Annual Financial Report
ABERDEEN JAPAN INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 MARCH 2017
STRATEGIC REPORT
|
Net asset value total return 2017 |
+20.5% |
|
Share price total return 2017 |
+23.5% |
|
2016 |
-6.2% |
|
2016 |
-12.0% |
|
|
|
|
|
|
|
Index total return 2017 |
+33.0% |
|
Discount to net asset value at 31 March 2017* |
10.5% |
|
2016 |
-1.7% |
|
2016 |
12.5% |
|
|
|
|
*Discount ranged from 7.2% to 15.3% during the year ended 31 March 2017 |
|
|
|
|
|
|
|
|
Revenue return per share 2017 |
7.25p |
|
Dividend per Ordinary share 2017 |
6.00p |
|
2016 |
5.67p |
|
2016 |
4.20p |
1. CHAIRMAN'S STATEMENT
Highlights
Since the change in the mandate, your Company has delivered a strong NAV total return of 67.2%, an outperformance of 8.6% versus the benchmark.
Overview
The year in Japan was one of steady progress. The strength of the Abe government provided political stability, the economy continued to improve and the yen strengthened as Japan was seen initially as a safe haven. In contrast, global political uncertainties increased and, in particular, the UK EU exit referendum result sharply weakened sterling causing a significant loss from the Company's Currency Hedge ("Hedge") in the first half of the year. The election of President Trump increased US market optimism in the second half of the year but added to global political uncertainties.
During the period, on a total returns basis, your Company's net asset value returned 20.5%, underperforming the benchmark by 12.5%. The Hedge accounted for 7.0% of this underperformance as the yen rose by about 16% against sterling over the full year. Notwithstanding this, since the change in the mandate in late 2013 to Japan-only and including the Hedge, your Company's performance to the end of the year has been encouraging, delivering a total return of 67.2% to shareholders, an outperformance of the benchmark of 8.6% including a loss from the Hedge of about 5.0%. The Ordinary Share price's total return was 23.5% and the discount to NAV per Ordinary share narrowed over the year from 12.5% to 10.5% as at 31 March 2017. During the year the value of the Company's total assets increased from £90.3 million to £104.4 million.
The Hedge was introduced as part of the new investment mandate approved by the shareholders in October 2013. The Hedge, in isolation, has continued to do its job of smoothing currency gains and losses in sterling terms. Overall the Hedge since inception to the end of April 2017 is showing a net NAV loss of around 3.5% reflecting the cumulative fall of approximately 7.5% in sterling against the yen over this period. From the inception of the new mandate, the yen initially weakened and the Hedge produced an NAV gain in sterling of about 8.5% to the end of 2014. In the next 18 month period up to the Brexit Referendum, this gain was gradually eroded to close to zero but the fall in sterling following the Referendum led to a further reduction of NAV of about 6.0% by the end of the financial year. The Board, in consultation with the Manager, keeps the appropriate level of the sterling hedge under review in the light of the underlying yen exposure in the portfolio and at the year end this stood at approximately 50%. The Board will review the operation of the Hedge in the light of the experience so far, to ensure its continuing suitability for the Company and its shareholders.
The Japanese stock market rose by 14.7% in yen terms during the year under review despite much volatility. The market's performance was marked by two distinct halves. At first, the strong yen weighed heavily on Japanese share prices which ended the half year marginally lower in yen terms. In the latter six months, the yen weakened against the US dollar and appetite for Japanese stocks returned producing a healthy sterling terms gain in the market of 33% over the year as a whole. However, investors favoured a narrow slice of the Japanese market, namely the financial institutions which were buoyed by hopes that rising yields would improve profitability among the lenders. The Investment Manager believes that these companies remain challenged by structural issues, have weak track records and face cut-throat competition both at home and abroad. The companies within the portfolio, chosen chiefly for their defensive characteristics, did not benefit as much from the investor demand during the period and were a drag on performance compared to the market's rise.
A detailed analysis of your Company's portfolio performance is set out in the Investment Manager's Report.
Gearing
The Company makes use of its ability to borrow through its Yen 1.3 billion fixed term and Yen 800 million floating rate facilities with ING Bank. The Board continues to monitor the level of gearing and considers a gearing level of around 10% to be appropriate, although as highlighted previously, with market fluctuations, this may range between 5% and 15%. Gearing as at 31 March 2017 was 12.1% (31 March 2016 - 12.1%).
Dividend
Dividend income from Japanese companies continued to strengthen. After taking the weakness in sterling into account, the Company's revenue return per Ordinary share for the financial year reached 7.27p (2016 - 5.67p). The Board aims to maintain a stable dividend paying not less than the amount required to maintain investment trust status. Based on this policy the Board is recommending a final dividend of 6.0p per Ordinary share in respect of the year ended 31 March 2017, a 43% increase on the 4.2p paid in relation to 2016.
If approved, the dividend will be paid on 14 July 2017 to shareholders on the register as at close of business on 16 June 2017. The ex-dividend date is 15 June 2017.
Discounts and Share Buybacks
During the period, discount volatility continued to feature within the investment trust sector, including the Company's peer group. The Board monitors closely the discount level of the Company's shares in relation to the NAV and has in place a mechanism to buy back shares at certain levels.
During the financial year, 517,975 shares were bought back into treasury at a cost of £2.8 million. Since the period end, a further 67,783 shares have been bought back into treasury at a cost of £369,000. Overall, the discount averaged 9.42% over the last 90 days of the Company's financial year and there is no requirement under the articles for the Company to put forward a continuation vote to shareholders. The discount at the end of March 2017 was 10.5% compared to 12.5% at the previous year end.
Environmental, Social & Corporate Governance ('ESG')
Your Board believes companies which commit to positive Environment, Social and Governance behaviours can improve their value over the longer term. The Board has published on the Company's website a compliance statement with the FRC Stewardship Code which incorporates its policies on socially responsible investing and works closely with our Investment Manager to ensure the appropriate active engagement with the companies in which the Company invests. The Company is a 'tier 1' signatory of the UK Stewardship Code which aims to enhance the quality of engagement between investors and companies to help improve long-term risk-adjusted returns to shareholders.
Manager
Shareholders will be aware that the holding company of the Company's Manager, Aberdeen Asset Management PLC, has recently announced a proposed recommended merger with Standard Life which will be subject to their shareholders' and regulatory approvals.
The Board do not expect any significant change in the management of our Investment Manager, Aberdeen Investment Management Kabushiki Kaisha, and will work to ensure satisfactory arrangements are in place for the continued effective management and successful performance of the Company.
The total Ongoing Charges Ratio (OCR) for the period was 1.24% of net assets, a reduction from 1.29% in the previous year. This OCR is in the lowest cost quartile of active equity funds investing in Japan.
Outlook
The global uncertainties of the last year seem likely to persist in the near term. However, your Company's portfolio has been carefully assembled and comprises frontrunners in their fields that invest amply to maintain that lead, through product innovation, as well as basic research and development. Backing up these efforts, these companies are guided by experienced managements and armed with considerable financial muscle, in the form of robust balance sheets that are cash rich. The core holdings, which are diversified geographically, are well placed to manage any emerging protectionism, whether in the US, Europe or Asia, and as investors refocus on corporate fundamentals, the underlying holdings in your Company's portfolio should come into their own.
The Board and the Investment Manager believe that active corporate engagement will progressively help to unlock the value of these cash rich, debt free and conservatively run businesses. This reflects the growing acceptance of corporate governance principles within Japan, especially coupled with the initiatives already implemented by market regulators and the government. The scope for improvement is vast because most companies are still at an early stage. However, the best are slowly responding to the patient but persistent efforts of the Investment Manager and the wider investment community to pursue greater accountability and transparency from the management, as well as a more enlightened attitude towards minority interests.
The Investment Manager's approach of identifying the best companies, often those neglected by others, through stringent screening, local presence and active engagement with their managements will stand it in good stead especially as markets refocus of corporate fundamentals. The Board is therefore confident of the resilience and long term performance of both Japan and your Company's investments.
Neil Gaskell
Chairman
30 May 2017
2. MANAGER'S REVIEW
Overview
Japanese equities posted double-digit gains in the year to end-March, during which politics dominated newsflow. Prime Minister Shinzo Abe's upper house election victory in July spurred hopes that reforms would pick up pace. Further afield, Donald Trump's unexpected presidential win in November lifted expectations of greater US fiscal spending that, in turn, boosted the global economic outlook. The two met immediately after Trump's win as Abe sought to form closer links with the untested US leader. Market gains following these events more than compensated for the plunge in global stocks earlier in the year.
On the policy front, investors cheered the Bank of Japan's decision to maintain its ¥80 trillion quantitative easing programme, as well as the change in its strategy to target not only short-term but also long-term rates. Specifically, it offered to adjust the amount of government bond purchases to keep the 10-year yield at 0%, while short-term rates remained below zero. It was hoped that this would improve bank profits that had been hurt by the BoJ's earlier decision to impose negative short-term rates. Wider spreads along the yield curve would allow banks to arbitrage profits more efficiently. Conversely, the US Federal Reserve hiked rates in December and again in March, and indicated that it might start to unwind its asset-purchase programme amid improving economic data.
Separately, the Bank of Japan felt confident enough about the economy to raise its annual GDP forecasts. But data has been mixed at best. A jump in industrial production in February, a rise in core consumer prices for a second month and a fall in unemployment to the lowest level since 1994 suggest that domestic recovery is on track. However, sluggish wage growth and the ongoing contraction in household spending have clouded the outlook.
Portfolio review
As referred to in the Chairman's Statement, the hedge position had a negative impact on the Company's NAV performance. The underperformance of the equity portfolio to the index of 4.8% for the year under review largely accounted for the balance of the under-performance. A major reason for the equity holdings' underperformance was the Trust's substantial weighting in the consumer sectors. The Trust's consumer holdings performed well in absolute terms but lagged relative to the broader Topix index. Japan Tobacco's share price was weighed down by worries that its market share was being eroded by competitors' new offerings in the rapidly expanding novel nicotine product category. Nevertheless, the company retains the lion's share in terms of overall domestic cigarette sales. It also aims to start selling its Ploom TECH electronic cigarettes across Japan soon. Retail conglomerate Seven & i continued to face rising wage costs and a struggling department store business. However, the company's long-term fundamentals remain solid. Management is taking steps to restructure the business, including divesting loss-making stores. Its annual results met our expectations, with the core convenience store business continuing to deliver results and the Ito-Yokado supermarkets returning to profitability.
The underweight to the financial sector also weighed on relative performance. The sector rallied on the back of hopes that President Trump's proposed economic stimulus measures would help raise long-term rates in Japan and elsewhere, and benefit banking-sector profits in turn. Not holding mega bank Mitsubishi UFJ Financial detracted from portfolio performance. As for our holding in Aeon Financial Service, the share price lagged on disappointment over management's decision to raise funds and pare debt via the issue of ¥34 billion in new shares and ¥30 billion in convertible bonds. The move was an issue that we engaged management with, given that it would dilute the stake of existing shareholders. Nonetheless, we like the company's track record and remain sanguine about its prospects, supported by resilient earnings and stable non-performing loans.
Also detracting from performance was resort developer Resorttrust, which sustained high development costs for new resorts that have yet to be covered by membership sales. We think it is only a matter of time before sales eventually catch up, given the wealthy elderly population who favour such facilities and are the company's main customers.
On a positive note, the Trust's holdings in the basic materials sector contributed to relative return. Shin-Etsu Chemical's shares rallied on speculation that demand for its polyvinyl chloride products would improve on potentially higher infrastructure spending in the US. Tighter market conditions also raised the prospect of better pricing for its semiconductor wafer products. Both Kansai Paint and Nippon Paint gained from lower raw material costs. Additionally, Kansai Paint benefited from good contributions from its Indian subsidiary, while Nippon Paint saw demand recovery in China, one of its key markets.
The Trust's industrial holdings also outperformed. Keyence continued to see healthy demand for its sensor products, buttressed by a sales approach that encompasses on-site consultancy to offer the best solutions to customers. Increased capital expenditure from automobile companies helped support Fanuc. A series of investments, such as two new research centres near its headquarters and increasing the headcount of engineers, should ensure the company remains at the forefront of robotics machinery. Nabtesco rallied on robust demand for its hydraulics equipment, notably from China's construction industry, while its precision equipment business stayed resilient.
As mentioned in the half-year report, we introduced SCSK early in the review period. The systems integrator provides solutions to the financial, manufacturing and distribution sectors, and we like its sturdy balance sheet, stable cash flow generation and long-term growth potential. New orders continue to grow. More recently, we divested both Canon and Unicharm. For disposable hygiene products maker Unicharm, valuations had started to appear rich relative to its fundamentals following a sharp rally in its share price. While its domestic presence remains solid, we think its overseas outlook has deteriorated amid rising competition. Canon is also facing diminishing prospects on a combination of the weak macro environment, intense competition and pricing pressures, which have hurt margins. The camera and printer maker has struggled to assess changing market trends and we feel the outlook will not improve soon.
During the year, we continued to engage with the management of the Trust's holdings to promote best practices, as we believe robust corporate governance is vital to protecting minority interests. In the last decade, we have conducted an average of 250 meetings a year with Japanese companies, and we have been encouraged by the progress made. Among the Trust's holdings, we have seen improved board diversity, the discontinuance of poison pills and greater capital efficiency. Some of these changes have preceded the government's recent measures for reform, which suggest a stronger willingness among the more progressive companies to engage with their longer-term investors. While there are the inevitable setbacks, we believe that our engagement should result in a better outcome for shareholders and our investee companies.
Outlook
In Japan, the domestic economy has managed to avoid a technical recession and core inflation may have returned. But the central bank will be hard pressed to achieve its 2% inflation target. With companies choosing to streamline and improve productivity, wage negotiations are likely to produce muted pay rises at best, putting a lid on still sluggish consumer spending.
That said, the best Japanese companies have been those that have evolved their businesses around these perennial challenges. Many are leaders in their field. Examples include the Trust's industrial holdings mentioned above, which will continue to gain from the ongoing global shift towards automation. As for exporters, they have long circumvented yen fluctuations by moving some production overseas, which in turn places them nearer to key markets. Shareholders have also benefited from improving corporate governance which we continue to promote. These attributes, when put together, we believe should ensure the longer-term performance of the Trust.
Aberdeen Investment Management Kabushiki Kaisha
Investment Manager
30 May 2017
3. 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
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 size 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 both outperforms and also 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 59 of the 2017 Annual Report.
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. 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 good 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 asset 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 aims normally to pay a dividend each year and not less than the minimum required to maintain investment trust status. 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 wind up the Company at the next AGM.
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, including protection against currency movements. The performance of the Company is subject to fluctuations in the Yen/£ 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 Board has currently determined that approximately 50% of the Company's Yen net assets should be hedged against fluctuations in the Yen/£ exchange rate through the use of rolling forward contracts. The Board monitors the hedging policy and its effects on the Company's performance on a regular basis and, in its absolute discretion, but following consultation with the Manager, will determine what levels of Sterling hedge are appropriate in light of market movements and the composition of the portfolio from time to time.
The wider corporate risks, including those arising from the increasingly regulated and competitive market place, 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 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 and15%.
Principal Risks and Uncertainties
The Company's risks are regularly monitored at Audit Committee meetings and the Board believes that the Company is resilient to most short term operational risks which are effectively mitigated by the internal controls of the Manager and Depositary. Identification and mitigation of other longer term and strategic risks which might threaten its business model, future performance or solvency are robustly assessed by the Audit Committee and managed by the Board. The principal risks and uncertainties faced by the Company are described in the table below, together with the mitigating actions.
|
Description |
Mitigating Action
|
|
Investment strategy risk The Company and its investment objective may become unattractive to investors. The value of Japanese equities may be affected by factors not associated with the UK, including the general health of the Japanese economy and political events in and around Japan, which can affect investor demand.
|
The Board monitors longer term trends in investor demand and, if appropriate, can propose changes to the investment objective to the shareholders. |
|
Investment risk Investment risk arises from the Company's exposure to variations of share prices within its portfolio in response to individual company and to wider Japanese or international factors. Investment in a focussed portfolio of shares can lead to greater short term changes in the portfolio's value than in a larger portfolio of stocks and these variations will be amplified by the use of gearing. |
The Board regularly monitors the investment performance of the portfolio and the performance of the Manager in operating the investment policy against the long term objectives of the Company and, where appropriate, has in place mitigation measures such as the currency hedging policy.
|
|
Reputation The attractiveness of the Company to investors is based on the good reputation of the Manager as well as of investment trusts generally. Were investments trusts to fall out of favour as a route for investors or Aberdeen's reputation as Manager of the Company to weaken, it is likely that investor demand would decline. |
The Board monitors shareholder sentiment regularly and would be able to take remedial action were its reputation to be threatened.
|
|
Regulatory compliance risk The Company operates under a set of UK, European and international laws and regulations. |
The Board is active in ensuring that it fully complies with all applicable laws and regulation and is assisted by the Manager and other advisers in doing this. The Board believes that, while the consequences of non-compliance can be severe, the control arrangements it has put in place reduce the likelihood of this happening. |
|
Performance risk Inappropriate investment decisions or the effect of the hedge, which reduces currency gains when yen strengthens, may result in the Company's underperformance against the benchmark index and Peer Group and a widening of the Company's discount. |
The Board regularly reviews performance data and attribution analysis and other relevant factors and, were an underperformance likely to be sustained, would be able to take remedial measures. The Board considers that, over the longer term, the gains and losses of the hedge should be balanced and in the shorter term the additional stability of the Company's performance provided by the hedge is of value to the shareholders. The Board is also able to change the amount which is hedged should it consider this to be appropriate. |
|
Share price and discount risk The principal risks described above each can affect the movement of the Company's share price and in some cases have the potential to increase the discount in the market value of the Company compared with the NAV. |
The Board actively monitors the discount and believes that the combined effect of good investment performance, the risk mitigation arrangements described above and its ability to authorise buyback of shares when necessary, will both reduce discount and limit its variability.
|
Key Performance Indicators (KPIs)
The key performance indicators (KPIs) which the Board uses to monitor the Company's performance are established industry measures, and are as follows:
|
KPI |
Achievement of KPI |
|
- NAV (total return) relative to the Company's benchmark index
|
Yes |
|
- Share price (total return) vs Peer Group
|
No |
|
- Discount or premium of the share price to NAV vs Peer Group on an annual average. |
No |
An analysis of the KPIs is provided on below and on pages 12 to 14 of the 2017 Annual Report. 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 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 underperformance against the Company's share price and discount KPIs was largely attributable to the loss on the Currency Hedge caused by the sharp depreciation of sterling following the Brexit referendum.
Promoting the Company
The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective element of achieving this is through participation in the promotional programme run by the Aberdeen Group on behalf of a number of investment trusts under its management.
The purpose of the programme is both to enable the Company to communicate the long-term attractions of the Company effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. The Company also supports the Aberdeen Group's investor relations programme of regional roadshows, promotional and public relations campaigns.
In addition, the Company's website contains a daily update on the latest portfolio performance and a monthly summary of investment performance together with information about the Japanese market, details of the principal risks of investing in the Company and any other significant developments within the Company.
Board Diversity
The Board recognises the importance of having a diverse group of Directors with the right mix of competencies to allow the Board to fulfil its obligations. At 31 March 2017 there were three male Directors and one female Director, all of whom bring different experience and skills and contribute distinctively to the Board's performance. The Board's statement on diversity is set out on page 25 of the 2017 Annual Report.
Employee, Environmental, Social and 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. The Company's socially responsible investment policy is outlined on page 26 of the 2017 Annual Report.
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 large and liquid stocks in the global 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 its prospects over a three year period in accordance with the 2014 UK Corporate Governance Code. In making this assessment, the Board has considered the principal risks and related mitigating actions for the Company as set out above and matters such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment which could have an impact on the Company's prospects in the future.
The Board considers that, given that it is invested in readily realisable listed securities, and has a relatively low level of fixed expenses and of debt, it will be able to meet the Company's liabilities when they fall due for the foreseeable future but that a three year period reflects appropriately the inherent and increasing uncertainties involved in any longer period.
Accordingly, taking into account the Company's current position and its prospects, 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.
The Strategic Report was approved by the Board of Directors and signed on its behalf by:
for Aberdeen Japan Investment Trust PLC
Neil Gaskell
Chairman
30 May 2017
4. RESULTS
Financial Highlights
|
|
31 March 2017 |
31 March 2016 |
% change |
|
Total assets |
£104,369,000 |
£90,246,000 |
+15.6 |
|
Total equity shareholders' funds (net assets) |
£92,168,000 |
£79,723,000 |
+15.6 |
|
Market capitalisation |
£82,533,419 |
£69,776,760 |
+18.3 |
|
Share price (mid market) |
547.50p |
447.50p |
+22.3 |
|
Net asset value per share |
611.41p |
511.29p |
+19.6 |
|
Discount to net asset value |
10.5% |
12.5% |
|
|
Net gearing{A} |
12.1% |
12.1% |
|
|
|
|
|
|
|
Operating costs |
|
|
|
|
Ongoing charges ratio{B} |
1.24% |
1.29% |
|
|
|
|
|
|
|
Earnings |
|
|
|
|
Total return per share |
102.69p |
(36.18p) |
|
|
Revenue return per share |
7.25p |
5.67p |
|
|
Proposed final dividend per share |
6.00p |
4.20p |
|
|
Revenue reserves (prior to payment of proposed final dividend) |
£2,520,000 |
£2,050,000 |
|
|
Definitions are disclosed on page 60 of the 2017 Annual Report. |
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|
{A} Calculated in accordance with AIC guidance "Gearing Disclosures post RDR". |
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|
{B} Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year. |
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PERFORMANCE (TOTAL RETURN)
|
|
|
|
|
Return since |
|
|
1 year |
3 year |
5 year |
8 October 2013 |
|
|
return |
return |
return |
(change of mandate) |
|
Net asset value |
+20.5% |
+65.7% |
+79.0% |
+67.2% |
|
Index |
+33.0% |
+64.7% |
+79.7% |
+58.6% |
|
Share price |
+23.5% |
+71.9% |
+82.3% |
+64.1% |
|
Peer Group share price |
+32.7% |
+84.9% |
+151.0% |
+73.7% |
|
Average discount - Company |
-11.9% |
-9.0% |
-9.4% |
-8.9% |
|
Average discount - Peer Group |
-6.6% |
-6.1% |
-7.1% |
-6.0% |
|
Source: Aberdeen Asset Managers Limited, Lipper & Morningstar. |
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|
Total return represents capital return plus dividends reinvested. |
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|
Dividend calculations are based on reinvestment at the ex-dividend date. NAV returns are based on cum-income NAV with debt at fair value. |
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|
Based on share price and NAV per Morningstar (ie as available in the market, not including unreleased R&A NAVs). |
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Peer Group is the Japan sector of Morningstar. |
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|
Index represents the MSCI AC Asia Pacific (including Japan) Index (in Sterling terms) up to 7 October 2013 and the TOPIX (in Sterling terms) from 8 October 2013. |
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DIVIDENDS
|
|
Rate |
Ex-dividend date |
Record date |
Payment date |
|
Proposed final dividend 2017 |
6.00p |
15 June 2017 |
16 June 2017 |
14 July 2017 |
|
Final dividend 2016 |
4.20p |
09 June 2016 |
10 June 2016 |
08 July 2016 |
INVESTMENT PORTFOLIO
Top Ten Investments
As at 31 March 2017
|
|
|
Valuation |
Total |
Valuation |
|
|
|
2017 |
assets |
2016 |
|
Company |
Sector |
£'000 |
% |
£'000 |
|
Shin-Etsu Chemical Company |
|
|
|
|
|
Despite the challenging environment, the Japanese maker of specialised chemicals remains a leader in its industry, due to its technological edge and a greater focus on profits than most Japanese rivals. |
Chemicals |
5,952 |
5.7 |
4,720 |
|
Keyence Corporation |
|
|
|
|
|
The leading maker of sensors has a cash generative business and is backed by a strong balance sheet and technological expertise. |
Electronic & Electrical Equipment |
5,182 |
5.0 |
4,360 |
|
Japan Tobacco Inc |
|
|
|
|
|
The world's third-largest cigarette company with a dominant domestic market share, Japan Tobacco has made good overseas acquisitions and is positioned to gain from exposure to emerging markets. |
Tobacco |
5,140 |
4.9 |
4,296 |
|
Seven & I Holdings Company |
|
|
|
|
|
A Japanese retail conglomerate with interests in a wide range of domestic businesses including convenience stores, discount stores, supermarkets, department stores and food services, which gives its earnings a defensive edge. |
General Retailers |
4,413 |
4.2 |
3,688 |
|
Nabtesco Corporation |
|
|
|
|
|
The industrial equipment maker has a high market share in its businesses thanks to its technological edge in niche areas. It also has healthy finances and a good track record on cost controls. |
Industrial Engineering |
4,404 |
4.2 |
3,800 |
|
Amada Holdings Company |
|
|
|
|
|
A manufacturer of sheet metal fabrication machines. The company has a leading position especially among Japanese small to mid-size enterprises thanks to its core technology and effective sales strategy leveraging its internal financing operations. |
Industrial Engineering |
4,196 |
4.0 |
3,311 |
|
Fanuc Corporation |
|
|
|
|
|
A leading manufacturer of factory automation systems, equipment and robots that has an excellent track record of being able to maintain margins with robust cash flow and a strong net cash position. |
Industrial Engineering |
4,176 |
4.0 |
3,073 |
|
KDDI Corporation |
|
|
|
|
|
One of Japan's leading telecommunications services providers offering mobile, fixed-line and cable TV services. The company was also one of the first of its kind to introduce bundling between mobile handset and FTTH (fibre to the home), which has allowed for good customer retention. |
Mobile Telecommunications |
4,131 |
4.0 |
3,819 |
|
East Japan Railway Company |
|
|
|
|
|
Provider of rail transportation services including the shinkansen (bullet train) network in the Kanto & Tohoku regions. |
Travel & Leisure |
3,513 |
3.4 |
3,002 |
|
Sysmex Corporation |
|
|
|
|
|
The medical-equipment maker has a leading position in niche markets, particularly its dominance in the field of haematology. It also has a solid balance sheet and resilient business. |
Health Care Equipment & Services |
3,434 |
3.3 |
1,934 |
|
Top ten investments |
|
44,541 |
42.7 |
|
INVESTMENT PORTFOLIO - OTHER INVESTMENTS
As at 31 March 2017
|
|
|
Valuation |
Total |
Valuation |
|
|
|
2017 |
assets |
2016 |
|
Company |
Sector |
£'000 |
% |
£'000 |
|
Toyota Motor Corporation |
Automobiles & Parts |
3,252 |
3.1 |
3,156 |
|
Yahoo Japan Corporation |
Software & Computer Services |
3,251 |
3.1 |
2,077 |
|
Pigeon Corporation |
Personal Goods |
3,134 |
3.0 |
2,317 |
|
Daikin Industries |
Industrial Engineering |
2,969 |
2.9 |
2,222 |
|
Chugai Pharmaceutical Company |
Pharmaceuticals & Biotechnology |
2,837 |
2.7 |
2,882 |
|
Daito Trust Construction Company |
Real Estate Investment & Services |
2,634 |
2.5 |
2,611 |
|
Honda Motor Company |
Automobiles & Parts |
2,625 |
2.5 |
2,082 |
|
Nippon Paint Holdings Company |
Chemicals |
2,591 |
2.5 |
1,499 |
|
Suruga Bank |
Banks |
2,556 |
2.4 |
2,056 |
|
Makita Corporation |
Household Goods & Home Construction |
2,320 |
2.2 |
1,868 |
|
Top twenty investments |
|
72,710 |
69.6 |
|
|
Calbee Inc |
Food Producers |
2,315 |
2.2 |
1,233 |
|
San-A Company |
Food & Drug Retailers |
2,083 |
2.0 |
2,108 |
|
Mandom Corporation |
Personal Goods |
2,064 |
2.0 |
1,833 |
|
Daibiru Corporation |
Real Estate Investment & Services |
1,893 |
1.8 |
1,882 |
|
Aeon Financial Service Company |
Financial Services |
1,791 |
1.7 |
1,981 |
|
Astellas Pharma Inc |
Pharmaceuticals & Biotechnology |
1,789 |
1.7 |
2,576 |
|
Japan Exchange Group Inc. |
Financial Services |
1,775 |
1.7 |
1,166 |
|
SCSK Corporation |
Software & Computer Services |
1,743 |
1.7 |
- |
|
Resorttrust Inc |
Travel & Leisure |
1,703 |
1.6 |
1,187 |
|
Shimano Inc |
Leisure Goods |
1,690 |
1.6 |
1,506 |
|
Top thirty investments |
|
91,556 |
87.6 |
|
|
Kansai Paint Company |
Chemicals |
1,627 |
1.6 |
2,507 |
|
Mitsubishi Estate Company |
Real Estate Investment & Services |
1,588 |
1.5 |
1,346 |
|
USS Company |
General Retailers |
1,511 |
1.4 |
1,460 |
|
Denso Corporation |
Automobiles & Parts |
1,405 |
1.4 |
1,292 |
|
Asahi Intecc Company |
Health Care Equipment & Services |
1,295 |
1.3 |
1,321 |
|
Concordia Financial Group |
Banks |
1,280 |
1.2 |
- |
|
Shionogi & Company |
Pharmaceuticals & Biotechnology |
1,134 |
1.1 |
- |
|
Asics Corporation |
Personal Goods |
872 |
0.9 |
1,016 |
|
Aisin Seiki Company |
Automobiles & Parts |
525 |
0.5 |
418 |
|
Total investments |
|
102,793 |
98.5 |
|
|
Net current assets{A} |
|
1,576 |
1.5 |
|
|
Total assets |
|
104,369 |
100.0 |
|
|
{A} Excludes bank loans of £12,201,000 |
||||
|
Unless otherwise stated, foreign stock is held and all investments are equity holdings. |
||||
|
In the 2016 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 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 2017, the Ordinary shares traded at an average discount of 9.4% 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.
After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. This takes account of the liquidity of the Company's investments, and that the earliest date that the Company may be subject to a continuation vote is at the Annual General Meeting of the Company to be held in 2018. Accordingly, they continue 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, 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 judgments 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; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
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 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 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 taken as a whole; and
- the Directors' 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
Neil Gaskell
Chairman
30 May 2017
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
|
|
|
Year ended 31 March 2017 |
Year ended 31 March 2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Gains/(losses) on investments |
10 |
- |
22,557 |
22,557 |
- |
(883) |
(883) |
|
Income |
3 |
2,015 |
- |
2,015 |
1,681 |
- |
1,681 |
|
Exchange losses |
14 |
- |
(7,205) |
(7,205) |
- |
(5,093) |
(5,093) |
|
Investment management fee |
4 |
(308) |
(461) |
(769) |
(280) |
(420) |
(700) |
|
Administrative expenses |
5 |
(337) |
(11) |
(348) |
(325) |
(15) |
(340) |
|
|
|
_____ |
_____ |
_______ |
______ |
______ |
_____ |
|
Net return before finance costs and taxation |
|
1,370 |
14,880 |
16,250 |
1,076 |
(6,411) |
(5,335) |
|
|
|
|
|
|
|
|
|
|
Finance costs |
6 |
(44) |
(65) |
(109) |
(33) |
(49) |
(82) |
|
|
|
_____ |
_____ |
_______ |
______ |
______ |
_____ |
|
Net return on ordinary activities before taxation |
|
1,326 |
14,815 |
16,141 |
1,043 |
(6,460) |
(5,417) |
|
|
|
|
|
|
|
|
|
|
Taxation on ordinary activities |
7 |
(201) |
- |
(201) |
(168) |
- |
(168) |
|
|
|
_____ |
_____ |
_______ |
______ |
______ |
_____ |
|
Net return on ordinary activities after taxation |
|
1,125 |
14,815 |
15,940 |
875 |
(6,460) |
(5,585) |
|
|
|
_____ |
_____ |
_______ |
______ |
______ |
_____ |
|
|
|
|
|
|
|
|
|
|
Return per ordinary share (pence) |
9 |
7.25 |
95.44 |
102.69 |
5.67 |
(41.85) |
(36.18) |
|
|
|
_____ |
_____ |
_______ |
______ |
______ |
_____ |
|
|
|
|
|
|
|
|
|
|
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 2017 |
31 March 2016 |
|
|
Notes |
£'000 |
£'000 |
|
Fixed assets |
|
|
|
|
Investments designated at fair value through profit or loss |
10 |
102,793 |
88,988 |
|
|
|
___________ |
___________ |
|
Current assets |
|
|
|
|
Debtors |
11 |
865 |
625 |
|
Cash at bank and in hand |
|
1,007 |
897 |
|
|
|
___________ |
___________ |
|
|
|
1,872 |
1,522 |
|
|
|
___________ |
___________ |
|
Creditors: amounts falling due within one year |
|
|
|
|
Foreign currency bank loans |
12 |
(12,201) |
(2,476) |
|
Other creditors |
12 |
(296) |
(264) |
|
|
|
___________ |
___________ |
|
|
|
(12,497) |
(2,740) |
|
|
|
___________ |
___________ |
|
Net current liabilities |
|
(10,625) |
(1,218) |
|
|
|
___________ |
___________ |
|
Total assets less current liabilities |
|
92,168 |
87,770 |
|
|
|
|
|
|
Creditors: amounts falling due in more than one year |
|
|
|
|
Foreign currency bank loans |
12 |
- |
(8,047) |
|
|
|
___________ |
___________ |
|
Net assets |
|
92,168 |
79,723 |
|
|
|
___________ |
___________ |
|
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 |
79,137 |
67,162 |
|
Revenue reserve |
|
2,520 |
2,050 |
|
|
|
___________ |
___________ |
|
Equity shareholders' funds |
|
92,168 |
79,723 |
|
|
|
___________ |
___________ |
|
|
|
|
|
|
Net asset value per ordinary share (pence) |
15 |
611.41 |
511.29 |
|
|
|
___________ |
___________ |
STATEMENT OF CHANGES IN EQUITY
|
For the year ended 31 March 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
Share |
Share |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
premium |
reserve |
reserve |
reserve |
Total |
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 March 2016 |
|
1,582 |
6,656 |
2,273 |
67,162 |
2,050 |
79,723 |
|
Return on ordinary activities after taxation |
|
- |
- |
- |
14,815 |
1,125 |
15,940 |
|
Dividend paid |
8 |
- |
- |
- |
- |
(655) |
(655) |
|
Purchase of Ordinary shares to be held in treasury |
13 |
- |
- |
- |
(2,840) |
- |
(2,840) |
|
|
|
______ |
______ |
_____ |
_____ |
_____ |
______ |
|
Balance at 31 March 2017 |
|
1,582 |
6,656 |
2,273 |
79,137 |
2,520 |
92,168 |
|
|
|
______ |
______ |
_____ |
_____ |
_____ |
______ |
|
|
|
|
|
|
|
|
|
|
For the year ended 31 March 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
Share |
Share |
redemption |
Capital |
Revenue |
|
|
|
|
capital |
premium |
reserve |
reserve |
reserve |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 March 2015 |
|
1,459 |
- |
2,273 |
74,663 |
1,554 |
79,949 |
|
Return on ordinary activities after taxation |
|
- |
- |
- |
(6,460) |
875 |
(5,585) |
|
Dividend paid |
8 |
- |
- |
- |
- |
(379) |
(379) |
|
Issue of Ordinary shares |
13 |
123 |
6,656 |
- |
- |
- |
6,779 |
|
Purchase of Ordinary shares to be held in treasury |
13 |
- |
- |
- |
(1,041) |
- |
(1,041) |
|
|
|
______ |
______ |
_____ |
_____ |
_____ |
______ |
|
Balance at 31 March 2016 |
|
1,582 |
6,656 |
2,273 |
67,162 |
2,050 |
79,723 |
|
|
|
______ |
______ |
_____ |
_____ |
_____ |
______ |
STATEMENT OF CASHFLOWS
|
|
Year ended |
Year ended |
|
|
31 March 2017 |
31 March 2016 |
|
|
£'000 |
£'000 |
|
Net return on operating activities before finance costs and taxation |
16,250 |
(5,335) |
|
Adjustment for: |
|
|
|
(Gains)/losses on investments |
(22,557) |
883 |
|
(Decrease)/increase in other creditors |
(3) |
18 |
|
Expenses taken to capital reserve |
11 |
12 |
|
Foreign exchange losses |
1,411 |
1,265 |
|
Overseas withholding tax |
(201) |
(168) |
|
Increase in accrued dividend income |
(130) |
(160) |
|
Increase in other debtors |
(4) |
(1) |
|
|
______ |
______ |
|
Net cash outflow from operating activities |
(5,223) |
(3,486) |
|
|
______ |
______ |
|
Investing activities |
|
|
|
Purchases of investments |
(14,151) |
(19,256) |
|
Sales of investments |
23,036 |
15,685 |
|
Expenses allocated to capital |
(11) |
(12) |
|
|
______ |
______ |
|
Net cash inflow/(outflow) from investing activities |
8,874 |
(3,583) |
|
|
______ |
______ |
|
Financing activities |
|
|
|
Bank and loan interest paid |
(109) |
(82) |
|
Equity dividends paid |
(655) |
(379) |
|
Proceeds from issue of Ordinary shares |
- |
6,779 |
|
Purchase of own shares to treasury |
(2,840) |
(1,041) |
|
Movement in bank loans outstanding |
- |
2,054 |
|
|
______ |
______ |
|
Net cash (outflow)/inflow from financing activities |
(3,604) |
7,331 |
|
|
______ |
______ |
|
Increase in cash |
47 |
262 |
|
|
______ |
______ |
|
|
|
|
|
Analysis of changes in cash during the year |
|
|
|
Opening balance |
897 |
490 |
|
Effects of exchange rate fluctuations on cash held |
63 |
145 |
|
Increase in cash as above |
47 |
262 |
|
|
______ |
______ |
|
Closing balance |
1,007 |
897 |
|
|
______ |
______ |
|
Notes to the Financial Statements |
|
|
|
|
|
For the year ended 31 March 2017 |
|
|
|
|
|
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'. They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis. The Directors believe this is appropriate for the reasons outlined above. |
|
|
|
|
|
|
|
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 (£'000) except when otherwise indicated. |
|
|
|
|
|
|
(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. UK dividend income is recorded net of tax credits. |
|
|
|
|
|
|
(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. |
|
|
|
|
|
|
(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 obtain 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. |
|
|
|
|
|
|
|
Share premium account |
|
|
|
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. |
|
|
|
|
|
|
|
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. |
|
|
|
|
|
|
|
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. |
|
|
|
|
|
|
|
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 |
|
|
|
Final 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) |
Derivative financial instruments |
|
|
|
The Company uses forward foreign exchange contracts to manage currency risk arising from investment activity. |
|
|
|
|
|
|
|
Derivatives are measured at fair value calculated by reference to forward exchange rates for contracts with similar maturity profiles. |
|
|
|
|
|
|
|
Changes in the fair value of derivatives are recognised in the Statement of Comprehensive Income as revenue or capital depending on their nature. |
|
|
|
|
|
|
(k) |
Significant judgements |
|
|
|
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, pays dividends and expenses in sterling and also, it seeks to ensure that the Company's Japanese Yen net exposure is appropriately Sterling-hedged through the use of rolling forward currency contracts. |
|
|
|
2017 |
2016 |
|
3. |
Income |
£'000 |
£'000 |
|
|
Income from investments |
|
|
|
|
Overseas dividends |
2,013 |
1,681 |
|
|
|
______ |
______ |
|
|
Other income |
|
|
|
|
Deposit interest |
2 |
- |
|
|
|
______ |
______ |
|
|
Total income |
2,015 |
1,681 |
|
|
|
______ |
______ |
|
|
|
2017 |
2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
4. |
Management fee |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Management fee |
308 |
461 |
769 |
280 |
420 |
700 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
|
|
For further details see note 19 Related party transactions. |
||||||
|
|
|
2017 |
2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
5. |
Administrative expenses |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Promotional fees |
60 |
- |
60 |
52 |
- |
52 |
|
|
Directors' fees |
91 |
- |
91 |
90 |
- |
90 |
|
|
Depositary fees |
14 |
- |
14 |
10 |
3 |
13 |
|
|
Transaction costs on investment purchases |
- |
11 |
11 |
- |
12 |
12 |
|
|
Auditor's remuneration (excluding irrecoverable VAT): |
|
|
|
|
|
|
|
|
fees payable to the Company's auditor for the audit of the annual accounts |
19 |
- |
19 |
19 |
- |
19 |
|
|
Other |
153 |
- |
153 |
154 |
- |
154 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
337 |
11 |
348 |
325 |
15 |
340 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
2017 |
2016 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
6. |
Finance costs |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Bank loans |
44 |
65 |
109 |
33 |
49 |
82 |
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
2017 |
2016 |
|||||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|||
|
7. |
Taxation on ordinary activities |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||
|
|
(a) |
Analysis of charge for the year |
|
|
|
|
|
|
||
|
|
|
Irrecoverable overseas taxation |
201 |
- |
201 |
168 |
- |
168 |
||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
||
|
|
|
Total tax charge |
201 |
- |
201 |
168 |
- |
168 |
||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
||
|
|
|
|
|
|
|
|
|
|
||
|
|
(b) |
Factors affecting current tax charge for the year |
||||||||
|
|
|
The tax assessed for the year is lower than the standard rate of corporation tax in the UK. The differences can be explained below: |
||||||||
|
|
|
|
||||||||
|
|
|
|
2017 |
2016 |
||||||
|
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
||
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||
|
|
|
Net return on ordinary activities before taxation |
1,326 |
14,815 |
16,141 |
1,043 |
(6,460) |
(5,417) |
||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
||
|
|
|
Net return on ordinary activities multiplied by standard rate of corporation tax in the UK of 20% (2016 - 20%) |
265 |
2,963 |
3,228 |
209 |
(1,292) |
(1,083) |
||
|
|
|
Effects of: |
|
|
- |
|
|
|
||
|
|
|
(Gains)/losses on investments not taxable |
- |
(4,511) |
(4,511) |
- |
177 |
177 |
||
|
|
|
Currency losses not taxable |
- |
1,441 |
1,441 |
- |
1,019 |
1,019 |
||
|
|
|
Irrecoverable overseas withholding tax |
201 |
- |
201 |
168 |
- |
168 |
||
|
|
|
Excess management expenses |
138 |
107 |
245 |
127 |
96 |
223 |
||
|
|
|
Non-taxable overseas dividends |
(403) |
- |
(403) |
(336) |
- |
(336) |
||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
||
|
|
|
Total tax charge for the year |
201 |
- |
201 |
168 |
- |
168 |
||
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
||
|
|
|
|
|
|
|
|
|
|
||
|
|
(c) |
Provision for deferred taxation |
||||||||
|
|
|
At 31 March 2017 the Company had surplus management expenses and loan relationship debits with a tax value of £1,936,000 (2016 - £1,693,000) in respect of which a deferred tax asset has not been recognised. This is because the Company is not expected to generate taxable income in the future in excess of deductible expenses of that future period, and accordingly, it is unlikely that the Company will generate taxable revenue in the future and therefore will be unable to utilise the existing surplus expenses. |
||||||||
|
|
|
2017 |
2016 |
|
8. |
Dividends |
£'000 |
£'000 |
|
|
Amounts recognised as distributions to equity holders in the year: |
|
|
|
|
Final dividend 2016 - 4.20p (2015 - 2.60p) |
655 |
379 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
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 and will be paid on 14 July 2017 to shareholders on the register at the close of business on 16 June 2017. |
||
|
|
|
||
|
|
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 £1,125,000 (2016 - £875,000). Presently, only the revenue reserve can be used for the distribution of dividends. |
||
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
Proposed final dividend for 2017 - 6.00p per ordinary share (2016 - 4.20p) |
901 |
655 |
|
|
|
______ |
______ |
|
|
|
2017 |
2017 |
2016 |
2016 |
|
9. |
Return per ordinary share |
p |
£'000 |
p |
£'000 |
|
|
Returns per share are based on the following figures: |
|
|
|
|
|
|
Revenue return |
7.25 |
1,125 |
5.67 |
875 |
|
|
Capital return |
95.44 |
14,815 |
(41.85) |
(6,460) |
|
|
|
______ |
______ |
______ |
______ |
|
|
Total return |
102.69 |
15,940 |
(36.18) |
(5,585) |
|
|
|
______ |
______ |
______ |
______ |
|
|
Weighted average number of ordinary shares in issue |
|
15,523,200 |
|
15,435,471 |
|
|
|
|
_________ |
|
_________ |
|
|
|
2017 |
2016 |
|
10. |
Investments designated at fair value through profit or loss |
£'000 |
£'000 |
|
|
Opening book cost |
71,876 |
64,480 |
|
|
Opening investment holding gains |
17,112 |
21,832 |
|
|
|
______ |
______ |
|
|
Opening fair value |
88,988 |
86,312 |
|
|
Movements in the year: |
|
|
|
|
Purchases at cost (excluding transaction costs) |
14,284 |
19,244 |
|
|
Sales - proceeds (net of transaction costs) |
(23,036) |
(15,685) |
|
|
Sales - gains on sales |
7,774 |
3,837 |
|
|
Increase/(decrease) in investment holding gains |
14,783 |
(4,720) |
|
|
|
______ |
______ |
|
|
Closing fair value |
102,793 |
88,988 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
Closing book cost |
70,899 |
71,876 |
|
|
Closing investment holding gains |
31,894 |
17,112 |
|
|
|
______ |
______ |
|
|
|
102,793 |
88,988 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
Investments listed on a recognised investment exchange |
102,793 |
88,988 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
Gains/(losses) on investments |
£'000 |
£'000 |
|
|
Gains on sales |
7,774 |
3,837 |
|
|
Increase/(decrease) in investment holding gains |
14,783 |
(4,720) |
|
|
|
______ |
______ |
|
|
|
22,557 |
(883) |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
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 revenue and are included within gains/(losses) on investments in the Statement of Comprehensive Income. The total costs were as follows: |
||
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
Purchases |
11 |
12 |
|
|
Sales |
8 |
10 |
|
|
|
______ |
______ |
|
|
|
19 |
22 |
|
|
|
______ |
______ |
|
|
|
2017 |
2016 |
|
11. |
Debtors: amounts falling due within one year |
£'000 |
£'000 |
|
|
Forward foreign exchange contracts |
119 |
- |
|
|
Prepayments and accrued income |
737 |
620 |
|
|
Other loans and receivables |
9 |
5 |
|
|
|
______ |
______ |
|
|
|
865 |
625 |
|
|
|
______ |
______ |
|
|
|
|
|
|
|
All financial assets are included at amortised cost or at fair value for forward foreign exchange contracts. |
||
|
|
|
2017 |
2016 |
|
|
12. |
Creditors |
£'000 |
£'000 |
|
|
|
(a) |
Foreign currency bank loans |
|
|
|
|
|
Falling due within one year |
12,201 |
2,476 |
|
|
|
Falling due after more than one year |
- |
8,047 |
|
|
|
|
______ |
______ |
|
|
|
|
12,201 |
10,523 |
|
|
|
|
______ |
______ |
|
|
|
|
||
|
|
|
The Company entered into a three year credit facility with ING Bank in January 2015. At the year end, JPY1,300,000,000 (2016 - JPY1,300,000,000) equivalent to £9,330,000 (2016 - £8,047,000) had been drawn down from ING Bank at an all-in interest rate of 0.89750% (2016 - 0.89750%) which is due to mature on 23 January 2018. |
||
|
|
|
|
||
|
|
|
In addition, on 10 August 2015, the Company entered into a rolling one year JPY800,000,000 revolving credit facility with ING Bank. At the year end JPY400,000,000 equivalent to £2,871,000 had been drawn down at an all-in interest rate of 0.76029% which matured on 10 May 2017. On 10 May 2017 the JPY400,000,000 loan was rolled over until 10 August 2017 at an all-interest rate of 0.78%. |
||
|
|
|
|
||
|
|
|
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 £25,000,000 at any time. The Company has met these covenants throughout the period. |
||
|
|
|
|
||
|
|
|
|
2017 |
2016 |
|
|
(b) |
Other creditors falling due within one year |
£'000 |
£'000 |
|
|
|
Forward foreign exchange contracts |
- |
98 |
|
|
|
Outstanding purchase settlement |
133 |
- |
|
|
|
Sundry creditors |
163 |
166 |
|
|
|
|
______ |
______ |
|
|
|
|
296 |
264 |
|
|
|
|
______ |
______ |
|
|
|
2017 |
2016 |
||
|
13. |
Called-up share capital |
Number |
£'000 |
Number |
£'000 |
|
|
Allotted, called-up and fully paid |
|
|
|
|
|
|
Ordinary shares of 10p each |
15,074,597 |
1,507 |
15,592,572 |
1,559 |
|
|
Held in treasury |
746,975 |
75 |
229,000 |
23 |
|
|
|
_________ |
______ |
_________ |
______ |
|
|
|
15,821,572 |
1,582 |
15,821,572 |
1,582 |
|
|
|
_________ |
______ |
_________ |
______ |
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares |
Treasury shares |
Total |
|
|
|
|
Number |
Number |
Number |
|
|
Balance brought forward |
|
15,592,572 |
229,000 |
15,821,572 |
|
|
Ordinary shares issued in the year |
|
- |
- |
- |
|
|
Ordinary shares bought back for holding in treasury |
|
(517,975) |
517,975 |
- |
|
|
|
|
_________ |
_________ |
_________ |
|
|
|
|
15,074,597 |
746,975 |
15,821,572 |
|
|
|
|
_________ |
_________ |
_________ |
|
|
|
|
|
|
|
|
|
During the year no Ordinary shares (2016 - 1,230,000) were issued at a premium of £nil (2016 - £6,656,000) resulting in proceeds of £nil (2016 - £6,779,000). In addition 517,975 Ordinary shares (2016 - 229,000) were bought back and held in treasury at a cost of £2,840,000 (2016 - £1,041,000). Subsequent to the year-end a further 67,783 Ordinary shares were bought back to be held in treasury at a cost of £369,000. |
||||
|
|
|
2017 |
2016 |
|
14. |
Capital reserve |
£'000 |
£'000 |
|
|
At 1 April 2016 |
67,162 |
74,663 |
|
|
Gains/(losses) over cost arising on movement in investment holdings |
14,783 |
(4,720) |
|
|
Gains on realisation of investments at fair value |
7,774 |
3,837 |
|
|
Currency losses |
(7,205) |
(5,093) |
|
|
Administrative expenses |
(11) |
(15) |
|
|
Management fee |
(461) |
(420) |
|
|
Buyback of Ordinary shares for holding in treasury |
(2,840) |
(1,041) |
|
|
Finance costs |
(65) |
(49) |
|
|
|
______ |
______ |
|
|
At 31 March 2017 |
79,137 |
67,162 |
|
|
|
______ |
______ |
|
|
|
||
|
|
The capital reserve includes investment holding gains amounting to £31,894,000 (2016 - gains of £17,112,000) as disclosed in note 10. |
||
|
|
|
||
|
|
Net currency losses arising during the year of £7,205,000 (2016 - £5,093,000) are analysed further in the table below. |
||
|
|
|
|
|
|
|
|
2017 |
2016 |
|
|
|
£'000 |
£'000 |
|
|
Losses on forward foreign exchange contracts |
(5,733) |
(4,089) |
|
|
Losses on revaluation of bank loan |
(1,678) |
(1,167) |
|
|
Gains on cash deposits |
206 |
163 |
|
|
|
______ |
______ |
|
|
|
(7,205) |
(5,093) |
|
|
|
______ |
______ |
|
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 attributable |
||
|
|
|
2017 |
2016 |
2017 |
2016 |
|
|
|
p |
p |
£'000 |
£'000 |
|
|
Ordinary shares |
611.41 |
511.29 |
92,168 |
79,723 |
|
|
|
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
The movements during the year of the assets attributable to the Ordinary shares were as follows: |
||||
|
|
|
||||
|
|
|
2017 |
2016 |
||
|
|
|
£'000 |
£'000 |
||
|
|
Net assets attributable at 1 April 2016 |
79,723 |
79,949 |
||
|
|
Capital return for the year |
14,815 |
(6,460) |
||
|
|
Revenue on ordinary activities after taxation |
1,125 |
875 |
||
|
|
Dividend paid |
(655) |
(379) |
||
|
|
Issue of Ordinary shares |
- |
6,779 |
||
|
|
Purchase of Ordinary shares to be held in treasury |
(2,840) |
(1,041) |
||
|
|
|
______ |
______ |
||
|
|
Net assets attributable at 31 March 2017 |
92,168 |
79,723 |
||
|
|
|
______ |
______ |
||
|
|
|
|
|
||
|
|
The net asset value per Ordinary share is based on net assets, and on 15,074,597 (2016 - 15,592,572) Ordinary shares, being the number of Ordinary shares in issue, after deducting 746,975 shares in 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, forward exchange contracts and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. |
||||||||||
|
|
|
||||||||||
|
|
The Company also has the ability to enter into derivative transactions, in the form of forward exchange contracts, to ensure that foreign currency exposure is appropriately hedged. |
||||||||||
|
|
|
||||||||||
|
|
Certain risk management functions have been delegated to Aberdeen Fund Managers Limited ("AFML" or "Manager") under the terms of the management agreement (further details of which are included under note 19). The Board regularly reviews and agrees policies for managing each type of risk, are summarised below. This approach has been applied throughout the year within the Manager's risk management framework which is described on page 62 the 2017 Annual Report and has not changed since the previous accounting period. |
||||||||||
|
|
|
||||||||||
|
|
The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and price risk), (ii) liquidity risk and (iii) credit risk. |
||||||||||
|
|
|
||||||||||
|
|
Market price 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, 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 on page 8 of the 2017 Annual Report. 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 2017 would have increased/(decreased) by £10,279,000 (2016 increased/(decreased) by £8,899,000) 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 stockmarkets 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 11, are also in foreign currency. In addition, the Company seeks to ensure that the Company's Yen net exposure is appropriately Sterling-hedged through the use of rolling forward currency contracts. At 31 March 2017 the Company had two foreign currency contracts, details of which are disclosed above. During the year a net loss of £5,733,000 (2016 - loss of £4,089,000) was realised from the use of such contracts. |
||||||||||
|
|
|
||||||||||
|
|
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 2017 |
31 March 2016 |
||||||||
|
|
|
|
Net |
Total |
|
Net |
Total |
||||
|
|
|
Overseas |
monetary |
currency |
Overseas |
monetary |
currency |
||||
|
|
|
investments{A} |
assets |
exposure |
investments{A} |
assets |
exposure |
||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||
|
|
Japanese Yen |
56,693 |
(10,708) |
45,985 |
52,688 |
(9,730) |
42,958 |
||||
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
||||
|
|
|
|
|
|
|
|
|
||||
|
|
{A} Overseas investment is stated net of forward currency contracts with a net Sterling equivalent amount of £46,100,000 (2016 - £36,300,000) |
||||||||||
|
|
|
||||||||||
|
|
Foreign currency sensitivity |
||||||||||
|
|
The following table details the positive impact to a 10% decrease in Sterling against the major foreign currencies 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. |
||||||||||
|
|
|
||||||||||
|
|
|
2017 |
2017 |
2016 |
2016 |
||||||
|
|
|
Revenue |
Equity{A} |
Revenue |
Equity{A} |
||||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
||||||
|
|
Japanese Yen |
201 |
9,209 |
168 |
7,926 |
||||||
|
|
|
______ |
______ |
______ |
______ |
||||||
|
|
|
|
|
|
|
||||||
|
|
{A} Represents equity exposure to relevant currencies. |
||||||||||
|
|
|
||||||||||
|
|
Foreign exchange contracts |
||||||||||
|
|
The following Japanese Yen forward contracts were outstanding at the year end: |
||||||||||
|
|
|
|
|
|
|
||||||
|
|
Date of contract |
Settlement date |
Amount JPY '000 |
Contracted rate |
Unrealised gain at 31 March 2017 |
||||||
|
|
28 March 2017 |
30 June 2017 |
3,199,455 |
144.36 |
55 |
||||||
|
|
28 March 2017 |
30 June 2017 |
3,198,303 |
144.36 |
64 |
||||||
|
|
|
|
|
|
______ |
||||||
|
|
|
|
|
|
119 |
||||||
|
|
|
|
|
|
______ |
||||||
|
|
|
|
|
|
|
||||||
|
|
The Sterling equivalent of the above contracts is £46,100,000 based on the net amount of JPY 6,397,758,000 at the contracted rates. |
||||||||||
|
|
|
||||||||||
|
|
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 11. |
||||||||||
|
|
|
||||||||||
|
|
Liquidity risk exposure |
||||||||||
|
|
At 31 March 2017, the Company had a long term bank loans of £9,330,000 (2016 - £8,047,000) which was due to mature on 23 January 2018 with interest due on the principal every six months. The Company also had a rolling facility of £2,871,000 (2016 - £2,476,000) which was due to mature on 10 May 2017 with interest payable at maturity. |
||||||||||
|
|
|
||||||||||
|
|
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 is 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 £1,007,000 (2016 - £897,000) and debtors of £865,000 (2016 - £625,000) in the Statement of Financial Position represent the maximum exposure to credit risk at 31 March. |
||||||||||
|
|
|
||||||||||
|
|
Fair values of financial assets and financial liabilities |
||||||||||
|
|
All financial assets and financial liabilities of the Company are included in the Statement of Financial Position at fair value or at amortised cost that approximates to fair value. |
||||||||||
|
17. |
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 Board normally seeks to limit gearing to 15% of net assets. |
|
|
|
|
|
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. |
|
18. |
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( 2016 - same). The total value of the investments (2017 - £102,793,000; 2016 - £88,988,000) have therefore been deemed as Level 1. Forward foreign currency contracts as detailed in note 16 have been categorised as Level 2. |
|
19. |
Related party transactions |
|
|
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 page 30 of the 2017 Annual Report. |
|
|
|
|
|
Transactions with the Manager |
|
|
The Company has agreements with AFML to provide management, accounting, administrative and secretarial duties. The agreement for provision of management services has been delegated to Aberdeen Investment Management Kabushiki Kaisha. |
|
|
|
|
|
The Company has an agreement with AFML for the provision of promotional activities in relation to the Company's participation in the Aberdeen Investment Trust Share Plan and ISA. The total fees paid and payable under the agreement were £60,000 (2016 - £52,000) and the accrual to AFML at the year end was £16,000 (2016 - £14,000). |
|
|
|
|
|
The management fee is payable at a rate of 0.95% per annum of the value of the Company's Total Assets up to £50 million decreasing to 0.75% of the value of the Company's assets over and above £50 million, and is payable monthly in arrears. The balance due to AFML at the year end was £66,000 (2016 - £58,000). |
20. Additional notes for Annual Financial Report:
The final dividend, subject to shareholder approval, will be paid on 14 July 2017 to shareholders on the register at the close of business on 16 June 2017. The ex-dividend date is 15 June 2017.
This Annual Financial Report announcement is not the Company's statutory accounts. The statutory accounts for the year ended 31 March 2016 have been delivered to the Registrar of Companies. The statutory accounts for the years ended 31 March 2017 and 31 March 2016 received an audit report which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not include a statement under section 498(2) or (3) of the Companies Act 2006. The statutory accounts for the financial year ended 31 March 2017 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 11.00am on 10 July 2017 at Bow Bells House, One Bread Street, London EC4M 9HH.
The Annual Report will be posted to shareholders in June 2017 and copies will be available from the Manager or from the Company's website (www.aberdeen-japan.co.uk*).
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
This information is provided by RNS
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