Interim Results

Atlantis Japan Growth Fund Ld 23 January 2006 FOR IMMEDIATE RELEASE RELEASED BY HSBC SECURITIES SERVICES (GUERNSEY) LIMITED ATLANTIS JAPAN GROWTH FUND LIMITED PRELIMINARY ANNOUNCEMENT THE BOARD OF DIRECTORS OF ATLANTIS JAPAN GROWTH FUND LIMITED ANNOUNCE UNAUDITED RESULTS FOR THE PERIOD ENDED 31 OCTOBER 2005: New Accounting Standards Many quoted companies in the UK and abroad are now adopting new accounting standards ('International Financial Reporting Standards' or 'IFRS'), which have been developed to lead to more internationally consistent accounting treatment and terminology. These accounts for the six months ended 31st October 2005 of the Atlantis Japan Growth Fund Limited reflect the new standards, and the full year audited accounts will also do so. BALANCE SHEET AS AT 31ST OCTOBER 2005 Unaudited Unaudited Audited 31st October 31st October 30th April 2005 2004 2005 Restated Restated $'000 $'000 $'000 Non Current Assets Investments held at fair value 535,198 392,690 463,747 Current Assets Due from brokers 1,546 2,140 2,385 Dividends and interest receivable 1,295 1,052 2,630 Other debtors and prepayments 31 20 36 Cash and cash equivalents 3,444 10,763 2,431 6,316 13,975 7,482 Current Liabilities Due to brokers 4,233 3,561 3,683 Creditors and accrued expenses 807 693 704 Loans payable 25,782 14,149 14,315 30,822 18,403 18,702 Net Current Liabilities (24,506) (4,428) (11,220) Non Current Liabilities Loans payable (30,079) (28,298) (28,630) Net Assets 480,613 359,964 423,897 Equity Ordinary share capital 204 204 204 Share premium 192,650 192,650 192,650 Revenue reserve (16,905) (14,322) (14,588) Capital reserve 304,664 181,432 245,631 Net Assets Attributable to Equity Shareholders 480,613 359,964 423,897 Net Asset Value per Ordinary Share* $23.52 $17.61 $20.74 *Based on the Net Asset Value at the period/year end divided by the number of shares in issue - 20,435,627 (31st October 2004 and 30th April 2005 - 20,435,627) INCOME STATEMENT FOR THE SIX MONTHS ENDED 31ST OCTOBER 2005 Unaudited Unaudited (Restated) Audited (Restated) Six months ended 31st October 2005 Six months ended 31st October 2004 Year ended 30th April 2005 Revenue Capital Total Revenue Capital Total Revenue Capital Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Income Gains/(losses) on investments - 55,374 55,374 - (28,946) (28,946) - 35,757 35,757 held at fair value Exchange (loss)/gain (153) 4,204 4,051 - (1,143) (1,143) 95 (1,647) (1,552) Investment income 2,024 - 2,024 1,729 - 1,729 5,254 - 5,254 Deposit interest - - - 10 - 10 15 - 15 1,871 59,578 61,449 1,739 (30,089) (28,350) 5,364 34,110 39,474 Expenses Investment management fee 3,334 - 3,334 2,824 - 2,824 5,830 - 5,830 Custodian fees 177 - 177 165 - 165 304 - 304 Administration fees 134 - 134 123 - 123 248 - 248 Registrar and transfer agent 28 - 28 23 - 23 35 - 35 fees Directors' fees and expenses 57 - 57 54 - 54 119 - 119 Interest expense and bank 210 - 210 213 - 213 436 - 436 charges Transaction costs - 545 545 - - - - - - Insurance fees 22 - 22 57 - 57 68 - 68 Audit fee 10 - 10 15 - 15 26 - 26 Printing and advertising fees 26 - 26 28 - 28 46 - 46 Legal and professional fees 15 - 15 5 - 5 12 - 12 Listing fees 23 - 23 14 - 14 41 - 41 Miscellaneous expenses 10 - 10 7 - 7 7 - 7 4,046 545 4,591 3,528 - 3,528 7,172 - 7,172 (Loss)/Profit before tax (2,175) 59,033 56,858 (1,789) (30,089) (31,878) (1,808) 34,110 32,302 Taxation 142) - (142) (121) - (121) (368) - (368) (Loss)/Profit for the period (2,317) 59,033 56,716 (1,910) (30,089) (31,999) (2,176) 34,110 31,934 Earnings per ordinary share $2.775 $(1.566) $1.563 All revenue and capital items in the above statement derive from continuing operations STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31ST OCTOBER 2005 Unaudited For the 6 months ended 31st October 2005 Ordinary Share Capital Share Premium Revenue Reserve Capital Reserve Total $'000 $'000 $'000 $'000 $'000 Balance at 1 May 2005 204 192,650 (14,588) 245,631 423,897 Profit for the period - - 56,716 - 56,716 Transfer from retained earnings to capital reserve - - (59,033) 59,033 - Balance at 31 October 2005 204 192,650 (16,905) 304,664 480,613 Unaudited For the 6 months ended 31st October 2004 (Restated) Ordinary Share Capital Share Premium Revenue Reserve Capital Reserve Total $'000 $'000 $'000 $'000 $'000 Balance at 1 May 2004 204 192,650 (12,412) 211,521 391,963 Loss for the period - - (31,999) - (31,999) Transfer from retained earnings to capital reserve - - 30,089 (30,089) - Balance at 31 October 2004 204 192,650 (14,322) 181,432 359,964 Unaudited For the year ended 30th April 2005 (Restated) Ordinary Share Capital Share Premium Revenue Reserve Capital Reserve Total $'000 $'000 $'000 $'000 $'000 Balance at 1 May 2004 204 192,650 (12,412) 211,521 391,963 Profit for the period - - 31,934 - 31,934 Transfer from retained earnings to capital reserve - - (34,110) 34,110 - Balance at 30 April 2005 204 192,650 (14,588) 245,631 423,897 CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31ST OCTOBER 2005 Unaudited Six Months ended Unaudited Six Months ended Audited 31st October 2005 31st October 2004 Year ended 30th April 2005 $'000 $'000 $'000 Net cash outflow from operating activities (1,046) (856) (2,575) Investing Activities Purchase of investments (125,007) (125,009) (224,933) Sale of investments 110,319 128,091 221,538 Net cash (outflow)/inflow from (14,688) 3,082 (3,395) investing activities Net cash (outflow) inflow before financing (15,734) 2,226 (5,970) Cash Flows from financing activities Interest paid (220) (209) (434) Net loans drawn-down 12,916 1,651 2,149 Net cash inflow from financing activities 12,696 1,442 1,715 Net (decrease)/increase in cash and cash equivalents(3,038) 3,668 (4,255) Exchange movements 4,051 (1,143) (1,552) Movement in cash and cash equivalents in the period/year 1,013 2,525 (5,807) Cash and cash equivalents at beginning of period/year 2,431 8,238 8,238 Cash and cash equivalents at end of period/year 3,444 10,763 2,431 Reconciliation of profit/(loss) for period/year to net cash outflow from operating activities Net profit/(loss) before taxation 56,858 (31,878) 32,302 Losses/(gains) on investments held at fair value (55,374) 28,946 (35,757) Exchange (loss)/gain (4,051) 1,143 1,552 Interest expense 210 213 436 Decrease/(increase) in debtors and accrued income 1,340 896 (698) Increase/(decrease) in creditors 113 (55) (42) Taxation (142) (121) (368) (1,046) (856) (2,575) INVESTMENT MANAGER'S REPORT FOR THE SIX MONTHS ENDED 31ST OCTOBER 2005 __________________________________________________________________________________________ PERFORMANCE For the six month period ended 31st October 2005, the published Net Asset Value (NAV) of the Fund increased by 12.9% in US dollar terms to $23.73 per share compared with $21.02 per share at the end of April on a mid market basis*. An improving economy, strong earnings, and a rising stock market helped the Fund's performance. The main negative was the weaker yen which ended October at 116.36 to the dollar compared to 105.155, a loss of 9.6%. During the same period the Topix index was up 15.2% and the Tokyo Second Market rose by 9.8%. (note all figures adjusted to US dollars) Since inception on May 10th 1996 the published NAV per share has increased by 139.21% in US dollar terms which compares with a loss of 23.2% for the Topix and a gain of 70.6% for the Tokyo Second Market. As of the end of October 2005 the published NAV of the Fund stood at US$484,966,173. The Fund had borrowings of Y6.5 billion ($55.8 million) and cash of Y401 million ($3.4 million). On a net basis the Fund is leveraged a little over 11%. We took the decision to increase the Fund's borrowing in September to reflect our optimism for the stock market and investment opportunities. The Fund has no currency hedges as of 31st October 2005. The Fund's value in US dollar terms benefits from a stronger yen and, conversely, would be hurt by a weaker yen. During the six month period under review, as mentioned above, the yen weakened which had a negative impact on the value of the Fund. There are no outstanding warrants and the number of outstanding shares remains unchanged at 20,435,627. MARKET OUTLOOK The economy continues to recover and for the current fiscal year ending next March we look for GDP growth in real terms of around 2.5% and hopefully something over 2% for the following year. We also expect good earnings growth this year and hopefully next year. Consumer spending, private capital investment, housing investments, and rising exports are all helping to pull the economy higher. Interest rates are moving slowly higher but remain low and should not have much, if any, negative impact on the current economic recovery now in progress. Although wholesale prices are higher, due to the jump in world commodity prices, consumer prices remain flat to slightly negative and inflation is not a problem in Japan. The ruling Liberal Democratic Party and Prime Minister Koizumi did well in the recent September elections and we would expect the current economic reform policy to remain unchanged which in turn should be positive for both the economy and stock market over the longer term. The market has benefited from these factors and daily trading volume remains at a high level. Individuals have become a major force in the market often accounting for over 50% of daily trading volume. However the main buyers remain overseas investors who have been steady buyers of Japanese equities over the period under review. Local investment trusts, although still relatively small players, are collecting more and more funds and have been net buyers in many months. Pension Funds have been mostly net sellers but could very well move to the buy side from next spring depending on their asset allocation policy for the fiscal year beginning next April. Corporations will hopefully be net buyers as they buy back stock and take over other companies. We would expect banks to remain net sellers as they continue to unwind their cross holdings. Possible negatives for the market include even higher oil prices, a serious world economic slowdown including sharply lower economic growth in the US, China, and Southeast Asia, weak overseas stock markets in New York and Europe, a bird flu pandemic, or some type of terrorist event. However at this time we think the above unlikely. We continue to think the current Tokyo Stock market environment will remain favorable. The economy is expanding, earnings are growing, and valuations remain reasonable. New money, especially from overseas investors and local money from individuals, will hopefully help support the current market trend. OUR STRATEGY AND THE PORTFOLIO Our basic strategy does not change much from year to year. We will continue to seek out and invest in undervalued growth companies. No listed company is too big or too small for us to consider. As part of our risk control policy we tend to own a large number of stocks, now around 240. This means that even if we have a very illiquid stock and something goes wrong, the negative impact on the Fund will be fairly limited. About 70-80% of our investment policy is based on stock picking or a bottom up approach and only 20-30% on top down or looking at the economy, sectors, and themes such as higher oil prices. However our view of the economy, interest rates, government policy, and the trend of corporate earnings and the market do influence our investment strategy. For us the key to choosing good stocks is company visiting and we maintain a very busy company visiting schedule. Our team includes four people, all based in Tokyo, and we aim to visit one to three companies per person per day including some revisiting of companies we have visited in the past and perhaps already own. Since we buy some very small stocks we sometimes buy several companies in the same business area or sub-sector. For instance we like the generic drug companies but these are mostly smaller companies. There are about ten listed generic companies and we are now holding five or so of these companies. The same applies to the local drug store chains. We are now holding several companies which are running local drug store chains and they have in many cases been some of our best performers. Since we are now positive on the economy and also expect good corporate earnings growth for the next several years we have increased our exposure to cyclical growth companies and recovery stocks. Based mostly on our company visiting program, we are continuing to find many attractive new buy candidates in a wide range of businesses. Disclosure is improving and Japanese companies are continuing to place greater stress on profit margins and earnings growth. This is especially true of many of the smaller and medium sized companies and even some of the bigger companies. Since we are investing for the long term, have no sector weighting targets and pick our stocks mostly on a bottom up approach, our tracking error is often high and there can be periods when we underperform the major indices. Please be patient during these dull periods. Hopefully the stocks we are buying this month will do well in the next one to two years or more rather than in the next one to two months. Over the longer term we are aiming for positive returns, to do better than the major indices, and to match or outperform our better competitors. Atlantis Fund Management (Guernsey) Limited November 2005 * For accounting purposes, NAV is now measured on a bid basis. A reconciliation of published NAV to accounting NAV is set out in note 7 to the interim report. This information is provided by RNS The company news service from the London Stock Exchange

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