(g) Foreign currencies. Transactions involving foreign currencies
are converted at the rate ruling at the date of the transaction.
Foreign currency asset and liability balances are translated
to Sterling at the middle rate of exchange at the year end.
Differences arising from translation are treated as capital
gain or loss to capital or revenue within the Statement of
Comprehensive Income depending upon the nature of the gain
or loss.
(h) Dividends payable. Dividends are recognised in the financial
statements in the period in which they are paid.
(i) Borrowings. All secured borrowings are initially recognised
at cost, being the fair value of the consideration received,
less issue costs where applicable. After initial recognition,
all interest bearing borrowings are subsequently measured
at amortised cost. The finance costs of such borrowings are
accounted for on an accruals basis using the effective interest
rate method and are charged 40% to revenue and 60% to realised
capital reserves to reflect the Company's investment policy
and prospective income and capital growth.
(j) Significant estimates and judgements. The Directors do not
believe that any accounting judgements or estimates have been
applied to these financial statements that have a significant
risk of causing material adjustment to the carrying amount
of assets and liabilities within the next financial year.
The Directors believe that there is one key judgement. The
Company's investments and borrowings are made in Japanese
yen, however the Board considers the Company's functional
currency to be Sterling. In arriving at this conclusion, the
Board considered that the shares of the Company are listed
on the London Stock Exchange, it is regulated in the United
Kingdom, principally having its shareholder base in the United
Kingdom and also, pays dividends and expenses in Sterling.
3. Income
2021 2020
GBP'000 GBP'000
Income from investments
Overseas dividends 1,815 1,980
Other income
Deposit interest - 1
______ ______
Total income 1,815 1,981
______ ______
4. Management fee
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Management fee 275 412 687 254 381 635
______ ______ ______ ______ ______ ______
For the year ended 31 March 2021 management and secretarial services
were provided by Aberdeen Standard Fund Managers Limited ("ASFML").
The agreement for the provision of management services has been
sub-delegated to Aberdeen Standard Investments (Japan) Limited.
The management fee was payable at a rate of 0.75% per annum of
the value of the Company's net assets until 31 May 2019. Since
1 June 2019, the management fee has been charged on the lesser
of the Company's net asset value or market capitalisation, payable
monthly in arrears. Market capitalisation is defined as the closing
share price quoted on the London Stock Exchange multiplied by
the number of shares in issue less the number of any shares held
in treasury, as determined on the last business day of the applicable
calendar month to which the fee relates. The balance due to ASFML
at the year end was GBP185,000 (2020 - GBP96,000).
5. Administrative expenses
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Promotional fees 51 - 51 51 - 51
Directors' fees 90 - 90 93 - 93
Custody fees 22 - 22 20 - 20
Depositary fees 15 - 15 15 - 15
Registrars fees 45 - 45 30 - 30
Printing and postage 31 - 31 26 - 26
Legal and professional
fees 92 - 92 3 - 3
Transaction costs
on investment purchases - 14 14 - 20 20
Auditor's remuneration
(excluding irrecoverable
VAT):
- fees payable to
the Company's auditor
for the audit of
the annual accounts 35 - 35 23 - 23
Other 42 - 42 73 - 73
______ ______ ______ ______ ______ ______
423 14 437 334 20 354
______ ______ ______ ______ ______ ______
The management agreement with ASFML also provides for the provision
of promotional activities. The total fees paid and payable under
the management agreement in relation to promotional activities
were GBP51,000 (2020 - GBP51,000) with a balance of GBP38,000
(2020 - GBP13,000) being due to ASFML at the year end. The Company
has an agreement with ASFML for the provision of company secretarial
services and administration services; no separate fee is charged
to the Company in respect of this agreement.
6. Finance costs
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Bank loans 44 65 109 44 67 111
______ ______ ______ ______ ______ ______
7. Taxation
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(a) Analysis of charge
for the year
Irrecoverable
overseas taxation 181 - 181 198 - 198
______ ______ ______ ______ ______ ______
Total tax charge 181 - 181 198 - 198
(b) Factors affecting current tax charge for the year. The tax
assessed for the year is lower (2020 - lower) than the standard
rate of corporation tax in the UK. The differences can be explained
below:
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net return before
taxation 1,073 26,747 27,820 1,349 1,560 2,909
______ ______ ______ ______ ______ ______
Net return multiplied
by standard rate
of corporation
tax in the UK
of 19% (2020
- 19%) 204 5,082 5,286 256 296 552
Effects of:
Gains on investments
not taxable - (4,889) (4,889) - (546) (546)
Currency (gains)/losses
not taxable - (284) (284) - 160 160
Irrecoverable
overseas withholding
tax 181 - 181 198 - 198
Excess management
expenses 141 91 232 118 86 204
Expenses not
deductible for
tax purposes - - - 2 4 6
Non-taxable overseas
dividends (345) - (345) (376) - (376)
______ ______ ______ ______ ______ ______
Total tax charge
for the year 181 - 181 198 - 198
______ ______ ______ ______ ______ ______
(c) Provision for deferred taxation. At 31 March 2021 the Company
had surplus management expenses and loan relationship debits
with a tax value of GBP2,734,000 (2020 - GBP2,502,000) based
on enacted tax rates, in respect of which a deferred tax asset
has not been recognised. No deferred tax asset has been recognised
because the Company is not expected to generate taxable income
in the future in excess of the deductible expenses of those
future periods. Therefore, it is unlikely that the Company
will generate future taxable revenue that would enable the
existing tax losses to be utilised.
8. Dividends
2021 2020
GBP'000 GBP'000
Amounts recognised as distributions to equity
holders in the year:
Prior year final dividend (2020 - 9.00p; 2019
- 5.40p) 1,233 782
Current year interim dividend (2020 - 6.00p;
2019 - 6.00p) 810 847
______ ______
2,043 1,629
______ ______
In order to comply with the requirements of Sections 1158-1159
of the Corporation Tax Act 2010 the Company is required to make
a dividend distribution.
The proposed final dividend is subject to approval by shareholders
at the Annual General Meeting and has not been included as a liability.
It is proposed that the final dividend will be paid on 23 July
2021 to shareholders on the register at the close of business
on 25 June 2021.
The table below sets out the total dividends proposed in respect
of the financial year, which is the basis on which the requirements
of Sections 1158 -1159 are considered. The revenue available for
distribution by way of dividend for the year is GBP892,000 (2020
- GBP1,151,000). It is anticipated that the total dividend for
the year of 15.00p (2020 - 15.00p) will be funded 9.50p (2020
- 11.00p) from the revenue reserve and 5.50p (2020 - 4.00p) from
the capital reserve.
2021 2020
GBP'000 GBP'000
Current year proposed final dividend (2021 -
9.00p; 2020 - 9.00p) 1,185 1,233
Current year interim dividend (2021 - 6.00p;
2020 - 6.00p) 810 847
______ ______
1,995 2,080
______ ______
The cost of the proposed final dividend for 2021 is based on 13,165,227
Ordinary shares in issue, being the number of Ordinary shares
in issue excluding treasury shares at the date of this report.
9. Return per Ordinary share
2021 2021 2020 2020
p GBP'000 p GBP'000
Returns per share are based
on the following figures:
Revenue return 6.57 892 8.08 1,151
Capital return 196.92 26,747 10.95 1,560
______ ______ ______ ______
Total return 203.49 27,639 19.03 2,711
______ ______ ______ ______
Weighted average number of Ordinary
shares in issue 13,582,690 14,240,115
______ ______
10. Investments held at fair value through profit
or loss
2021 2020
GBP'000 GBP'000
Opening book cost 84,216 80,360
Opening investment holding gains 12,031 17,349
______ ______
Opening fair value 96,247 97,709
Analysis of transactions made during the year
Purchases at cost (excluding transaction costs) 59,374 47,718
Sales - proceeds (net of transaction costs) (63,657) (52,052)
Gains on investments 25,747 2,872
______ ______
Closing fair value 117,711 96,247
______ ______
2021 2020
GBP'000 GBP'000
Closing book cost 97,537 84,216
Closing investment holding gains 20,174 12,031
______ ______
Closing fair value 117,711 96,247
______ ______
The Company received GBP63,657,000 (2020 - GBP52,052,000) from
investments sold in the period. The book cost of these investments
when they were purchased was GBP46,053,000 (2020 - GBP43,863,000).
These investments have been revalued over time and until they
were sold any unrealised gains/losses were included in the fair
value of the investments.
As at 31 March 2021, all investments held are in quoted stocks
(2020 - same).
Transaction costs. During the year expenses were incurred in
acquiring or disposing of investments designated as fair value
through profit or loss. Expenses incurred in acquiring investments
have been expensed through capital and are included within administration
expenses in the Statement of Comprehensive Income, whilst expenses
incurred in disposing of investments have been expensed through
capital and are included within gains on investments in the Statement
of Comprehensive Income. The total costs were as follows:
2021 2020
GBP'000 GBP'000
Purchases 14 20
Sales 15 15
29 35
______ ______
The above transaction costs are calculated in line with the AIC
SORP. The transaction costs in the Company's Key Information Document
are calculated on a different basis and in line with the PRIIPs
regulations.
11. Debtors: amounts falling due within one year
2021 2020
GBP'000 GBP'000
Amounts due from brokers 129 227
Prepayments and accrued income 787 755
______ ______
916 982
______ ______
All financial assets are included at amortised cost.
12. Creditors
2021 2020
GBP'000 GBP'000
(a) Foreign currency bank loans
Falling due within one year 11,147 12,698
______ ______
The Company entered into a one year fixed term loan facility
with ING Bank on 22 January 2021. At the year end, JPY1,300,000,000
(2020 - JPY1,300,000,000) equivalent to GBP8,523,000 (2020
- GBP9,711,000) had been drawn down at an all-in interest rate
of 0.900% (2020 - 0.715%) which is due to mature on 21 January
2022.
In addition, on 22 January 2021, the Company entered into a
one year JPY1,000,000,000 revolving credit facility with ING
Bank which has a final maturity on 21 January 2022. At the
year end JPY400,000,000 (2020 - JPY400,000,000), equivalent
to GBP2,624,000 (2020 - GBP2,987,000), had been drawn down
at an all-in interest rate of 0.95% (2020 - 0.70%). At the
date of this Report the Company had drawn down JPY400,000,000
at an all-in interest rate of 0.95%.
The terms of both loan facilities with ING Bank contain a covenant
that total borrowings should not exceed 35% of the adjusted
net asset value of the Company at any time and that the net
asset value should not fall below GBP40,000,000 at any time.
The Company has met these covenants throughout the period.
2021 2020
(b) Other creditors falling due within one year GBP'000 GBP'000
Amounts due to brokers 214 121
Sundry creditors 356 204
______ ______
570 325
______ ______
13. Called-up share capital
2021 2020
Number GBP'000 Number GBP'000
Allotted, called-up and fully
paid
Ordinary shares of 10p each 13,302,459 1,330 13,807,780 1,381
Held in treasury 2,519,113 252 2,013,792 201
______ ______ ______ ______
15,821,572 1,582 15,821,572 1,582
______ ______ ______ ______
Ordinary Treasury
shares shares Total
Number Number Number
Opening balance 13,807,780 2,013,792 15,821,572
Ordinary shares bought back
for holding in treasury (505,321) 505,321 -
________ ________ ________
Closing balance 13,302,459 2,519,113 15,821,572
________ ________ ________
During the year 505,321 Ordinary shares (2020 - 672,659) were
bought back and held in treasury at a cost of GBP3,364,000 (2020
- GBP3,901,000). Subsequent to the year end a further 137,232
Ordinary shares were bought back for holding in treasury at a
cost of GBP991,000.
14. Capital reserve
2021 2020
GBP'000 GBP'000
At 1 April 2020 72,334 74,675
Gains/(losses) over cost arising on movement
in investment holdings 8,143 (5,318)
Gains on realisation of investments at fair
value 17,604 8,190
Currency gains/(losses) 1,491 (844)
Administrative expenses charged to capital (14) (20)
Management fee charged to capital (412) (381)
Buyback of Ordinary shares for holding in treasury (3,364) (3,901)
Finance costs charged to capital (65) (67)
Final dividend 2020 - 4.00p paid from capital (548) -
______ ______
At 31 March 2021 95,169 72,334
______ ______
The capital reserve includes investment holding gains amounting
to GBP20,174,000 (2020 - gains of GBP12,031,000) as disclosed
in note 10.
Net currency gains arising during the year of GBP1,491,000 (2020
- losses of GBP844,000) are analysed further in the table below.
2021 2020
GBP'000 GBP'000
Gains/(losses)on revaluation of bank loan 1,549 (913)
(Losses)/gains on cash deposits (58) 69
______ ______
1,491 (844)
______ ______
15. Net asset value per share. The net asset value per share and
the net asset values attributable to Ordinary shareholders at
the year end calculated in accordance with the Articles of Association
were as follows:
Net asset value Net asset values
per share attributable
2021 2020 2021 2020
p p GBP'000 GBP'000
Ordinary shares 807.66 617.09 107,438 85,206
______ ______ ______ ______
The movements during the year of the assets attributable to the
Ordinary shares were as follows:
2021 2020
GBP'000 GBP'000
Net assets attributable at 1 April 2020 85,206 88,025
Capital return for the year 26,747 1,560
Revenue after taxation 892 1,151
Dividend paid from revenue (1,495) (1,629)
Dividend paid from capital (548) -
Purchase of Ordinary shares to be held in treasury (3,364) (3,901)
Net assets attributable at 31 March 2021 107,438 85,206
______ ______
The net asset value per Ordinary share is based on net assets,
and on 13,302,459 (2020 - 13,807,780) Ordinary shares, being the
number of Ordinary shares in issue, after deducting 2,519,113
(2020 - 2,013,792) shares held in treasury, at the year end.
16. Financial instruments
Risk management. The Company's investment activities expose it
to various types of financial risk associated with the financial
instruments and markets in which it invests. The Company's financial
instruments comprise securities and other investments, cash balances,
loans, debtors and creditors that arise directly from its operations;
for example, in respect of sales and purchases awaiting settlement,
and debtors for accrued income.
Certain risk management functions have been delegated to Aberdeen
Standard Fund Managers Limited ("ASFML" or "Manager") under the
terms of the management agreement (further details of which are
included under notes 4 and 5). The Board regularly reviews and
agrees policies for managing each type of risk, as summarised
below. This approach has been applied throughout the year within
the Manager's risk management framework which is described below
and has not changed since the previous accounting period.
Risk management framework . The directors of Aberdeen Standard
Fund Managers Limited collectively assume responsibility for ASFML's
obligations under the AIFMD including reviewing investment performance
and monitoring the Company's risk profile during the year.
ASFML is a fully integrated member of the Standard Life Aberdeen
Group ("the Group"), which provides a variety of services and
support to ASFML in the conduct of its business activities, including
in the oversight of the risk management framework for the Company.
The AIFM has delegated the day to day administration of the investment
policy to Aberdeen Standard Investments (Japan) Limited, which
is responsible for ensuring that the Company is managed within
the terms of its investment guidelines and the limits set out
in its pre-investment disclosures to investors (details of which
can be found on the Company's website). The AIFM has retained
responsibility for monitoring and oversight of investment performance,
product risk and regulatory and operational risk for the Company.
The Manager conducts its risk oversight function through the operation
of the Group's risk management processes and systems which are
embedded within the Group's operations. The Group's Risk Division
supports management in the identification and mitigation of risks
and provides independent monitoring of the business. The Division
includes Compliance, Business Risk, Market Risk and Risk Management.
The team is headed up by the Group's Head of Risk, who reports
to the CEO of the Group. The Risk Division achieves its objective
through embedding the Risk Management Framework throughout the
organisation using the Group's operational risk management system
("SHIELD").
The Group's Internal Audit Department is independent of the Risk
Division and reports directly to the Audit Committee of the Group's
Board of Directors and to the Group's CEO. The Internal Audit
Department is responsible for providing an independent assessment
of the Group's control environment.
The Group's corporate governance structure is supported by several
committees to assist the Board of Directors of the Group, its
subsidiaries and the Company to fulfil their roles and responsibilities.
The Group's Risk Division is represented on all committees, with
the exception of those committees that deal with investment recommendations.
The specific goals and guidelines on the functioning of those
committees are described on the committees' terms of reference.
Risk management. The main risks the Company faces from its financial
instruments are (i) market risk (comprising interest rate risk,
price risk and currency risk), (ii) liquidity risk and (iii) credit
risk.
Market risk. The fair value or future cash of a financial instrument
held by the Company may fluctuate because of changes in market
prices. This market price risk comprises three elements - interest
rate risk, price risk and currency risk.
Interest rate risk . Interest rate movements may affect:
- the level of income receivable on cash deposits; and
- interest payable on the Company's variable rate borrowings.
Management of the risk . The possible effects on fair value and
cash flows that could arise as a result of changes in interest
rates are taken into account when making investment and borrowing
decisions.
Interest rate sensitivity . Movements in interest rates would
not significantly affect net assets attributable to the Company's
shareholders and total profit due to there being no investments
in fixed interest securities during the year and a relatively
low level of bank borrowings.
Price risk . Price risks (ie changes in market prices other than
those arising from interest rate or currency risk) may affect
the value of quoted investments.
Management of the risk . It is the Board's investment policy
for the Company's assets to be invested in a selected portfolio
of securities in quoted companies as explained above. The Manager
has a dedicated investment management process, which ensures that
the risk inherent in this investment policy is controlled. Underlying
the process is the belief that risk is not that individual stock
prices fluctuate in the short term, or that movement in the value
of the portfolio deviates from the benchmark but that risk is
investment in poorly managed expensive companies which the Manager
does not understand. In-depth research and stock selection procedures
are in place based on this risk control philosophy. The portfolio
is reviewed on a periodic basis by the Manager's Investment Committee
and by the Board.
Price sensitivity . If market prices at the Statement of Financial
Position date had been 10% higher or lower while all other variables
remained constant, the return attributable to Ordinary shareholders
for the year ended 31 March 2021 would have increased/(decreased)
by GBP11,771,000 (2020 increased/(decreased) by GBP9,625,000)
and equity reserves would have increased/(decreased) by the same
amount.
Foreign currency risk . The Company primarily invests in the
shares of companies which are listed in Japan but can include
companies listed on other stock markets which earn significant
revenue from trading in Japan or hold net assets predominantly
in Japan. The Statement of Financial Position, therefore, can
be significantly affected by movements in foreign exchange rates.
Management of the risk . The Company may, from time to time,
match specific overseas investment with foreign currency borrowings.
The Company's borrowings, as detailed in note 12, are also in
foreign currency.
The revenue account is subject to currency fluctuation arising
on dividends paid in foreign currencies. The Company does not
hedge this currency risk.
Foreign currency risk exposure by currency of denomination:
31 March 2021 31 March 2020
Net Total Net Total
Overseas monetary currency Overseas monetary currency
investments assets exposure investments assets exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Japanese Yen 117,711 (10,051) 107,660 96,247 (10,996) 85,251
______ ______ ______ ______ ______ ______
Foreign currency sensitivity . The following table details the
positive impact to a 10% decrease in Sterling against the foreign
currency in which the Company has exposure (based on exposure
>5% of total exposure including foreign exchange contracts). The
sensitivity analysis includes foreign currency denominated monetary
items and adjusts their translation at the year end for a 10%
change in foreign currency rates. In the event of a 10% increase
in Sterling then there would be a negative impact on the Company's
returns.
2021 2021 2020 2020
Revenue Equity{A} Revenue Equity{A}
GBP'000 GBP'000 GBP'000 GBP'000
Japanese Yen 182 10,766 198 8,525
______ ______ ______ ______
{A} Represents equity exposure to relevant currencies.
Liquidity risk. This is the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities.
Management of the risk. Liquidity risk is not considered to be
significant as the Company's assets mainly comprise readily realisable
securities which can be sold to meet funding requirements if necessary
and flexibility is achieved through the use of loan facilities,
details of which may be found in note 12.
Liquidity risk exposure. At 31 March 2021, the Company had a
short term bank loan of GBP8,523,000 (2020 - GBP9,711,000) which
is due to mature on 21 January 2022 with interest due on the principal
every six months. The Company also had a rolling facility of GBP2,624,000
(2020 - GBP2,987,000) which matures on 21 January 2022 with interest
payable at each set maturity date.
Credit risk. This is the risk of failure of the counterparty
to a transaction to discharge its obligations under that transaction
that could result in the Company suffering a loss.
Management of the risk . Investment transactions are carried
out with a large number of brokers of good quality credit standing,
and cash is held only with reputable banks with high quality external
credit enhancements.
In addition, both stock and cash reconciliations to the Depositary's
records are performed on a daily basis to ensure discrepancies
are investigated on a timely basis.
None of the Company's financial assets are secured by collateral
or other credit enhancements and none are past due or impaired.
Credit risk exposure. The amount of cash at bank and in hand
of GBP528,000 (2020 - GBP1,000,000) and debtors of GBP916,000
(2020 - GBP982,000) in the Statement of Financial Position represent
the maximum exposure to credit risk at 31 March.
Fair values of financial assets and financial liabilities. The
fair value of borrowings has been calculated at GBP11,147,000
as at 31 March 2021 (2020 - GBP12,698,000) compared to an accounts
value in the financial statements of GBP11,147,000 (2020 - GBP12,698,000)
(note 12), due to the short-term maturity. The fair value of each
loan is determined by aggregating the expected future cash flows
for that loan discounted at a rate comprising the borrower's margin
plus an average of market rates applicable to loans of a similar
period of time and currency. The carrying value of all other assets
and liabilities is an approximation of fair value.
17. Analysis of changes in net debt
At Currency Non-cash At
31 March differences Cash flows movements 31 March
2020 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash
equivalents 1,000 (58) (414) - 528
Debt due within
one year (12,698) 1,549 - 2 (11,147)
______ ______ ______ ______ ______
(11,698) 1,491 (414) 2 (10,619)
______ ______ ______ ______ ______
At Currency Non-cash At
31 March differences Cash flows movements 31 March
2019 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash
equivalents 1,516 69 (585) - 1,000
Debt due within
one year (11,785) (913) - - (12,698)
______ ______ ______ ______ ______
(10,269) (844) (585) - (11,698)
______ ______ ______ ______ ______
A statement reconciling the movement in net funds to the net cash
flow has not been presented as there are no differences from the
above analysis.
18. Capital management policies and procedures. The Company's capital
management objectives are:
* to ensure that the Company will be able to continue
as a going concern; and
* to maximise the income and capital return to its
equity shareholders through an appropriate balance of
equity capital and debt. The Company's investment
policy states that the maximum gearing level is 25%
of net assets, however gearing will normally be set
at a stable and lower level than the maximum. The
Board has currently established a gearing level of
around 10% of net assets although, with stock market
fluctuations, this may range between 5% and 15%.
The Board monitors and reviews the broad structure of the Company's
capital on an ongoing basis. This review includes the nature and
planned level of gearing, which takes account of the Manager's
views on the market and the extent to which revenue in excess
of that which is required to be distributed should be retained.
The Company's objectives, policies and processes for managing
capital are unchanged from the preceding accounting period and
year end positions are presented in the Statement of Financial
Position.
19. Fair value hierarchy. FRS 102 requires an entity to classify
fair value measurements using a fair value hierarchy that reflects
the significance of the inputs used in making the measurements.
The fair value hierarchy has the following classifications:
Level 1 - unadjusted quoted prices in an active market for identical
assets or liabilities that the entity can access at the measurement
date.
Level 2 - inputs other than quoted prices included within Level
1 that are observable (ie developed using market data) for the
asset or liability, either directly or indirectly.
Level 3 - inputs are unobservable (ie for which market data is
unavailable) for the asset or liability.
All of the Company's investments are in quoted equities actively
traded on a recognised stock exchange, with their fair value being
determined by reference to their quoted bid prices at the reporting
date (2020 - same). The total value of the investments (2021 -
GBP117,711,000; 2020 - GBP96,247,000) have therefore been deemed
as Level 1.
20. Related party transactions and transactions with the Manager
Directors' fees and interests. Fees payable during the year to
the Directors and their interest in shares of the Company are
disclosed within the Directors' Remuneration Report on pages 48
and 49 of the published 2021 Annual Report.
Transactions with the Manager. The Company has agreements with
ASFML to provide management, accounting, administrative and secretarial
duties. Details of the transactions and balances outstanding at
the year end are disclosed in notes 4 and 5.
Additional notes to Annual Financial Report:
The final dividend, subject to shareholder approval, will be
paid on 23 July 2021 to shareholders on the register at the close
of business on 25 June 2021. The ex-dividend date is 24 June
2021.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 March 2021 or
2020 but is derived from those accounts. Statutory accounts for
2020 have been delivered to the registrar of companies, and those
for 2021 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006
The statutory accounts for the financial year ended 31 March
2021 have been approved by the Board and audited but will not be
filed with the Registrar of Companies until after the Company's
Annual General Meeting which will be held at 9.00am on 20 July 2021
at Bow Bells House, One Bread Street, London EC4M 9HH.
The Annual Report will be posted to shareholders in June 2021
and copies will be available from the Manager or from the Company's
website ( www.aberdeen-japan.co.uk * ).
ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures are numerical measures of the
Company's current, historical or future performance, financial
position or cash flows, other than financial measures defined or
specified in the applicable financial framework. The Company's
applicable financial framework includes FRS 102 and the AIC SORP.
The Directors assess the Company's performance against a range
of criteria which are viewed as particularly relevant for closed-end
investment companies.
Total return. Total return is considered to be an alternative
performance measure. NAV and share price total returns show how
the NAV and share price has performed over a period of time in
percentage terms, taking into account both capital returns and
dividends paid to shareholders. NAV total return involves investing
the net dividend in the NAV of the Company with debt at fair value
on the date on which that dividend goes ex-dividend. Share price
total return involves reinvesting the net dividend in the share
price of the Company on the date on which that dividend goes ex-dividend.
The tables below provide information relating to the NAVs and share
prices of the Company on the dividend reinvestment dates during
the years ended 31 March 2021 and 31 March 2020.
Dividend Share
2021 rate NAV price
31 March 2020 N/A 617.09p 550.00p
2 July 2020 9.00p 718.97p 642.50p
3 December 2020 6.00p 826.50p 735.00p
31 March 2021 N/A 807.66p 727.50p
Total return +33.5% +35.2%
Dividend Share
2020 rate NAV price
31 March 2019 N/A 607.89p 525.00p
13 June 2019 5.40p 623.10p 552.50p
28 November 2019 6.00p 702.31p 632.50p
31 March 2020 N/A 617.09p 550.00p
Total return +3.3% +6.8%
Discount to net asset value per Ordinary share. The discount is
the amount by which the share price of 727.50p (2020 - 550.00p)
is lower than the net asset value per share of 807.66p (2020 -
617.09p), expressed as a percentage of the net asset value.
Net gearing. Net gearing measures the total borrowings of GBP11,147,000
(31 March 2020 - GBP12,698,000) less cash and cash equivalents
of GBP443,000 (31 March 2020 - GBP1,106,000) divided by shareholders'
funds of GBP107,438,000 (31 March 2020 - GBP85,206,000), expressed
as a percentage. Under AIC reporting guidance cash and cash equivalents
includes net amounts due to brokers at the year end of GBP85,000
(2020 - net amount due from broker GBP106,000) as well as cash
at bank and in hand of GBP528,000 (2020 - GBP1,000,000).
Ongoing charges . Ongoing charges is considered to be an alternative
performance measure. The ongoing charges ratio has been calculated
in accordance with guidance issued by the AIC as the total of investment
management fees and administrative expenses and expressed as a
percentage of the average net asset values with debt at fair value
throughout the year.
2021 2020
Investment management fees (GBP'000) 687 635
Administrative expenses (GBP'000) 437 354
Less: non recurring charges{A} (GBP'000) (27) -
Less: transaction costs on investment purchases
(GBP'000) (14) (20)
______ ______
Ongoing charges (GBP'000) 1,083 969
______ ______
Average net assets (GBP'000) 103,977 93,581
______ ______
Ongoing charges ratio 1.04% 1.04%
______ ______
{A} Comprises legal and professional fees which are not expected
to recur.
At 31 March 2021 the Company's OCR was 1.04% as above compared
to the Peer Group weighted average OCR of 0.8% (average net assets
at 31 March 2021 - GBP489 million) (Source AIC).The ongoing charges
ratio provided in the Company's Key Information Document is calculated
in line with the PRIIPs regulations which includes amongst other
things, the cost of borrowings and transaction costs.
Please note that past performance is not necessarily a guide to
the future and that the value of investments and the income from
them may fall as well as rise and may be affected by exchange rate
movements. Investors may not get back the amount they originally
invested.
*Neither the Company's website nor the content of any website
accessible from hyperlinks on that website (or any other website)
is (or is deemed to be) incorporated into, or forms (or is deemed
to form) part of this announcement.
For Aberdeen Japan Investment Trust PLC
Aberdeen Asset Management PLC, Secretary
END
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