Fidelity Japan Trust Plc - Annual Financial Report
Final Results for the year ended
Financial Highlights:
-- During the year ended 31 December 2023 , Fidelity Japan Trust PLC
reported a net asset value (NAV) return of +12.2%, whilst the Reference
Index, the TOPIX Total Return Index, returned 13.3%.
-- Over the same period, the ordinary share price total return was +12.3%.
Contacts
For further information, please contact:
Company Secretary
0207 961 4240
CHAIRMAN’S STATEMENT
PERFORMANCE REVIEW
After an extremely challenging year in 2022, 2023 was much more positive for investors in
In the year ended
While the underperformance suffered in 2022 means that the Company’s three-year cumulative returns are behind the Index, the longer-term results remain positive. Since Nicholas took over the management of the Company in
DISCOUNT MANAGEMENT, SHARE REPURCHASES AND TREASURY SHARES
The primary purpose of the Board’s discount management policy is to reduce discount volatility. We will continue to aim to limit the share price discount to single figures in normal market conditions through share repurchases. However, we have witnessed periods when the discount has remained stubbornly high despite a steady share repurchase programme. In a year in which investment trust discounts widened significantly across the board, the discount at which the Company’s shares traded was broadly stable, beginning the reporting year at 9.6% and ending it at 9.5% having briefly peaked at 14.3% and narrowing from 10.9% at the half-year end. 3,615,644 ordinary shares were repurchased for holding in
At the forthcoming Annual General Meeting (AGM) on
A sustained reduction in the discount of the Company is only likely if there is a significant increase in investor interest in
ONGOING CHARGES RATIO
The ongoing charges ratio for the year, including the variable element, is 0.84% (2022: 0.96%). This comprises a fixed charge of 0.99% (2022: 0.99%) and a variable credit of 0.15% (2022: credit of 0.03%). The variable management fee credit is due to the Company’s underperformance in comparison to its Reference Index on a three-year rolling basis.
GEARING
The ability to gear is an important advantage of the investment trust structure, and the Board believes that the Company’s use of long Contracts for Difference (CFDs) to achieve its gearing is a differentiating factor. CFDs are generally cheaper than borrowing through traditional bank debt and they also provide greater flexibility. The use of CFDs had a positive impact and contributed +6.3% to the NAV total return in the year under review.
The Portfolio Manager has the discretion to be up to 25% geared. Based on total portfolio exposure at the end of the year of £317.4m, the level of gearing was 23.1% compared with 20.8% at the end of 2022. Further information can be found in the Annual Report. As at
UNLISTED COMPANIES
Over the past few years, there have been an increasing number of opportunities for the Manager to invest in certain companies before they list on the
Twice yearly, the Audit Committee meets specifically to review the unlisted investments together with Fidelity’s Fair Value Committee, Fidelity’s unlisted Asian investments specialist and representatives of Kroll, the independent valuation specialists.
Further details can be found in the Portfolio Manager’s Review below and also in the Annual Report.
DUE DILIGENCE TRIP
As detailed in the report for the half-year ended
BOARD CHANGES
As also mentioned in the Half-Yearly Report,
In
Seiichi will stand for election at the forthcoming AGM, when all the other Directors, apart from Dominic, are subject to annual re-election. Biographical details of all Directors are in the Annual Report to assist shareholders when considering their voting at the AGM.
ANNUAL GENERAL MEETING (AGM)
Once again, we will be holding a ‘hybrid’ AGM, allowing attendance and voting in real time online as well as in person. The AGM is a valuable opportunity for us as a Board to engage with shareholders.
More details of the AGM are set out below and in the Notice of Meeting in the Annual Report.
OUTLOOK
The market rally which commenced in 2023 and continued into 2024 has been driven by large-cap value stocks, leaving many of the higher growth medium and smaller-sized companies held by the Company underperforming the overall market. We share the Portfolio Manager’s view that there is significant scope for a rerating of these businesses which now look undervalued.
Foreign investors are taking renewed interest in
The Nikkei Dow Jones 225 Index closed at a new record high level on
Chairman
ANNUAL GENERAL MEETING (AGM) – WEDNESDAY,
The AGM of the Company will be held at
12 noon
on
Wednesday,
For those shareholders who would prefer not to attend in person, we will live-stream the formal business and presentations of the meeting online.
Properly registered shareholders joining the AGM virtually will be able to vote on the proposed resolutions. Please see Note 9 to the Notes to the Notice of Meeting in the Annual Report for details on how to vote virtually. Investors viewing the AGM online will be able to submit live written questions to the Board and the Portfolio Manager and these will be addressed on their behalf at an appropriate juncture during the meeting.
Further information and links to the Lumi platform may be found on the Company’s website www.fidelity.co.uk/japan . On the day of the AGM, in order to join electronically and ask questions via the Lumi platform, shareholders will need to connect to the website https://web.lumiagm.com .
Please note that investors on platforms such as Fidelity Personal Investing, Hargreaves Lansdown, Interactive Investor or AJ Bell Youinvest will need to request attendance at the AGM in accordance with the policies of your chosen platform. They may request that you submit electronic votes in advance of the meeting. If you are unable to obtain a unique IVC and PIN from your nominee or platform, we will also welcome online participation as a guest. Once you have accessed https://web.lumiagm.com from your web browser on a tablet or computer, you will need to enter the Lumi Meeting ID which is 144-545-039 . You should then select the ‘Guest Access’ option before entering your name and who you are representing, if applicable. This will allow you to view the meeting and ask questions, but you will not be able to vote.
PORTFOLIO MANAGER’S REVIEW
QUESTION
The year under review continued to be challenging for growth-oriented equity strategies. Why is that and what were the key drivers of the Japanese stock market?
ANSWER
Japanese stocks gained markedly in 2023, with key indices registering their strongest annual returns since 2013. Overseas investors played a key role in the market’s ascent, encouraged by Japan’s shift to a moderately inflationary environment and initiatives implemented by the
While the Japanese market recorded historical gains, 2023 was a year of significant style divergence. The US bond yield cycle and accompanying currency trends exerted a sizeable impact on style returns, with strong gains in large-cap value stocks contrasting with the far more muted performance of small-cap growth names. These trends continued to generate headwinds for growth-oriented strategies, particularly during periods of sharp rises in long-term interest rates.
In this environment, stocks with low price-to-earnings and low price-to-book multiples, and those with high dividend yields generated the strongest returns. At a sector level, commodity-related segments, led by Iron & Steel, Maritime Transportation, Wholesale Trade and Mining, were among the year’s strongest performers. Automobiles benefited from a recovery in production and a weaker yen, while expectations for a bottoming of the semiconductor cycle drove gains in related stocks. Financials benefited from rising interest rates in the US and
QUESTION
How has the Company performed in the year to
ANSWER
The Company’s NAV per ordinary share rose by 12.2% in sterling terms and the share price gained by 12.3%. In comparison, the Reference Index rose by 13.3%. The discount narrowed very slightly to 9.5% from 9.6% a year ago. Over five and ten year periods, the Company outperformed the Reference Index and most of its peers.
The Company’s holding in
Osaka Soda
was among the standout contributors to performance. It reported above-consensus earnings results, spurred by favourable pricing and strong sales of silica gel, a material used in the purification of pharmaceuticals including diabetes drugs. Profitability is steadily increasing as the company transitions from basic chemicals to functional chemicals under its Global Niche Top (GNT) strategy. Positions in semiconductor-related stocks also added value. Shares in semiconductor production equipment (SPE) maker
Tokyo Electron
rebounded strongly as the market shifted its focus from the earnings downside in 2023 to a recovery from 2024.
Tokyo Electron
is a highly competitive player in a structural growth market, supported by sustained semiconductor demand, technological advances in chip making and government support amid rising geopolitical tensions. Meanwhile, fabless semiconductor manufacturer
Socionext
reported strong full-year results that exceeded street estimates, driven by automotive-related orders in the US and data centre/network sales in
Conversely, the Company’s position in MISUMI Group was the most significant detractor from performance over the year. Shares in the supplier of factory automation components fell as adverse business conditions and a delayed recovery in the order cycle produced a slew of near-term earnings downgrades. However, leading indicators, such as machine tool orders, are close to a trough and we expect earnings to recover in 2024. In the Services sector, Nihon M&A Center Holdings , Japan’s largest provider of merger and acquisition (M&A) advisory services for small and medium enterprises (SMEs), underperformed. At the start of the year, the company’s quarterly results came in far below market expectations due to a deterioration in sales efficiency and weaker pricing of M&A deals. The emergence of innovative new entrants posed a threat to its business model, and we sold the position. Raksul , a leading business-to-business (B2B) platformer that provides online printing and marketing/sales support services, faced selling pressure. The stock faced profit taking in early 2023 as the market rotated in favour of technology-related cyclicals. We remain confident in its core e-commerce (EC) printing business which is recovering strongly as the effects of the Covid-19 pandemic recede and the number of registered users continues to grow. We also see the potential for growth in the logistics industry. Kamakura Shinsho , a funeral service platformer, reported solid annual results amid a post-pandemic recovery, but the stock faced style headwinds and some concerns about rising costs associated with the development of new operations, such as inheritance services and nursing. However, we retain a positive view of its core businesses, and most of its new segments are already profitable.
The ten highest stock contributors and detractors to the NAV total return on a relative basis are shown in the Annual Report.
QUESTION
How has the Company’s portfolio changed over the period?
ANSWER
The Chemicals, Services and Retail sectors remained among the largest positions in the Company, reflecting holdings in niche materials companies, unique service providers and speciality retailers that are executing well in
As a result of bottom-up stock selection, active exposure to the Electric Appliances sector has increased. Factory automation and semiconductor-related companies have had to deal with a prolonged inventory correction that was exacerbated by the weak recovery in
On the other hand, we sold positions in
Rinnai
, a producer of high-quality home gas appliances which is facing problems in housing/ real estate markets overseas, and
Tsuburaya Fields
, a digital content and game machine company that reached our target price following a period of strong share price performance. We also took some profits in strong performers in the technology sector, including
QUESTION
How do you view the valuations in the market and for the overall portfolio?
ANSWER
Overall, we are focusing on growth at reasonable price and holding companies that are trading at or close to market multiples even as they offer consistent mid-term growth. We are also focusing on contrarian growth names – stocks that are disliked by the market but where we see catalysts for change.
Many of the Japanese companies that we are looking at trade at a discount versus their overseas peers, and there are a lot of opportunities where improvements in corporate governance are driving higher returns on equity. Many growth stocks now trade on sub-market multiples despite higher rates of earnings growth and higher returns.
This trend is apparent at the portfolio level, with the forward price-to-earnings ratio now at a comparable level to the Reference Index (see chart in the Annual Report). This is very unusual as it typically trades at a premium to the market, given the higher growth rates and Return on Equity (RoE) of the underlying companies, and is indicative of a level of potential upside.
As a natural profit taker, I aim to trim into strength and recycle into new names to keep the portfolio fresh and have new ideas competing with existing holdings. In 2023, portfolio turnover was at around 64% compared to a three-year average of 79%. Looking at the top 20 active names, which account for around 70% of the portfolio, 14 stocks remained in place (when comparing end of
QUESTION
What are your current thoughts on gearing? And what impact has it had on returns during the year?
ANSWER
The level of gearing closed the year at 23.1% (versus 20.8% at the end of 2022). If we see a sustained uptrend in Japanese stocks, then I would be inclined to reduce the level of gearing employed. However, I am happy with where market valuations currently stand, and the leverage is deployed in stable growth companies rather than high beta names. So, overall, I am comfortable with the Company’s current gearing positioning.
Over the course of 2023, the gearing position had a positive impact on returns, notably through the exposure to semiconductor production equipment maker Tokyo Electron and speciality retailer Ryohin Keikaku.
QUESTION
How has the Company’s exposure to unlisted companies changed during the year under review?
ANSWER
At the end of the review period, seven unlisted names were held, representing 6.3% of the portfolio. Although the total number of positions remained the same, the composition of the holdings changed somewhat.
The Company’s shares in Innophys , a developer of exoskeleton support suits, were redeemed via a repurchase plan executed at the end of March. The company failed to fully execute on its business plan for wearable muscle suits. Given the uncertain outlook for the market and competitive landscape, we first wrote down the asset and then exited it in a trade sale to a corporate.
In October, we initiated a position in
As always, we continue to evaluate new opportunities, while maintaining a disciplined approach towards valuations.
QUESTION
Environmental, social and governance (ESG) themes are very topical among investors. Could you explain your approach to ESG and how you integrate it into your portfolio?
Answer
Sustainability and ESG related factors are incorporated into the Fidelity wide investment process. Assessing which companies can grow sustainably over the mid-term and enhance the efficiency of other corporates and their supply chains is a key part of my portfolio construction that in turn will enhance their financial performance. By working closely with our Head of Engagement in
Although Japanese companies generally have lower sustainability scores than their European counterparts, we believe this is not due to any fundamental differences in strategy but more to do with cultural factors around disclosure practices and language. By working closely with the Fidelity sustainable investing team in
QUESTION
Could you outline specific examples where engagement has resulted in positive outcomes?
Answer
SWCC
, a wire and cable producer, is a good example of how
ESG considerations, particularly ‘G’ in this instance, can factor into valuations. We engaged the company’s executives in discussing their efforts to increase shareholder value and improve capital efficiency, thereby addressing
SWCC’s
low price-to-book valuation. Although returns on equity have been improving, we explained that the company needed to reorganise its business portfolio to ensure further sustainability and convey its strategy more clearly to the market to ensure that its growth potential is fully appreciated. At its most recent financial results meeting, the company presented its business strategy approach to improving its price-to-book ratio in the same format that we had explained during our meeting with them. In addition, management laid out specific measures for improving each business unit and announced a share buyback. That was proof of their confidence in their ability to improve profitability and it led to a significant rise in the company’s share price.
We engaged with Raksul’s new CEO to confirm the company’s new compensation structure. While the CEO’s minimum holding period for equity compensation is one year, which is in conflict with our voting guideline of three years, we appreciated that the new structure would encourage shareholder-oriented management by replacing a significant portion of a cash salary with equity compensation. The strong relationship that we have developed with Raksul’s new President since his previous tenure as CFO, and a significant improvement in sustainability in response to our previous engagements, indicate that the Board is functioning effectively. Given these factors, we believe that the risk of directors, including the new president, intentionally selling their shares for immediate gain is extremely limited. We, therefore, voted in favour of the company’s new compensation structure.
QUESTION
How do you evaluate the corporate changes being driven by the Tokyo Stock Exchange’s (TSE) initiatives?
ANSWER
A long-awaited reform effort to boost capital efficiency in Japan’s stock market started to gain traction, with the TSE issuing guidance promoting the requirement of a price-to-book ratio above one, among other measures, to improve capital efficiency.
Traditionally, Japanese companies have notoriously sat on excess cash piles, thus tending to limit investor returns. But that is changing. From the first quarter of 2023, the TSE required most listed firms, especially those trading below book value, to “properly identify” their cost and efficiency of capital.
In a panel discussion organised by the TSE in 2022,
The TSE’s latest reform measures represent a bold step forward which has helped to bolster investor confidence. While these measures are encouraging, we think it is even more important to introduce incentives for companies to pursue sustainable growth. With wider reforms and quicker steps, we believe many more Japanese firms could unlock their value and the country’s stock market would attract greater inflows of foreign capital.
Question
What are your expectations for monetary policy and what impact could a change by the Bank of Japan have on the yen?
Answer
With the rate hike cycle in the US peaking out and the Bank of Japan widely terminating its negative interest rate policy, there is scope for the yen to strengthen somewhat. However, demand in the Japanese economy is not that tight and I do not expect the Bank of Japan to pursue further significant tightening.
I generally do not take a strong view on the yen, and currency forecasts do not play an active role in my bottom-up investment process. While individual holdings with a high ratio of overseas sales may at times benefit from a weaker yen, the overall portfolio has tended to be relatively currency neutral versus the Reference Index. This is because of a consistent focus on mid/small caps, which typically generate the bulk of their revenues at home.
Question
What do you view as the biggest risks for the next twelve months?
Answer
The most significant risks are still around inflation and how interest rates can impact market valuations and levels. Continued signs of weakness in China’s recovery and a slowdown in America also represent potential headwinds that could prompt a near-term adjustment in Japanese stocks. Additional shocks from energy prices, driven by an escalation in geopolitical events, remain a risk factor that we are closely monitoring.
Question
What should investors be focusing on as we move through 2024?
Answer
On the macroeconomic side, the Bank of Japan has ended its negative interest rate policy and the loosening of interest rates by the US Federal Reserve, could drive yen strength in the second half of the year. The domestic economy is doing quite well, and companies are investing in digitalisation and reshoring in the technology space, especially across the semiconductor industry.
Tentative signs of improvement in the global manufacturing cycle are supportive of technology and factory automation related stocks held by the Company. As the machine tool cycle bottoms out, early cyclicals typically perform strongly at the start of the recovery. We also expect to see a strong semiconductor cycle, spurred by greater needs for artificial intelligence (AI), the Internet of Things (IoT), smartphone AI and developments in edge computing. This is creating opportunities in niche materials and component makers that offer attractive levels of potential upside. Political change in the US is a potential risk factor, as it could lead to greater protectionism, which could hurt
Corporate governance improvements, such as sustained efforts by companies that trade below book value to rectify their situation, an acceleration in the unwinding of cross-shareholdings, and further progress in the restructuring of business portfolios, can enhance the outlook for returns on capital in
A reversion of the interest rate cycle in the US is generally conducive to better performance by growth stocks, an area of the Japanese market where we are seeing a lot of undervaluation. From a technical perspective, the recent market rally in
Portfolio Manager
Strategic Report
Principal Risks and Uncertainties and Risk Management
As required by provisions 28 and 29 of the 2018 UK Corporate Governance Code, the Board has a robust ongoing process for identifying, evaluating and managing the principal and emerging risks and uncertainties faced by the Company, including those that could threaten its business model, future performance, solvency or liquidity. The Board, with the assistance of the
Climate change, which refers to a large scale shift in the planet’s weather patterns and average temperatures, continues to be a key emerging as well as a principal risk confronting asset managers and their investors. Globally, climate change effects are already being experienced in the form of changing weather patterns. Extreme weather events can potentially impact the operations of investee companies, their supply chains and their customers. The Board notes that the Manager has integrated ESG considerations, including climate change, into the Company’s investment process. Further details are in the Annual Report. The Board will continue to monitor how this may impact the Company as a risk to investment valuations and potentially shareholder returns.
Other emerging risks may continue to evolve from unforeseen geopolitical and economic events.
The Board, together with the Manager, is also monitoring the emerging risks posed by the rapid advancement of artificial intelligence (AI) and technology and how it may threaten the Company’s activities and its potential impact on the portfolio and investee companies. Although advances in computing power mean that AI is a powerful tool that will impact society, there are risks from its increasing use and manipulation with the potential to harm, including a heightened threat to cybersecurity.
The Manager also has responsibility for risk management for the Company. It works with the Board to identify and manage the principal and emerging risks and uncertainties and to ensure that the Board can continue to meet its
The Board considers the risks listed below as the principal risks and uncertainties faced by the Company.
Principal Risks Mitigation
The Board is provided with a detailed
investment review which covers material
Geopolitical Risk economic, market and legislative changes
Geopolitical risk is the potential for at each Board meeting as well as
political, socio-economic and cultural receiving periodic updates from economic
events, trends and developments to have and political commentators in the
an adverse effect on the Company’s region.
assets. In Asia , the key geopolitical
risks stem from China and the tensions Although it is unclear how long the
with the United States over trade and Ukraine and Middle East conflicts will
the future of Taiwan ; and the potential last, the direct impact for Japan is not
of North Korean aggression and its significant. The impact on the Company’s
impact on the region. Elsewhere, there portfolio of holdings is also relatively
is increased global economic limited. However, the ramifications of a
uncertainty from the ongoing war in global downturn could have a significant
Ukraine and the conflict in the Middle impact on the Japanese economy.
East.
The Portfolio Manager’s Review above
provides further detail on some of the
risk factors.
Natural Disaster Risk
Japan is extremely vulnerable to
earthquakes and tsunamis. Depending on Whilst natural disasters cannot be
the magnitude of such events, positions averted, the Board is comfortable that
in the portfolio may be affected. The the Manager has a robust business
Manager could also be impacted from an continuity plan in place.
operational perspective if the
epicentre is in or near Tokyo .
Market, Economic and Currency Risks
The Company’s assets consist mainly of These risks are somewhat mitigated by
listed securities. Therefore, its the Company’s investment trust structure
principal risks include market related which means no forced sales will need to
risks such as market downturn, interest take place to deal with any redemptions.
rate movements, deflation/inflation and Therefore, investments can be held over
exchange rate movements. The Portfolio a longer time horizon.
Manager’s success or failure to protect
and increase the Company’s assets Risks to which the Company is exposed in
against this background is core to the the market risk category are included in
Company’s continued success. Note 16 to the Financial Statements
below together with summaries of the
Most of the Company’s assets and income policies for managing these risks.
are denominated in yen. However, the
functional currency of the Company in It is the Company’s policy not to hedge
which it reports its results is against currency risks. Further details
sterling. Consequently, it is subject can be found in Note 16 to the Financial
to currency risk on exchange rate Statements below.
movements between the yen and sterling.
The Portfolio Manager is responsible for
actively monitoring the portfolio
selected in accordance with the asset
allocation parameters and seeks to
ensure that individual stocks meet an
Investment Performance and Gearing acceptable risk/reward profile. The
Risks emphasis is on long-term investment
The portfolio is actively managed and performance as there is a risk for the
performance risk is inherent in the Company of volatility of performance in
investment process. The achievement of the shorter-term.
the Company’s investment performance
objective relative to the market The Board closely monitors the
requires the taking of risk, such as valuations of the unlisted investments
strategy, asset allocation and stock through the Manager’s Fair Value
selection, and may lead to NAV and Committee, which includes input from
share price underperformance compared Fidelity’s analysts covering the
to the Reference Index. unlisted companies as well as Fidelity’s
unlisted investment specialist. In
The portfolio has unlisted investments addition, advice is obtained from a
which, by their very nature, involve a third-party valuation specialist company
higher degree of valuation and (Kroll). Details of the unlisted
performance uncertainties, liquidity investments valuation process is in the
risks and possible delays in listing Annual Report. The Board sets limits and
until market conditions are favourable. guidelines for the Portfolio Manager as
to how much of the Company’s net assets
can be held in unlisted securities. The
limit approved by shareholders is 20% of
net assets. As at 31 December 2023 , the
Company’s unlisted investments
represented 6.3% of net assets.
The Company has the option to make use The Company gears through the use of
of loan facilities or to use CFDs to long CFDs which are currently cheaper
invest in equities. The principal risk than bank loans and provide greater
is that the Portfolio Manager may fail flexibility. The Board regularly
to use gearing effectively. Other risks considers the level of gearing and
are that the cost of gearing may be too gearing risk and sets limits within
high or that the term of the gearing is which the Portfolio Manager must
inappropriate in relation to market operate.
conditions.
The market value of the Company’s shares
and its discount to NAV are factors
which are not wholly within the Board’s
total control. The Company’s share
price, NAV and discount volatility are
Discount Control and Demand Risks monitored daily by the Manager and the
There is a risk that the Company’s Company’s Broker and considered by the
shares trade at a persistent and Board regularly. The Board endeavours to
significant discount to the NAV. exercise some short-term influence over
the discount through share repurchases,
but it can prove challenging if market
sentiment is not supportive of Japanese
equities.
There is a risk that the demand for the
Company’s shares may fall due to poor The demand for shares is influenced by
performance, changes in investor the appeal of Japanese markets and
sentiment and attitudes towards through good performance and an active
investment in Japan . investor relations program. The Board
reviews analysis of the shareholder
register at each Board meeting which
allows the Board to monitor the
relevance of the Company’s mandate to
shareholders and remain abreast of
market sentiment.
The Manager identifies key dependencies
Key Person Risk which are then addressed through
The loss of the Portfolio Manager or succession plans. Fidelity has
other key individuals could lead to succession plans in place for portfolio
potential performance, operational or managers and these are discussed
regulatory issues. There is a risk that regularly with the Board. The Board
the Manager has an inadequate meets regularly with the Portfolio
succession plan for key individuals, Manager and key members of the
particularly the Portfolio Manager with investment team to gauge any
stock selection expertise in Japanese dissatisfaction or potential flight
markets. risk. The investment team in Japan work
closely in a collaborative manner and
fully understand the investment approach
of the Portfolio Manager.
The Board notes that the Manager has
embedded ESG factors, including climate
change, in its investment
decision-making process. Fidelity has a
climate change investing policy which
details its plans to work with
stakeholders to reduce climate risk
across all investment strategies.
Environmental, Social and Governance
(ESG) Risks ESG integration is carried out at the
There is a risk that the value of the fundamental research analyst level
assets of the Company are negatively within its investment teams, primarily
impacted by ESG related risks, through Fidelity’s Proprietary
including the impact of climate change Sustainability Rating which is designed
risk which continues to be one of the to generate forward-looking assessments
most critical issues confronting asset of companies ESG risks and opportunities
managers and their investors. Japan has based on sector-specific key performance
a material exposure to acute weather indicators across many individual and
events such as earthquakes. unique sub-sectors. The Portfolio
Manager is also active in analysing the
ESG risks also include investor effects of ESG when making investment
expectations and how the Company is decisions. The Board continues to
positioned from a marketing monitor developments in this area and
perspective. reviews the positioning of the portfolio
considering ESG factors.
ESG ratings and carbon emissions of the
companies within the Company’s portfolio
compared to the MSCI are provided in the
Annual Report.
Further detail on ESG considerations in
the investment process and sustainable
investment is in the Annual Report.
Business Continuity Risk
There continues to be increased focus
from financial services regulators
around the world on the contingency
plans of regulated financial firms. The The Manager continues to take all
top risks globally are cybersecurity, reasonable steps to meet its regulatory
geopolitical events and natural obligations, assess its ability to
disasters. There are also ongoing risks continue operating and the steps it
from the Russia /Ukraine war, needs to take to support its clients,
specifically regarding cyberattacks and including the Board and has an
the potential loss of power and/or appropriate control environment in
broadband services. Variants of Covid place. The Manager has provided the
continue to evolve and some risks Board with assurance that the Company
remain. has appropriate operational resilience
and business continuity plans and the
The Company relies on a number of provision of services has continued to
third-party service providers, be supplied without interruption.
principally the Registrar, Custodian
and Depositary. They are all subject to Risks associated with third-party
a risk-based programme of risk service providers are generally rated as
oversight and internal audits by the low, but the financial consequences
Manager and their own internal controls could be serious, including reputational
reports are received by the Board on an damage to the Company. These are
annual basis and any concerns are mitigated through operational resilience
investigated. The third-party service frameworks.
providers have also confirmed the
implementation of appropriate measures
to ensure no business disruption.
The Manager’s technology and risk teams
have developed a number of initiatives
and controls in order to provide
enhanced mitigating protection to this
ever-increasing threat. The risk is
regularly re-assessed by Fidelity’s
information security teams and risk
frameworks are continuously enhanced.
Cybercrime and Information Security This has resulted in the implementation
Risks of additional tools and processes,
The operational risk and business including improvements to existing ones.
impact from heightened external levels Fidelity has a dedicated cybersecurity
of cybercrime and the risk of data loss team which provides continuous
is significant. Cybercrime threats oversight, regular awareness updates and
evolve rapidly. A cyber attack could best practice guidance. The Board
result in the loss of confidential receives regular updates from the
information or cause a significant Manager in respect of the type and
disruption to the Company’s operations. possible scale of cyber attacks.
Risks also remain due to the
Russia /Ukraine conflict and the trend The Manager has dedicated detect and
to more working from home following the respond resources specifically to
pandemic. These primarily relate to monitor the cyber threats associated
phishing, ransomware, remote access within the workplace and there are a
threats, extortion and number of mitigating actions in place
denial-of-services attacks. including, control strengthening,
geo-blocking and phishing mitigants,
combined with enhanced resilience and
recovery options.
The Company’s third-party service
providers are also subject to regular
oversight and provide assurances and
have similar control measures in place
to detect and respond to cyber threats
and activity.
Other risks facing the Company include:
Tax and Regulatory Risks
There is a risk of the Company not complying with tax and regulatory requirements. A breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status resulting in the Company being subject to tax on capital gains.
The Board monitors tax and regulatory changes at each Board meeting and through active engagement with regulators and trade bodies by the Manager.
Continuation Vote
A continuation vote takes place every three years. There is a risk that shareholders do not vote in favour of continuation of the Company during periods when performance of the Company’s NAV and the share price is poor. At the Company’s AGM on
VIABILITY STATEMENT
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve month period required by the “Going Concern” basis. The Company is an investment trust with the objective of achieving long-term capital growth. The Board considers that five years is an appropriate investment horizon to assess the viability of the Company, although the life of the Company is not intended to be limited to this or any other period.
In making an assessment on the viability of the Company, the Board has considered the following:
· The ongoing relevance of the investment objective in prevailing market conditions;
· The Company’s level of gearing;
· The Company’s NAV and share price performance compared to its Reference Index;
· The principal and emerging risks and uncertainties facing the Company and their potential impact as set out above;
· The future demand for the Company’s shares;
· The Company’s share price discount to the NAV;
· The liquidity of the Company’s portfolio;
· The level of income generated by the Company;
· Future income and expenditure forecasts; and
· The Company will offer its shareholders a continuation vote at the AGM in 2025.
The Company outperformed the Reference Index over the five year reporting period to
· The Investment Manager’s compliance with the Company’s investment objective and policy, its investment strategy and asset allocation;
· The portfolio mainly comprises readily realisable securities which can be sold to meet funding requirements if necessary; and
· The ongoing processes for monitoring operating costs and income which are considered to be reasonable in comparison to the Company’s total assets.
In preparing the Financial Statements, the Directors have considered the impact of climate change as detailed above. The Board has also considered the impact of regulatory changes and unforeseen market events and how this may affect the Company.
In addition, the Directors’ assessment of the Company’s ability to operate in the foreseeable future is included in the Going Concern Statement which can be found below.
GOING CONCERN STATEMENT
The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio and its expenditure and cash flow projections. The Directors, having considered the liquidity of the Company’s portfolio of investments (being mainly securities which are readily realisable) and the projected income and expenditure, are satisfied that the Company is financially sound and has adequate resources to meet all of its liabilities and ongoing expenses and continue in operational existence for the foreseeable future. The Board has, therefore, concluded that the Company has adequate resources to continue to adopt the going concern basis for the period to
Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.
The prospects of the Company over a period longer than twelve months can be found in the Viability Statement above.
PROMOTING THE SUCCESS OF THE COMPANY
Under Section 172(1) of the Companies Act 2006, the Directors of a company must act in a way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to the likely consequences of any decision in the long-term; the need to foster relationships with the Company’s suppliers, customers and others; the impact of the Company’s operations on the community and the environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the Company.
As an externally managed investment company, the Company has no employees or physical assets, and a number of the Company’s functions are outsourced to third parties. The key outsourced function is the provision of investment management services by the Manager, but other professional service providers support the Company by providing administration, custodial, banking and audit services. The Board considers the Company’s key stakeholders to be the existing and potential shareholders, the externally appointed Manager (
The Board, with the Portfolio Manager, sets the overall investment strategy and reviews this on a regular basis. In order to ensure good governance of the Company, the Board has set various limits on the investments in the portfolio, whether in the maximum size of individual holdings, the use of derivatives, the level of gearing and others. These limits and guidelines are regularly monitored and reviewed and are set out in the Annual Report.
The Board receives regular reports from the Company’s Broker which covers market activity, how the Company compares with its peers in the
The Board places great importance on communication with shareholders. The Annual General Meeting provides the key forum for the Board and the Portfolio Manager to present to the shareholders on the Company’s performance and future plans and the Board encourages all shareholders to attend in person or virtually and raise any questions or concerns. The Chairman and other Board members are available to meet shareholders as appropriate. Shareholders may also
communicate with Board members at any time by writing to them at the Company’s registered office at
The Portfolio Manager meets with major shareholders, potential investors, stock market analysts, journalists and other commentators throughout the year. These communication opportunities help inform the Board in considering how best to promote the success of the company over the long-term.
The Board seeks to engage with the Manager and other service providers and advisers in a constructive and collaborative way, promoting a culture of strong governance, while encouraging open and constructive debate, in order to ensure appropriate and regular challenge and evaluation. This aims to enhance service levels and strengthen relationships with service providers, with a view to ensuring shareholders’ interests are best served, by maintaining the highest standards of commercial conduct while keeping cost levels competitive.
Whilst the Company’s direct operations are limited, the Board recognises the importance of considering the impact of the Company’s investment strategy on the wider community and environment. The Board believes that a proper consideration of ESG issues aligns with the Company’s objective to deliver long-term capital growth, and the Board’s review of the Manager includes an assessment of its ESG approach which is set out in the Annual Report.
In addition to ensuring that the Company’s investment objective was being pursued, key decisions and actions taken by the Board during the reporting year, and up to the date of this report, have included:
·
Authorising the repurchase of 3,615,644 ordinary shares into
· Meeting with the Company’s key shareholders during the reporting year;
· The decision to hold a hybrid AGM in 2023 (and again this year) in order to make it more accessible to those shareholders who are unable to or prefer not to attend in person;
·
The decision to appoint
·
Meeting with the Portfolio Manager and the investment team during the Board’s Due Diligence trip to
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial period. Under that law, the Directors have elected to prepare the Financial Statements in accordance with
In preparing these Financial Statements, the Directors are required to:
· Select suitable accounting policies in accordance with Section 10 of FRS 102 and then apply them consistently;
· Make judgements and accounting estimates that are reasonable and prudent;
· Present information, including accounting policies, in a fair and balanced manner that provides relevant, reliable, comparable and understandable information;
·
State whether applicable
· Prepare the Financial Statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time, the financial position of the Company and to enable them to ensure that the Company and Financial Statements comply with the Companies Act 2006. 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.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors’ Report, a Corporate Governance Statement and a Directors’ Remuneration Report which comply with that law and those regulations.
The Directors have delegated the responsibility for the maintenance and integrity of the corporate and financial information included on the Company’s pages of the Manager’s website at
www.fidelity.co.uk/japan
to the Manager. Visitors to the website need to be aware that legislation in the
The Directors confirm that to the best of their knowledge:
·
The Financial Statements, prepared in accordance with
· The Annual Report, including the Strategic Report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces; and
· The Annual Report and 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 Statement of Directors’ Responsibility was approved by the Board on
Chairman
FINANCIAL STATEMENTS
INCOME STATEMENT FOR THE YEAR ENDED
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Gains/
(losses) on 9 – 12,376 12,376 – (64,577) (64,577)
investments
Gains/
(losses) on 10 – 14,299 14,299 – (11,568) (11,568)
derivative
instruments
Income 3 4,218 – 4,218 3,209 – 3,209
Investment
management 4 (344) (1,018) (1,362) (334) (1,264) (1,598)
fees
Other 5 (708) (4) (712) (690) (15) (705)
expenses
Foreign
exchange – (642) (642) – (365) (365)
losses
--------------- --------------- --------------- --------------- --------------- ---------------
Net return/
(loss) on
ordinary
activities 3,166 25,011 28,177 2,185 (77,789) (75,604)
before
finance
costs and
taxation
Finance 6 (27) (106) (133) (27) (106) (133)
costs
--------------- --------------- --------------- --------------- --------------- ---------------
Net return/
(loss) on
ordinary 3,139 24,905 28,044 2,158 (77,895) (75,737)
activities
before
taxation
Taxation on
return/
(loss) on 7 (347) – (347) (260) – (260)
ordinary
activities
--------------- --------------- --------------- --------------- --------------- ---------------
Net return/
(loss) on
ordinary
activities 2,792 24,905 27,697 1,898 (77,895) (75,997)
after
taxation
for the
year
========= ========= ========= ========= ========= =========
Return/
(loss) per 8 2.17p 19.33p 21.50p 1.46p (60.01p) (58.55p)
ordinary
share
========= ========= ========= ========= ========= =========
The Company does not have any other comprehensive income. Accordingly, the net return/(loss) on ordinary activities after taxation for the year is also the total comprehensive income for the year and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.
No operations were acquired or discontinued in the year and all items in the above statement derive from continuing operations.
The Notes below form an integral part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
Share Capital Total
Share premium redemption Other Capital Revenue shareholders’
capital account reserve reserve reserve reserve funds
Note £’000 £’000 £’000 £’000 £’000 £’000 £’000
Total
shareholders’ 34,041 20,722 2,767 46,658 140,511 (8,327) 236,372
funds at 31
December 2022
Repurchase of
ordinary 13 – – – (6,276) – – (6,276)
shares
Net return on
ordinary
activities – – – – 24,905 2,792 27,697
after
taxation for
the year
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total
shareholders’ 34,041 20,722 2,767 40,382 165,416 (5,535) 257,793
funds at 31
December 2023
========= ========= ========= ========= ========= ========= =========
Total
shareholders’ 34,041 20,722 2,767 46,942 218,406 (10,225) 312,653
funds at 31
December 2021
Repurchase of
ordinary 13 – – – (284) – – (284)
shares
Net
(loss)/return
on ordinary
activities – – – – (77,895) 1,898 (75,997)
after
taxation for
the year
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total
shareholders’ 34,041 20,722 2,767 46,658 140,511 (8,327) 236,372
funds at 31
December 2022
========= ========= ========= ========= ========= ========= =========
The Notes below form an integral part of these Financial Statements.
BALANCE SHEET AS AT
Company number 2885584
2023 2022
Notes £’000 £’000
Fixed assets
Investments 9 253,843 230,680
--------------- ---------------
Current assets
Derivative instruments 10 1,216 838
Debtors 11 708 613
Cash collateral held with brokers 16 – 276
Cash at bank 3,073 5,556
--------------- ---------------
4,997 7,283
========= =========
Current liabilities
Derivative instruments 10 (53) (1,100)
Other creditors 12 (994) (491)
--------------- ---------------
(1,047) (1,591)
========= =========
Net current assets 3,950 5,692
========= =========
Net assets 257,793 236,372
========= =========
Capital and reserves
Share capital 13 34,041 34,041
Share premium account 14 20,722 20,722
Capital redemption reserve 14 2,767 2,767
Other reserve 14 40,382 46,658
Capital reserve 14 165,416 140,511
Revenue reserve 14 (5,535) (8,327)
--------------- ---------------
Total shareholders’ funds 257,793 236,372
========= =========
Net asset value per ordinary share 15 204.46p 182.24p
========= =========
The Financial Statements above and below were approved by the Board of Directors on
Chairman
The Notes below form an integral part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
1
PRINCIPAL ACTIVITY
2
ACCOUNTING POLICIES
The Company has prepared its Financial Statements in accordance with
a) Basis of accounting
The Financial Statements have been prepared on a going concern basis and under the historical cost convention, except for the measurement at fair value of investments and derivative instruments. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence up to
In preparing these Financial Statements, the Directors have considered the impact of climate change risk as an emerging and principal risk as set out above, and have concluded that there was no further impact of climate change to be taken into account as the investments are valued based on market pricing. In line with FRS 102, investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the balance sheet date. Investments which are unlisted are priced using market-based valuation approaches. All investments therefore reflect the market participants view of climate change risk on the investments held by the Company.
The Company’s Going Concern Statement above takes account of all events and conditions up to
b) Significant accounting estimates, assumptions and judgements
The preparation of the Financial Statements requires the use of estimates, assumptions and judgements. These estimates, assumptions and judgements affect the reported amounts of assets and liabilities at the reporting date. While estimates are based on best judgement using information and financial data available, the actual outcome may differ from these estimates.
The key sources of estimation and uncertainty relate to the fair value of the unlisted investments.
Judgements
The Directors consider whether each fair value is appropriate following detailed review and challenge of the pricing methodology. The judgement applied in the selection of the methodology used (see Note 2(j) below) for determining the fair value of each unlisted investment can have a significant impact upon the valuation.
Estimates
The key estimate in the Financial Statements is the determination of the fair value of the unlisted investments by the Manager’s Fair Value Committee (FVC), with support from the external valuer, for detailed review and appropriate challenge by the Directors. This estimate is key as it significantly impacts the valuation of the unlisted investments at the Balance Sheet date. When no recent primary or secondary transaction in the company’s shares have taken place, the fair valuation process involves estimation using subjective inputs that are unobservable (for which market data is unavailable). The estimates involved in the valuation process may include the following:
(i) The selection of appropriate comparable companies. Comparable companies are chosen on the basis of their business characteristics and growth patterns;
(ii) The selection of a revenue metric (either historical or forecast);
(iii) The selection of an appropriate illiquidity discount factor to reflect the reduced liquidity of unlisted companies versus their listed peers;
(iv) The estimation of the likelihood of a future exit of the position through an initial public offering (IPO) or a company sale;
(v) The selection of an appropriate industry benchmark index to assist with the valuation; and
(vi) The calculation of valuation adjustments derived from milestone analysis (i.e. incorporating operational success against the plans/ forecasts of the business into the valuation).
As the valuation outcomes may differ from the fair value estimates a price sensitivity analysis is provided in Other Price Risk Sensitivity in Note 16 below to illustrate the effect on the Financial Statements of an over or under estimation of fair value.
The risk of an over or under estimation of fair value is greater when methodologies are applied using more subjective inputs.
Assumptions
The determination of fair value by the FVC involves key assumptions dependent upon the valuation techniques used. The valuation process recognises that the price of a recent investment may be an appropriate starting point for estimating fair value. The Multiples approach involves subjective inputs and therefore presents a greater risk of over or under estimation, particularly in the absence of a recent transaction.
c) Segmental reporting
The Company is engaged in a single segment business and, therefore, no segmental reporting is provided.
d) Presentation of the Income Statement
In order to better reflect the activities of an investment company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been prepared alongside the Income Statement. The net revenue return/(loss) after taxation for the year is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1159 of the Corporation Tax Act 2010.
e) Income
Income from equity investments is accounted for on the date on which the right to receive the payment is established, normally the ex-dividend date. Overseas dividends are accounted for gross of any tax deducted at source. Amounts are credited to the revenue column of the Income Statement. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend foregone is recognised in the revenue column of the Income Statement. Any excess in the value of the shares received over the amount of the cash dividend is recognised in the capital column of the Income Statement. Special dividends are treated as a revenue receipt or a capital receipt depending on the facts and circumstances of each particular case.
Derivative instrument income received from dividends on long Contracts for Difference (CFDs) is accounted for on the date on which the right to receive the payment is established, normally the ex-dividend date. The amount net of tax is credited to the revenue column of the Income Statement.
f) Investment management fees and other expenses
Investment management fees and other expenses are accounted for on an accruals basis and are charged as follows:
· The base investment management fee is allocated 20% to revenue and 80% to capital to reflect the Company’s focus on capital growth to generate returns;
· The variable investment management fee is charged/credited to capital, as it is based on the performance of the net asset value per share relative to the Reference Index; and
· All other expenses are allocated in full to revenue with the exception of those directly attributable to share issues or other capital events.
g) Functional currency and foreign exchange
The functional and reporting currency of the Company is
h) Finance costs
Finance costs comprises interest on bank overdrafts and collateral and finance costs paid on long CFDs, which are accounted for on an accruals basis. Finance costs are allocated 20% to revenue and 80% to capital to reflect the Company’s focus on capital growth to generate returns.
i) Taxation
The taxation charge represents the sum of current taxation and deferred taxation.
Current taxation is taxation suffered at source on overseas income less amounts recoverable under taxation treaties. Taxation is charged or credited to the revenue column of the Income Statement, except where it relates to items of a capital nature, in which case it is charged or credited to the capital column of the Income Statement. The Company is an approved
Deferred taxation is the taxation expected to be payable or recoverable on timing differences between the treatment of certain items for accounting purposes and their treatment for the purposes of computing taxable profits. Deferred taxation is based on tax rates that have been enacted or substantively enacted when the taxation is expected to be payable or recoverable. Deferred tax assets are only recognised if it is considered more likely than not that there will be sufficient future taxable profits to utilise them.
j) Investments
The Company’s business is investing in financial instruments with a view to profiting from their total return in the form of income and capital growth. This portfolio of investments is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided on that basis to the Company’s Board of Directors. Investments are measured at fair value with changes in fair value recognised in profit or loss, in accordance with the provisions of both Section 11 and Section 12 of FRS 102. The fair value of investments is initially taken to be their cost and is subsequently measured as follows:
· Listed investments are valued at bid prices, or last market prices, depending on the convention of the exchange on which they are listed; and
· Investments which are not quoted, or are not frequently traded, are stated at the best estimate of fair value. The Manager’s Fair Value Committee (FVC), which is independent of the Portfolio Manager’s team, and with support from the external valuer and Fidelity’s unlisted investments specialist, provides recommended fair values to the Directors. These are based on the principles outlined in Note 2 (b). The unlisted investments are valued at fair value following a detailed review and appropriate challenge by the Directors of the pricing methodology used by the FVC.
The techniques applied by the FVC when valuing the unlisted investments are predominantly market-based approaches. The market-based approaches are set out below and are followed by an explanation of how they are applied to the Company’s unlisted portfolio:
· Multiples;
· Industry Valuation Benchmarks; and
· Available Market Prices.
The nature of the unlisted investment will influence the valuation technique applied. The valuation approach recognises that the price of a recent investment, if resulting from an orderly transaction, generally represents fair value as at the transaction date and may be an appropriate starting point for estimating fair value at subsequent measurement dates. However, consideration is given to the facts and circumstances as at the subsequent measurement date, including changes in the market or performance of the investee company. Milestone analysis is used where appropriate to incorporate the operational progress of the investee company into the valuation. Consideration is also given to the input received from the Fidelity analyst that covers the company, Fidelity’s unlisted investments specialist and an external valuer. Additionally, the background to the transaction must be considered. As a result, various multiples-based techniques are employed to assess the valuations particularly in those companies with established revenues. An absence of relevant industry peers may preclude the application of the Industry Valuation Benchmarks technique and an absence of observable prices may preclude the Available Market Prices approach.
The unlisted investments are valued according to a three month cycle of measurement dates. The fair value of the unlisted investments will be reviewed before the next scheduled three monthly measurement date on the following occasions:
· At the year end and half year end of the Company; and
· Where there is an indication of a change in fair value (commonly referred to as ‘trigger’ events).
In accordance with the AIC SORP, the Company includes transaction costs, incidental to the purchase or sale of investments, within gains/(losses) on investments in the capital column of the Income Statement and has disclosed these costs in Note 9 below.
k) Derivative instruments
When appropriate, permitted transactions in derivative instruments are used. Some of the Company’s portfolio exposure to Japanese equities is achieved by investment in long CFDs. Long CFDs are classified as other financial instruments and are initially accounted and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value as follows:
· Long CFDs are the difference between the strike price and the value of the underlying shares in the contract.
l) Debtors
Debtors include securities sold for future settlement, accrued income, other debtors and prepayments incurred in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business, if longer) they are classified as current assets. If not, they are presented as non-current assets. They are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.
m) Cash collateral held with brokers
These are amounts held in segregated accounts on behalf of brokers as collateral against open derivative contracts. These are carried at amortised cost.
n) Other creditors
Other creditors include securities purchased for future settlement, investment management fees, other creditors and expenses accrued in the ordinary course of business and amounts payable for repurchase of shares. If payment is due within one year or less (or in the normal operating cycle of the business, if longer) they are classified as current liabilities. If not, they are presented as non-current liabilities. They are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.
o) Other reserve
The full cost of ordinary shares repurchased and held in
p) Capital reserve
The following are accounted for in the capital reserve:
· Gains and losses on the disposal of investments and derivative instruments;
· Changes in the fair value of investments and derivative instruments held at the year end;
· Foreign exchange gains and losses of a capital nature;
· Dividends receivable which are capital in nature;
· 80% of base investment management fees and finance costs;
· Variable investment management fees; and
· Other expenses which are capital in nature.
Technical guidance issued by the
3 INCOME
Year ended Year ended
31.12.23 31.12.22
£’000 £’000
Investment income
Overseas dividends 3,475 2,625
Derivative income
Dividends received on long CFDs 743 584
--------------- ---------------
Total income 4,218 3,209
========= =========
No special dividends have been recognised in capital during the reporting year (2022: £47,000).
4 INVESTMENT MANAGEMENT FEES
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment
management 344 1,377 1,721 334 1,336 1,670
fees –
base
Investment
management – (359) (359) – (72) (72)
fees –
variable1
--------------- --------------- --------------- --------------- --------------- ---------------
344 1,018 1,362 334 1,264 1,598
========= ========= ========= ========= ========= =========
1 For the calculation of the variable management fee element, the Company’s NAV return was compared to the Reference Index return on a daily basis. The period used to assess the performance is on a rolling three year basis.
FII charges base investment management fees at an annual rate of 0.70% of net assets. In addition, there is a +/- 0.20% variation fee based on performance relative to the Reference Index over a three year rolling period. Fees are payable monthly in arrears and are calculated on a daily basis.
The base investment management fee has been allocated 80% to capital reserve in accordance with the Company’s accounting policies.
Further details of the terms of the Management Agreement are given in the Annual Report.
5 OTHER EXPENSES
Year ended Year ended
31.12.23 31.12.22
£’000 £’000
Allocated to revenue:
AIC fees 18 20
Secretarial and administration fees payable to 50 50
the Investment Manager
Custody fees 13 19
Depositary fees 24 23
Directors’ expenses 43 29
Directors’ fees1 160 131
Legal and professional fees 70 82
Marketing expenses 166 177
Printing and publication expenses 61 70
Registrars’ fees 33 30
Other expenses 17 12
Fees payable to the Company’s Independent
Auditor for the audit of the Financial 53 47
Statements
--------------- ---------------
708 690
Allocated to capital:
Legal and professional fees – unlisted 4 15
investments
--------------- ---------------
Other expenses 712 705
========= =========
1 Details of the breakdown of Directors’ fees are provided in the Directors’ Remuneration Report in the Annual Report.
6 FINANCE COSTS
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Interest
paid on 24 94 118 24 94 118
long CFDs
Interest
paid on
collateral 3 12 15 3 12 15
and
deposits1
--------------- --------------- --------------- --------------- --------------- ---------------
27 106 133 27 106 133
========= ========= ========= ========= ========= =========
1 Due to negative interest rates during the current and prior year, the Company paid interest on its collateral and deposits.
Finance costs have been allocated 80% to capital reserve in accordance with the Company’s accounting policies.
7 TAXATION ON RETURN/(LOSS) ON ORDINARY ACTIVITIES
Year ended Year ended
31.12.23 31.12.22
£’000 £’000
a) Analysis of the taxation charge for the year
Overseas taxation 347 260
--------------- ---------------
Taxation charge for the year (see Note 7b) 347 260
========= =========
b) Factors affecting the taxation charge for the year
The taxation charge for the year is lower than the standard rate of
Year ended Year ended
31.12.23 31.12.22
£’000 £’000
Net return/(loss) on ordinary activities before 28,044 (75,737)
taxation
--------------- ---------------
Net return/(loss) on ordinary activities before
taxation multiplied by the blended rate of UK 6,596 (14,390)
corporation tax of 23.52% (2022: 19.00%)
Effects of:
Capital (gains)/losses not taxable1 (6,123) 14,537
Income not taxable (817) (499)
Expenses not deductible 23 19
Excess management expenses not utilised 321 333
Overseas taxation 347 260
--------------- ---------------
Taxation charge for the year (see Note 7a) 347 260
========= =========
1
The Company is exempt from
c) Deferred taxation
A deferred taxation asset of £8,886,000 (2022: £8,544,000), in respect of excess expenses of £35,543,000 (2022: £34,176,000) has not been recognised as it is unlikely that there will be sufficient future profits to utilise these expenses.
The
8 RETURN/(LOSS) PER ORDINARY SHARE
Year ended Year ended
31.12.23 31.12.22
Revenue return per ordinary share 2.17p 1.46p
Capital return/(loss) per ordinary share 19.33p (60.01p)
--------------- ---------------
Total return/(loss) per ordinary share 21.50p (58.55p)
========= =========
The return/(loss) per ordinary share is based on the net return/(loss) on ordinary activities after taxation for the year divided by the weighted average number of ordinary shares held outside of
£’000 £’000
Net revenue return on ordinary activities after 2,792 1,898
taxation
Net capital return/(loss) on ordinary activities 24,905 (77,895)
after taxation
--------------- ---------------
Net total return/(loss) on ordinary activities 27,697 (75,997)
after taxation
========= =========
Number Number
Weighted average number of ordinary shares held outside 128,843,583 129,812,318
of Treasury
========== ==========
9 INVESTMENTS
2023 2022
£’000 £’000
Listed investments 237,440 211,747
Unlisted investments 16,403 18,933
--------------- ---------------
Investments at fair value 253,843 230,680
========= =========
Opening book cost 242,067 265,540
Opening investment holding (losses)/gains (11,387) 42,198
--------------- ---------------
Opening fair value 230,680 307,738
========= =========
Movements in the year
Purchases at cost 158,947 153,886
Sales – proceeds (148,160) (166,367)
Gains/(losses) on investments 12,376 (64,577)
--------------- ---------------
Closing fair value 253,843 230,680
========= =========
Closing book cost 244,383 242,067
Closing investment holding gains/(losses) 9,460 (11,387)
--------------- ---------------
Closing fair value 253,843 230,680
========= =========
The Company received £148,160,000 (2022: £166,367,000) from investments sold in the year. The book cost of these investments when they were purchased was £156,631,000 (2022: £177,359,000). These investments have been revalued over time and until they were sold any unrealised gains/(losses) were included in the fair value of the investments.
Investment transaction costs
Transaction cost incurred in the acquisition and disposal of investments, which are included in the gains/(losses) on investments above, were as follows:
Year ended Year ended
31.12.23 31.12.22
£’000 £’000
Purchases transaction costs 57 61
Sales transaction costs 63 59
--------------- ---------------
120 120
========= =========
The portfolio turnover for the year was 63.6% (2022: 68.9%). The portfolio turnover rate measures the Company’s trading activity. It is calculated by taking the average of the total amount of securities purchased and the total amount of the securities sold in the reporting year divided by the average fair value of the investment portfolio of the Company.
10 DERIVATIVE INSTRUMENTS
Year ended Year ended
31.12.23 31.12.22
£’000 £’000
Gains/(losses) on derivative instruments
Gains/(losses) on long CFD positions closed 12,874 (11,017)
Movement in investment holding gains/(losses) on 1,425 (551)
long CFDs
--------------- ---------------
14,299 (11,568)
========= =========
Derivative instruments recognised on the Balance Sheet
2023 2022
Portfolio Portfolio
Fair value exposure Fair value exposure
£’000 £’000 £’000 £’000
Derivative
instrument 1,216 41,568 838 24,704
assets – long
CFDs
Derivative
instrument (53) 21,953 (1,100) 30,162
liabilities –
long CFDs
--------------- --------------- --------------- ---------------
1,163 63,521 (262) 54,866
========= ========= ========= =========
11 DEBTORS
2023 2022
£’000 £’000
Securities sold for future settlement 361 300
Accrued income 249 193
Other debtors and prepayments 98 120
--------------- ---------------
708 613
========= =========
12 OTHER CREDITORS
2023 2022
£’000 £’000
Securities purchased for future settlement 438 164
Creditors and accruals 285 327
Amounts payable for repurchase of shares 271 –
--------------- ---------------
994 491
========= =========
13 SHARE CAPITAL
2023 2022
Nominal Nominal
Number of value Number of value
shares £’000 shares £’000
Issued,
allotted
and fully
paid
Ordinary
shares of
25 pence
each held
outside of
Treasury
Beginning 129,701,893 32,425 129,876,894 32,469
of the year
Ordinary
shares
repurchased (3,615,644) (904) (175,001) (44)
into
Treasury
----------------- ----------------- ----------------- -----------------
End of the 126,086,249 31,521 129,701,893 32,425
year
========== ========== ========== ==========
Issued,
allotted
and fully
paid
Ordinary
shares of
25 pence
each held
in
Treasury1
Beginning 6,459,802 1,616 6,284,801 1,572
of the year
Ordinary
shares
repurchased 3,615,644 904 175,001 44
into
Treasury
----------------- ----------------- ----------------- -----------------
End of the 10,075,446 2,520 6,459,802 1,616
year
========== ========== ========== ==========
Total share 34,041 34,041
capital
========== ==========
1
Ordinary shares held in
The Company repurchased 3,615,644 ordinary shares (2022: 175,001 shares) and held them in
14 CAPITAL AND RESERVES
Share Capital Total
Share premium redemption Other Capital Revenue shareholders’
capital account reserve reserve reserve reserve funds
£’000 £’000 £’000 £’000 £’000 £’000 £’000
At 1
January 34,041 20,722 2,767 46,658 140,511 (8,327) 236,372
2023
Gains on
investments – – – – 12,376 – 12,376
(see Note
9)
Gains on
derivative
instruments – – – – 14,299 – 14,299
(see Note
10)
Foreign
exchange – – – – (642) – (642)
losses
Investment
management – – – – (1,018) – (1,018)
fees (see
Note 4)
Other
expenses – – – – (4) – (4)
(see Note
5)
Finance
costs (see – – – – (106) – (106)
Note 6)
Revenue
return on
ordinary
activities – – – – – 2,792 2,792
after
taxation
for the
year
Repurchase
of ordinary – – – (6,276) – – (6,276)
shares (see
Note 13)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31
December 34,041 20,722 2,767 40,382 165,416 (5,535) 257,793
2023
========= ========= ========= ========= ========= ========= =========
Share Capital Total
Share premium redemption Other Capital Revenue shareholders’
capital account reserve reserve reserve reserve funds
£’000 £’000 £’000 £’000 £’000 £’000 £’000
At 1
January 34,041 20,722 2,767 46,942 218,406 (10,225) 312,653
2022
Losses on
investments – – – – (64,577) – (64,577)
(see Note
9)
Losses on
derivative
instruments – – – – (11,568) – (11,568)
(see Note
10)
Foreign
exchange – – – – (365) – (365)
losses
Investment
management – – – – (1,264) – (1,264)
fees (see
Note 4)
Other
expenses – – – – (15) – (15)
(see Note
5)
Finance
costs (see – – – – (106) – (106)
Note 6)
Revenue
return on
ordinary
activities – – – – – 1,898 1,898
after
taxation
for the
year
Repurchase
of ordinary – – – (284) – – (284)
shares (see
Note 13)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31
December 34,041 20,722 2,767 46,658 140,511 (8,327) 236,372
2022
========= ========= ========= ========= ========= ========= =========
The capital reserve balance at
15 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based on the total shareholders’ funds divided by the number of ordinary shares held outside of
2023 2022
Total shareholders’ funds £257,793,000 £236,372,000
Ordinary shares held outside of Treasury at the year 126,086,249 129,701,893
end
Net asset value per ordinary share 204.46p 182.24p
=========== ============
It is the Company’s policy that shares held in
16 FINANCIAL INSTRUMENTS
Management of Risk
The Company’s investment activities in pursuit of its objective involve certain inherent risks. The Board confirms that there is an ongoing process for identifying, evaluating and managing the risks faced by the Company. The Board, with the assistance of the Manager, has developed a risk matrix which, as part of the internal control process, identifies the risks that the Company faces. Principal risks identified are: geopolitical; natural disaster; market, economic and currency; investment performance and gearing; discount control and demand; key person; Environment, Social and Governance (ESG); business continuity; cybercrime and information security. Other risks identified are tax and regulatory. Risks are identified and graded in this process, together with steps taken in mitigation, and are updated and reviewed on an ongoing basis. These risks and how they are identified, evaluated and managed are shown above.
This note refers to the identification, measurement and management of risks potentially affecting the value of financial instruments. The Company’s financial instruments may comprise:
· Equity shares held in accordance with the Company’s investment objective and policies;
· Derivative instruments which comprise CFDs; and
· Cash, liquid resources and short-term debtors and creditors that arise from its operations.
The risks identified arising from the Company’s financial instruments are market price risk (which comprises interest rate risk, foreign currency risk and other price risk), liquidity risk, counterparty risk, credit risk and derivative instrument risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies are consistent with those followed last year.
MARKET PRICE RISK
Interest rate risk
The Company finances its operations through its share capital and reserves. In addition, the Company has a geared exposure to Japanese equities through the use of long CFDs. The level of gearing is reviewed by the Board and the Portfolio Manager. The Company is exposed to a financial risk arising as a result of any increases in yen interest rates associated with the funding of the long CFDs.
Interest rate risk exposure
The values of the Company’s financial instruments that are exposed to movements in interest rates are shown below:
2023 2022
£’000 £’000
Exposure to financial instruments that bear
interest
Long CFDs – Portfolio exposure less fair value 62,358 55,128
--------------- ---------------
62,358 55,128
========= =========
Exposure to financial instruments that earn
interest
Cash collateral held with brokers – 276
Cash at bank 3,073 5,556
--------------- ---------------
3,073 5,832
========= =========
Net exposure to financial instruments that bear 59,285 49,296
interest
========= =========
Foreign currency risk
The Company’s net return/(loss) on ordinary activities after taxation for the year and its net assets may be affected by foreign exchange movements because the Company has income and assets which are denominated in yen whereas the Company’s functional currency is
Three principal areas have been identified where foreign currency risk may impact the Company:
· Movements in currency exchange rates affecting the value of investments and long CFDs;
· Movements in currency exchange rates affecting short-term timing differences; and
· Movements in currency exchange rates affecting income received.
Currency exposure of financial assets
The currency exposure profile of the Company’s financial assets is shown below:
2023
Long
Investments exposure to
held at derivative Cash at
fair value instruments Debtors bank Total
Currency £’000 £’000 £’000 £’000 £’000
Japanese 253,843 63,521 610 2,950 320,924
yen
UK – – 98 123 221
sterling
--------------- --------------- --------------- --------------- ---------------
253,843 63,521 708 3,073 321,145
========= ========= ========= ========= =========
2022
Long
Investments exposure to
held at derivative Cash at
fair value instruments Debtor1 bank Total
Currency £’000 £’000 £’000 £’000 £’000
Japanese 230,680 54,866 769 5,556 291,871
yen
UK – – 120 – 120
sterling
--------------- --------------- --------------- --------------- ---------------
230,680 54,866 889 5,556 291,991
========= ========= ========= ========= =========
1 Debtors include cash collateral held with brokers.
Currency exposure of financial liabilities
The currency profile of the Company’s financial liabilities is shown below:
2023 2022
Other Other
creditors creditors
Currency £’000 £’000
Japanese yen 439 165
UK sterling 555 326
--------------- ---------------
994 491
========= =========
Other price risk
Other price risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Board meets quarterly to consider the asset allocation of the portfolio and the risk associated with particular industry sectors within the parameters of the investment objective. The Portfolio Manager is responsible for actively monitoring the existing portfolio selected in accordance with the overall asset allocation parameters described above and seeks to ensure that individual stocks also meet an acceptable risk/reward profile. Other price risks arising from derivative positions, mainly due to the underlying exposures, are estimated using Value at Risk and Stress Tests as set out in the Company’s internal Risk Management Process Document.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with financial liabilities. The Company’s assets mainly comprise readily realisable securities and derivative instruments which can be sold easily to meet funding commitments if necessary. Short-term flexibility is achieved by the use of a bank overdraft, if required.
Liquidity risk exposure
At
Counterparty risk
Certain derivative instruments in which the Company may invest are not traded on an exchange but instead will be traded between counterparties based on contractual relationships, under the terms outlined in the International Swaps and Derivatives Association’s (ISDA) market standard derivative legal documentation. These are known as Over the Counter (OTC) trades. As a result, the Company is subject to the risk that a counterparty may not perform its obligations under the related contract. In accordance with the risk management process which the Investment Manager employs, this risk is minimised by only entering into transactions with counterparties which are believed to have an adequate credit rating at the time the transaction is entered into, by ensuring that formal legal agreements covering the terms of the contract are entered into in advance, and through adopting a counterparty risk framework which measures, monitors and manages counterparty risk by the use of internal and external credit agency ratings and by evaluating derivative instrument credit risk exposure.
Cash collateral
For derivative transactions, collateral is used to reduce the risk of both parties to the contract. Collateral is managed on a daily basis for all relevant transactions. At
Credit risk
Financial instruments may be adversely affected if any of the institutions with which money is deposited suffer insolvency or other financial difficulties. All transactions are carried out with brokers that have been approved by the Manager and are settled on a delivery versus payment basis. Limits are set on the amount that may be due from any one broker and are kept under review by the Manager. Exposure to credit risk arises on unsettled security transactions and long CFD contracts and cash at bank.
Derivative instrument risk
The risks and risk management processes which result from the use of long CFDs are included within the risk categories disclosed above. Long CFDs are used by the Manager to gain unfunded long exposure to equity markets, sectors or single stocks. Unfunded exposure is exposure gained without an initial outflow of capital. The risk and performance contribution of long CFDs held in the Company’s portfolio is overseen by the Manager’s experienced, specialist derivative instruments team that uses portfolio risk assessment and construction tools to manage risk and investment performance.
RISK SENSITIVITY ANALYSIS
Interest rate risk sensitivity analysis
Based on the financial instruments held and interest rates at
Foreign currency risk sensitivity analysis
Based on the financial instruments held and currency exchange rates at
Other price risk – exposure to investments sensitivity analysis
Based on the listed investments held and share prices at
Based on the unlisted investments held and share prices at
Other price risk – net exposure to derivative instruments sensitivity analysis
Based on the long CFDs held and share prices at
Fair Value of Financial Assets and Liabilities
Financial assets and liabilities are stated in the Balance Sheet at values which are not materially different to their fair values. As explained in Notes 2 (j) and (k), investments and derivative instruments are shown at fair value. In the case of cash at bank, book value approximates to fair value due to the short maturity of the instruments.
Fair Value Hierarchy
The Company is required to disclose the fair value hierarchy that classifies its financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.
Classification Input
Level 1 Valued using quoted prices in active markets for identical assets
Valued by reference to inputs other than quoted prices included
Level 2 in level 1 that are observable (i.e. developed using market data)
for the asset or liability, either directly or indirectly
Level 3 Valued by reference to valuation techniques using inputs that are
not based on observable market data
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. The valuation techniques used by the Company are explained in Notes 2 (j) and (k). The table below sets out the Company’s fair value hierarchy:
2023
Financial assets Level 1 Level 2 Level 3
at fair value £’000 £’000 £’000
through profit Total
or loss £’000
253,843
Investments 237,440 – 16,403
Derivative
instrument – 1,216 – 1,216
assets
--------------- --------------- --------------- ---------------
237,440 1,216 16,403 255,059
========= ========= ========= =========
Financial
liabilities at
fair value
through profit
or loss
Derivative
instrument – (53) – (53)
liabilities
========= ========= ========= =========
2022
Financial assets Level 1 Level 2 Level 3 Total
at fair value £’000 £’000 £’000 £’000
through profit
or loss
Investments 211,747 – 18,933 230,680
Derivative
instrument – 838 – 838
assets
--------------- --------------- --------------- ---------------
211,747 838 18,933 231,518
========= ========= ========= =========
Financial
liabilities at
fair value
through profit
or loss
Derivative
instrument – (1,100) – (1,100)
liabilities
========= ========= ========= =========
The table below sets out the fair value of the level 3 financial instruments, all of which are unlisted investments:
2023 2022
Book cost Level 3 Level 3
Name Business £’000 £’000 £’000
Online booking
Asoview website for 6,602 5,740 6,872
leisure
facilities
Japan’s largest
GO Inc ride-hailing 2,378 2,487 –
company
iYell Mortgage Fintech 2,641 2,189 2,469
company
Online
Studyplus educational 2,257 2,110 2,402
company
Developer of
Moneytree personal asset 3,016 1,832 2,564
management
applications
Online funeral
Yoriso planning 2,627 1,034 2,516
platform
Spiber Bio-tech company 2,512 1,011 1,823
Developer of
Innophys elderly care and – – 287
welfare
equipment
--------------- --------------- ---------------
End of the year 22,033 16,403 18,933
========= ========= =========
The valuation of
The valuation of all the other unlisted investments at
Year ended Year ended
31.12.23 31.12.22
Level 3 Level 3
Movements in level 3 financial instruments £’000 £’000
during the year:
Beginning of the year 18,933 17,201
Purchases at cost 2,378 2,257
Sales proceeds – Innophys (274) –
Sales loss – Innophys (639) –
Movement in investment holding losses (including (3,995) (525)
foreign exchange movement)
--------------- ---------------
End of the year 16,403 18,933
========= =========
17 CAPITAL RESOURCES AND GEARING
The Company does not have any externally imposed capital requirements. The financial resources of the Company comprise its share capital and reserves, as disclosed in the Balance Sheet above, and its gearing which is achieved through the use of long CFDs. Financial resources are managed in accordance with the Company’s investment policy and in pursuit of its objective, both of which are detailed in the Strategic Report in the Annual Report. The principal risks and their management are disclosed in the Strategic Report above and in Note 16 above.
18 TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the current fee arrangements are given in the Directors’ Report in the Annual Report and in Note 4 above. During the year, fees for portfolio management services of £1,362,000 (2022: £1,598,000) and secretarial and administration fees of £50,000 (2022: £50,000) were payable to FII. At the Balance Sheet date, net fees for portfolio management services of £106,000 (2022: £102,000) and secretarial and administration fees of £13,000 (2022: £13,000) were accrued and included in other creditors. FII also provides the Company with marketing services. The total amount payable for these services during the year was £166,000 (2022: £177,000). At the Balance Sheet date, marketing services of £18,000 (2022: £39,000) were accrued and included in other creditors.
Disclosures of the Directors’ interests in the ordinary shares of the Company and Directors’ fees and taxable expenses relating to reasonable travel expenses paid to the Directors are given in the Directors’ Remuneration Report in the Annual Report. In addition to the fees and taxable expenses disclosed in the Directors’ Remuneration Report, £14,000 (2022: £13,000) of Employers’ National Insurance Contributions was also paid by the Company. As at
ALTERNATIVE PERFORMANCE MEASURES
DISCOUNT/PREMIUM
The discount/premium is considered to be an Alternative Performance Measure. It is the difference between the NAV per ordinary share of the Company and the ordinary share price and is expressed as a percentage of the NAV per ordinary share. Details of the Company’s discount are on the Financial Highlights in the Annual Report and are both defined in the Glossary of Terms in the Annual Report.
GEARING
Gearing is considered to be an Alternative Performance Measure. See the Fair Value and Portfolio Exposure of Investments table in the Annual Report for details of the Company’s gearing. Gearing is defined in the Glossary of Terms in the Annual Report.
NET ASSET VALUE (NAV) PER ORDINARY SHARE
The NAV per ordinary share is considered to be an Alternative Performance Measure. See the Balance Sheet on and Note 15 above for further details.
ONGOING CHARGES RATIO
The ongoing charges ratio is considered to be an Alternative Performance Measure. It has been calculated in accordance with guidance issued by the AIC as the total of management fees and other expenses expressed as a percentage of the average net assets throughout the year.
2023 2022
Investment management fees (£’000) 1,721 1,670
Other expenses (£’000) 712 705
--------------- ---------------
Ongoing charges (£’000) 2,433 2,375
========= =========
Variable management fee (£’000) (359) (72)
Average net assets (£’000) 245,972 238,468
Ongoing charges ratio 0.99% 0.99%
Ongoing charges ratio including variable 0.84% 0.96%
management fee
========= =========
REVENUE, CAPITAL AND TOTAL RETURN PER ORDINARY SHARE
Revenue, capital and total returns per ordinary share are considered to be Alternative Performance Measures. See the Income Statement and Note 8 above for further details.
TOTAL RETURN PERFORMANCE
Total return performance is considered to be an Alternative Performance Measure.
The tables below provide information relating to the NAV per ordinary share and the ordinary share price of the Company, the impact of the dividend reinvestments and the total returns for the years ended
Net asset
value per Ordinary
ordinary share
2023 share price
31 December 2022 182.24p 164.75p
31 December 2023 204.46p 185.00p
--------------- ---------------
Total return for the year +12.2% +12.3%
========= =========
Net asset
value per Ordinary
ordinary share
2022 share price
31 December 2021 240.73p 229.00p
31 December 2022 182.24p 164.75p
--------------- ---------------
Total return for the year -24.3% -28.1%
========= =========
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended
A copy of the Annual Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at: www.morningstar.co.uk/uk/NSM
The Annual Report will be posted to shareholders later this month and additional copies will be available from the registered office of the Company and on the Company's website: www.fidelity.co.uk/japan where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
ENDS
