Information  X 
Enter a valid email address

Atlantis Japan Grwth (AJG)

  Print      Mail a friend

Friday 12 July, 2019

Atlantis Japan Grwth

Annual Results for the Year Ended 30 April 2019

ATLANTIS JAPAN GROWTH FUND LIMITED
(“AJGF” or the “Company”)
(a closed-ended investment company incorporated in Guernsey with registration number 30709)

LEI 5493004IW0LDG0OPGL69

Annual Results for the financial year ended 30 April 2019
12 July 2019

(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)

The financial information set out below does not constitute the Company's statutory accounts for the financial year ended 30 April 2019. All figures are based on the audited financial statements for the financial year ended 30 April 2019.

The financial information for the financial year ended 30 April 2019 noted below is derived from the financial statements delivered to the UK Listing Authority.

The annual report and audited financial statements for the financial year ended 30 April 2019 will shortly be posted to shareholders and will also be available on the company website: www.atlantisjapangrowthfundlimited.com

Introduction

INVESTMENT OBJECTIVE

Atlantis Japan Growth Fund Limited (the “Company”) aims to achieve long term capital growth through investment wholly or mainly in listed Japanese equities.

INVESTMENT POLICY

The Company may invest up to 100 per cent of its gross assets in companies quoted on any Japanese stock exchange including, without limitation, the Tokyo Stock Exchange categorised as First Section, Second Section, JASDAQ, Mothers and Tokyo PRO, or the regional stock exchanges of Fukuoka, Nagoya, Sapporo and Osaka Securities Exchange.

The Company may also invest up to 20 per cent of its Net Asset Value (the “NAV”) at the time of investment in companies listed or traded on other stock exchanges but which are either controlled and managed from Japan or which have a material exposure to the Japanese economy.

The Company may also invest up to 10 per cent of its NAV at the time of investment in securities which are neither listed nor traded on any stock exchange or over-the-counter market.

In general, investment will be through investments in equity shares in, or debt issued by, investee companies.  However, the Company may also invest up to 20 per cent of its NAV at the time of investment in equity warrants and convertible debt.

The Company will not invest in more than 10 per cent of any class of securities of an investee company. The Company will not invest in derivative instruments save for the purpose of efficient portfolio management.

The Company may not invest more than 10 per cent in aggregate, of the value of its total assets in other listed closed-ended investment funds except in the case of investment in closed-ended investment funds which themselves have published investment policies to invest no more than 15 per cent of their total assets in other listed closed-ended investment funds, in which case the limit is 15 per cent.

The Company may borrow, with a view to enhancing capital returns, up to a maximum of an amount not exceeding 20 per cent of NAV at the time of borrowing.

Investment Policy for the Redemption Pool

At each redemption point the Company may (a) notionally allocate assets and liabilities into a separate pool (the "redemption pool") for the purpose of funding valid redemption requests for that redemption point or (b) fund the valid redemption requests from available cash. With regard to the redemption pool, the Company aims to liquidate the necessary assets to meet qualifying redemption requests in a timely manner, and to minimise the impact that such redemptions will have to existing shareholders and the Company as a whole.

The management and impact of the risks associated with the investment policies are described in detail in the Notes to the Financial Statements (See Note 16).

INVESTMENT MANAGER AND INVESTMENT ADVISER

Quaero Capital LLP has been appointed as Investment Manager of the Company since 1 August 2014. 

Atlantis Investment Research Corporation (“AIRC”) has been appointed as the Investment Adviser to the Company since 1 August 2014.

AIRC, established in Tokyo, will, through Taeko Setaishi as lead adviser and her colleagues, advise the Investment Manager on the day-to-day conduct of the Company’s investment business, the role it has played since the launch of the Company in May 1996.

Chairman’s Statement

For the financial year ended 30 April 2019

In contrast to the prior financial year, the year ended 30 April 2019 proved to be a more challenging environment for the Company as well as for most major developed equity markets. Despite these more turbulent times, I am proud to report that over the course of the year, the Company’s NAV per share fell only marginally, by 0.1%, compared to a decrease of 2.9% for the TOPIX Total Return index in GBP.

At the time of writing, we have just passed the third anniversary of Taeko Setaishi’s appointment as lead adviser in May 2016. Over the three years to 30 April 2019, the Company’s NAV per share has significantly outpaced the TOPIX benchmark – by 22.0%, giving shareholders a total return of 64.0% in GBP terms. It should be noted that this outperformance is after deduction of all costs and also takes into account a dilution impact of approximately 11.0% resulting from the new shares which were issued in October 2016 and October 2017. It is also worth highlighting that the Company’s three year NAV per share performance record places the Fund within the top three amongst the combined AIC Japan universe of ten investment trusts. This strong performance reinforces my view that the Company has longer-term viability and that it is well positioned to warrant the closer attention of a broader investor base.

In this context, I would like to draw your attention to the forthcoming Continuation Vote to be held at the AGM on 12 September 2019 at which the Board will be recommending that the Company should continue in existence in order to carry on pursuing the investment mandate which has brought long-term outperformance for shareholders.

At the Extraordinary General Meeting held in April 2016, the Board, with the support of shareholders, laid out a plan to grow the Company’s assets under management (“AUM”), primarily through improved performance and the Subscription Right programme. Over the three year period, AUM rose from £59.5m at 30 April 2016 to £107.3m as at 30 April 2019. Although a significant achievement, the Board, after much deliberation, will be putting forward proposals to shareholders to amend the structure of the Company in order to further enhance the sustainability and future success of the Company for the benefit of shareholders.

I have already noted above the good performance that our Investment Advisor has produced since Taeko Setaishi took prime responsibility as portfolio manager. The Japanese stock market and economy remain among the largest in the world and the Board is convinced that the Company’s investment mandate remains as relevant today as it was when the Company first launched. As well as performance, in considering the Company’s future following the Continuation Vote, the Board has also considered all aspects of the Company’s structure.

It is evident to the Board that while the Redemption Mechanism has provided shareholders with a valuable alternative to secondary market liquidity, the mechanism is relatively complex, and it is not always easy for all shareholders to participate. In particular retail investors owning the shares through retail platforms may face administrative challenges when choosing to participate in the Redemption Mechanism.

The Board believes that the time is right to replace this mechanism. There is now much greater consensus in the investment companies sector that the use of dividend payments utilising distributable capital reserves is an effective and low cost way to provide investors with additional liquidity. The Board also believes it is a fairer way to distribute capital to all shareholders.

The Board is also very mindful of the investment strategy and the impact that frequent and relatively large redemptions can have on a portfolio that is predominantly composed of small and mid-sized companies. A smaller and more frequent dividend payment will, we believe, interfere much less in how the portfolio is constructed.

Finally, the Board notes that income investors, who form a growing and important component of the overall investor universe, are increasingly comfortable with dividends that are in part funded from capital reserves as one part of a portfolio of income producing investments. There are limited options to receive meaningful levels of income and simultaneously gain exposure to the exciting growth potential of Japanese equities; so, in introducing a dividend policy the Board believes it will broaden the appeal of the Company to a new range of investors.

With this in mind the Board proposes to replace the Redemption Mechanism with a regular quarterly dividend payment set with reference to 1% of net asset value, to be calculated on the basis of the daily average NAV over the final month of each financial year. Dividends will be paid in March, June, September and December.

This will require a change to the Company’s Articles of Association, which shareholders will be asked to vote upon at the AGM.

The new dividend policy will be subject to shareholder approval at each AGM, in line with market practice. It is our current intention that, subject to the passing of these resolutions that the first dividend paid under this new policy will be paid in December 2019. The average net asset value for the final month of the financial year just passed was 237 pence per share and therefore the dividends for December, March and June will be 2.37 pence per share. Based on the closing share price on 11 July 2019 this equates to an annualised dividend yield of 4.3%.

Accordingly, September’s redemption will be the last opportunity that shareholders will have to redeem shares using the existing Redemption Mechanism.

The Board has also reviewed the current 90 day rolling discount mechanism. Currently the Company is obligated to propose a Continuation Vote to shareholders should the discount on any given 90 day rolling period average greater than ten per cent. It has concluded that while this mechanism has assisted in limiting the average discount, it has also had the effect of acting as a natural brake on the discount narrowing more substantially. Since the Company introduced this mechanism in 2013, market practice among investment companies has moved to a more flexible approach to discount control that also takes into account factors such as liquidity and prevailing market conditions, and the Board believes that taking such an approach is in the interests of all shareholders. The Board wishes to emphasise to shareholders that it remains committed to managing the discount using share buy backs, but feels that this commitment is better served by taking a less formulaic approach. The Board emphasises that it believes that it is in the long term interests of shareholders that the Company grows its share capital, and this can only be achieved if the share price trades consistently at or above net asset value.

The Board will be renewing its existing powers to buy back shares at the AGM.

Alongside these changes, the Board also proposes that in addition to the forthcoming Continuation Vote, there will be a similar opportunity at every fourth AGM to vote on the continuation of the Company, beginning in at the AGM in 2023.

Finally, and again in line with market best practice, the Board has agreed with the Investment Manager a change to the Investment Management Fees. A tiered fee structure has been agreed, with a fee of 1% per cent on the first £125m of net assets, 0.85% on net assets between £125m and £175m and 0.70% on net assets above £175m.

Overall your Board believes this package of measures is in line with today’s market best practice, better aligns the interests of all shareholders and makes your Company a more attractive proposition to a wider potential audience.

PERFORMANCE
Over the financial year the Company’s NAV per share fell by 0.1%. This compares to the benchmark TOPIX’s 2.9% decrease on a total return basis measured in GBP.

 Since Company inception

Net Asset Value Total Return (GBP) 1 Year 3 Years 5 Years Since Inception
Atlantis Japan Growth Fund -0.1% 63.5% 112.5% 271.7%
Topix TR -2.9% 39.9% 84.8% 53.0%

   

Financial year to 30 April At 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Inception
Total Net Assets 130 176 127# 80# 65# 50# 61# 60# 77# 119# 107#
(GBPm)
NAV per Share 0.65 0.86 0.81 0.91 1.26 1.14 1.50 1.48 1.75 2.42 2.42
(GBP)

 Source: Quaero Capital and Bloomberg. As of 30 April 2019.

# Total Net Assets after redemptions during year, see below  “Redemption Facility”.

DISCOUNT CONTROL MECHANISM

The Board currently operates a hard discount control mechanism whereby the Company is obliged to hold a continuation vote should the shares have traded, on average, at a discount of more than 10% to the NAV per share during any rolling 90 day period in normal market conditions. If the obligation to hold a continuation vote is triggered, the vote will be held no later than the next practicable annual general meeting of the Company.

SHARE BUY-BACKS

In order to assist in managing the discount at which the Company’s shares trade and to enhance the NAV per share of remaining shareholders, the Company has authority to buy back shares. During the financial year ended 30 April 2019, the Company exercised its authority to buy back shares on three separate occasions in respect of a total of 500,000 Ordinary shares at a weighted average discount of 8.7% based on diluted NAVs. Since the financial year end, the Company has not exercised its authority to buy back any further shares. The shares bought back during the financial year, representing 1.1% of current issued shares, are held in treasury.


REDEMPTION FACILITY

At the redemption point on 28 September 2018, 2,874,315 shares representing 5.9% of issued shares, were validly lodged for redemption. Under the terms of the redemption facility, total redemptions at each redemption point are limited to 5% of the issued share capital (excluding treasury shares) at that time. Accordingly, redemption requests were scaled back so that only 5.0% of the Company's shares (2,434,356 shares) were accepted for redemption and redeemed at this redemption point.

At the redemption point on 29 March 2019, 3,811,426 shares representing 8.27% of issued shares, were validly lodged for redemption. Redemption requests were scaled back so that only 5.0% of the Company's shares (2,303,888 shares) were accepted for redemption.

As part of the operation of the redemption facility on 29 March 2019, a matched trade mechanism was utilised to match any and all redemptions received with 533,400 shares being matched from redemptions in excess of shareholders’ basic entitlements. 

GEARING
Gearing is defined as the ratio of a company’s long-term debt less cash held compared to its equity capital, expressed as a percentage. The effect of gearing is that, in rising markets, the Company tends to benefit from any growth of the Company’s investment portfolio above the cost of payment of the prior ranking entitlements of any lenders and other creditors. Conversely, in falling markets the Company suffers more if the Company’s investment portfolio underperforms the cost of those prior entitlements.

In order to improve the potential for capital returns to shareholders the Company currently has access to a flexible loan facility with The Royal Bank of Scotland International Limited for amounts up to ¥1.5 billion. As at the end of April 2019 the Company’s net gearing level (being the amount of drawn down bank debt less the cash held on the balance sheet) was 3.8% (2018: 2.4%).

The Directors consider it a priority that the Company’s level of gearing should be maintained at appropriate levels with sufficient flexibility to enable the Company to adapt at short notice to changes in market conditions. The Board reviews the Company’s level of gearing on a regular basis. The current maximum that has been set is 20% of the Company’s total assets. The Investment Adviser will be encouraged to use the gearing facility and the Company’s cash reserves in order to enhance returns for shareholders.

PRIIPS KEY INFORMATION DOCUMENTS

We are required by EU regulations introduced at the beginning of 2018 to provide investors with a Key Information Document (“KID”) which includes performance projections which are the product of prescribed calculations based on the Company’s past performance. Whilst the content and format of the KID cannot be amended under the applicable EU regulations, the Board, sharing industry-wide concerns, does not believe that these projections are an appropriate or helpful way to assess the Company’s future prospects. Accordingly, the Board urges shareholders also to consider the more complete information set out in the Company’s interim and full annual report and financial statements, together with the monthly factsheets and daily net asset value announcements, when considering an investment in the Company’s shares. These documents, together with a link to third party research coverage of the Company are published at www.atlantisjapangrowthfund.com.

ONGOING CHARGES

The Board continues to look very closely at the level of ongoing charges incurred by the Company and for the financial year ended 30 April 2019 the ongoing charges were 1.6% (30 April 2018: 1.6%). The Board will remain vigilant in seeking opportunities for further reductions

OUTLOOK
While Japan's economic annual growth is likely to be subdued, beneath this placid outlook there are profound economic and social structural changes fostering compelling investment opportunities.

We expect the Bank of Japan (“BoJ”) to maintain its current loose monetary policies with the 2.0% inflation target still a long way off, although the deflationary risks seem to all but have disappeared given the ever increasing labour shortages and improving private sector capex. 

In previous statements, I have highlighted the implications for the Company of the greater focus in Japan on the Corporate Governance Code and we continue to see a steady improvement in total shareholder returns by way of more efficient use of capital, share buybacks and higher dividends.

As at the end of April 2019 the TOPIX was trading on a forward price earnings multiple of 13x and a price to book ratio of 1.30x.

These valuations are towards the lower end of historical ranges and compare favourably to other developed equity markets. Taeko Setaishi, the Company’s investment adviser, expects the growth outlook for mid to smaller sized companies to continue to exceed that for larger companies lending support to the Company’s portfolio positioning.

In conclusion, I believe there is a compelling case for investment in Japanese equities over the medium to longer term. Furthermore, the Company’s adviser is very well placed to pursue long-term capital gains through bottom-up stock picking to select undervalued companies with a strong competitive advantage and longer term growth potential.

Noel Lamb                    12 July 2019

Investment Adviser’s Report
For the financial year ended 30 April 2019

Performance

The Company’s NAV per share, calculated in GBP and on a total return basis, ended the financial year at 242.15p, representing a 0.1% loss during the course of the year. The Company’s share price at the financial year end was 218.50p, a decrease of 0.2% over the same period and representing a 9.8% discount to NAV. Over the financial year, the TOPIX total return index recorded a 2.9% capital loss calculated in GBP.

At the conclusion of the financial year under review, the Company’s borrowings stood at ¥1 billion with cash of ¥297 million. The Company’s net gearing was 3.8% which compared to a gearing of 2.4% at the end of the previous year. JPY was ¥144.24 against GBP at 30 April 2019, a gain of 4.2% from the previous financial year’s closing rate of ¥150.27.

The Company’s portfolio at 30 April 2019 contained 62 companies, one more than at the same time a year ago. The companies which made a particularly strong contribution to the portfolio’s performance during the financial year included semiconductor production equipment maker Lasertec, corporate benefits administrator Benefit One, material handling/logistics systems equipment assembler Daifuku, and medical equipment assembler Asahi Intecc.

Excluding cash, the portfolio was entirely invested in the equities of publicly listed Japanese companies and listed J-REITs. The Company had no foreign exchange hedges and no exposure to convertible bonds or any other type of structured financial product.

Market comment & Economic Outlook

The financial year ended 30 April 2019 was challenging for Japanese equity investors. Investor sentiment was negatively affected by geopolitical tensions in Asia, trade disputes and a sluggish Chinese economy. The Tokyo Stock Exchange short sell ratio hovered in the 45%-50% range for prolonged periods of time, a data point suggesting a lack of enthusiasm for Japan equities. The October-December quarter was particularly punishing as indices for large and smaller capitalised stocks declined by 15%-25% in local currency terms. Reassured by better economic data from China, and reported progress in trade negotiations, the Tokyo Stock Price Index (“TOPIX”) rebounded in the final quarter of the Company’s financial year. Despite this, during the financial year on a total return basis, TOPIX dropped by 6.8% in JPY (-2.9% in GBP terms).

The Investment Adviser expects corporate earnings in the coming financial year to be, at best, flat year-on-year with particular weakness in the initial six months. Sluggish sales growth could negatively impact operating rates. Other profit headwinds include higher input labour costs owing to a) the tight labour market and b) personnel reforms intended to equalise compensation between full-time and part-time employees.

Japan reported a surprising 2.1% annualised growth spurt for January-March 2019. However this performance masked underlying weaknesses since the economy’s principal components (consumption, private sector capex, and exports) declined. Owing to fiscal stimulus and anticipatory spending related to the forthcoming sales tax increase, Japan should remain on a growth path in the first two quarters of fiscal year March 2020, and then decline in the subsequent quarter. Real GDP growth in fiscal year March 2020 could be below its potential and in the 0.3% to 0.5% range.

Inflation is set to remain well below the Bank of Japan’s 2% target for the foreseeable future. Consequently, monetary policy will remain exceptionally loose with a rate hike not likely to be considered for another 12 months.

In summary, the Investment Adviser expects the Japanese economy over the medium term to generate annualised growth of approximately +0.5% to +1.0% supported by contributions from private sector capital expenditure, external demand and household consumption. The risks associated with this scenario include a lengthy, comprehensive trade war between China and the United States (combined, both account for 40% of Japan’s exports), tariffs and/or other hostile measures taken by the United States specifically against the Japanese automobile sector, a sudden JPY appreciation against the USD and increases in commodity prices.

INVESTMENT ADVISER’S Strategy

The Investment Adviser employs a bottom-up stock picking investment style, which is based on the assumption that anticipated corporate profits growth is a key determinant of equity valuations over the long term. Consequently, the investment advisory team at AIRC seeks out companies with strong competitive advantages, positive cash flows, and secular growth potential.

While AIRC’s proprietary research is a team effort, investment decisions are the sole responsibility of the lead investment adviser. The AIRC investment process, may, but will not necessarily, result in a portfolio bias tilted toward medium and smaller capitalised companies.

There are no top-down pre-determined sector weightings as such; sector exposure is created by the accumulation of individual positions held in the TOPIX sector. The portfolio is constructed to gain exposure to themes expected to drive Japan’s economic growth over the long term. While Japan’s economic annual growth will likely oscillate around a +0.5% - +1.0% trend line, beneath this placid outlook there are profound economic and social structural changes fostering compelling investment opportunities.  In particular:

1.    Japan’s irreversible demographic trend will intensify demand for geriatric healthcare, products and services. Other societies will have to find solutions to rising healthcare demands and arguably Japan will lead in developing new hard and software solutions. The Company’s exposure to geriatric healthcare is focused on care suppliers (Solasto), equipment makers (Asahi Intecc), and cutting edge drug discovery firms (PeptiDream).

2.    Japan’s tight labour market has prompted companies to re-evaluate their personnel practices. Every effort is being made to retain personnel through improved conditions and offering full employee status. Outsourcing core and non-core operations has become standard practice as well. The Company has exposure to these trends through positions in Benefit One, Creek & River, Recruit, Outsourcing, and Fullcast.

3.    Japan is the largest supplier of robots, material handling systems, and other capital goods to Asia. The Company’s investments in this sector include Daifuku and Mitsubishi Electric.

4.    The Investment Adviser believes semiconductors are a secular growth product with sustained long term demand from the automobile sector, content digitalisation and the Internet of Things. Japanese companies have carved out high market shares in critical semiconductor production equipment production line tools. Investments include Lasertec, Tokyo Electron, Disco and Japan Material.

5.    The structural changes occurring in the Japanese economy have created a hospitable environment for new business ventures. As a growth oriented investment vehicle the Company constantly seeks new businesses for investment. New business model investments include Bengo4.com, House Do, Bplats, S-pool and TKP.

The investment advisory team at AIRC consists of four analysts / advisers who are engaged daily in contacting companies or preparing for management visits. The team meets formally on a weekly basis to review the previous week’s visits but it also exchanges information on a daily basis. AIRC has a collegiate approach to research but believes a sole individual should be responsible for portfolio advisory decisions. The lead investment adviser to the Company, Taeko Setaishi, is responsible for the final stock recommendations but relies on input from the other team members.

In conclusion, the Investment Adviser believes the Japanese equity markets are host to many attractive growth investment opportunities that have the potential to contribute to the Company’s long term capital appreciation.

Atlantis Investment Research Corporation

12 July 2019

Alternative Investment Fund Manager’s Report

For the financial year ended 30 April 2019

Quaero Capital LLP, which is registered in England as a limited liability partnership, was authorised on 22 July 2014 by the Financial Conduct Authority of the UK as the Company’s Alternative Investment Fund Manager (the “AIFM”) for the purposes of the Alternative Investment Fund Managers Directive (“AIFMD” or the “Directive”).

As the Company’s AIFM, Quaero Capital LLP is required to make available an annual report for each financial year of the Company containing the following:

i.    A balance-sheet or a statement of assets and liabilities (see Statement of Financial Position below).

ii.    An income and expenditure account for the financial year (see Statement of Comprehensive Income below).

iii.    A report on the activities of the financial year (see Chairman’s Statement below, Investment Adviser’s Report below, Details of Ten Largest Investments below, Schedule of Investments below and Directors’ Report and Statement of Directors’ Responsibilities below).

iv.    Details of material changes to the information set out under Article 23 of the Directive. To satisfy this requirement, Quaero Capital LLP publishes an Investor Disclosure Document available at http://www.quaerocapital.uk.

v.    Certain disclosures in relation to the remuneration of Quaero Capital LLP. To meet these requirements, details of Quaero Capital LLP’s remuneration policy and remuneration disclosures in respect of Quaero Capital LLP’s reporting period for the financial year ended 31 March 2019 are available at http://www.quaerocapital.uk/downloads/regulatory-disclosures.

vi.    Details of the leverage employed by the Company. Using the methodologies prescribed under the Directive, the leverage of the Company is disclosed in the following table:

Commitment leverage as at
30 April 2019
Gross leverage as at
30 April 2019
Leverage ratio 103.8% 103.8%

Quaero Capital LLP

12 July 2019

Details of Ten Largest Investments

The ten largest investments comprise a fair value of £30,688,249 (30 April 2018: £33,937,809) representing 28.6% of Net Asset Value (30 April 2018: 28.6%) with details as below:

Nidec (33,000 shares)

Nidec is the world’s leading small precision electric motor maker with particular application in hard disk drives. Through a highly active and successful global M&A strategy Nidec has also become a major supplier of mid and large sized motors. The company has a proven management team focused on creating shareholder value.

Fair value of £3,611,330 representing 3.4% of the Net Asset Value (30 April 2018: 3.6%).

Japan Elevator Service Holdings (227,000 shares)

Japan Elevator Service is the leading independent elevator maintenance service provider which has exploited its technical strength (remote low-cost inspections) and marketing capabilities to build share and expand geographic reach to the Kansai region. The company benefits from elevator manufacturers withdrawing from the maintenance service market and is directing cash flow to acquisitions.  

Fair value of £3,545,648 representing 3.3% of the Net Asset Value (30 April 2018: 0.0%).

Asahi Intecc Co Ltd. (80,000 shares)

Asahi Intecc manufactures ultra-fine stainless steel wire and has evolved into a major assembler of angiographic catheters and PTCA guidewires. All manufacturing operations are conducted off-shore in Thailand and Vietnam. Asahi Intecc has moved to diversify its operations by taking over Toyoflex.

Fair value of £3,111,440 representing 2.9% of the Net Asset Value (30 April 2018: 2.2%).

PeptiDream (74,000 shares)

PeptiDream is a biopharmaceutical company that employs its proprietary PDPS (Peptide Discovery Platform System) to discover and develop next generation pharmaceutical products. The company, in partnership with other global drug companies, is currently involved in 92 multi-venture projects plus in-house programs targeting influenza.  Global partners include AstraZeneca, Novartis, and Merck. Revenues, rising at a steady pace, are generated through license sales and contract fees.

Fair value of £3,073,032 representing 2.9% of the Net Asset Value (30 April 2018: 2.2%).

TKP (83,000 shares)

TKP manages and operates rental meeting rooms for corporate clients as well as other large facilities with meeting rooms and banquet halls. TKP keeps costs low by acquiring large facilities on a long term basis and leases them out on a short term, e.g., hourly, basis. The company also provides food, beverages, and other services for meetings. TKP plans to build hotels in Japan’s major cities and has been actively expanding overseas in New York, Singapore, and Hong Kong.

Fair value of £2,934,654 representing 2.7% of the Net Asset Value (30 April 2018: 2.6%).

Japan Material (255,000 shares)

Japan Material provides management services for special gases, ultra-pure water, and chemicals by dispatching engineers to semiconductor and LCD production facilities.  The company also sells these consumable supplies as well as piping equipment. Clients include most major Japanese semiconductor/LCD manufacturers. Japan Material’s Taiwan subsidiary provides similar services and supplies to major Taiwanese manufacturers.

Fair value of £2,915,207 representing 2.7% of the Net Asset Value (30 April 2018: 2.4%).

Creek & River (340,000 shares)

Creek & River specialises in providing temporary staff referrals to content providers, mainly to TV stations, game, web, and advertising firms. Creek & River has widened its staffing rolls to medical professionals, accountants, and fashion. The company has launched an intellectual property management service.  

Fair value of £2,889,868 representing 2.7% of the Net Asset Value (30 April 2018: 2.3%).

Benefit One (180,000 shares)

Benefit One creates and administers employee benefit programs for a wide range of corporate and government agency clients. Member organisations prefer to outsource benefit administration for a fixed fee owing to cost and convenience. Benefits include discounted access to leisure facilities and health care check-ups which have proved to be popular.  Benefit One has established operations in China, United States, Germany, and Thailand.

Fair value of £2,883,906 representing 2.7% of the Net Asset Value (30 April 2018: 2.0%).

Keyence Corporation (6,000 shares)

Keyence is the leading maker of detection and measuring control equipment, particularly FA sensors.  Uniquely, Keyence employs a direct sales business model which fosters close relationships with customers who are in the semiconductor, LCD, foodstuffs, and pharmaceutical sectors. Keyence is a fabless company with all production outsourced to affiliates.  Its senior management is highly regarded for its disciplined financial targets. 

Fair value of £2,875,170 representing 2.7% of the Net Asset Value (30 April 2018: 2.2%).

Hikari Tsishin (20,000 shares)

Hikari Tsushin is a sales organisation with 2,000 shops targeting individuals and SMEs. Hikari has diversified from distributing business equipment and mobile phones to a variety of other products and services including water coolers, electric power, mobile wi-fi routers, and insurance.

Fair value of £2,847,994 representing 2.6% of the Net Asset Value (30 April 2018: 2.1%).

Schedule of Investments

As at 30 April 2019

Fair Value
Holdings Financial assets at fair value through profit or loss £'000 % of NAV
Advertising: 0.52% (30 April 2018: 1.33%)
110,000 Tow 553 0.52
Auto Parts & Equipment: 0.00% (30 April 2018: 0.78%) - -
Chemicals: 4.48%  (30 April 2018: 5.21%)
73,000 KH Neochem 1,632 1.52
150,900 Mitsubishi Chemical 826 0.77
58,000 Tri Chemical Laboratories 2,348 2.19
Commercial Services: 27.83% (30 April 2018: 21.76%)
135,000 Aoyama Zaisan Networks 1,485 1.38
180,000 Benefit One 2,884 2.69
340,000 Creek & River 2,890 2.69
160,000 Fullcast Holdings 2,701 2.52
107,500 Funai Soken 2,141 2.00
64,000 Hirayama 1,298 1.21
47,000 Kanamoto 858 0.80
230,000 Link And Motivation 1,346 1.25
130,000 Nihon M&A Center 2,839 2.65
140,000 Outsourcing 1,410 1.31
57,000 Phil 1,517 1.41
75,000 Recruit Holdings 1,731 1.61
530,000 Riso Kyoiku 1,562 1.46
130,000 S-Pool 2,267 2.11
83,000 TKP 2,935 2.74
Computers: 0.00% (30 April 2018: 2.08%) - -
Distribution/Wholesale: 1.90% (30 April 2018: 1.69%)
105,000 Trusco Nakayama 2,042 1.90
Diversified Financial Services: 1.40% (30 April 2018: 1.94%)
80,000 Japan Investment Adviser 1,498 1.40
Electronics: 9.49% (30 April 2018: 9.17%)
120,000 Chino 1,085 1.01
167,000 Idec 2,611 2.43
6,000 Keyence Corporation 2,875 2.68
33,000 Nidec 3,611 3.37
Engineering & Construction: 0.00% (30 April 2018: 0.89%) - -
Hand/Machine Tools: 1.11% (30 April 2018: 3.22%)
9,000 Disco 1,192 1.11
Healthcare-Products: 2.90% (30 April 2018: 3.15%)
80,000 Asahi Intecc 3,111 2.90
Healthcare-Services: 6.45%  (30 April 2018: 3.79%)
110,000 Advantage Risk Management 701 0.65
115,000 Elan 1,345 1.25
74,000 PeptiDream 3,073 2.87
235,000 Solasto 1,805 1.68
Home Furnishings: 0.00%  (30 April 2018: 1.38%) - -
Internet: 4.78% (30 April 2018: 0.00%)
55,000 Bengo4.com 1,645 1.53
44,000 Bplats 1,232 1.15
120,000 Sharingtechnology 996 0.93
60,000 Uzabase 1,256 1.17
Leisure Time: 1.05% (30 April 2018: 1.80%)
57,000 Tosho 1,128 1.05
Lodging: 2.04% (30 April 2018: 0.93%)
55,500 Kyoritsu Maintenance 2,193 2.04
Machinery-Construction & Mining: 0.92% (30 April 2018: 2.27%)
90,000 Mitsubishi Electric 987 0.92
Machinery-Diversified: 10.57% (30 April 2018: 11.36%)
57,000 Daifuku 2,679 2.50
227,000 Japan Elevator Service Holdings 3,546 3.30
120,000 Nittoku Engineering 2,313 2.16
40,000 Optorun 809 0.75
400,000 Yamashin-Filter 1,994 1.86
Metal Fabricate/Hardware: 1.27% (30 April 2018: 1.22%)
150,000 Okada Aiyon 1,358 1.27
Real Estate: 1.07% (30 April 2018: 5.38%)
120,000 House Do 1,153 1.07
REITS: 3.11% (30 April 2018: 2.72%)
1,780 Industrial & Infrastructure Fund Investment Reits 1,562 1.46
2,500 MCUBS MidCity Investment 1,768 1.65
Retail: 2.23% (30 April 2018: 1.24%)
21,000 Convano 116 0.11
100,000 Komeda 1,414 1.32
14,000 Monogatari 864 0.80
Semiconductors: 7.39% (30 April 2018: 6.73%)
255,000 Japan Material 2,915 2.72
77,000 Lasertec 2,685 2.50
19,000 Tokyo Electron 2,324 2.17
Software: 4.09% (30 April 2018: 4.80%)
48,000 Cresco 1,125 1.05
59,000 CRI Middleware 1,411 1.32
58,700 Money Forward 1,850 1.72
Telecommunications: 5.29% (30 April 2018: 3.51%)
20,000 Hikari Tsushin 2,848 2.65
80,000 Vision Inc/Tokyo Japan 2,829 2.64
Transportation: 3.92% (30 April 2018: 4.01%)
75,000 Fuji Kyuko 2,186 2.04
18,000 Hamakyorex 512 0.48
90,000 Naigai Trans Line 830 0.77
15,000 Sakai Moving Service 680 0.63
Total Japan: (30 April 2018: 102.36%) 111,380 103.81
Total listed equities: (30 April 2018: 102.36%) 111,380 103.81
Total investments held at fair value through profit or loss 111,380 103.81
Cash and cash equivalents (30 April 2018: 2.83%) 2,125 1.98
Other net liabilities (30 April 2018: (5.19%)) (6,214) (5.79)
Net assets attributable to equity shareholders 107,291 100.00

Board of Directors

NOEL LAMB (Chairman, appointed to the Board on 1 February 2011 and appointed as Chairman on 1 May 2014), British, graduated from Exeter College, Oxford University and is a barrister-at-law. He joined Lazard Brothers & Co Limited in 1987 and from 1992 to 1997 he was the managing director of Lazard Japan Asset Management where he was the fund manager for their Japanese equities. In 1997, he moved to the Russell Investment Group where he established the investment management capability of Russell in London. In 2002, he was promoted to Chief Investment Officer in North America where he managed assets of $150bn until his departure in 2008.

PHILIP EHRMANN FCSI (appointed to the Board on 25 October 2013), British, graduated from the London School of Economics with a BSc in Economics. He started his investment career in 1981 specialising in the North American market before heading up Emerging Markets for Invesco Asset Management. In 1995 he joined Gartmore Investment Management to undertake a similar role, before becoming Head of Pacific & Emerging Markets. Whilst at Gartmore he managed the Gartmore Asia Pacific Trust Plc, a pan-Asian Investment Trust. In 2006 he moved to Jupiter Asset Management where he was Co-Head of Asia. At the beginning of 2015 he joined Manulife Asset Management as a Senior Managing Director, responsible for overseeing Global Emerging Markets equity portfolios.

RICHARD PAVRY (appointed to the Board on 1 August 2016), British, is the head of investment trusts at Jupiter Asset Management Limited.  Richard graduated in Natural Sciences from Cambridge University before converting to law.  He began his career as a solicitor with Simmons & Simmons, moving to the corporate finance team at UBS in 1999 and then to Jupiter Asset Management in 2000.  Richard has previously served as a non-executive director of Jupiter Second Split Trust PLC.

MICHAEL MOULE (appointed to the Board on 5 February 2018), British, has a close connection to investment trusts and global investment having managed The City of London Investment Trust plc, The Bankers Investment Trust PLC and The Law Debenture Corporation p.l.c. during an extensive City career with Touche Remnant and Henderson Global Investors.  He is currently a director of The European Investment Trust plc and a member of the investment committees of the British Heart Foundation and The Open University.  He was previously Chairman of Polar Capital Technology Trust plc.

Directors’ Report and Statement of Directors’ Responsibilities

The Directors are pleased to present their twenty third Annual Report and Audited Financial Statements of the Company for the financial year ended 30 April 2019.

PRINCIPAL ACTIVITY

The Company is a Guernsey registered authorised closed-ended investment company with UK investment trust status traded on the London Stock Exchange. The Company has a premium listing in the Official List. Trading in the Company’s ordinary shares commenced on 10 May 1996.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing Financial Statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that financial year. In preparing these Financial Statements, the Directors are required to:

–    select suitable accounting policies and then apply them consistently;

–    make judgements and estimates that are reasonable and prudent;

–    state whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the Financial Statements; and

–    prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

We confirm, to the best of our knowledge, that:

–    this Annual Report and Audited Financial Statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”) and applicable Guernsey law, gives a true and fair view of the assets, liabilities, financial position and assesses the Company’s position and performance, business model and strategy of the Company; and

–    this Annual Report and Audited Financial Statements include information detailed in the Directors' Report, the Investment Adviser’s Report and Notes to the Financial Statements, which provides a fair review of the information required by:

a)    DTR 4.1.8 of the Disclosure Guidance and Transparency Rules (“DTR”), being a fair review of the Company’s  business and a description of the principal risks and uncertainties facing the Company; and

b)    DTR 4.1.11 of the DTR, being an indication of important events that have occurred since the beginning of the financial year, the likely future development of the Company, the Company’s use of financial instruments and, where material, the Company’s financial risk management objectives and policies and its exposure to price risk, credit risk, liquidity risk and cash flow risk.

In the opinion of the Board, the Annual Report and Audited Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Financial Statements comply with The Companies (Guernsey) Law, 2008 (the “Companies Law”) and the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (“POI Law”). They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for ensuring that the Directors’ Report and other information included in the Annual Report is prepared in accordance with company law applicable in Guernsey. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Conduct Authority and the DTR.

The Directors who held office at the date of the approval of the Financial Statements confirm that, so far as they are aware:

–    There is no relevant audit information of which the Company’s auditor is unaware; and

–    Each Director has taken all the steps they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

The Directors confirm that these Financial Statements comply with these requirements.

In respect of the UK Criminal Finances Act 2017, which has introduced a new corporate criminal offence of “failing to take reasonable steps to prevent the facilitation of tax evasion”, the Board confirms that it is committed to zero tolerance towards the criminal facilitation of tax evasion.

BUSINESS REVIEW AND TAX STATUS   

The Company has been formally accepted into the investment trust company regime, subject to the Company continuing to submit appropriate annual tax filings to HM Revenue and Customs. In the opinion of the Directors, the Company has conducted its affairs so as to enable it to maintain ongoing investment trust status, subject to completion of the relevant audit work.

REDEMPTION FACILITY

The purpose of the facility is to provide a measure of liquidity for those shareholders who may wish to redeem.  The redemption facility will at the Directors’ discretion operate at six-monthly intervals on 31 March and 30 September (or if such date is not a business day, the previous business day).

The Directors shall be entitled at their absolute discretion to determine the procedures for the redemption of the ordinary shares (subject to the facilities and requirements of CREST and the Companies Law). Without prejudice to the Directors discretion, it is intended that the procedure described below shall apply.

Redemptions may take place on any redemption point. Upon redemption, all ordinary shares redeemed shall be cancelled. 

The total redemptions at each redemption point are limited to 5% of the issued share capital at the time. At each redemption point, each shareholder is entitled to request the redemption of 5% of their holding of shares held at the immediately preceding redemption point and held continuously at all times since that date, rounded down to the nearest whole number (the “basic entitlement’’). Until 31 March 2015, the redemption value was based upon the realisation value of the portfolio, less an exit charge set at 2% on redemptions of up to a shareholder's basic entitlement. Following a Board resolution to amend the redemption facility, with effect from the same date, the exit charge payable on redemptions of up to a shareholder's basic entitlement was increased to 4% of the total redemption costs.

Shareholders are entitled to request the redemption of shares in excess of their basic entitlement to the extent that other shareholders redeem less than their basic entitlement or do not seek to redeem their shares at the relevant redemption point (an "excess request"). Following the amendment to the redemption facility, with effect from 31 March 2015, the exit charge on excess requests is the rolling 90-day average discount calculated in accordance with the Company's existing discount control mechanism, subject to an exit charge cap of 10%. Any such excess redemption requests will be satisfied pro rata in proportion to the amount in excess of the basic entitlement (rounded down to the nearest whole number of shares).

The right of shareholders to request the redemption of their ordinary shares on any redemption point shall be exercised by the shareholder delivering to the receiving agent (or to such other person as the Directors may designate for this purpose) a duly completed redemption request. Redemption request forms are available upon request from the Administrator. Redemption requests shall not be valid (unless the Company otherwise agrees) unless they are received by the receiving agent not earlier than 20 days nor later than 10 days before the relevant redemption point. The Company may, prior to a redemption point, in its sole discretion, invite investors to purchase, at the investment price, ordinary shares which are the subject of redemption requests.

SHARE BUY-BACKS

The Company has been granted the authority to make market purchases of up to a maximum of 14.99% of the aggregate number of ordinary shares in issue at a price not exceeding the higher of (i) 5% above the average of the mid-market values of the ordinary shares for the five business days before the purchase is made or (ii) the higher of the price of the last independent trade and the highest current investment bid for the ordinary shares.

In deciding whether to make any such purchases the Directors will have regard to what they believe to be in the best interests of shareholders as a whole, to the applicable legal requirements and any other requirements in the Articles. The making and timing of any buy-backs will be at the absolute discretion of the Board and not at the option of the shareholders, and is expressly subject to the Company having sufficient surplus cash resources available (excluding borrowed moneys).

The Board believes that the effective use of treasury shares can assist the Company in improving liquidity in the Company’s ordinary shares, managing any imbalance between supply and demand and minimising the volatility of the discount at which the ordinary shares trade to their NAV for the benefit of shareholders. It is believed that this facility gives the Company the ability to sell ordinary shares held in treasury quickly and cost effectively, and provides the Company with additional flexibility in the management of the capital base. During the financial year ended 30 April 2019, there were 500,000 shares purchased into treasury (30 April 2018: None). The number of shares held in treasury at 30 April 2019 is 4,374,186 (30 April 2018: 3,874,186), the percentage of treasury shares in total is 9.9% (2018: 7.9%).

The Board shall have regard to current market practice for the reissue of treasury shares by investment trusts and the recommendations of the Investment Adviser. The Board’s current policy is that any ordinary shares held in treasury will not be resold by the Company at a discount to the Investment Adviser’s estimate of the prevailing NAV per ordinary share as at the date of issue. The Board will make an announcement of any change in its policy for the re-issuance of ordinary shares from treasury via a Regulatory Information Service approved by the Financial Conduct Authority (“FCA”).

INVESTMENT POLICY

The Company’s investment objective and policy are set out below.

RESULTS

The results for the financial year are set out in the Statement of Comprehensive Income below.

DIVIDEND

As a UK investment trust the Company is subject to the provisions of the Corporation Tax Act 2010. Section 1158 (“s.1158”) includes a retention test which states that the Company should not retain in respect of any accounting period an amount which is greater than 15% of its income. This has been modified for accounting periods beginning on or after 28 June 2013 such that a negative balance on a company's revenue reserve is taken into account when calculating the amount of distributable income. This is not relevant for the financial year ended 30 April 2019.

There were no distributions made during the financial year (30 April 2018: £Nil) and the Company met the retention test for the financial year ended 30 April 2019.

CAPITAL VALUES

At 30 April 2019 the value of net assets attributable to shareholders was £107,290,867 (30 April 2018: £118,738,232) and the NAV per share was £2.42 (30 April 2018: £2.42).

PREPARATION OF FINANCIAL STATEMENTS

The Financial Statements of the Company have been prepared in accordance with IFRS, which comprise standards and interpretations approved by the European Union, and International Accounting Standards, and Standing Interpretations Committee interpretations approved by the Inter-Agency Standing Committee (“IASC”) that remain in effect.

SIGNIFICANT SHAREHOLDINGS

In accordance with the Company's Articles of Association the Directors have the ability to request nominee shareholders to disclose the beneficial shareholders they represent. Based on the information received the following shareholders had a holding in the Company in excess of 3% as at 30 April 2019.

Shareholder % Ordinary Shares
1607 Capital Partners 21.6 9,569,249
Wells Fargo & Company 21.5 9,526,948
Lazard 6.2 2,747,220
Hargreaves Lansdown plc 4.4 1,958,153
Interactive Investor Trading 3.4 1,491,384
Miton Group plc 3.2 1,432,289

SECRETARY

The Secretary is Northern Trust International Fund Administration Services (Guernsey) Limited.

INDEPENDENT AUDITOR

The Company has appointed PricewaterhouseCoopers CI LLP (“PwC”) as its independent auditor.

PwC have indicated their willingness to continue in office.

Resolutions re-appointing them and authorising the Directors to fix their remuneration will be proposed at the annual general meeting.

PRINCIPAL RISKS AND UNCERTANTIES

As an investment trust, the Company invests in securities for the long term. The financial investments held as assets by the Company comprise equity shares (see the Schedule of Investments below for a breakdown). As such, the holding of securities, investing activities and financing associated with the implementation of the investment policy involve certain inherent risks. Events may occur that could result in either a reduction in the Company’s net assets or a reduction of revenue profits available for distribution.

Set out below are the principal risks inherent in the Company’s activities along with the actions taken to manage them. The Board conducts robust reviews of these risks and agrees policies for their management. These policies have remained substantially unchanged since 30 April 2006.

Performance

Inappropriate investment policies and processes may result in under-performance against the prescribed benchmark index and the Company’s peer group. The Board manages these risks by ensuring a diversification of investments and regularly reviewing the portfolio asset allocation and investment process. The Board also regularly monitors the Company’s investment performance against a number of indices and the AIC Japanese smaller companies’ sub-sector peer group.  In addition, certain investment restrictions have been set and these are monitored as appropriate.

Discount

A disproportionate widening of the discount relative to the Company’s peers could result in loss of value for shareholders. The Board reviews the discount level regularly. The introduction of the redemption facility has improved the liquidity in the Company’s shares and helps to narrow the discount to the NAV at which the shares trade.

The Company operates a shareholder-approved discount control mechanism whereby the Company will hold a continuation vote if the shares have traded, on average, at a discount of more than 10% to the NAV per share during any rolling 90 day period in normal market conditions. If the obligation to hold a continuation vote is triggered, the vote will be held no later than the next practicable annual general meeting of the Company.

Regulatory

The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 1158 of the Corporation Tax Act 2010, The Companies (Guernsey) Law, 2008, the UKLA Listing Rules and the DTR, could lead to a number of detrimental outcomes and reputational damage. The Company conforms with the Alternative Investment Fund Managers Directive (“AIFMD”). The Board relies on the services of the Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited, and its professional advisers to ensure compliance with The Companies (Guernsey) Law, 2008, the POI Law, the UKLA Listing Rules and Prospectus Rules, the DTR and the rules of the London Stock Exchange.

Operational

Like most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Investment Manager, Investment Adviser and the Company’s Administrator. The security, for example, of the Company’s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements depends on the effective operation of these systems. These are regularly tested and monitored.

Financial

The financial risks faced by the Company, including the impact of changes in Japanese equity market prices on the value of the Company’s investments, are disclosed in Note 16 to the Financial Statements. The financial risks disclosed in Note 16 are detailed for compliance with IFRS.

CORPORATE GOVERNANCE AND SHAREHOLDER RELATIONS

Details of the Company’s compliance with corporate governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement below and this statement forms part of the Directors’ Report.

VIABILITY STATEMENT

In accordance with provision C.2.2 of the UK Corporate Governance Code as issued by the Financial Reporting Council (‘FRC’) in April 2016, the Board has assessed the prospects of the Company over the next three years including the period from the date of this document to the annual general meeting in 2019. The Company’s investment objective is to achieve long-term capital growth and the Board regards the Company as a long-term investment.

The Board has considered the Company’s business model including its investment objective and investment policy as well as the principal risks and uncertainties that may affect the Company as detailed below. The Board, in its assessment of the viability of the Company, has considered each of the Company’s principal risks as referred to above, in particular the impact of a significant fall in the Japanese equity market on the value of the Company’s investment portfolio. The Board has noted that the Company holds a highly liquid portfolio invested predominantly in listed equities and no significant increase to ongoing charges or operational expenses is anticipated.

The Directors also review the level of the discount or premium between the middle market price of the Company’s ordinary shares and their NAV on a regular basis. The Directors have powers granted to them at the last annual general meeting to purchase ordinary shares and either cancel or hold them in treasury as a method of controlling the discount to NAV and enhancing shareholder value.

The Board has therefore concluded, based on the Company’s processes for monitoring operating costs, share price discount, the Investment Manager’s compliance with the investment objective, asset allocation, the portfolio risk profile, gearing, counterparty exposure, liquidity risk and financial controls, that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years. As part of its assessment, the Board has noted that shareholders will be required to vote on the continuation of the Company at the 2019 annual general meeting.

GOING CONCERN

As outlined in the Viability Statement above, the Directors believe that the Company has adequate resources to continue in operational existence for the next 12 months. Whilst the Company is obliged to hold a continuation vote at the 2019 annual general meeting in accordance with its discount control mechanism, the Directors do not believe this should automatically trigger the adoption of a basis other than going concern basis in line with the Association of Investment Companies (“AIC”) Statement of Recommended Practice (“SORP”) which states that it is more appropriate to prepare financial statements on a going concern basis unless a continuation vote has already been triggered and shareholders have voted against continuation. The Directors have also taken account its expectations of the results of the forthcoming continuation vote. While the outcome of the vote is not yet known and therefore creates some uncertainty as to the going concern basis, the Directors are recommending that shareholders vote in favour of the continuation resolution and have no reason to assume that shareholders will not support the continuation of the Company and have prepared the viability statement under this assumption. Save as noted above in the Company’s Viability Statement, there are no material uncertainties relating to events or conditions that may cast significant doubt as to the ability of the Company to continue to meet its ongoing obligations.

ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE

The Company has entered into the arrangements necessary to ensure compliance with the AIFM Directive. Following a review of the Company's management arrangements, the Board approved the appointment of Quaero Capital LLP ("Quaero") as the Company's Alternative Investment Fund Manager on the terms of and subject to the conditions of the Investment Management Agreement between the Company and Quaero.

The Board has also appointed Northern Trust (Guernsey) Limited (the "Depositary") to act as the Company's depositary (as required by the AIFM Directive) on the terms and subject to the conditions of a Depositary Agreement between the Company, Quaero and the Depositary.

International Tax Reporting

For the purposes of the US Foreign Account Tax Compliance Act, the Company registered with the US Internal Revenue Services (“IRS”) as a Guernsey reporting Foreign Financial Institution (“FFI”), received a Global Intermediary Identification Number PYT2PS.99999.SL.831, and can be found on the IRS FFI list.

The Common Reporting Standard (“CRS”) is a global standard for the automatic exchange of financial account information developed by the Organisation for Economic Co-operation and Development (“OECD”), which has been adopted by Guernsey and which came into effect on 1 January 2016. The Board has taken the necessary action to ensure that the Company is compliant with Guernsey regulations and guidance in this regard.

Noel Lamb                              Philip Ehrmann   

Chairman                Director   

12 July 2019

Directors’ Remuneration Report

The Board has approved this report, in accordance with the rules covering good communication to shareholders. An ordinary resolution for the approval of this report will be put to the members at the forthcoming annual general meeting.

REMUNERATION COMMITTEE

The Board as a whole fulfils the function of a Remuneration Committee. The Company’s financial adviser, corporate broker and company secretary will be asked to provide advice when the Directors consider the level of Directors’ fees.

POLICY ON DIRECTORS’ FEES

The Board’s policy is that the remuneration of non-executive Directors should reflect the experience of the Board as a whole and be fair and comparable to that of other investment trusts that are similar in size, have a similar capital structure and have a similar investment objective.

The fees for the non-executive Directors are determined within the limits of £200,000 set out in the Company’s Articles of Incorporation. The Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits.

DIRECTORS’ SERVICE CONTRACTS

It is the Board’s policy that none of the Directors have a service contract. Directors are appointed initially until the following annual general meeting when, under the Company’s Articles of Incorporation, it is required that they be re-elected by shareholders. Thereafter, two Directors shall retire by rotation, or if only one Director is subject to retire by rotation he shall retire. The retiring Directors will then be eligible for reappointment having been considered for reappointment by the Chairman and other Directors. Notwithstanding the foregoing provisions of the Company's Articles of Incorporation, the Board is recommending that all Directors be subject to re-election at the forthcoming annual general meeting.

DIRECTORS’ EMOLUMENTS FOR THE FINANCIAL YEAR

The Directors who served in the financial year are entitled to the following emoluments in the form of fees:

Year ended Year ended
30 April 2019 30 April 2018
Regular fees £ £
Noel Lamb 32,500 30,000
Richard Pavry 25,833 25,000
Philip Ehrmann 28,334 27,500
Michael Moule 25,833 6,250
112,500 88,750

The fees for the non-executive Directors were last reviewed five years ago and have been unchanged since 2013. It was decided that fees be increased by £1,000 per annum for non-executive Directors and £3,000 per annum for the Chairman with effect from 6 July 2018.

DIRECTORS’ INTERESTS

The Directors listed below are all members of the Board at the financial year end 30 April 2019.

Certain Directors had a beneficial interest in the Company by way of their investment in the ordinary shares of the Company.

The details of these interests as at 30 April 2019 and 30 April 2018 are as follows:

Ordinary Shares Ordinary Shares
30 April 2019 30 April 2018
Noel Lamb 14,400 14,400
Richard Pavry 40,000 40,000
Philip Ehrmann 28,800 28,800
Michael Moule        20,000        16,000

 As at the date of this report, the above interests of the Directors were unchanged.

There were no relevant contracts in force during or at the end of the financial year in which any Director had an interest. There are no service contracts in issue in respect of the Company’s Directors.

No Directors had a non-beneficial interest in the Company during the financial year under review.

DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON RECOGNISED STOCK EXCHANGES

The following summarises the Directors’ directorships in other public companies:

Michael Moule
Company Name Stock Exchange
The European Investment Trust plc London

None of the other Directors held directorships in other public companies during the financial year under review.

APPROVAL

A resolution for the approval of the Directors’ Remuneration Report for the financial year ended 30 April 2019 will be proposed at the annual general meeting.

By order of the Board

Noel Lamb                            Philip Ehrmann   

Chairman                Director   

12 July 2019

Corporate Governance

INTRODUCTION

The following Corporate Governance statement forms part of the Directors’ Report below (DTR 7.2.1). The Board of the Company has considered the principles and recommendations of the July 2016 edition of the AIC Code of Corporate Governance (the “AIC Code”) by reference to the AIC Corporate Governance Guide for Investment Companies (the “AIC Guide”). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code 2016 (the “UK Code”), as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company. A revised edition of the AIC Code (2019 AIC Code) was published in February 2019 and a revised edition of the UK Code (2018 UK Code) was published in July 2018. Both codes are effective for annual periods beginning on or after 1 January 2019 and will be adopted by the Company in the financial year ended 30 April 2020 Annual Report and Audited Financial Statements.

The Company is subject to the Guernsey Financial Services Commission ("GFSC") Code of Corporate Governance (the "GFSC Code") and reports against the AIC Code which is deemed to comply with the GFSC Code.

The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Code throughout the financial year, except as set out below:

–    the role of the chief executive

–    executive directors’ remuneration

–    the need for an internal audit function

–    the need to appoint a senior independent director

–    the need to appoint a nomination committee or management engagement committee

–    the whistle blowing policy
 

For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers these provisions are not relevant to the position of the Company, being an externally managed investment company. The Company has therefore not reported further in respect of these provisions. The Directors are non-executive and the Company does not have employees, hence no whistle-blowing policy is required. However, the Directors note that the Company’s service providers have whistle blowing policies in place.

THE BOARD

Disclosures under Principle 5 of the AIC Code

The Board comprises four independent non-executive Directors including the Chairman, Noel Lamb. Due to the size of the Company, the nature of its activities and the fact that all of the Directors are independent, the Board does not consider it necessary to appoint a senior independent director. 

The Board has not appointed a remuneration committee but, comprising wholly independent Directors, the whole Board considers these matters regularly. The Board considers agenda items formally laid out in the Notice and Agenda, which are formally circulated to the Board in advance of the meeting as part of the Board papers.

The primary focus at board meetings is a review of investment performance and associated matters such as the discount, redemptions, gearing, asset allocation, marketing and investor relations, peer group information and industry issues. There were four board meetings (1 May 2017-30 April 2018: five) and three Audit Committee meetings (1 May 2017-30 April 2018: three) held during the financial year 1 May 2018 to 30 April 2019. The table below shows the number of formal meetings attended by each Director during the financial year:

Director    Board Meetings Attended        Audit Committee Meetings Attended

Noel Lamb                4                        3

Philip Ehrmann                4                        3

Richard Pavry                4                         3

Michael Moule                4                        3

In addition to the above meetings, there were also five other committee meetings (1 May 2017-30 April 2018: five) held during the financial year in relation to the operation of the redemption facility and other operational matters.

Directors are appointed initially until the following annual general meeting when, under the Company’s Articles of Incorporation, it is required that they be re-elected by shareholders. Thereafter, two Directors shall retire by rotation, or if only one Director is subject to retire by rotation he shall retire. The retiring Directors will then be eligible for reappointment having been considered for reappointment by the Chairman and other Directors. The Board is recommending that all Directors be subject to re-election at the forthcoming AGM.

The Board evaluates its performance and considers the tenure of each Director on an annual basis, and considers that the mix of skills, experience, ages and length of service to be appropriate to the requirements of the Company.

When considering succession planning, the Board bears in mind the balance of skills, knowledge, and experience and diversity existing on the Board. The Board has noted amendments to the UK Code to strengthen the principle on boardroom diversity following the Davies Report. The Board considers diversity as part of the annual performance evaluation and it is felt that there is a range of backgrounds and each Director brings different qualities to the Board and its discussions. It is not felt appropriate for the Company to have set targets in relation to diversity; candidates will be assessed in relation to the relevant needs of the Company at the time of appointment. A good knowledge of investment management generally, Japanese investment management specifically and investment trust industry matters and sophisticated investor concerns relevant to the Company will nevertheless remain the key criteria by which new Board candidates will be assessed. The Board will recommend when the recruitment of additional non-executive Directors is required. Once a decision is made to recruit additional Directors to the Board each Director is invited to submit nominations and these are considered in accordance with the Board’s agreed procedures. The Board may also use independent external agencies as and when the requirement to recruit an additional Board member becomes necessary.

The Board embraces the principles of the UK Code but, with regard to its provisions concerning director tenure, is of the opinion that an individual’s independence cannot be arbitrarily determined on the basis of a set period of time. The Company’s investment objective is to achieve long term capital growth and it benefits from having long serving Directors with a detailed knowledge of the Company’s operations to effectively oversee its management on behalf of shareholders. The Company therefore does not impose fixed term limits on Directors’ tenure as this would result in a loss of experience and knowledge without any assurance of increased independence. The Board, collectively and individually, firmly believes in the continued independence of its members. The Board confirms that the performance of all Directors has been subject to formal evaluation and that they continue to be effective in their role. The Board firmly recommends to shareholders that all Directors should be re-elected.

There is an agreed procedure for Directors to take independent professional advice if necessary, and at the Company’s expense. This is in addition to the access which every Director has to the advice of the Company Secretary. The Company has taken out insurance jointly with QBE and Travelers in respect of the Directors’ liability. For the financial year ended 30 April 2019 the charge was £4,875.

INTERNAL CONTROLS

The Board has delegated the responsibility for the management of the Company’s investment portfolio, the provision of depositary services and the administration, registrar and corporate secretarial functions including the independent calculation of the Company’s NAV and the production of the Annual Report and Audited Financial Statements. The Annual Report and Audited Financial Statements are also independently audited. Whilst the Board delegates responsibility, it retains responsibility for the functions it delegates and is responsible for the risk management and systems of internal control. Formal contractual agreements have been put in place between the Company and providers of these services.

The Board directly on an ongoing basis and via its Audit Committee has implemented a system to identify and manage the risks inherent in such contractual arrangements by assessing and evaluating the performance of the service providers, including financial, operational and compliance controls and risk management systems.

On an ongoing basis compliance reports are provided at each Board meeting from the Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited, and the Audit Committee reviews the Service Organisation Controls (SOC 1) report on this service provider.

The extent and quality of the systems of internal control and compliance adopted by the Investment Manager and the Investment Adviser are also reviewed on a regular basis, and the primary focus at each Board meeting is a review of investment performance and associated matters such as gearing, asset allocations, marketing and investment relations, peer group information and industry issues. The Board also closely monitors the level of discount and has the ability to buy back shares in the market.

The Board believes that it has implemented an effective system for the assessment of risk, but the Company has no staff, has no internal audit function and can only give reasonable but not absolute assurance that there has been no material financial misstatement or loss.

COMMITTEES

The Board has established an Audit Committee which is described below.

The Board has not appointed a Management Engagement Committee or Nomination Committee but has chosen to assess and review the performance of the Board and contractual arrangements with the Investment Manager, Investment Adviser and service providers to the Company on an annual basis by the entire Board who are independent non-executive Directors. Details of the Investment Management Agreement are shown in Note 7 to the Financial Statements.

Audit Committee

The Audit Committee operates within defined terms of reference. The Audit Committee’s responsibilities include, but are not limited to (see below for more details):

–    review of draft annual and interim report and financial statements;

–    review of independence, objectivity, qualifications and experience of the auditor;

–    review of audit fees.

The Audit Committee is appointed by the Board and comprises Mr Ehrmann as Chairman, Mr Pavry, Mr Lamb and Mr Moule.

In accordance with the AIC Code, the Board has determined that Mr Ehrmann has recent and relevant financial experience. All other members of the Audit Committee are deemed to have the necessary ability and experience to understand the Financial Statements.

The function of the Audit Committee is to ensure that the Company maintains the highest standards of integrity, financial reporting and internal control.

The Audit Committee meets with the Company’s external auditor annually to review the Audited Financial Statements.

The Audit Committee meets at least twice a year and may meet more frequently if the Audit Committee deems necessary or if required by the Company’s auditor.

The Company’s auditor is advised of the timing of the Audit Committee Meetings. The Audit Committee has access to the Compliance officers of the Investment Manager, the Administrator and the Depositary.

The Company Secretary is the Secretary of the Audit Committee and attends all meetings of the Audit Committee.

The Audit Committee is satisfied that auditor objectivity and independence is not impaired by the performance by PwC CI LLP of non-audit services, which cover UK tax compliance services. The Audit Committee considers that the appointment of a third party unfamiliar with the Company to carry out non-audit services of UK tax compliance would not benefit shareholders since they would incur unnecessary additional expense.

The Audit Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary.

SHAREHOLDER RELATIONS

The Board monitors the trading activity and shareholder profile on a regular basis and maintains contact with the Company’s stockbroker to ascertain the views of shareholders. Shareholders where possible are contacted directly on a regular basis, and shareholders are invited to attend the Company’s annual general meeting in person and ask questions of the Board and Investment Adviser. Following the annual general meeting each year the Investment Adviser gives a presentation to the shareholders.

The Company reports to shareholders twice a year and a proxy voting card is sent to shareholders with the Annual Report and Audited Financial Statements. The Registrar monitors the voting of the shareholders and proxy voting is taken into consideration when votes are cast at the annual general meeting. Shareholders may contact the Directors via the Company Secretary. In addition, estimated NAVs are published on a daily basis and monthly factsheets are published on the Investment Manager's website at http://www.quaerocapital.uk/funds/atlantis-japan-growth-fund-limited.

EVALUATION OF PERFORMANCE OF INVESTMENT MANAGER AND INVESTMENT ADVISER

The investment performance is reviewed at each regular Board meeting at which representatives of the Investment Manager and Investment Adviser are required to provide answers to any questions raised by the Board. The Board has instigated an annual formal review of the Investment Manager and Investment Adviser which includes consideration of:

–    performance compared with benchmark and peer group;

–    investment resources dedicated to the Company;

–    investment management fee arrangements and notice period compared with peer group; and

–    marketing effort and resources provided to the Company.

In the opinion of the Directors the continuing appointment of the Investment Manager and Investment Adviser  on the terms agreed is in the interests of the Company’s shareholders as a whole.

By order of the Board

Noel Lamb                          Philip Ehrmann   

Chairman            Director   

12 July 2019

Audit Committee Report

We present the Audit Committee's Report, setting out the responsibilities of the Audit Committee and its key activities for the financial year ended 30 April 2019.

The Audit Committee has continued its detailed scrutiny of the appropriateness of the Company’s system of risk management and internal controls, the robustness and integrity of the Company’s financial reporting, along with the external audit process. The Committee has devoted time to ensuring that controls and processes have been properly established, documented and implemented.

During the course of the financial year, the information that the Audit Committee has received has been timely and clear and has enabled the Audit Committee to discharge its duties effectively.

The Audit Committee supports the aims of the UK Code and the best practice recommendations of other corporate governance organisations and the Association of Investment Companies (“AIC”), and believes that reporting against the revised AIC Code allows the Audit Committee to further strengthen its role as a key independent oversight Committee.

Role and Responsibilities

The primary function of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities. This includes reviewing the financial reports and other financial information before publication.

In addition, the Audit Committee reviews the systems of internal controls on a continuing basis that the Investment Manager and the Board have established with respect to finance, accounting, risk management, compliance, fraud and audit. The Committee also reviews the accounting and financial reporting processes, along with reviewing the roles, independence and effectiveness of the external auditor.

The ultimate responsibility for reviewing and approving the Annual Report and Audited Financial Statements remains with the Board.

The Audit Committee's full terms of reference can be obtained by contacting the Company's Administrator.

Risk Management and Internal Control

The Board, as a whole, including the Audit Committee members, considers the nature and extent of the Company’s risk management framework and the risk profile that is acceptable in order to achieve the Company’s strategic objectives. As a result, it is considered that the Board has fulfilled its obligations under the UK Code.

The Audit Committee continues to be responsible for reviewing the adequacy and effectiveness of the Company’s on-going risk management systems and processes. Its system of internal controls, along with its design and operating effectiveness, is subject to review by the Audit Committee through reports received from the Investment Manager, Investment Adviser and Depositary, along with those from the Administrator and external auditor.

The Audit Committee has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Investment Manager, Investment Adviser, Administrator and Depositary provide sufficient assurance that a sound system of risk management and internal control, which safeguards shareholders’ investments and the Company’s assets, is maintained. An internal audit function is therefore considered unnecessary. 

Fraud, Bribery and Corruption

The Audit Committee has relied on the overarching requirement placed on all service providers under the relevant agreements to comply with applicable law. The Audit Committee reviews the service provider policies and receives a confirmation from all service providers that there have been no instances of fraud or bribery.

Financial Reporting and Significant Financial Issues

The Audit Committee assesses whether suitable accounting policies have been adopted. The Audit Committee reviews accounting papers prepared by the Investment Manager and Administrator which provide details on the main financial reporting judgements.

The Audit Committee also reviews reports by the external auditors which highlight any issues with respect to the work undertaken on the audit.

The significant issues considered during the financial year by the Audit Committee in relation to the Financial Statements and how they were addressed is detailed below:

(i) Valuation of Investments:

The Company’s investments had a fair value of £111,379,895 as at 30 April 2019 and represent a substantial portion of the assets of the Company. As such this is the largest factor in relation to the consideration of the Financial Statements. These investments are valued in accordance with the Significant Accounting Policies set out in Note 2,(f) to the Financial Statements. The Audit Committee considered the valuation of the investments held by the Company as at 30 April 2019 to be correct from information provided by the Investment Manager, Investment Adviser, Depositary and Administrator on their processes for the valuation of these investments.

(ii) Income Recognition:

The Audit Committee considered the income from investments recorded in the Financial Statements for the financial year ended 30 April 2019. Income from investments is recognised in accordance with the Significant Accounting Policies set out in Note 2,(d). The Audit Committee reviewed information obtained from the Investment Manager and was satisfied that income, having arisen solely from dividends declared by listed equities, was correctly stated in the Financial Statements.

(iii) Change to Presentation Currency

For the financial year ended 30 April 2019, the Company changed its presentation currency from USD to GBP to align with the functional currency of GBP.

(iv) Review of the Financial Statements:

At the request of the Audit Committee, the Administrator confirmed that it was not aware of any material misstatements, including matters relating to Financial Statements presentation. At the Audit Committee meeting to review the Annual Report and Audited Financial Statements, the Audit Committee received and reviewed a report on the audit from the external auditors. On the basis of its review of this report, the Audit Committee is satisfied that the external auditor has fulfilled its responsibilities with diligence and professional scepticism. The Audit Committee advised the Board that these Annual Report and Audited Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy.

(v) Going Concern:

Whilst the Company is obliged to hold a continuation vote at the 2019 annual general meeting the Directors do not believe this should automatically trigger the adoption of a basis other than going concern. While the outcome of the vote is unknown and therefore creates some uncertainty on the validity of the going concern basis, the Directors are recommending that shareholders vote in favour of the continuation resolution and have no reason to presume that shareholders will not support the continuation of the Company and have prepared the viability statement under this assumption.

The Audit Committee is satisfied that appropriate disclosures have been included in the Financial Statements.

External Auditor

The Audit Committee has responsibility for making a recommendation on the appointment, reappointment and removal of the external auditor. PwC CI LLP has been external auditor to the Company since their appointment on 13 January 2015.

During the financial year the Audit Committee received and reviewed audit plans and reports from the external Auditor. To assess the effectiveness of the external audit process, the auditors were asked to articulate the steps that they have taken to ensure objectivity and independence, including where the auditor provides non-audit services. The Audit Committee also reviewed the work done during the financial year by the external auditors both as part of the audit process and on non-audit matters and from time to time compares their effectiveness as well as their costs with the benefit of the experience they have had in other investment management houses and relevant contexts. These steps enable the Audit Committee to monitor the auditor’s performance, behaviour and effectiveness during the exercise of their duties, which informs the decision to recommend reappointment on an annual basis. The Audit Committee under its terms of reference reviews the appointment and re-appointment of the external auditor typically at its December meeting in advance of the reviewing the audit approach for the Annual Report and Audited Financial Statements.

The external Auditor is required to rotate the audit partner every five years, and the current partner has been in place for five year end audits. Therefore, a new audit partner will be in place for the year ended 30 April 2020.

The Audit Committee has adopted a policy on the engagement of the Company’s auditor to supply non-audit services to the Company. PwC CI LLP was paid £7,250 for non-audit services during the financial year under review (30 April 2018: £5,250).

The Committee ensures that auditor objectivity and independence are safeguarded by requiring pre-approval by the Committee for all non-audit services provided to the Company, which takes into consideration:

–    confirmation from the auditor that they have adequate arrangements in place to safeguard their objectivity and independence in carrying out such work, within the meaning of the regulatory and professional requirements to which they are subject;

–    the fees to be incurred, relative to the audit fees;

–    the nature of the non-audit services; and

–    whether the auditor’s skills and experience make it the most suitable supplier of such services and whether they are in a position to provide them.

The Committee has reviewed the non-audit services performed by PwC CI LLP in the financial year and has concluded that the policy has been applied and their independence and objectivity has not been impaired as a result.

The following table summarises the remuneration paid for audit and non-audit services during the financial year ended 30 April 2019 and the financial year ended 30 April 2018.

For the financial year ended 30 April 2019
£
Annual audit 37,950
Tax compliance and advisory services 7,250
For the financial year ended 30 April 2018
£
Annual audit 32,900
Tax compliance and advisory services 5,250

For any questions on the activities of the Audit Committee not addressed in the foregoing, a member of the Audit Committee will attend each annual general meeting to respond to such questions.

The Audit Committee Report was approved on 12 July 2019 and signed on behalf of the Audit Committee by:

Philip Ehrmann

Chairman, Audit Committee

Depositary Statement
For the financial year ended 30 April 2019

Report of the Depositary to the Shareholders

Northern Trust (Guernsey) Limited has been appointed as Depositary to Atlantis Japan Growth Fund Limited (the “Company”) in accordance with the requirements of Article 36 and Articles 21(7), (8) and (9) of the Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the “AIFM Directive”).

We have enquired into the conduct of Quaero Capital LLP (the “AIFM”) for the financial year ended 30 April 2019, in our capacity as Depositary to the Company.

This report, including the review provided below, has been prepared for and solely for the shareholders in the Company. We do not, in giving this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown.

Our obligations as Depositary are stipulated in the relevant provisions of the AIFM Directive and the relevant sections of Commission Delegated Regulation (EU) No 231/2013 (collectively the “AIFMD legislation”).

Amongst these obligations is the requirement to enquire into the conduct of the AIFM and the Company and their delegates in each annual accounting period.

Our report shall state whether, in our view, the Company has been managed in that period in accordance with the AIFMD legislation. It is the overall responsibility of the AIFM to comply with these provisions. If the AIFM or their delegates have not so complied, we, as the Depositary, will state why this is the case and outline the steps which we have taken to rectify the situation.

Basis of Depositary Review

The Depositary conducts such reviews as it, in its reasonable discretion, considers necessary in order to comply with its obligations and to ensure that, in all material respects, the Company has been managed (i) in accordance with the limitations imposed on its investment and borrowing powers by the provisions of its constitutional documentation and the appropriate regulations and (ii) otherwise in accordance with the constitutional documentation and the appropriate regulations. Such reviews vary based on the type of company, the assets in which a company invests and the processes used, or experts required, in order to value such assets.

Review

In our view, the Company has been managed during the year, in all material respects:

(i) in accordance with the limitations imposed on the investment and borrowing powers of the Company by the constitutional document and by the AIFMD legislation; and

(ii) otherwise in accordance with the provisions of the constitutional document and the AIFMD legislation.

For and on behalf of

Northern Trust (Guernsey) Limited

12 July 2019

Independent Auditor’s Report to the Members of

Atlantis Japan Growth Fund Limited

For the financial year ended 30 April 2019

Report on the audit of the financial statements

_________________________________________________________________________________________________

Our opinion

In our opinion, the financial statements give a true and fair view of the financial position of Atlantis Japan Growth Fund Limited (the “Company”) as at 30 April 2019, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.

_________________________________________________________________________________________________What we have audited

The Company’s financial statements comprise:

-    the statement of financial position as at 30 April 2019;

-    the statement of comprehensive income for the year then ended;

-    the statement of changes in equity for the year then ended;

-    the statement of cash flows for the year then ended; and

-    the notes to the financial statements, which include a summary of significant accounting policies.

_________________________________________________________________________________________________Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

_________________________________________________________________________________________________Material uncertainty related to going concern

We draw attention to the going concern disclosures in the Directors’ Report and to the basis of preparation disclosures in note 2 to the financial statements. These disclosures note that the Company is obliged to hold a continuation vote at the 2019 annual general meeting. If a continuation resolution is not passed, the directors shall put proposals to the shareholders for restructuring or reorganisation of the Company. There is a material uncertainty as to the outcome of this continuation resolution that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

_________________________________________________________________________________________________Independence

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements of the Company, as required by the Crown Dependencies’ Audit Rules and Guidance. We have fulfilled our other ethical responsibilities in accordance with these requirements.

_________________________________________________________________________________________________Our audit approach

Overview

Materiality
-    Overall materiality was £1.07m which represents 1% of the Company’s net asset value.
Audit scope
-    We conducted our audit work in Guernsey, which is where the Company is incorporated and based.
-    The Company engages an investment manager, Quaero Capital LLP, to manage the investment portfolio. We had interaction with the investment manager in completing aspects of our audit work.
-    We conducted our audit of the financial statements from information provided by Northern Trust International Fund Administration Services (Guernsey) Limited (the “Administrator”) to whom the Board has delegated the provision of certain functions.
-    The Company is an authorised closed-ended investment scheme registered in Guernsey and its equity shares are listed on the premium segment of the London Stock Exchange.
Key audit matters
-    Existence and valuation of the portfolio of investments.
-    Change in presentation currency.
-    Material uncertainty related to going concern.

Audit scope

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which the Company operates.

_________________________________________________________________________________________________

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Company materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Overall Company materiality £1.07m (2018: $1.63m)
How we determined it 1% of net assets
Rationale for the materiality benchmark We believe that net assets is the most appropriate benchmark because this is the key metric of interest to investors. It is also a generally accepted measure used for companies in this industry.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £54k, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

_________________________________________________________________________________________________

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In addition to the matter described in the material uncertainty related to going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report.

Key audit matter How our audit addressed the Key audit matter
Existence and valuation of the portfolio of investments
Refer to note 2 (Significant Accounting Policies) and note 16 (Financial Risk Management Objectives and Policies).

The portfolio of directly held investments, which constitute the investments held at fair value through profit or loss financial statement line item, comprise 100% of quoted equities, which are designated by the reporting standards as ‘Level 1’ given that they are quoted in an active market for which publically available pricing data is readily available. The investment portfolio represents 104% of the Company’s net asset value.

The investments are held by an independent custodian. Whilst the valuation of these investments is not considered complex, nor does it involve significant judgements and estimates to be made by management, the market value of investments is material to the Company. A material misstatement due to fraud or error would be material to the financial statements as a whole. As a result, whilst we have not determined it to be a significant audit risk, we consider the existence and valuation of investments to be an area of focus in our audit and accordingly a key audit matter.
Our main audit procedures over these investments were as follows:

·    We understood and evaluated the internal controls in place at the Administrator and determined that we could place reliance on the Administrator’s Type II assurance controls report (the “Controls Report”) for the controls surrounding the recognition, measurement and de-recognition of investments. We also obtained a Controls Report bridging letter from the Administrator to ensure that the assessment of the controls environment covers the whole period and that no exceptions were noted.
·    We read the accounting policies selected by the directors covering the recognition, classification and measurement of investments and assessed those policies for compliance with International Financial Reporting Standards as adopted by the European Union.
·    We re-priced 100% of the investment portfolio as at the statement of financial position date using independently obtained pricing information.
·    We independently obtained a custodian report from Northern Trust (Guernsey) Limited, in its capacity as independent custodian of the Company’s investments, ensuring that all investment holdings per the investment portfolio agreed to the holdings per the custodian report.

No misstatements were identified by our testing which required reporting to those charged with governance.
Change in presentation currency
Refer to note 3 (Change in Accounting Policy and Presentation Currency).

For the financial year ended 30 April 2019, the Company changed its presentation currency from United States Dollars (“USD”) to Pounds Sterling (“GBP”) to align with the functional currency of GBP.
Our work over the change in presentation currency included the following:

·    We reviewed the presentation and disclosure of the change in presentation currency in the financial statements for compliance with IFRS.
·    We obtained the underlying accounting records for the prior year audited financial statements, which were recorded in the functional currency of GBP and included a translation into USD for presentation purposes.
·    For each prior year financial statement line item in the primary statements and corresponding notes, we re-performed the translation from USD back to GBP and also agreed the resulting GBP amounts to the corresponding functional amounts in the underlying prior year accounting records.
·    We agreed the rates of exchange utilised to an independent source.

No misstatements were identified by our testing which required reporting to those charged with governance.

Other information

The directors are responsible for the other information. The other information comprises all the information included in the Annual Report and Audited Financial Statements but does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.  If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

_________________________________________________________________________________________________

Responsibilities of the directors for the financial statements

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, the requirements of Guernsey law and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

_________________________________________________________________________________________________

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
  • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
  • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the Company and the wider economy
  • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

_________________________________________________________________________________________________

Report on other legal and regulatory requirements

Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:

-    we have not received all the information and explanations we require for our audit;

-    proper accounting records have not been kept; or

-    the financial statements are not in agreement with the accounting records.

We have no exceptions to report arising from this responsibility.

We have nothing to report in respect of the following matters which we have reviewed:

-    the directors’ statement set out below in relation to going concern.  As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the Company has adequate resources to remain in operation, and that the directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Company’s ability to continue as a going concern;

-    the directors’ statement that they have carried out a robust assessment of the principal risks facing the Company and the directors’ statement in relation to the longer-term viability of the Company. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit; and

-    the part of the Corporate Governance Statement relating to the Company’s compliance with the ten further provisions of the UK Corporate Governance Code specified for our review.

This report, including the opinion, has been prepared for and only for the members as a body in accordance with Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose.  We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Evelyn Brady

For and on behalf of PricewaterhouseCoopers CI LLP

Chartered Accountants and Recognised Auditor

Guernsey, Channel Islands

12 July 2019

The maintenance and integrity of the Atlantis Japan Growth Fund Limited website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 Statement of Comprehensive Income
For the financial year ended 30 April 2019

30 April 2019 30 April 2018 (restated*)
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Income
5 Net gains on investments held at fair value through profit or loss - 131 131 - 35,606 35,606
Net (losses)/gains on foreign exchange - (272) (272) - 54 54
Interest income - - - 2 - 2
Dividend income 1,391 - 1,391 1,479 - 1,479
Redemption fee paid to the Company 629 - 629 418 - 418
2,020 (141) 1,879 1,899 35,660 37,559
Expenses
7 Investment management fees (1,103) - (1,103) (1,102) - (1,102)
8 Depositary fees (90) - (90) (89) - (89)
9 Administration fees (142) - (142) (140) - (140)
Registrar and transfer agent fees (9) - (9) (12) - (12)
10 Directors' fees and expenses (132) - (132) (98) - (98)
Insurance fees (5) - (5) (5) - (5)
Audit fees (45) - (45) (39) - (39)
Printing and advertising fees (7) - (7) (38) - (38)
Legal and professional fees (81) - (81) (60) - (60)
Listing fees (29) - (29) (48) - (48)
Miscellaneous expenses (61) - (61) (51) - (51)
(1,704) - (1,704) (1,682) - (1,682)
Finance cost
Interest expense and bank charges (107) - (107) (113) - (113)
Profit/(loss) before taxation 209 (141) 68 104 35,660 35,764
11 Taxation (213) - (213) (226) - (226)
(Loss)/profit for the financial year
(4) (141) (145) (122) 35,660 35,538
Total comprehensive income for the financial year (4) (141) (145) (122) 35,660 35,538
12 Basic and diluted (deficit)/earnings per ordinary share
£0.000  £(0.003)  £(0.003)  £(0.003) £0.743 £0.740

*The comparative Statement of Comprehensive Income has been restated and does not correspond to the Financial Statements for the financial year ended 30 April 2018 (refer to Note 3 for more details).

In arriving at the result for the financial year, all amounts above relate to continuing activities.

The total column in this statement represents the Company’s Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.

The notes below form an integral part of these financial statements.
Statement of Changes in Equity
For the financial year ended 30 April 2019

Accumulated 
Capital Capital Capital other 
Ordinary Share Share Revenue reserve/ reserve/ reserve/ comprehensive
capital premium reserve realised unrealised exchange income Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balances at 1 May 2018 (restated*) - - (20,402) 83,932 63,442 (14,377) 6,143 118,738
Movements during the financial year
19 Redemptions - (10,216) - - - - - (10,216)
15 Shares bought into treasury - - (1,086) - - - - (1,086)
Transfer to capital reserve from share premium - 10,216 - (10,216) - - - -
5 Net realised gains on investments held at fair value through profit or loss - - (4,677) 4,677 - - - -
5 Net unrealised (losses) on investments held at fair value through profit or loss - - 4,546 - (4,546) - - -
Net (losses) on foreign exchange - - 272 - - (272) - -
Total comprehensive income - - (145) - - - - (145)
Balances at 30 April 2019 - - (21,492) 78,393 58,896 (14,649) 6,143 107,291

*The comparative Statement of Changes in Equity has been restated and does not correspond to the Financial Statements for the financial year ended 30 April 2018 (refer to Note 3 for more details).

The notes below form an integral part of these financial statements.

Accumulated 
Capital Capital Capital other 
Ordinary Share Share Revenue reserve/ reserve/ reserve/ comprehensive
capital premium reserve realised unrealised exchange income Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balances at 1 May 2017 (restated*) - - (20,280) 69,229 36,401 (14,431) 6,143 77,062
Movements during the financial year
18 Subscriptions - 14,858 - - - - - 14,858
19 Redemptions - (8,720) - - - - - (8,720)
Transfer to capital reserve from share premium - (6,138) - 6,138 - - - -
5 Net realised gains on investments held at fair value through profit or loss - - (8,565) 8,565 - - - -
5 Net unrealised gains on investments held at fair value through profit or loss - - (27,041) - 27,041 - - -
Net losses on foreign exchange - - (54) - - 54 - -
Total comprehensive income - - 35,538 - - - - 35,538
Balances at 30 April 2018 (restated*) - - (20,402) 83,932 63,442 (14,377) 6,143 118,738

*The comparative Statement of Changes in Equity has been restated and does not correspond to the Financial Statements for the financial year ended 30 April 2018 (refer to Note 3 for more details).

The notes below form an integral part of these financial statements.

Statement of Financial Position
As at 30 April 2019

30 April 2019 30 April 2018 (restated*) 30 April 2017 (restated*)
Notes £'000 £'000 £'000
Non-current assets
16 Investments held at fair value through profit or loss 111,380 121,545 82,377
Current assets
Cash and cash equivalents 2,125 3,364 1,228
Due from brokers 669 662 948
Dividends receivable 398 494 493
Prepaid expenses and other receivables 8 20 16
3,200 4,540 2,685
Current liabilities
Due to brokers (91) (442) (871)
Payables and accrued expenses (265) (250) (183)
13 Loans payable (6,933) (6,655) (6,946)
(7,289) (7,347) (8,000)
Net current liabilities (4,089) (2,807) (5,315)
Non current liabilities - - -
17 Net assets              107,291                 118,738                    77,062
Equity
Ordinary share capital - - -
Share premium - - -
Revenue reserve (21,492) (23,969) (23,847)
Capital reserve 122,640 136,564 94,767
Accumulated other comprehensive income 6,143 6,143 6,143
Net assets attributable to equity shareholders 107,291                 118,738                    77,062
17 Net asset value per ordinary share** £2.42 £2.42 £1.75

*The comparative Statement of Financial Position has been restated and does not correspond to the Financial Statements for the financial year ended 30 April 2018 (refer to Note 3 for more details).

**Based on the Net Asset Value at the financial year end divided by the number of shares in issue: 44,307,284 (30 April 2018: 49,012,128) (30 April 2017: 44,035,676) (See Note 15).

Approved by the Board on 12 July 2019 and signed on its behalf by:

Noel Lamb                       Philip Ehrmann   

Chairman                    Director   

The notes below form an integral part of these financial statements.

Statement of Cash Flows
For the financial year ended 30 April 2019

30 April 2019 30 April 2018 (restated*)
£'000 £'000
Notes
Cash flows from operating activities
Profit before taxation 68 35,764
Adjustments to reconcile profit before taxation to net cash flows from operating activities
5 Net realised gains on investments held at fair value through profit or loss (4,677) (8,565)
5 Net unrealised losses/gains on investments held at fair value through profit or loss 4,546 (27,041)
Net realised and unrealised losses/gains on loan 278 (291)
Interest expense and bank charges 107 113
(Increase)/decrease in due from brokers (7) 286
Decrease/(increase) in dividends receivable 96 (1)
Decrease/(increase) in prepaid expenses and other receivables 12 (4)
Decrease in due to brokers (351) (429)
Increase in payables and accrued expenses 15 67
11 Taxation paid (213) (226)
(126) (327)
Purchase of investments (58,231) (75,939)
Sale of investments 68,527 72,377
10,296 (3,562)
Net cash inflow/(outflow) from operating activities 10,170 (3,889)
Cash flows from financing activities
Interest paid (107) (113)
18 Subscriptions - 14,858
19 Redemptions (10,216) (8,720)
15 Shares bought into treasury (1,086) -
Net cash (outflow)/inflow from financing activities (11,409) 6,025
Net (decrease)/increase in cash and cash equivalents (1,239) 2,136
Cash and cash equivalents at beginning of financial year 3,364 1,228
Cash and cash equivalents at end of financial year 2,125 3,364

*The comparative Statement of Cash Flows has been restated and does not correspond to the Financial Statements for the financial year ended 30 April 2018 (refer to Note 3 for more details).

** The portfolio turnover ratio is 52.8%.

The notes below form an integral part of these financial statements.

Notes to the Financial Statements
For the financial year ended 30 April 2019

1.    GENERAL INFORMATION

    Atlantis Japan Growth Fund Limited (the “Company”) was incorporated in Guernsey on
13 March 1996. The Company commenced activities on 10 May 1996. The Company is an authorised closed-ended investment scheme registered and domiciled in P.O. Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL, Channel Islands. The Company’s equity shares are traded on the London Stock Exchange.

    As an investment trust, the Company is not regulated as a collective investment scheme by the Financial Conduct Authority. However, it is subject to the UKLA Listing Rules, Prospectus Rules, Disclosure Guidance and Transparency Rules and the rules of the London Stock Exchange.

    The Company’s investment objective is to achieve long term capital growth through investing wholly or mainly in listed Japanese equities.

The Company’s investment activities are managed by Quaero Capital LLP (“Investment Manager”) with the administration delegated to Northern Trust International Fund Administration Services (Guernsey) Limited.

2.    SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the financial years presented, unless otherwise stated.

a) Basis of preparation

The Financial Statements of the Company have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”). The Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of investments held at fair value through profit or loss, and in accordance with the Association of Investment Companies (“AIC”) Statement of Recommended Practice (“SORP”) for Investment Trust Companies and Venture Capital Trusts to the extent it is not in conflict with IFRS and the Company’s Principal Documents.

The preparation of the Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. As at the financial year ended 30 April 2019, the Company, being solely invested in listed equities, did not hold any investment requiring the use of significant estimates to determine their value. There were no other significant estimates for the financial year ended 30 April 2019.

The significant accounting policies adopted are consistent with those of the previous financial year with the exception of the following standard amendments effective for the current financial year.

Critical Judgements

The Board consider GBP the currency that most faithfully represents the economic effect of the underlying transactions, events and conditions. GBP is the currency in which the Company measures its performance, as well as the currency in which it receives subscriptions from its investors. This determination also considers the competitive environment in which the Company is compared to other European investment products. The presentation currency for these financial statements is GBP. For further information on the change in presentation currency please see note 3.

Accounting standards in issue and effective for the first time in these financial statements

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2018, and have been applied in preparing these Financial Statements. Those that the Directors consider relevant to the Company are detailed in the following sections.

IFRS 9, ‘Financial Instruments’

IFRS 9 “Financial Instruments: Classification and Measurement” is effective for annual reporting periods beginning on or after 1 January 2018 and has been adopted by the Company in these financial statements. IFRS 9 replaces the multiple classification and measurement models in IAS 39 Financial instruments: Recognition and measurement with a single model that has three classification categories: amortised cost, fair value through other comprehensive income and fair value through profit and loss.

The measurement and classification requirements have not had a significant impact on the Financial Statements since the Company’s financial assets and liabilities are valued at fair value through profit or loss.

A financial asset is measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets are measured at fair value. Derivative and equity instruments are measured at fair value through profit and loss unless, for equity instruments not held for trading, an irrevocable option is taken to measure at fair value through other comprehensive income (without subsequent recycling to profit and loss).

Classification and measurement of debt assets is driven by the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. A debt instrument is measured at amortised cost if the objective of the business model is to hold the financial asset for the collection of the contractual cash flows and the contractual cash flows under the instrument solely represent payments of principal and interest (SPPI). A debt instrument is measured at fair value through other comprehensive income if the objective of the business model is to hold the financial asset both to collect contractual cash flows from SPPI and to sell. All other debt instruments must be recognised at fair value through profit or loss. An entity may however, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency.

A financial liability is classified as at fair value through profit or loss if it is a derivative and equity instruments are measured at fair value through profit or loss unless, for equity instruments not held for trading, or it is designated as such on initial recognition.

IFRS 9 also introduces a new expected credit loss (“ECL”) model which involves a three-stage approach whereby financial assets move through the three stages as their credit quality changes. The stage dictates how an equity measures impairment losses and applies the effective interest rate method. On initial recognition, entities will record a day-1 loss equal to the 12 month ECL, unless the assets are considered credit impaired. There was no material impact on the adoption of the new impairment model.

The adoption of IFRS 9 was applied retrospectively and did not result in a change to the classification or measurement of financial instruments. Comparative numbers were therefore not required to be restated.

IFRS 15 ‘Revenue from contracts with customers’

IFRS 15 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts, and establishes a five step model to account for revenue arising from contracts with customers. In addition, guidance on interest and dividend income has been removed from IAS 18 to IFRS 9 without significant changes to the requirements. Therefore, there is no significant impact of adopting IFRS 15 for the Company.

Accounting standards in issue that are not yet effective and have not been early adopted

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2019, and have not been early adopted in preparing these financial statements. None of these standards have been early adopted and are not expected to have a material effect on the financial statements of the Company.

b) Going concern

The Financial Statements have been prepared on a going concern basis in line with the Directors’ belief that it is appropriate to assume that the Company will continue in business. Please note that a continuation vote is to be held at the AGM on 12 September 2019 and as the outcome is not yet known, some uncertainty exists as to the going concern basis.

    c) Presentation of the Statement of Comprehensive Income

    In order to better reflect the activities of an investment trust company, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income.

d) Income recognition

    Dividend income arising on the Company’s investments is accounted for gross of withholding tax on an ex-dividend basis or when the right to receive payment is established.

    e) Expenses

    All expenses are recognised in the Statement of Comprehensive Income on an accruals basis.

f) Investments held at fair value through profit or loss

(i)    Classification and Measurement

The Company classifies its investments based on both the Company’s business model for managing those financial assets and the contractual cash flow characteristics of those financial assets. The portfolio of the financial assets is managed and performance is evaluated on a fair basis. The Fund is primarily focused on fair value information and uses that information to assess the assets’ performance and to make decisions.

The Company classifies its entire investment portfolio as financial assets or liabilities as fair value through profit or loss. This includes forward currency contracts of which none were held at financial year end. All financial assets are mandatorily measured as at fair value through profit or loss with no assets being designated.

The Company’s policy requires the Investment Manager and the Directors to evaluate the information about these financial assets and liabilities on a fair value basis together with other related financial information.

(ii)    Recognition and Measurement 

Investments are initially recognised at the trade date of purchase. They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the Statement of Comprehensive Income, and allocated to the capital column of the Statement of Comprehensive Income at the time of acquisition).   

Investments are de-recognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

Gains and losses on investments are included in the Statement of Comprehensive Income as capital.

(iii) Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets and liabilities traded in active markets (such as transferable securities and financial derivative instruments traded publicly) are based on quoted market prices at the close of trading on the reporting date.

If a quoted market price is not available on a recognised stock exchange or from a broker/dealer for non-exchange traded financial instruments, the fair value of the instrument is estimated using valuation techniques, including use of recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow techniques, option

pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions.

The fair value of financial derivative instruments, that are not exchange-traded, is estimated at the amount that the Company would receive or pay to terminate the contract at the reporting date, taking into account current market conditions (volatility, appropriate yield curve) and the current creditworthiness of the counterparties. Realised gains and losses on investment disposals are calculated using the weighted average cost method.

g) Due from and due to brokers

Amounts due from and to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the Statement of Financial Position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

At each reporting date, the Company shall measure the loss allowance on the amounts due from broker at an amount equal to the lifetime expected credit losses if the credit risk has been increased significantly since initial recognition. If, at the reporting date, the credit risk has not increased significantly since initial recognition, the Company shall measure the loss allowance at an amount equal to 12 month expected credit losses. Significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are all considered indicators that a loss allowance may be required. If the credit risk increases to the point that it is considered to be credit impaired interest income will be calculated based on the gross carrying amount adjusted for the loss allowance. A significant increase in credit risk is defined by management as any contractual payment which is more than 30 days past due. Any contractual payment is more than 90 days past due is considered credit impaired.

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

h) Other receivables

Other receivables are amounts due in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

    i) Cash and cash equivalents

    Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents, as defined above, net of outstanding bank overdrafts.

IAS 7 requires disclosures that:

·    Enable users of the financial statements to evaluate changes in liabilities arising from financing activities; and

·    Provide a reconciliation of the opening and closing balances of liabilities arising from financing activities in the statement of financial position is suggested although not mandatory.

These requirements have been met as part of the Statement of Changes in Equity for share capital transactions attributable to holders of ordinary shares and Note 13 (Loans Payable).

j) Other payables and accrued expenses

Other payables and accrued expenses are obligations to pay for services that have been acquired in the ordinary course of business. Other payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

k) Loans payable

All loans are initially recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account discount or premium on settlement. Any costs of arranging any interest-bearing loans are capitalised and amortised over the life of the loan.

The Company’s loans are denominated in JPY. Gains and losses on foreign exchange on loans are included in the Statement of Comprehensive Income as capital.

l) Foreign currencies

    The Company’s investments are predominately denominated in JPY. The Company’s obligation to shareholders is denominated in GBP and, when appropriate, the Company may hedge the exchange rate risk from JPY to GBP. Therefore, the Company’s functional currency is GBP. The Company’s presentation currency is GBP.

    At each Statement of Financial Position date, assets and liabilities, which are denominated in foreign currencies, are translated into the functional currency at the closing rates of exchange. Transactions involving currencies other than the functional currency are recorded at the exchange rates prevailing on the dates of the transactions. Resulting exchange differences are recognised in profit or loss in the Statement of Comprehensive Income.

Foreign exchange gains and losses relating to cash and cash equivalents are presented in the Statement of Comprehensive Income within “Net gains/(losses) on foreign exchange”.

    Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are presented in the Statement of Comprehensive Income within “Net gains/(losses) on foreign exchange”.

    m) Taxation

    The tax expense represents the sum of the tax currently payable and deferred tax. In addition, the Company incurs withholding taxes imposed by certain countries on dividend and interest income. Such income is recognised gross of the taxes and the corresponding withholding tax is recognised as a tax expense. 

The tax currently payable is based on the taxable profit for the financial year. Any taxable profit differs from the net profit, if any, as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

The Company’s liability for current tax is calculated using tax rates that were applicable at the Statement of Financial Position date.

In line with the recommendations of the AIC SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Statement of Comprehensive Income is the “marginal basis”.

Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement of Comprehensive Income, then no tax relief is transferred to the capital return column.

    Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. A deferred tax liability is recognised in full for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval as such under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains.

    The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

    n) Capital reserve

The capital reserve distinguishes between gains/(losses) on sale or disposals and valuation gains/(losses) on investments. The capital reserve consists of realised gains/(losses) on investments, movement in valuation of gains/(losses) on investments and gains/(losses) relating to foreign exchange.

o) Treasury shares

Where the Company purchases its own share capital (whether into treasury or cancellation), the consideration paid, which includes any directly attributable costs (net of income taxes), is recognised as a deduction from equity shareholders’ funds through the revenue reserve, which is a distributable reserve.

When such shares are subsequently sold or reissued, the consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is recognised as an increase in equity and proceeds from the reissue of treasury shares are transferred to/from the revenue reserve.

Shares held in treasury are not taken into account in determining earnings per share detailed in Statement of Comprehensive Income and NAV per share detailed in Note 17.

p) Offsetting of financial assets and liabilities

Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

q) Ordinary shares

The Company’s ordinary shares are redeemable in the capital of the Company at no par value and are classified as equity in accordance with the Company's Articles of Incorporation.

r) Subscriber shares

The Company's subscriber shares are classified as equity in accordance with the Company's Articles of Incorporation. These shares do not participate in the profits of the Company. For more information please see note 15.

3.    CHANGE IN ACCOUNTING POLICY AND PRESENTATION CURRENCY

For the financial year ended 30 April 2019, the Directors resolved to change the Company's presentation currency from USD to GBP in order to conform the presentation currency with the functional currency. The Company is traded on the London Stock Exchange in GBP and the change will bring the Company into line with the other companies in its peer group. The Company believes this will lead to more reliable and relevant comparison for users.

The change of presentation currency is applied retrospectively for the 2017 and 2018 comparative figures. Assets and liabilities were translated into GBP at the relevant closing rates of exchange. Trading results in the Statement of Comprehensive Income (“SOCI”) were translated into GBP at the relevant average rates of exchange.  Share capital, share premium and other reserves were translated at the historical rates prevailing at the dates of transactions. The cumulative foreign currency translation reserve is set to nil. The relevant exchange rates used are disclosed in note 22.

4.    OPERATING SEGMENTS

The Board makes the strategic resource allocations on behalf of the Company and is responsible for the Company’s entire portfolio. The Board is of the opinion that the Company is engaged in a single geographic and economic segment business. The asset allocation decisions are based on a single, integrated investment strategy, and the Company’s performance is evaluated on an overall basis.

The internal reporting provided to the Directors for the Company’s assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of IFRS.

The fair value of the financial instruments held by the Company and the equivalent percentages of the total value of the Company are reported in the Schedule of Investments below.

5.    NET GAINS ON INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS

30 April 2019 30 April 2018 (restated*)
£'000 £'000
Realised gains on investments held at fair value through profit or loss                 10,075                11,145
Realised losses on investments held at fair value through profit or loss (5,398) (2,580)
Net realised gains on investments held at fair value through profit or loss 4,677 8,565
Unrealised gains on investments held at fair value through profit or loss 12,844 31,568
Unrealised losses on investments held at fair value through profit or loss (17,390) (4,527)
Net unrealised (losses)/gains on investments held at fair value through profit or loss (4,546) 27,041
Net gains on investments held at fair value through profit or loss 131 35,606

*Please see note 3 for further details

6.        RELATED PARTY DISCLOSURES

The Investment Manager, Investment Adviser, Depositary, Administrator and Directors are considered related parties to the Company under IAS 24 as they have the ability to control, or exercise significant influence over, the Company in making financial or operational decisions. See Notes 7 to 10 for details of transactions with these related parties during the financial year ended 30 April 2019.

Certain Directors had a beneficial interest in the Company by way of their investment in the ordinary shares of the Company.

The details of these interests as at 30 April 2019 and 30 April 2018 are as follows:

Ordinary Shares Ordinary Shares
30 April 2019 30 April 2018
Noel Lamb 14,400 14,400
Richard Pavry                            40,000 40,000
Philip Ehrmann                            28,800 28,800
Michael Moule                            20,000 16,000

The above interests of the Directors were unchanged as at the date of this report.

As at 30 April 2019, a family member of the President of the Investment Adviser held 900,800 (30 April 2018: 900,800) ordinary shares of the Company.

7.    INVESTMENT MANAGEMENT AND INVESTMENT ADVISER FEES

Under the terms of the Investment Management Agreement, the Investment Manager, Quaero Capital LLP, will continue in office until a resignation is tendered or the contract is terminated. In both circumstances, a resignation or termination must be given with a notice period which must not be less than three months, and be in accordance with the Investment Management Agreement.

The Company pays to the Investment Manager a fee accrued daily and paid monthly in arrears at the annual rate of 1% of the weekly NAV of the Company.

The Investment Adviser Fees are 75% of the total Investment Management Fees and are paid by the Investment Manager.

Redemption pool investment management fees

The Investment Manager shall also be entitled to receive a fee from the Company of 1% per annum of the daily NAV of any redemption pool together with transaction charges.

For the financial year ended 30 April 2019, total investment management fees were £1,102,738 (30 April 2018: £1,101,805), of which £92,390 (30 April 2018: £104,797) is due and payable as at that date. Of the total investment management fees, £275,684 (30 April 2018: £275,451) was due to the Investment Manager, with £23,097 (30 April 2018: £26,199) payable as at 30 April 2019.

For the financial year ended 30 April 2019, total investment adviser fees were £827,054 (30 April 2018: £826,354), with £69,293 (30 April 2018: £78,598) payable as at 30 April 2019.

8.    DEPOSITARY FEES

Under the terms of the Depositary Agreement, fees are payable to the Depositary, Northern Trust (Guernsey) Limited, monthly in arrears, on the Gross Asset Value (Net Asset Value before investment management fees) of the Company as at the last business day of the month at an annual rate of:

Gross Asset Value Annual Rate
Up to $50,000,000 0.035%
$50,000,001 to $100,000,000 0.025%
Thereafter 0.015%

The Depositary is also entitled to a global custody fee of 0.03% per annum of the NAV of the Company, subject to a minimum fee of $20,000, and transaction fees as per the Depositary Agreement.

Redemption pool depositary fees

The Depositary shall also be entitled to receive a fee from the Company of the Gross Asset Value of any redemption pool, together with transaction charges, at an annual rate of:

Gross Asset Value Annual Rate
Up to $25,000,000 0.035%
$25,000,001 to $50,000,000 0.025%
Thereafter 0.015%

For the financial year ended 30 April 2019, total depositary fees were £89,743 (30 April 2018: £89,368), of which £11,791 (30 April 2018: £10,893) was due and payable as at that date.

9.    ADMINISTRATION FEES

Under the terms of the Administration Agreement, the Company pays to the Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited, a fee accrued weekly and paid monthly in arrears at the annual rate of:

NAV Annual Rate
Up to $50,000,000 0.18%
$50,000,001 to $100,000,000 0.135%
$100,000,001 to $200,000,000 0.0675%
Thereafter 0.02%

Redemption pool administration fees

At each redemption date a charge in respect of the preparatory work for the set-up and calculation of investment and redemption prices of £7,500 will be payable.

An additional fee will be payable on the fair value of the assets of that redemption pool of:

NAV Annual Rate
Up to $25,000,000 0.18%
$25,000,001 to $50,000,000 0.135%
Thereafter 0.0675%

For the financial year ended 30 April 2019, total administration fees were £141,937 (30 April 2018: £139,884), of which £23,605 (30 April 2018: £27,633) was due and payable as at that date.

10.     DIRECTORS’ FEES AND EXPENSES

Each of the Directors is entitled to receive a fee from the Company, being £33,000 per annum for the Chairman (£30,000  per  annum  prior  to  6  July  2018),  £28,500  per  annum  for  the  Chairman  of  the  Audit  Committee (£27,500 per annum prior to 6 July 2018) and £26,000 per annum for each of the other Directors (£25,000 per annum  prior  to  6  July  2018). In addition, the Company reimburses all reasonably incurred out-of-pocket expenses of the Directors. 

For the financial year ended 30 April 2019, total directors’ fees and expenses were £131,510 (30 April 2018: £97,720), of which £3,162 (30 April 2018: £9,317) was due and payable as at that date.   

11.    TAXATION

The Company is exempt from taxation in Guernsey under the provisions of The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and has paid an annual exemption fee of £1,200 (30 April 2018: £1,200), however the Company is subject to UK tax being a UK tax resident to comply with the Section 1158 of the Corporation Tax Act 2010. The main rate of corporation tax in the UK was 19% effective from 1 April 2017.

30 April 2019 30 April 2018 (restated*)
£'000 £'000
Irrecoverable overseas tax 213 226
Tax charge in respect of the current year 213 226

Current taxation

The current taxation charge for the financial year is different from the standard rate of corporation tax in the UK. The differences are explained in the following table:

30 April 2019 30 April 2018 (restated*)
£'000 £'000
Profit before tax 68 35,764
Capital loss/(profit) for the financial year 141 (35,660)
Revenue profit for the financial year 209 104
30 April 2019 30 April 2018 (restated*)
£'000 £'000
Theoretical tax at UK corporation tax rate of 19% (30 April 2018 -19%) 40 20
Effects of:
Excess management expenses 1 23
Notional relief for overseas tax suffered (41) (43)
Overseas tax written off 213 226
Actual current tax charge 213 226

*Please see note 3 for further details

The Company is an investment trust and therefore is not taxable on capital gains.

Factors that may affect future tax charges

    As at 30 April 2019, the Company has excess management expenses of £24,085,708 that are available to offset future taxable revenue. Whilst this represents management’s best estimate based on the carried forward balance in the previous financial year of £24,231,069 the estimated value could differ from actual amounts. However, the potential impact is not expected to be significant.

A deferred tax asset has not been recognised in respect of these amounts as they will be recoverable only to the extent that there is sufficient future taxable revenue.

12.    BASIC AND DILUTED EARNINGS/(DEFICIT) PER ORDINARY SHARE

The basic and diluted earnings/(deficit) per ordinary share figure is based on dividing the loss for the financial year of £144,406 (30 April 2018: profit of £35,538,334) by the weighted average number of shares in issue during the financial year ended 30 April 2019, being 47,161,422 (30 April 2018: 48,002,848).

30 April  2019 30 April 2018 (restated*)
£'000 £'000
Net revenue loss (4) (122)
Net capital (loss)/profit (141) 35,660
Net total (loss)/profit (145) 35,538
Weighted average number of ordinary shares
in issue during the financial year 47,161,422 48,002,848
£ £
Revenue loss per ordinary share - (0.003)
Capital (loss)/profit per ordinary share (0.003) 0.743
Total (loss)/profit per ordinary share (0.003) 0.740

*Please see note 3 for further details

The revenue loss per ordinary share and capital profit per ordinary share figure is based on the net revenue loss for the financial year of £3,814 (30 April 2018: loss of £121,847), the net capital loss of £140,592 (30 April 2018: profit of £35,660,181) respectively and 47,161,422 being the weighted average number of shares in issue during the financial year ended 30 April 2019 (30 April 2018: 48,002,848).

13.    LOANS PAYABLE

Interest Maturity  30 April 2019  30 April 2018 (restated*)
Loan Amount Rate Date £'000 £'000
3 year committed variable rate
credit facility
¥   1,000,000,000 1.12% 7 June 2019 6,933 -
¥   1,000,000,000 1.14% 6 June 2018 - 6,655
Loan due for repayment within one year 6,933 6,655

 *Please see note 3 for further details

The credit facility is provided by Royal Bank of Scotland International Limited (“RBSI”).  As at 30 April 2019, the Company had drawn down ¥1,000,000,000/£6,932,729 (30 April 2018: ¥1,000,000,000/£6,654,718) of the ¥1,500,000,000 borrowable under the terms of the facility agreement.

Under the terms of the facility agreement, the Company is required to comply with the following financial covenants:

-    the Company’s portfolio must contain at least 60 investments, of which at least 50 must be in investments quoted on the Tokyo Stock Exchange or any other equivalent exchange approved by RBSI, at all times;

-    the amount of the credit facility drawn down must not exceed 25% of the value of the Company’s portfolio at any time; and

-    the Company’s NAV must not fall below $58,800,000 at any time.

The Company complied with all of the above the financial covenants during the financial years ended 30 April 2019 and 30 April 2018.

(Losses)/gains on foreign exchange on the Company’s loan amounted to £278,240 loss during the financial year ended 30 April 2019 (30 April 2018: £291,335 gain).

14.    FORWARD CURRENCY CONTRACTS

There were no forward currency contracts held during the financial year ended 30 April 2019 (30 April 2018: None).

15.    SHARE CAPITAL AND SHARE PREMIUM

           Authorised

The Company is authorised to issue an unlimited number of ordinary shares of no par value. The Company has issued two subscriber shares for the purposes of incorporation of the Company. The subscriber shares do not participate in the profits of the Company.

The Company may also issue C shares being a convertible share in the capital of the Company of no par value. C shares shall not have the right to attend or vote at any general meeting of the Company. The holders of C shares of the relevant class shall be entitled, in that capacity, to receive a special dividend of such amount as the Directors may resolve to pay out of the net assets attributable to the relevant C share class and from income received and accrued attributable to the relevant C share class for the period up to the conversion date payable on a date falling before, on or after the conversion date as the Directors may determine. There are no C shares currently in issue.

The rights which the ordinary shares confer upon the holders thereof are as follows:

Voting rights

On a show of hands, every member who is present shall have one vote and, on a poll, a member present in person or by proxy shall be entitled to one vote per ordinary share held.

Entitlement to dividends

The Company may declare dividends in respect of the ordinary shares. Treasury shares do not confer an entitlement to any dividends declared.

Rights in a winding-up

The holders of ordinary shares will be entitled to share in the NAV of the Company as determined by the Liquidator.

Issued ordinary shares

Number of Shares Share Capital Share Premium
£'000 £'000
In issue at 30 April 2019 44,307,284 - -
In issue at 30 April 2018 49,012,128 - -

   

Number of Shares Number of Shares
30 April 2019 30 April 2018
Shares of no par value
Issued shares at the start of the financial year 49,012,128 44,139,050
Subscription of shares - 8,598,577
Redemption of shares (4,204,844) (3,725,499)
Purchase of shares into treasury (500,000) -
Number of shares at the end of the financial year 44,307,284 49,012,128
Shares held in treasury
Opening balance 3,874,186 3,874,186
Shares bought into treasury during the financial year 500,000 -
Number of shares at the end of the financial year 4,374,186 3,874,186

During the financial year ended 30 April 2019, there was £1,085,700 purchase of shares into treasury (30 April 2018: £Nil).

Shareholders are entitled to receive any dividends or other distributions out of profits lawfully available for distribution and on winding up they are entitled to the surplus assets remaining after payment of all the creditors of the Company. The shares redeemed in the current financial year were cancelled immediately.

16.    FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

In accordance with its investment objective and policies, the Company holds financial instruments which at any one time may comprise the following:

-    securities held in accordance with the investment objective and policies;

-    cash and cash equivalents and short-term receivables and payables arising directly from operations;

-    loans used to finance investment activity; and

-    derivative instruments for the purposes of efficient portfolio management only.

The financial instruments held by the Company principally comprise equities listed on the stock markets in Japan, including, without limitation, the Tokyo Stock Exchange categorised as First Section, Second Section, JASDAQ, Mothers and Tokyo PRO, or the regional stock exchanges of Fukuoka, Nagoya, Sapporo and Osaka Securities Exchange.

The specific risks arising from the Company's exposure to these instruments, and the Investment Manager/Investment Adviser's policies for managing these risks, which have been applied throughout the financial year, are summarised below.

Capital management

The Company’s objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.   

The Company may not borrow or otherwise use leverage exceeding 20% of its net assets for investment purposes, to settle facilities for specific investments, such as bridge financing. In connection with the facility agreement, the Company has entered into an English law, multicurrency, and revolving credit facility with RBSI (see Note 13).

The Company does not have any externally imposed capital requirements apart from the fact that it should not retain more than 15% of income, in order to comply with Section 1158 of Corporation Tax Act 2010. The Company has complied with this requirement.

The Company is a closed-ended investment company. The Company’s capital is represented by ordinary shares of no par and each share carries one vote. They are entitled to dividends when declared. 

500,000 shares were repurchased into treasury during the financial year ended 30 April 2019 (30 April 2018: None). See Note 19 for details of shares redeemed via the redemption facility mechanisms. The Company discontinued the subscription rights mechanism on 23 November 2017.

Market risk

The Company's investment portfolio - particularly its equity investments - is exposed to market price fluctuations which are monitored by the Investment Manager/Investment Adviser in pursuance of the investment objective and policies.

At 30 April 2019, the Company’s market price risk is affected by three main components: changes in market prices, currency exchange rates and interest rate risk. Currency exchange rate movements and interest rate movements, which are dealt with under the relevant headings below, primarily affect the fair values of the Company’s exposures to equity securities, related derivatives and other instruments. Changes in market prices primarily affect the fair value of the Company’s exposures to equity securities, related derivatives and other instruments.

Exceptional risks associated with investment in Japanese smaller companies may include:

-    greater price volatility, substantially less liquidity and significantly smaller market capitalisation; and

-    more substantial government intervention in the economy, including restrictions on investing in companies or in industries deemed sensitive to relevant national interests. 

Market price sensitivity analysis

If the price of each of the equity securities to which the Company had exposure at 30 April 2019 had increased or decreased by 5% with all other variables held constant, this would have increased or decreased profit and net assets attributable to equity shareholders of the Company by: 

30 April 2019 30 April 2018 (restated*)
+/- +/-
NAV £5,568,995 £6,077,236
NAV per share £0.13 £0.12
Total comprehensive income £5,568,995 £6,077,236
Earnings per share £0.13 £0.12

*Please see note 3 for further details

Foreign currency risk

The Company principally invests in securities denominated in currencies other than GBP, the functional currency of the Company. Therefore, the Statement of Financial Position will be affected by movements in the exchange rates of such currencies against the GBP. The Investment Manager/Investment Adviser has the power to manage exposure to currency movements by using forward currency contracts. No such instruments were held as at 30 April 2019.

It is not the present intention of the Directors to hedge the currency exposure of the Company, but the Directors reserve the right to do so in the future if they consider this to be desirable. 

The treatment of currency transactions other than in GBP is set out in Note 2(l) to the Financial Statements.

As at 30 April 2019, the Company has a USD cash exposure in GBP terms of £8,126 (30 April 2018: £7,654).

The Company's net JPY exposure in GBP terms is set out in the following table:

As at 30 April 2019
£'000
Assets
Investments held at fair value through profit or loss                     111,380
Due from brokers                            669
Dividends receivable                            398
Cash and cash equivalents                         2,074
Total assets                     114,521
Liabilities
Due to brokers                            (91)
Payables and accrued expenses                              (1)
Loans payable                       (6,933)
Total liabilities (7,025)
Total net assets 107,496
As at 30 April 2018 (restated*)
£'000
Assets
Investments held at fair value through profit or loss                     121,545
Due from brokers                            662
Dividends receivable 494
Cash and cash equivalents                         2,932
Total assets                     125,633
Liabilities
Due to brokers (442)
Payables and accrued expenses (12)
Loans payable (6,655)
Total liabilities (7,109)
Total net assets 118,524

*Please see note 3 for further details

Foreign currency sensitivity analysis

If the exchange rate at 30 April 2019, between the functional currency and all other currencies had increased or decreased by a 5% currency movement with all other variables held constant, this would have increased or reduced profit and net assets attributable to equity shareholders of the Company by:

30 April 2019 30 April 2018 (restated*)
+/- +/-
NAV £5,374,646 £5,926,597
NAV per share £0.12 £0.12
Total comprehensive income £5,374,646 £5,926,597
Earnings per share £0.12 £0.12

*Please see note 3 for further details

No benchmark is used in the calculation of the above information. The only foreign currency the Company has a significant exposure to is JPY, hence the above foreign currency sensitivity analysis has not been disclosed on a currency by currency basis.  

Interest rate risk

Substantially all the Company’s assets and liabilities are non-interest bearing except for the one outstanding loan payable detailed in Note 13, and any excess cash and cash equivalents are invested at short-term market interest rates.

As at 30 April 2019, the Company has a small exposure to interest rate risk regarding the loan facility and cash and cash equivalents. 

Increases in interest rates may increase the costs of the Company's borrowings. The rate of interest on each RBSI drawdown loan for each interest period is the percentage rate per annum which is the aggregate of the applicable (i) margin, (ii) LIBOR and (iii) mandatory cost. Interest on the loan is payable on the last day of each interest period. As at 30 April 2019, the interest accrued on the loan was £11,698 (30 April 2018: £11,217).

The following assets and liabilities disclosures exclude prepayments and taxation receivables and payables:

Less than 1 month to
1 month 1 year Total
As at 30 April 2019 £'000 £'000 £'000
Financial assets
Cash and cash equivalents 2,125 - 2,125
Financial liabilities
Loans payable - (6,933) (6,933)
Net financial assets/(liabilities) 2,125 (6,933) (4,808)

   

Less than 1 month to
1 month 1 year Total
As at 30 April 2018 (restated*) £'000 £'000 £'000
Financial assets
Cash and cash equivalents 3,364 - 3,364
Financial liabilities
Loans payable - (6,655) (6,655)
Net financial assets/(liabilities) 3,364 (6,655) (3,291)

*Please see note 3 for further details

The cash flow interest rate risk comprises those assets and liabilities with a floating interest rate, for example cash deposits at local market rates. Cash and cash equivalents earn interest at the prevailing market interest rate. Although this portion of the NAV is not subject to fair value risk as a result of possible fluctuations in the prevailing market interest rates, the future cashflows of the Company could be adversely or positively impacted by decreases or increases in those prevailing market interest rates.

The fair value interest rate risk comprises those assets and liabilities with a fixed interest rate, for example loans payable and loan interest payable.

Weighted average Weighted average period for
interest rate which rate is fixed (years)
2019 2018 2019 2018
JPY
Loans payable 1.14% 1.14% 0.11 0.11

Fair value

All assets and liabilities are carried at fair value with the exception of cash and cash equivalents, which are carried at amortised cost, and loans payable, which are carried at amortised cost using the effective interest rate method.

Short term receivables and payables

Receivables and payables do not carry interest and are short term in nature. They are stated at amortised cost, as reduced by appropriate allowances for irrecoverable amounts in the case of receivables.

Liquidity risk

Liquidity risk is the risk that the Company will encounter in realising assets or otherwise raising funds to meet financial commitments.

As at 30 April 2019, the Company had drawn down a loan facility of ¥1,000,000,000/£6,932,799 (30 April 2018:¥1,000,000,000/£6,654,718). In connection with the facility agreement, the Company has entered into an English law, multicurrency, and revolving credit facility with RBSI.

The loan may be used for the following purposes:

-    the acquisition of investments in accordance with the investment policy;

-    its working capital requirements in the ordinary course of business; and

-    funding permitted redemptions which in each case will be repaid other than by way of rollover loan within 30 days of the relevant drawing.

The loan must be repaid on the last day of its interest period.

The Company invests primarily in listed securities which are liquid in nature.

The Company’s liquidity risk is managed by the Investment Manager who monitors the cash positions on a regular basis.

The maturity analysis of the Company’s financial liabilities (excluding tax balances) is set out in the following table:

Up to 1 year 1 to 5
or on demand years Total
As at 30 April 2019 £'000 £'000 £'000
Financial liabilities
Loans payable (6,933) - (6,933)
Other financial liabilities (356) - (356)
Total financial liabilities (7,289) - (7,289)
Up to 1 year 1 to 5
or on demand years Total
As at 30 April 2018 (restated*) £'000 £'000 £'000
Financial liabilities
Loans payable (6,655) - (6,655)
Other financial liabilities (692) - (692)
Total financial liabilities (7,347) - (7,347)

*Please see note 3 for further details

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.

In accordance with the investment restrictions as described in its prospectus and investment policy, the Company may not invest more than 10% of the Company’s gross assets in securities of any one company or issuer. However, this restriction shall not apply to securities issued or guaranteed by a government or government agency of the Japanese or US Governments. In adhering to these investment restrictions, the Company mitigates the risk of any significant concentration of credit risk arising on broker and dividend receivables.

As the Company invests primarily in publicly traded equity securities the Company is not exposed to credit risk from these positions. However, the Company will be exposed to a credit risk on parties with whom it trades and will bear the risk of settlement default. The Company minimises concentrations of credit risk by undertaking transactions with a number of regulated counterparties on recognised and reputable exchanges. All transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has made payment. Payment is made on a purchase once the securities have been received from the broker. The trade will fail if either party fails to meet its obligation. The Company is exposed to credit risk on cash and investment balances held with the Depositary. The Investment Manager regularly reviews concentrations of credit risk.

All of the cash assets are held with the Northern Trust Company (“NTC”). Cash deposited with NTC is deposited as banker and is held on its Statement of Financial Position. Accordingly, in accordance with usual banking practice, NTC’s liability to the Company in respect of such cash deposits shall be that of debtor and the Company will rank as a general creditor of NTC. The financial assets are held with the Depositary, Northern Trust (Guernsey) Limited.

These assets are held distinct and separately from the proprietary assets of the Depositary. Securities are clearly recorded to ensure they are held on behalf of the Company.

Bankruptcy or insolvency of the Depositary and, or one of its agents or affiliates may cause the Company’s rights with respect to the securities held by the Depositary to be delayed or limited.  

NTC is a wholly owned subsidiary of Northern Trust Corporation. As at 30 April 2019 Northern Trust Corporation had a long term rating from Standard & Poor’s of A+. Risk is managed by monitoring the credit quality and financial positions of the Depositary the Company uses. Northern Trust acts as its own sub-depositary in the US, the UK, Ireland and Canada. In all other markets Northern Trust appoints a local sub-depositary. Northern Trust continually reviews its sub-depositary network to ensure clients have access to the most efficient, creditworthy and cost-effective provider in each market.

The securities held by the Company are legally held with the Depositary, which holds the securities in segregated accounts, and subject to any security given by the Company to secure its overdraft facilities, the Company’s securities should be returned to the Company in the event of the insolvency of the Depositary or its appointed agents, although it may take time for the Company to prove its entitlement to the securities and for them to be released by the liquidator of the insolvent institution.  The Company will however only rank as an unsecured creditor in relation to any cash deposited or derivative positions with the Depositary, their related companies and their appointed agents, and is therefore subject to the credit risk of the relevant institution in this respect.

The assets exposed to credit risk at financial year end amounted to £2,124,673 (30 April 2018: £3,363,694).

Fair value hierarchy

The fair value of investments traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the Statement of Financial Position date. The quoted market price used for investments held by the Company is the last traded price; the appropriate quoted market price for financial liabilities is the current asking price.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

The fair value of investments that are not traded in an active market is determined by using valuation techniques.

For instruments for which there is no active market, the Company may use internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. Valuation models may be used primarily to value unlisted equity, debt securities and other debt instruments for which markets were or have been inactive during the financial year. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions.

The following table sets out fair value measurements using the IFRS 13 fair value hierarchies:

At 30 April 2019
Investments at fair value through profit or loss
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equity investments 111,380 - - 111,380
111,380 - - 111,380
At 30 April 2018 (restated*)
Investments at fair value through profit or loss
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equity investments 121,545 - - 121,545
121,545 - - 121,545

 *Please see note 3 for further details

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:

·    Level 1 - valued using quoted prices in active markets for identical assets or liabilities.

·    Level 2 - valued by reference to valuation techniques using observable inputs other than quoted prices included within level 1.

·    Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.

17.      NAV HISTORY

30 April 2019 30 April 2018 (restated*) 30 April 2017 (restated*)
NAV £107,290,867 £118,738,232 £77,062,137
Number of Shares in Issue 44,307,284 49,012,128 44,139,050
NAV per Ordinary Share £2.42 £2.42 £1.75

*Please see note 3 for further details

18.      SUBSCRIPTION RIGHTS

Shareholders had the opportunity to subscribe for one new ordinary share for every five ordinary shares held on 1 October in each financial year, commencing in 2015 and ending on 23 November 2017. The following subscriptions were made for the comparative financial year 30 April 2018:

Subscription date £'000
Shares issued              30 April 2018 30 April 2018 (restated*)
10 October 2017                       8,598,577                              14,858
                    8,598,577                            14,858

During the financial year ended 30 April 2019 no amounts were paid by subscribing shareholders (30 April 2018: £14,857,481).

*Please see note 3 for further details

19.      REDEMPTION FACILITY

Ordinarily, shareholders have the opportunity to make redemptions of part or all of their shareholding on a six-monthly basis with the Board’s discretion in declining any redemption requests. The following redemptions were made during the financial year:

Redemption date Shares redeemed £'000
30 April 2019 30 April 2019
28 September 2018 2,434,356 6,087
29 March 2019 1,770,488 4,129
4,204,844 10,216
Redemption date Shares redeemed £'000
30 April 2018 30 April 2018 (restated*)
5 October 2017 1,145,914 2,414
3 April 2018 2,579,585 6,306
3,725,499 8,720

 *Please see note 3 for further details

During the financial year ended 30 April 2019, a total of £10,216,306 was paid to redeeming shareholders (30 April 2018: £8,719,720).

20.       DIVIDENDS

All amounts held in the Company’s revenue reserve are distributable to shareholders by way of dividends.

There were no dividends declared by the Board during the financial year ended 30 April 2019 (30 April 2018: £Nil).

21.     ONGOING CHARGES

The ongoing charges using the AIC recommended methodology were 1.63% for the financial year ended 30 April 2019 (30 April 2018: 1.57%). Of the £1,703,946 expenses in the Statement of Comprehensive Income, excluded from the calculation of ongoing charges, are £4,178 considered by the Directors to be non-recurring (30 April 2018: £34,037).

22.     EXCHANGE RATES

The following exchange rates were used during the financial year.

30 April 2019 30 April 2018 30 April 2017
 GBP  GBP  GBP
USD $1.3037 $1.3774 $1.2938
JPY ¥145.1940 ¥150.7167 ¥144.2145

The following average exchange rates were used during the financial year:

30 April 2019 30 April 2018 30 April 2017
 GBP  GBP  GBP
USD $1.3044 $1.3382 $1.2934
JPY ¥145.0373 ¥147.9520 ¥140.0559

23.     CHANGES IN THE PORTFOLIO

A list, specifying for each investment the total purchases and sales which took place during the financial year ended 30 April 2019, may be obtained, upon request, at the registered office of the Company.

24.     EVENTS AFTER THE FINANCIAL YEAR ENDED 30 APRIL 2019

There were no significant events subsequent to the financial year ended 30 April 2019 which require adjustment to or additional disclosure in the Financial Statements.

25.     ULTIMATE CONTROLLING PARTY

There is no one entity with ultimate control over the Company.


a d v e r t i s e m e n t