Atlantis Japan Growth Fund Ltd - Half-year Report
PR Newswire
London, December 20
ATLANTISJAPAN GROWTH FUND LIMITED
("AJGF" or the "Company")
(a closed-ended investment company incorporated in Guernsey with registration number 30709)
LEI 5493004IW0LDG0OPGL69
Interim Results for the six month financial period ended 31 October 2019
20 December 2019
(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)
The financial information set out below does not constitute the Company's statutory accounts for the financial period ended 31 October 2019.
The financial information for the financial period ended 31 October 2019 noted below is derived from the financial statements delivered to the UK Listing Authority.
The interim report and financial statements for the financial period ended 31 October 2019 will shortly be made available to shareholders on the Company website: www.atlantisjapangrowthfund.com
INTRODUCTION
INVESTMENT OBJECTIVE
Atlantis Japan Growth Fund Limited (the "Company") aims to achieve long term capital growth through investment wholly or mainly in listed Japanese equities.
INVESTMENT POLICY
The Company may invest up to 100 per cent of its gross assets in companies quoted on any Japanese stock exchange including, without limitation, the Tokyo Stock Exchange categorised as First Section, Second Section, JASDAQ, Mothers and Tokyo PRO, or the regional stock exchanges of Fukuoka, Nagoya and Sapporo. The Company's benchmark index is the TOPIX Total Return index "benchmark total return index" and the Company will not be restricted to investing in constituent companies of the benchmark.
The Company may also invest up to 20 per cent of its Net Asset Value (the "NAV") at the time of investment in companies listed or traded on other stock exchanges but which are either controlled and managed from Japan or which have a material exposure to the Japanese economy.
The Company may also invest up to 10 per cent of its NAV at the time of investment in securities which are neither listed nor traded on any stock exchange or over-the-counter market.
In general, investment will be through investments in equity shares in, or debt issued by, investee companies. However, the Company may also invest up to 20 per cent of its NAV at the time of investment in equity warrants and convertible debt.
The Company will not invest in more than 10 per cent of any class of securities of an investee company. The Company will not invest in derivative instruments save for the purpose of efficient portfolio management.
The Company may not invest more than 10 per cent in aggregate, of the value of its total assets in other listed closed-ended investment funds except in the case of investment in closed-ended investment funds which themselves have published investment policies to invest no more than 15 per cent of their total assets in other listed closed-ended investment funds, in which case the limit is 15 per cent.
The Company may borrow, with a view to enhancing capital returns, up to a maximum of an amount not exceeding 20 per cent of NAV at the time of borrowing.
There will be regular quarterly dividend payments of 1% of the Company's NAV (based on the average daily NAV in the final month of the financial year). The dividends will be paid out of capital reserves and will be paid in March, June, September and December.
No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.
INVESTMENT MANAGER AND INVESTMENT ADVISER
Quaero Capital LLP has been appointed as Investment Manager of the Company since 1 August 2014.
Atlantis Investment Research Corporation ("AIRC") has been appointed as the Investment Adviser to the Company since 1 August 2014.
AIRC, established in Tokyo, through Taeko Setaishi, as lead adviser, and her colleagues, advise the Investment Manager on the day-to-day conduct of the Company's investment business, the role it has played since the launch of the Company in May 1996.
CHAIRMAN'S STATEMENT
For the six month financial period ended 31 October 2019
The six month financial period ending 31 October 2019 proved to be a period of relative weakness when compared to the +26.6% NAV growth for the whole of 2019 calendar year to date. In the six months to 31 October 2019, the total return on net assets per share (net of fees and expenses) and in Sterling terms was +5.1%. This compares with the TOPIX Total Return index in Sterling terms, of +7.0%. The return to ordinary shareholders per share and in Sterling terms was +3.0%. As at 18 December, the performance in Sterling terms was +1.8% compared to the TOPIX Total Return Index of +1.1%.
This period of softer performance followed a robust start to the calendar year when global equity markets, for the most part, saw a strong rebound from a very weak October to December 2018. The Japanese market, in the main, has continued to be shunned by foreign investors who have remained net sellers of the equity market over the last two years. The lack of foreign investor interest is somewhat bemusing given the continued improvement in operating and shareholder returns and creates an opportunity for the Company to harvest positive returns over the longer term as and when foreign investors return.
The Company held its Annual General Meeting in September at which several important proposals were passed overwhelmingly by shareholders. To summarise, these included removing the redemption facility while introducing a new dividend policy. There are now regular quarterly dividend payments of 1% of the Company's NAV (based on the average daily NAV in the final month of the preceding financial year). These will be paid in March, June, September and December and are paid out of capital reserves. In addition, we announced a change to the fee structure starting in financial year 2020. Finally, I am pleased to report that shareholders voted overwhelmingly (99.9%) in favour of continuation of the Company at the AGM and the Board has committed to a four-yearly continuation vote with the next vote due at the 2023 AGM.
My fellow Board members and I are hopeful that these changes to the structure of the Company in addition to the excellent performance following the appointment of Taeko Setaishi as lead advisor back in May 2016 will continue to attract new investors to the Company. The performance over the period was 72.6% compared to the TOPIX Total Return Index of 49.6%.
Noel Lamb
20 December 2019
INVESTMENT ADVISER'S INTERIM REPORT
For the six month financial period ended 31 October 2019
PERFORMANCE
Japan may be a bystander in the U.S.-China trade dispute but progress made in negotiations, or lack thereof, had a profound impact on the Tokyo equity market over the six month financial period ended 31 October 2019. Through the summer months, investor sentiment oscillated between risk-on and risk-off. A 50% short sell ratio and intense non-resident selling was testimony to the market's lack of conviction. Sluggish corporate profits announced for both quarter 1 and quarter 2 of the fiscal year ending March 2020 also kept investors on the side-lines. Eventually the market began to function as a discounting mechanism towards the end of the period. Positive catalysts in the form of a partial trade deal, a Federal Reserve rate cut, an extended Wall Street rally, and the return of non-resident investors combined to spark a rally that took TOPIX and the Nikkei 225 to calendar year 2019 highs. The recovery was paced by technology and cyclical stocks.
For the six months to 31 October 2019 the Company reported, in Sterling and on a total return (TR) basis, a gain of 5.1%. This was marginally below the TOPIX TR performance (+7.0%) and the Nikkei 225 (+5.7%)) but ahead of the TSE2 (+2.2%) and the Nikkei OTC Average (+4.3%). Attribution analysis for the period indicates that the portfolio's over-exposure to electrical appliances, machinery, and real estate were well rewarded, however, its overweight in services detracted from performance. The Company's exposure to medium and smaller capitalised stocks boosted performance but was marginally penalised for its commitment to growth over value. Stocks that made positive contributions to performance included Lasertec, Japan Elevator Service, S-Pool, and Tri-Chemical Laboratories.
At 31 October 2019, the Company's borrowings totalled ¥1 billion (c.£7.2 million) and cash held was ¥371 million (c.£2.7 million). The Company's net gearing was 4.8% which compared to a gearing of 3.8% at the end of the previous financial year.
The Company ended the financial period with 62 holdings, level with that of 30 April 2019 and seven fewer than that of a year ago.
MARKET COMMENT AND INVESTMENT STRATEGY
Given the challenging macro-environment, corporate guidance for the remainder of the fiscal year ending March 2020 is cautious. The Investment Adviser expects pre-tax profits in the current financial year to decline 7%-9% on a flat sales performance with a 4%-6% earnings rebound in the subsequent fiscal year based on the assumption of a 2% to 3% sales recovery. On these estimates the Tokyo equity market is carrying a 15.7x forward Price to Earnings ratio and 1.3x Price to Book Ratio; these valuations are below their long term average ranges.
You might read the above as a somewhat gloomy outlook, however, the Investment Adviser is invested in those companies growing at a low double digit run rate with a much higher Return on Equity (ROE) of approximately 20% compared to the TOPIX average of approximately 8-9%. It is worth highlighting that smaller to mid-sized companies are generally more exposed to the secular growth opportunities within the Tokyo equity market.
Over the long term, Japan will have to contend with the negative effects of depopulation, a sizable public sector financial deficit, heavier welfare expenditure commitments and numerous geopolitical risks in its northeast Asian corner. The Investment Adviser believes Japan has the resources to deal with these challenges. This will result in structural changes to the economy with new investment opportunities emerging in health care, technology, consultant services and capital goods. It is mainly these newer areas of growth that leads the Investment Adviser to have a much higher sector exposure to the services sector category compared to the TOPIX benchmark weighting.
The Company's investment strategy will continue to utilise a bottom-up stock picking style to invest in fundamentally undervalued companies with strong competitive advantages and medium to long term growth potential. This approach does not exclude any company or sector from investment consideration and historically has resulted in a portfolio bias toward smaller and medium sized growth opportunities.
Atlantis Investment Research Corporation
20 December 2019
DIRECTORS' INTERIM REPORT AND STATEMENT OF DIRECTORS' RESPONSIBILITIES
For the six month financial period ended 31 October 2019
The Directors are pleased to present their Interim Report and Unaudited Condensed Financial Statements of the Company for the six month financial period ended 31 October 2019.
In the opinion of the Company's Directors, the condensed Directors' Interim Report and Unaudited Condensed Financial Statements enable investors to make an informed assessment of the results and activities of the Company for the financial period.
The Interim Report and Financial Statements have not been audited or reviewed by the Company's auditor.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm, to the best of our knowledge, that:
- the condensed Interim Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting;
- as required by DTR 4.2.7R of the FCA's Disclosure and Transparency Rules, the Directors' Interim Report and Investment Adviser's Interim Report include a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed Interim Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and;
- the Interim Financial Statements include a fair review of the information concerning related party transactions required by DTR 4.2.8R.
CAPITAL VALUES
At 31 October 2019 the value of net assets available to shareholders was £106,315,080 (30 April 2019: £107,290,867) and the NAV per share was £2.54 (30 April 2019: £2.42).
PRINCIPAL RISKS AND UNCERTANTIES
As an investment trust, the Company invests in securities for the long term. The financial investments held as assets by the Company comprise equity shares (see the Schedule of Investments on pages 12 to 14 for a breakdown). As such, the holding of securities, investing activities and financing associated with the implementation of the investment policy involves certain inherent risks. Events may occur that could result in either a reduction in the Company's net assets or a reduction of revenue profits available for distribution.
Set out below are the principal risks inherent in the Company's activities along with the actions taken to manage them. The Directors conduct robust reviews of these risks and agrees policies for their management. These policies have remained substantially unchanged since 30 April 2006.
Performance
The Directors regularly monitor the Company's investment performance against a number of indices and the Association of Investment Companies ("AIC") Japanese smaller companies' sub-sector peer group.
Discount
The Board reviews the discount level on a regular basis and will opportunistically buy back stock if the discount is perceived to be too wide. During the financial period 313,000 shares were bought back for a total cost of £692,399.
Continuation Vote
Following the passing of the continuation vote at the September 2019 AGM the Company has instigated a regular 4 yearly continuation vote, with the next vote due at the September AGM in 2023.
New Dividend Policy and Former Redemption Facility
At the 2019 AGM, shareholders approved the Board's recommendation to replace the six monthly redemption facility with a regular dividend paid to all shareholders on a quarterly basis set at 1% of net asset value at the close of the preceding financial year. The quarterly dividend will be paid out of capital resources at the end of each calendar quarter. The December 2019 and March 2020 dividend payments will be made at the rate of 2.37p per share, being the average daily NAV per share in the final month of our financial year ended 30 April 2019. Future quarterly dividend payments will be made at the rate determined annually and based on average daily NAV per share in the final month of the preceding financial year.
The final Redemption Facility in September 2019 resulted in the cancellation of 2,199,714 shares for a cost of £5,625,769.
Regulatory
The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 1158 of the Corporation Tax Act 2010, The Companies (Guernsey) Law, 2008, the UKLA Listing Rules and the DTR, could lead to a number of detrimental outcomes and reputational damage. The Company conforms with the Alternative Investment Fund Managers Directive ("AIFMD"). The Board relies on the services of the Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited, and its professional advisers to ensure compliance with The Companies (Guernsey) Law, 2008, the POI law, the UKLA Listing Rules and Prospectus Rules, the DTR and the rules of the London Stock Exchange.
Operational
Like most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Investment Manager, Investment Adviser and the Company's Administrator. The security, for example, of the Company's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements depends on the effective operation of these systems. These are regularly tested and monitored.
Market risk
Market 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 market risk is monitored by the Directors on a quarterly basis and on a daily basis by the Investment Manager.
Currency risk
The Company's results for the financial period and net assets could be significantly affected by currency movements as most of the Company's assets are denominated in JPY. In order to reduce this risk the Company may hedge its exposure to the JPY. The Company did not have any hedging arrangements in place as at 31 October 2019 and 30 April 2019.
Borrowing and interest rate risk
The Company finances its operations mainly through its share capital and retained profits, including realised and unrealised capital profits. Additional bank borrowings may be used with a view to enhancing capital returns. However, the Company's Articles of Incorporation provide that borrowing levels should not exceed 20% of NAV at the time any borrowing is affected. The level of net borrowing as at 31 October 2019 was 4.8% (30 April 2019: 3.8%).
Liquidity risk and cash flow risk
Assuming a normal market environment, the majority of the Company's assets comprise readily realisable securities, which can be sold to meet funding commitments as necessary. As at 31 October 2019 based on the assumption of one third of the volume for the last three months average volume, 90.4% (31 October 2018: 96.9%) of the Company's assets can be realised within two weeks, 6.4% (31 October 2018: 3.1%) can be realised in between two weeks and one month with the balance of 3.2% (31 October 2018: nil) realised between one and two months.
GOING CONCERN
The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. Whilst the Company is obliged to hold a continuation vote every 4 years, the Directors do not believe this should automatically trigger the adoption of a non-going concern basis. A continuation vote was held at the most recent annual general meeting on 12 September 2019, whereby the resolution was passed for the Company to continue in existence. This is in line with the AIC's Statement of Recommended Practice ("SORP") which states that it is more appropriate to prepare financial statements on a going concern basis unless a continuation vote has already been triggered and shareholders have voted against continuation. Therefore, the Directors believe the use of the going concern basis is appropriate as there are no material uncertainties relating to events or conditions that may cast significant doubt about the ability of the Company to continue to meet its ongoing obligations.
BOARD OF DIRECTORS COMPOSITION
There were no changes to the Board of Directors during the financial period.
Noel LambPhilip Ehrmann
Chairman Chairman, Audit Committee
20 December 2019
DETAILS OF TEN LARGEST INVESTMENTS
The ten largest investments comprise a fair value of £33,643,940 (30 April 2019: £30,688,249) representing 31.6% of the Net Asset Value (30 April 2019: 28.6%) with details as below:
Japan Elevator Service Holdings (200,000 shares)
Japan Elevator Service is the leading independent elevator maintenance service provider which has used its technical strength (remote low-cost inspections) and marketing capabilities to build share and expand geographic reach to the Kansai region. The company benefits from elevator manufacturers withdrawing from the maintenance service market and is directing cash flow to acquisitions.
Fair value of £4,174,349 representing 3.9% of the Net Asset Value (30 April 2019: 3.3%)
Lasertec (740,000 shares)
With 100% market share, Lasertec is the global leader in the assembly and distribution of semiconductor mask defect and mask blank inspection systems. Lasertec has also successfully penetrated the semiconductor wafer inspection market. The company is fabless and works closely with customers to develop equipment that meets client needs.
Fair value of £4,125,708 representing 3.9% of the Net Asset Value (30 April 2019: 2.5%)
Nidec (33,000 shares)
Nidec is the world's leading small precision electric motor maker with particular application in hard disk drives. Through a highly active and successful global M&A strategy Nidec has also become a major supplier of mid and large sized motors. The company has a proven management team focused on creating shareholder value.
Fair value of £3,774,728 representing 3.5% of the Net Asset Value (30 April 2019: 3.4%)
Hikari Tsushin (20,000 shares)
Hikari Tsushin is a sales organisation with 1,000 shops targeting individuals and SMEs. Hikari has diversified from distributing business equipment and mobile phones to a variety of other products and services including water coolers, electric power, mobile wi-fi routers, and insurance.
Fair value of £3,387,837 representing 3.2% of the Net Asset Value (30 April 2019: 2.6%)
Asahi Intecc (155,000 shares)
Asahi Intecc manufactures ultra-fine stainless steel wire and has evolved into a major assembler of angiographic catheters and PTCA guidewires. Asahi remains cost competitive by utilising off-shore production facilities and independent direct sales.
Fair value of £3,295,745 representing 3.1% of the Net Asset Value (30 April 2019: 2.9 %)
Nihon M&A Center (130,000 shares)
Nihon M&A provides M&A consulting and advisory services to small and medium sized companies. It seeks to match growth oriented companies looking to expand market share with small and medium sized firms with an uncertain outlook due to succession problems or structural business changes. Employee compensation is largely based on performance. Nihon M&A Center has opened a Singapore office to enhance its cross border capabilities.
Fair value of £3,060,004 representing 2.9% of the Net Asset Value (30 April 2019: 2.6%)
S-Pool (650,000 shares)
S-Pool initially focused on sales support and outsourcing services for call centres and logistics management leveraging off its own warehouses. Several non-core businesses have been spun off. The company has found new growth opportunities in supporting the employment of the disabled and in agricultural related businesses. S-Pool also offers placement services to the disabled.
Fair value of £3,032,270 representing 2.8% of the Net Asset Value (30 April 2019: 2.1%)
Tokyo Electron (19,000 shares)
Tokyo Electron is the third leading global assembler of semiconductor production equipment with particular strength in the front-end processes (coater/developers, etching systems, and film deposition devices). Tokyo Electron is also a major supplier of flat panel display and OLED production equipment.
Fair value of £2,982,669 representing 2.8% of the Net Asset Value (30 April 2019: 2.2%)
Keyence Corporation (6,000 shares)
Keyence is the leading maker of detection and measuring control equipment, particularly factory automation sensors. Uniquely, Keyence employs a direct sales business model which fosters close relationships with customers who are in the semiconductor, LCD, foodstuffs, and pharmaceutical sectors. Keyence is a fabless company with all production outsourced to affiliates. Its senior management is highly regarded for its disciplined financial targets.
Fair value of £2,936,409 representing 2.8% of the Net Asset Value (30 April 2019: 2.7%)
TKP (85,000 shares)
TKP manages and operates rental meeting rooms for corporate clients as well as other large facilities with meeting rooms and banquet halls. TKP keeps costs low by acquiring large facilities on a long term basis and leases them out on a short term, e.g., hourly, basis. The company also provides food, beverages, and other services for meetings. TKP plans to build hotels in Japan's major cities and has been actively expanding overseas in New York, Singapore, and Hong Kong.
Fair value of £2,874,221 representing 2.7% of the Net Asset Value (30 April 2019: 2.7%)
UNAUDITED SCHEDULE OF INVESTMENTS
As at 31 October 2019
| Fair Value | ||||||||||||||||||||
| Holdings | Financial assets at fair value through profit or loss | £'000 | % of NAV | |||||||||||||||||
| Advertising: 0.88% (30 April 2019: 0.52%) | ||||||||||||||||||||
| 100,000 | Aidma Marketing Communication | 438 | 0.41 | |||||||||||||||||
| 90,000 | Tow | 496 | 0.47 | |||||||||||||||||
| Chemicals: 4.16% (30 April 2019: 4.48%) | ||||||||||||||||||||
| 45,000 | KH Neochem | 850 | 0.80 | |||||||||||||||||
| 150,900 | Mitsubishi Chemical | 891 | 0.84 | |||||||||||||||||
| 53,000 | Tri Chemical Laboratories | 2,684 | 2.52 | |||||||||||||||||
| Commercial Services: 26.61% (30 April 2019: 27.83%) | ||||||||||||||||||||
| 135,000 | Aoyama Zaisan Networks | 1,571 | 1.48 | |||||||||||||||||
| 140,000 | Benefit One | 2,194 | 2.06 | |||||||||||||||||
| 320,000 | Creek & River | 2,615 | 2.46 | |||||||||||||||||
| 160,000 | Fullcast Holdings | 2,579 | 2.43 | |||||||||||||||||
| 107,500 | Funai Soken | 2,005 | 1.88 | |||||||||||||||||
| 133,000 | Hirayama | 1,104 | 1.04 | |||||||||||||||||
| 60,000 | Insource | 1,240 | 1.17 | |||||||||||||||||
| 52,000 | Kanamoto | 1,078 | 1.01 | |||||||||||||||||
| 130,000 | Nihon M&A Center | 3,060 | 2.88 | |||||||||||||||||
| 65,000 | Phil | 1,726 | 1.62 | |||||||||||||||||
| 9,000 | Prored Partners | 555 | 0.52 | |||||||||||||||||
| 75,000 | Recruit Holdings | 1,926 | 1.81 | |||||||||||||||||
| 250,000 | Riso Kyoiku | 741 | 0.70 | |||||||||||||||||
| 650,000 | S-Pool | 3,033 | 2.85 | |||||||||||||||||
| 85,000 | TKP | 2,874 | 2.70 | |||||||||||||||||
| Distribution/Wholesale: 1.41% (30 April 2019: 1.90%) | ||||||||||||||||||||
| 80,000 | Trusco Nakayama | 1,497 | 1.41 | |||||||||||||||||
| Diversified Financial Services: 0.81% (30 April 2019: 1.40%) | ||||||||||||||||||||
| 480,000 | Aiful | 864 | 0.81 | |||||||||||||||||
| Electronics: 9.89% (30 April 2019: 9.49%) | ||||||||||||||||||||
| 140,000 | Chino | 1,439 | 1.35 | |||||||||||||||||
| 150,000 | Idec | 2,367 | 2.23 | |||||||||||||||||
| 6,000 | Keyence Corporation | 2,936 | 2.76 | |||||||||||||||||
| 33,000 | Nidec | 3,775 | 3.55 | |||||||||||||||||
| Energy-Alternate Sources: 0.65% (30 April 2019: 0.00%) | ||||||||||||||||||||
| 100,000 | Renova | 689 | 0.65 | |||||||||||||||||
| Hand/Machine Tools: 1.44% (30 April 2019: 1.11%) | ||||||||||||||||||||
| 9,000 | Disco | 1,528 | 1.44 | |||||||||||||||||
| Healthcare-Products: 4.23% (30 April 2019: 2.90%) | ||||||||||||||||||||
| 155,000 | Asahi Intecc | 3,296 | 3.10 | |||||||||||||||||
| 90,000 | Japan Medical Dynamic Marketing | 1,207 | 1.13 | |||||||||||||||||
| Healthcare-Services: 4.85% (30 April 2019: 6.45%) | ||||||||||||||||||||
| 120,000 | Advantage Risk Management | 876 | 0.82 | |||||||||||||||||
| 74,000 | PeptiDream | 2,873 | 2.70 | |||||||||||||||||
| 160,000 | Solasto | 1,411 | 1.33 | |||||||||||||||||
| Internet: 2.92% (30 April 2019: 4.78%) | ||||||||||||||||||||
| 60,000 | Bengo4.com | 2,138 | 2.01 | |||||||||||||||||
| 54,000 | Bplats | 966 | 0.91 | |||||||||||||||||
| Leisure Time: 0.00% (30 April 2019: 1.05%) | ||||||||||||||||||||
| Lodging: 1.78% (30 April 2019: 2.04%) | ||||||||||||||||||||
| 55,500 | Kyoritsu Maintenance | 1,898 | 1.78 | |||||||||||||||||
| Machinery-Construction & Mining: 0.94% (30 April 2019: 0.92%) | ||||||||||||||||||||
| 90,000 | Mitsubishi Electric | 996 | 0.94 | |||||||||||||||||
| Machinery-Diversified: 10.57% (30 April 2019: 10.57%) | ||||||||||||||||||||
| 50,000 | Daifuku | 2,066 | 1.94 | |||||||||||||||||
| 200,000 | Japan Elevator Service Holdings | 4,174 | 3.93 | |||||||||||||||||
| 115,000 | Nittoku Engineering | 2,625 | 2.47 | |||||||||||||||||
| 370,000 | Yamashin-Filter | 2,368 | 2.23 | |||||||||||||||||
| Metal Fabricate/Hardware: 1.35% (30 April 2019: 1.27%) | ||||||||||||||||||||
| 150,000 | Okada Aiyon | 1,438 | 1.35 | |||||||||||||||||
| Pharmaceuticals: 1.50% (30 April 2019: 0.00%) | ||||||||||||||||||||
| 130,000 | Elan | 1,594 | 1.50 | |||||||||||||||||
| Real Estate: 1.84% (30 April 2019: 1.07%) | ||||||||||||||||||||
| 150,000 | House Do | 1,962 | 1.84 | |||||||||||||||||
| REITS: 4.68% (30 April 2019: 3.11%) | ||||||||||||||||||||
| 1,900 | Industrial & Infrastructure Fund Investment Reits | 2,288 | 2.15 | |||||||||||||||||
| 2,500 | MCUBS MidCity Investment | 2,229 | 2.10 | |||||||||||||||||
| 600 | Renewable Japan Energy Infrastructure Fund | 456 | 0.43 | |||||||||||||||||
| Retail: 3.80% (30 April 2019: 2.23%) | ||||||||||||||||||||
| 80,000 | Komeda | 1,199 | 1.13 | |||||||||||||||||
| 14,000 | Monogatari | 932 | 0.88 | |||||||||||||||||
| 110,000 | QB Net Holdings | 1,899 | 1.79 | |||||||||||||||||
| Semiconductors: 9.69% (30 April 2019: 7.39%) | ||||||||||||||||||||
| 50,000 | Inter Action | 787 | 0.74 | |||||||||||||||||
| 220,000 | Japan Material | 2,401 | 2.26 | |||||||||||||||||
| 74,000 | Lasertec | 4,126 | 3.88 | |||||||||||||||||
| 19,000 | Tokyo Electron | 2,983 | 2.81 | |||||||||||||||||
| Software: 1.11% (30 April 2019: 4.09%) | ||||||||||||||||||||
| 48,000 | Cresco | 1,183 | 1.11 | |||||||||||||||||
| Telecommunications: 4.90% (30 April 2019: 5.29%) | ||||||||||||||||||||
| 20,000 | Hikari Tsushin | 3,388 | 3.19 | |||||||||||||||||
| 160,000 | Vision Inc/Tokyo Japan | 1,814 | 1.71 | |||||||||||||||||
| Transportation: 4.06% (30 April 2019: 3.92%) | ||||||||||||||||||||
| 50,000 | Fuji Kyuko | 1,541 | 1.45 | |||||||||||||||||
| 18,000 | Hamakyorex | 476 | 0.45 | |||||||||||||||||
| 90,000 | Naigai Trans Line | 979 | 0.92 | |||||||||||||||||
| 60,000 | Nippon Concept | 624 | 0.59 | |||||||||||||||||
| 15,000 | Sakai Moving Service | 692 | 0.65 | |||||||||||||||||
| Total Japan: (30 April 2019: 103.81%) | 110,640 | 104.07 | ||||||||||||||||||
| Total listed equities: (30 April 2019: 103.81%) | 110,640 | 104.07 | ||||||||||||||||||
| Total investments held at fair value through profit or loss | 110,640 | 104.07 | ||||||||||||||||||
| Cash and cash equivalents (30 April 2019: 1.98%) | 2,644 | 2.49 | ||||||||||||||||||
| Other net liabilities (30 April 2019: (5.79%)) | (6,969) | (6.56) | ||||||||||||||||||
| Net assets attributable to equity shareholders | 106,315 | 100.00 | ||||||||||||||||||
UNAUDITED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
For the six month financial period ended 31 October 2019
| 31 October 2019 | 31 October 2018 (restated*) | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Income | ||||||||
| 4 | Net gains/(losses) on investments held at fair value through profit or loss | - | 5,250 | 5,250 | - | (9,636) | (9,636) | |
| Net gains/(losses) on foreign exchange | - | 218 | 218 | - | (245) | (245) | ||
| Dividend income | 630 | - | 630 | 626 | - | 626 | ||
| Redemption fee paid to Company | 347 | - | 347 | 403 | - | 403 | ||
| 977 | 5,468 | 6,445 | 1,029 | (9,881) | (8,852) | |||
| Expenses | ||||||||
| 6 | Investment management fees | (536) | - | (536) | (600) | - | (600) | |
| 7 | Depositary fees | (44) | - | (44) | (50) | - | (50) | |
| 8 | Administration fees | (72) | - | (72) | (74) | - | (74) | |
| Registrar and transfer agent fees | (15) | - | (15) | (15) | - | (15) | ||
| 9 | Directors' fees and expenses | (86) | - | (86) | (64) | - | (64) | |
| Insurance fees | (3) | - | (3) | (2) | - | (2) | ||
| Audit fees | (25) | - | (25) | (20) | - | (20) | ||
| Printing and advertising fees | (7) | - | (7) | (9) | - | (9) | ||
| Legal and professional fees | (41) | - | (41) | (44) | - | (44) | ||
| 10 | Research costs | (87) | - | (87) | - | - | - | |
| Miscellaneous expenses | (25) | - | (25) | (28) | - | (28) | ||
| (941) | - | (941) | (906) | - | (906) | |||
| Finance cost | ||||||||
| Interest expense and bank charges | (66) | - | (66) | (52) | - | (52) | ||
| (Loss)/profit before taxation | (30) | 5,468 | 5,438 | 71 | (9,881) | (9,810) | ||
| 11 | Taxation | (96) | - | (96) | (96) | - | (96) | |
| (Loss)/profit for the financial period | ||||||||
| (126) | 5,468 | 5,342 | (25) | (9,881) | (9,906) | |||
| Total comprehensive (loss)/income for the financial period | (126) | 5,468 | 5,342 | (25) | (9,881) | (9,906) | ||
| 12 | Basic and diluted (deficit)/earnings per ordinary share | |||||||
| £(0.003) | $0.125 | $0.122 | £(0.001) | £(0.204) | £(0.205) | |||
*The comparative Unaudited Condensed Statement of Comprehensive Income has been restated and does not correspond to the Financial Statements for the financial period ended 31 October 2018 (refer to Note 3 for more details).
In arriving at the result for the financial period, all amounts above relate to continuing activities.
The total column in this statement represents the Company's Unaudited Condensed Statement of Comprehensive Income, prepared in accordance with IAS 34. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.
The notes below form an integral part of these financial statements.
UNAUDITED CONDENSED STATEMENT OF CHANGES IN EQUITY
For the six month financial period ended 31 October 2019
| Accumulated | |||||||||||||||||
| Capital | Capital | Capital | other | ||||||||||||||
| Ordinary Share | Share | Revenue | reserve/ | reserve/ | reserve/ | comprehensive | |||||||||||
| capital | premium | reserve | realised | unrealised | exchange | income | Total | ||||||||||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Balances at 1 May 2019 | - | - | (21,492) | 78,393 | 58,896 | (14,649) | 6,143 | 107,291 | |||||||||
| Movements during the financial period | |||||||||||||||||
| 17 | Redemptions | - | (5,626) | - | - | - | - | - | (5,626) | ||||||||
| 14 | Shares bought into treasury | - | - | (692) | - | - | - | - | (692) | ||||||||
| Transfer to capital reserve from share premium | - | 5,626 | - | (5,626) | - | - | - | - | |||||||||
| 4 | Net realised gains on investments held at fair value through profit or loss | - | - | 907 | (907) | - | - | - | - | ||||||||
| 4 | Net unrealised gains on investments held at fair value through profit or loss | - | - | 4,343 | - | (4,343) | - | - | - | ||||||||
| Net gain on foreign exchange | - | - | (218) | - | - | 218 | - | - | |||||||||
| Total comprehensive income | - | - | 5,342 | - | - | - | - | 5,342 | |||||||||
| Balances at 31 October 2019 | - | - | (11,810) | 71,860 | 54,553 | (14,431) | 6,143 | 106,315 | |||||||||
The notes below form an integral part of these financial statements.
For the six month financial period ended 31 October 2018 (restated*)
| Accumulated | |||||||||||||||||
| Capital | Capital | Capital | other | ||||||||||||||
| Ordinary Share | Share | Revenue | reserve/ | reserve/ | reserve/ | comprehensive | |||||||||||
| capital | premium | reserve | realised | unrealised | exchange | income | Total | ||||||||||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||
| Balances at 1 May 2018 | - | - | (20,402) | 83,932 | 63,442 | (14,377) | 6,143 | 118,738 | |||||||||
| Movements during the financial period | |||||||||||||||||
| 17 | Redemptions | - | (6,812) | - | - | - | - | - | (6,812) | ||||||||
| Transfer to capital reserve from share premium | - | 6,812 | - | (6,812) | - | - | - | - | |||||||||
| 4 | Net realised gains on investments held at fair value through profit or loss | - | - | (4,881) | 4,881 | - | - | - | - | ||||||||
| 4 | Net unrealised gains on investments held at fair value through profit or loss | - | - | 14,517 | - | (14,517) | - | - | - | ||||||||
| Net gain on foreign exchange | - | - | 245 | - | - | (245) | - | - | |||||||||
| Total comprehensive income | - | - | (9,906) | - | - | - | - | (9,906) | |||||||||
| Balances at 31 October 2018 | - | - | (20,427) | 82,001 | 48,925 | (14,622) | 6,143 | 102,020 | |||||||||
*The comparative Unaudited Condensed Statement of Changes in Equity has been restated and does not correspond to the Financial Statements for the financial period ended 31 October 2018 (refer to Note 3 for more details).
The notes below form an integral part of these financial statements.
UNAUDITED CONDENSED STATEMENT OF FINANCIAL POSITION
As at 31 October 2019
| 31 October 2019 | 30 April 2019 | ||||
| Notes | £'000 | £'000 | |||
| Non-current assets | |||||
| 15 | Investments held at fair value through profit or loss | 110,640 | 111,380 | ||
| Current assets | |||||
| Cash and cash equivalents | 2,644 | 2,125 | |||
| Due from brokers | 868 | 669 | |||
| Dividens receivable | 224 | 398 | |||
| Prepaid expenses and other receivables | 13 | 8 | |||
| 3,749 | 3,200 | ||||
| Current liabilities | |||||
| Due to brokers | (655) | (91) | |||
| Payables and accrued expenses | (308) | (265) | |||
| 13 | Loans payable | (7,111) | (6,933) | ||
| (8,074) | (7,289) | ||||
| Net current liabilities | (4,325) | (4,089) | |||
| 16 | Net assets | 106,315 | 107,291 | ||
| Equity | |||||
| Revenue reserve | (11,810) | (25,059) | |||
| Capital reserve | 111,982 | 126,207 | |||
| Accumulated other comprehensive income | 6,143 | 6,143 | |||
| Net assets attributable to equity shareholders | 106,315 | 107,291 | |||
| Net asset value per ordinary share* | £2.54 | £2.42 | |||
*Based on the Net Asset Value at the financial period/year end divided by the number of shares in issue: 41,794,570 (30 April 2019: 44,307,284) (See Note 16).
Approved by the Board of Directors on 20 December 2019.
The notes below form an integral part of these financial statements.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
For the six month financial period ended 31 October 2019
| 31 October 2019 | 31 October 2018 (restated*) | ||||
| £'000 | £'000 | ||||
| Notes | |||||
| Cash flows from operating activities | |||||
| Profit/(Loss) before taxation | 5,438 | (9,810) | |||
| Adjustments to reconcile profit before taxation to net cash flows from operating activities | |||||
| Interest expense and bank charges | 66 | 52 | |||
| Net (gain)/loss on investments held at fair value through profit or loss | (5,250) | 9,636 | |||
| Net gain on loan | 179 | 282 | |||
| (Increase)/decrease in due from brokers | (199) | 662 | |||
| Decrease in dividends receivable | 174 | 198 | |||
| (Increase)/decrease in prepaid expenses and other receivables | (5) | 13 | |||
| Increase/(decrease) in due to brokers | 564 | (442) | |||
| Increase/(decrease) in payables and accrued expenses | 43 | (14) | |||
| Taxation paid | (96) | (96) | |||
| 914 | 481 | ||||
| Purchase of investments | (25,375) | (35,721) | |||
| Sale of investments | 31,363 | 40,970 | |||
| 5,988 | 5,249 | ||||
| Net cash inflow from operating activities | 6,902 | 5,730 | |||
| Cash flows used in financing activities | |||||
| Interest paid | (65) | (49) | |||
| 17 | Redemptions | (5,626) | (6,812) | ||
| 14 | Shares bought into treasury | (692) | - | ||
| Net cash (outflow) from financing activities | (6,383) | (6,861) | |||
| Net increase/(decrease) in cash and cash equivalents | 519 | (1,131) | |||
| Cash and cash equivalents at beginning of financial period | 2,125 | 3,364 | |||
| Cash and cash equivalents at end of financial period | 2,644 | 2,233 | |||
*The comparative Unaudited Condensed Statement of Cash Flows has been restated and does not correspond to the Financial Statements for the financial period ended 31 October 2018 (refer to Note 3 for more details).
The notes below form an integral part of these financial statements.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
For the six month financial period ended 31 October 2019
1. GENERAL INFORMATION
Atlantis Japan Growth Fund Limited (the "Company") was incorporated in Guernsey on 13 March 1996. The Company commenced activities on 10 May 1996. The Company is an authorised closed-ended investment scheme registered and domiciled in P.O. Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL, Channel Islands. The Company's equity shares are traded on the London Stock Exchange.
As an investment trust, the Company is not regulated as a collective investment scheme by the Financial Conduct Authority. However, it is subject to the UKLA Listing Rules, Prospectus Rules, Disclosure Guidance and Transparency Rules and the rules of the London Stock Exchange.
The Company's investment objective is to achieve long term capital growth through investing wholly or mainly in listed Japanese equities.
The Company's investment activities are managed by Quaero Capital LLP ("Investment Manager") with the administration delegated to Northern Trust International Fund Administration Services (Guernsey) Limited.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The Unaudited Condensed Financial Statements for the six month financial period ended 31 October 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting and the Association of Investment Companies ("AIC") Statement of Recommended Practice ("SORP") for Investment Trust Companies and Venture Capital Trusts to the extent it is not in conflict with IAS 34 and the Principal Documents.
The Unaudited Condensed Financial Statements do not include all of the information required for annual financial statements, and should be read in conjunction with the Company's Financial Statements as at and for the financial year ended 30 April 2019 which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). These Unaudited Condensed Financial Statements have not been audited or have not been reviewed by the Company's auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.
The significant accounting policies adopted in these Unaudited Condensed Financial Statements are consistent with those applied by the Company in its Financial Statements as at and for the financial year ended 30 April 2019.
3. CHANGE IN ACCOUNTING POLICY AND PRESENTATION CURRENCY
For the most recent financial year ended 30 April 2019, the Directors resolved to change the Company's presentation currency from USD to GBP in order to conform the presentation currency with the functional currency. The Company is traded on the London Stock Exchange in GBP and the change brought the Company into line with the other companies in its peer group. The Company believed this would lead to more reliable and relevant comparison for users.
The change of presentation currency is applied retrospectively for the 2019 and 2018 comparative figures. Assets and liabilities were translated into GBP at the relevant closing rates of exchange. Trading results in the Statement of Comprehensive Income ("SOCI") were translated into GBP at the relevant average rates of exchange. Share capital, share premium and other reserves were translated at the historical rates prevailing at the dates of transactions. The cumulative foreign currency translation reserve is set to nil. The relevant exchange rates used are disclosed in note 19.
4. NET GAINS/(LOSSES) ON INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
| 31 October 2019 | 31 October 2018 (restated*) | |||
| £'000 | £'000 | |||
| Realised gains on investments held at fair value through profit or loss | 3,563 | 7,205 | ||
| Realised (losses) on investments held at fair value through profit or loss | (2,656) | (2,324) | ||
| Net realised gains on investments held at fair value through profit or loss | 907 | 4,881 | ||
| Unrealised gains on investments held at fair value through profit or loss | 10,518 | 4,679 | ||
| Unrealised (losses) on investments held at fair value through profit or loss | (6,175) | (19,196) | ||
| Net unrealised gains/(losses) on investments held at fair value through profit or loss | 4,343 | (14,517) | ||
| Net gains/(losses) on investments held at fair value through profit or loss | 5,250 | (9,636) | ||
*Please see note 3 for further details
5. RELATED PARTY DISCLOSURES
The Investment Manager, Depositary, Administrator and Directors are considered related parties to the Company under IAS 24 as they have the ability to control, or exercise significant influence over, the Company in making financial or operational decisions. See Notes 5 to 8 for details of transactions with these related parties during the financial period ended 31 October 2019.
All Directors had a beneficial interest in the Company by way of their investment in the ordinary shares of the Company.
The details of these interests as at 31 October 2019 and 30 April 2019 are as follows:
| Ordinary Shares | Ordinary Shares | |||
| 31 October 2019 | 30 April 2019 | |||
| Philip Ehrmann | 28,800 | 28,800 | ||
| Noel Lamb | 14,400 | 14,400 | ||
| Richard Pavry | 40,000 | 40,000 | ||
| Michael Moule | 20,000 | 20,000 |
The above interests of the Directors were unchanged as at the date of this report.
As at 31 October 2019, a family member of the President of the Investment Adviser held 900,800 (30 April 2019: 900,800) ordinary shares of the Company.
6. INVESTMENT MANAGEMENT AND INVESTMENT ADVISER FEES
Under the terms of the Investment Management Agreement, the Investment Manager, Quaero Capital LLP, will continue in office until a resignation is tendered or the contract is terminated. In both circumstances, a resignation or termination must be given with a notice period which must not be less than three months, and be in accordance with the Investment Management Agreement.
The Company pays to the Investment Manager a fee accrued daily and paid monthly in arrears at the annual rate of 1 per cent of the weekly NAV of the Company on the first £125m of net assets, 0.85% on net assets between £125m and £175m and 0.70% on net assets above £175m.
The Investment Adviser Fees are 75% of the total Investment Management Fees and are paid by the Investment Manager.
For the six month financial period ended 31 October 2019, total investment management fees were £536,419 (31 October 2018: £599,680) of which £89,581 (30 April 2019: £92,390) is due and payable as at that date. Of the total investment management fees, £134,105 (31 October 2018: £149,920) was due to the Investment Manager, with £22,395 (30 April 2019: £23,097) payable as at 31 October 2019.
For the six month financial period ended 31 October 2019, total investment adviser fees were £402,314 (31 October 2018: £449,760), with £67,186 (30 April 2019: £69,293) payable as at 31 October 2019.
7. DEPOSITARY FEES
Under the terms of the Depositary Agreement, fees are payable to the Depositary, Northern Trust (Guernsey) Limited, monthly in arrears, on the Gross Asset Value of the Company as at the last business day of the month at an annual rate of:
Gross Asset ValueAnnual Rate
Up to $50,000,000 0.035%
$50,000,001 to $100,000,000 0.025%
Thereafter 0.015%
The Depositary is also entitled to a global custody fee of 0.03% per annum of the Net Asset Value of the Company, subject to a minimum fee of $20,000, and transaction fees as per the Depositary Agreement.
For the six month financial period ended 31 October 2019, total depositary fees were £44,152 (31 October 2018: £50,231), of which £12,038 (30 April 2019: £11,791) was due and payable as at that date.
8. ADMINISTRATION FEES
Under the terms of the Administration Agreement, the Company pays to the Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited, a fee accrued weekly and paid monthly in arrears at the annual rate of:
Net Asset ValueAnnual Rate
Up to $50,000,000 0.18%
$50,000,001 to $100,000,000 0.135%
$100,000,001 to $200,000,000 0.0675%
Thereafter 0.02%
For the six month financial period ended 31 October 2019, total administration fees were £72,441 (31 October 2018: £73,522), of which £37,269 (30 April 2019: £23,605) was due and payable as at that date.
9. DIRECTORS' FEES AND EXPENSES
Each of the Directors is entitled to receive a fee from the Company, being £33,000 per annum for the Chairman, £28,500 per annum for the Chairman of the Audit Committee and £26,000 per annum for each of the other Directors. In addition, the Company reimburses all reasonably incurred out-of-pocket expenses of the Directors.
For the six month financial period ended 31 October 2019, total directors' fees and expenses were £86,015 (31 October 2018: £64,321), of which £27,446 (30 April 2019: £3,162) was due and payable as at that date.
10. RESEARCH COSTS
In line with the introduction of revised rules in respect of the use of dealing commission as part of the implementation of the Directive 2014?65?EU on Markets in Financial Instruments and amending Directive 2004?39?EC ("MiFID II"), effective from 3 January 2018, the Investment Manager no longer pays for its investment research via dealing commission.
The Investment Manager has established a research budget and will pay for research services independently of trade execution. All transactions are placed and executed on the basis that best execution is achieved. Research costs incurred from 1 May 2019 to 31 October 2019 amounted to £87,007. Research costs for the period ended 31 October 2018 were estimated to be £82,820 using the research payment account transactional method where fees were deducted from purchases and sales of investments.
11. TAXATION
The Company is exempt from taxation in Guernsey under the provisions of The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and has paid an annual exemption fee of £1,200, however the Company is subject to UK tax being a UK tax resident to comply with the Section 1158 of the Corporation Tax Act 2010. The main rate of corporation tax in the UK was 19% effective from 1 April 2017.
| 31 October 2019 | 31 October 2018 | |||
| £'000 | £'000 | |||
| Irrecoverable overseas tax | 96 | 96 | ||
| Tax charge in respect of the current financial period | 96 | 96 | ||
Current taxation
The current taxation charge for the financial year is different from the standard rate of corporation tax in the UK. The differences are explained in the following table:
| 31 October 2019 | 31 October 2018 | |||||||||
| £'000 | £'000 | |||||||||
| Profit before tax | 5,438 | (9,810) | ||||||||
| Capital loss/(profit) for the financial period | (5,468) | 9,881 | ||||||||
| Revenue profit for the financial period | (30) | 71 | ||||||||
| 31 October 2019 | 31 October 2018 | |||||||||
| £'000 | £'000 | |||||||||
| Theoretical tax at UK corporation tax rate of 19% (31 October 2019 -19%) | (6) | 13 | ||||||||
| Effects of: | ||||||||||
| Excess management expenses | 24 | 5 | ||||||||
| Notional relief for overseas tax suffered | (18) | (18) | ||||||||
| Overseas tax written off | 96 | 96 | ||||||||
| Actual current tax charge | 96 | 96 | ||||||||
The Company is an investment trust and therefore is not taxable on capital gains.
Factors that may affect future tax charges
As at 31 October 2019, the Company has excess management expenses of £29,428,089 that are available to offset future taxable revenue. Whilst this represents management's best estimate based on the carried forward balance in the previous financial year of £24,085,708 the estimated value could differ from actual amounts. However, the potential impact is not expected to be significant.
A deferred tax asset has not been recognised in respect of these amounts as they will be recoverable only to the extent that there is sufficient future taxable revenue.
12. BASIC AND DILUTED EARNINGS/(DEFICIT) PER ORDINARY SHARE
The basic and diluted earnings/(deficit) per ordinary share figure is based on the profit/(loss) for the financial period of £5,342,381 (31 October 2018: £(9,906,131)) by the weighted average number of shares in issue during the six month financial period ended 31 October 2019, being 43,807,500 (31 October 2018: 48,520,645).
The earnings/(deficit) per ordinary share figure can be further analysed between revenue and capital, as below.
| 31 October 2019 | 31 October 2018 (restated*) | |||
| £'000 | £'000 | |||
| Net revenue (loss) | (126) | (25) | ||
| Net capital profit/(loss) | 5,468 | (9,881) | ||
| Net total profit/(loss) | 5,342 | (9,906) | ||
| Weighted average number of ordinary shares | ||||
| in issue during the financial period | 43,807,500 | 48,520,645 | ||
| £ | £ | |||
| Revenue (loss) per ordinary share | (0.003) | (0.001) | ||
| Capital profit/(loss) per ordinary share | 0.125 | (0.204) | ||
| Total profit/(loss) per ordinary share | 0.122 | (0.205) | ||
*Please see note 3 for further details
13. LOANS PAYABLE
Loan | Interest | Maturity | 31 October 2019 | 30 April 2019 | |
| Amount | Rate | Date | £'000 | £'000 | |
| 3 year committed variable rate | |||||
| credit facility | |||||
| ¥ 1,000,000,000 | 1.11% | 11 December 2019 | 7,111 | - | |
| ¥ 1,000,000,000 | 1.12% | 7 June 2019 | - | 6,933 | |
| Loan due for repayment within one year | 7,111 | 6,933 | |||
The credit facility is provided by Royal Bank of Scotland International Limited ("RBSI"). As at 31 October 2019, the Company had drawn down ¥1,000,000,000 (£7,111,328) (30 April 2019: ¥1,000,000,000/£6,932,729) of the ¥1,500,000,000 borrowable under the terms of the facility agreement.
Under the terms of the facility agreement, the Company is required to comply with the following financial covenants:
- the Company's portfolio must contain at least 60 investments, of which at least 50 must be in investments quoted on the Tokyo Stock Exchange or any other equivalent exchange approved by RBSI, at all times;
- the amount of the credit facility drawn down must not exceed 25% of the value of the Company's portfolio at any time; and
- the Company's NAV must not fall below $58,000,000 at any time.
The Company complied with all of the above financial covenants during the six month financial period ended 31 October 2019 and the financial year ended 30 April 2019.
Losses on foreign exchange on the Company's loan amounted to £178,523 during the six month financial period ended 31 October 2019 (30 April 2019: £278,240).
14. SHARE CAPITAL AND SHARE PREMIUM
Authorised
The Company is authorised to issue an unlimited number of ordinary shares of no par value. The Company has issued two subscriber shares for the purposes of incorporation of the Company. The subscriber shares do not participate in the profits of the Company.
The Company may also issue C shares being a convertible share in the capital of the Company of no par value. C shares shall not have the right to attend or vote at any general meeting of the Company. The holders of C shares of the relevant class shall be entitled, in that capacity to receive a special dividend of such amount as the Directors may resolve to pay out of the net assets attributable to the relevant C share class and from income received and accrued attributable to the relevant C share class for the period up to the conversion date payable on a date falling before, on or after the conversion date as the Directors may determine. There are no C shares currently in issue.
The rights which the ordinary shares confer upon the holders thereof are as follows:
Voting rights
On a show of hands, every member who is present shall have one vote; and on a poll, a member present in person or by proxy shall be entitled to one vote per ordinary share held.
Entitlement to dividends
The Company may declare dividends in respect of the ordinary shares which are paid out of capital reserves. Treasury shares do not confer an entitlement to any dividends declared.
Rights in a winding-up
The holders of ordinary shares will be entitled to share in the Net Asset Value of the Company as determined by the Liquidator.
| Issued Ordinary Shares | |||||
| Number of Shares | Share Capital | Share Premium | |||
| £'000 | £'000 | ||||
| In issue at 31 October 2019 | 41,794,570 | - | - | ||
| In issue at 30 April 2019 | 44,307,284 | - | - | ||
| Number of Shares | Number of Shares | |||
| 31 October 2019 | 30 April 2019 | |||
| Shares of no par value | ||||
| Issued shares at the start of the financial period | 44,307,284 | 49,012,128 | ||
| Redemption of shares | (2,199,714) | (4,204,844) | ||
| Purchase of shares into treasury | (313,000) | (500,000) | ||
| Number of shares at the end of the financial period | 41,794,570 | 44,307,284 | ||
| Shares held in treasury | ||||
| Opening balance | 4,374,186 | 3,874,186 | ||
| Shares bought in to treasury during the financial period | 313,000 | 500,000 | ||
| Number of shares at the end of the financial period | 4,687,186 | 4,374,186 | ||
During the financial period ended 31 October 2019, there was £692,399 purchase of shares into treasury (30 April 2019: £1,085,700).
Shareholders are entitled to receive any dividends or other distributions out of profits lawfully available for distribution and on winding up they are entitled to the surplus assets remaining after payment of all the creditors of the Company. The shares redeemed in the current financial period were cancelled immediately.
15. FAIR VALUE HIERARCHY
The fair value of investments traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the Statement of Financial Position date. The quoted market price used for investments held by the Company is the last traded price; the appropriate quoted market price for financial liabilities is the current asking price.
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm's length basis.
The fair value of investments that are not traded in an active market is determined by using valuation techniques.
For instruments for which there is no active market, the Company may use internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. Valuation models may be used primarily to value unlisted equity, debt securities and other debt instruments for which markets were or have been inactive during the financial period. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions.
The following table sets out fair value measurements using the IFRS 13 fair value hierarchies:
| At 31 October 2019 | |||||||
| Investments at fair value through profit or loss | |||||||
| Level 1 | Level 2 | Level 3 | Total | ||||
| £'000 | £'000 | £'000 | £'000 | ||||
| Equity Investments | 110,640 | - | - | 110,640 | |||
| 110,640 | - | - | 110,640 | ||||
| At 30 April 2019 | |||||||
| Investments at fair value through profit or loss | |||||||
| Level 1 | Level 2 | Level 3 | Total | ||||
| £'000 | £'000 | £'000 | £'000 | ||||
| Equity Investments | 111,380 | - | - | 111,380 | |||
| 111,380 | - | - | 111,380 | ||||
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:
- Level 1 - valued using quoted prices in active markets for identical assets or liabilities.
- Level 2 - valued by reference to valuation techniques using observable inputs other than quoted prices included within level 1.
- Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.
16. NAV HISTORY
| 31 October 2019 | 30 April 2019 | 30 April 2018 (restated*) | ||||
| NAV per ordinary share | £106,315,080 | £107,290,867 | £118,738,232 | |||
| Number of shares in issue | 41,794,570 | 44,307,284 | 49,012,128 | |||
| NAV per ordinary share | £2.54 | £2.42 | £2.42 | |||
*Please see note 3 for further details
17. REDEMPTION FACILITY
Ordinarily, shareholders have the opportunity to make redemptions of part or all of their shareholding on a six-monthly basis with the Board's discretion in declining any redemption requests. The current redemption facility mechanism ceased with effect from the 27 September 2019. The following redemptions were made during the financial period:
| Redemption date | Shares redeemed | £'000 | ||
| 31 October 2019 | 31 October 2019 | |||
| 4 October 2019 | 1,308,826 | 3,347 | ||
| 4 October 2019 | 890,888 | 2,279 | ||
| 2,199,714 | 5,626 | |||
| Redemption date | Shares redeemed | £'000 | ||
| 31 October 2018 | 31 October 2018 | |||
| 28 September 2018 | 2,434,356 | 6,812 | ||
| 2,434,356 | 6,812 | |||
During the six month financial period ended 31 October 2019, a total of £5,625,769 was paid to redeeming shareholders (31 October 2018: £6,812,490).
18. DIVIDENDS
All amounts held in the Company's revenue and capital reserves are distributable to shareholders by way of dividends. There will be regular quarterly payments of 1% of the company's NAV (based on the average daily NAV in the final month of the financial year). These will be paid in March, June, September and December.
There were no dividends declared by the Board of Directors during the six month financial period ended 31 October 2019 (31 October 2018: £nil).
19. EXCHANGE RATES
The following exchange rates were used during the financial period/year.
| 31 October 2019 | 30 April 2019 | 30 April 2018 | ||||
| GBP | GBP | GBP | ||||
| USD | $1.2940 | $1.3037 | $1.3774 | |||
| JPY | ¥139.8880 | ¥145.1940 | ¥150.7167 |
The following average exchange rates were used during the financial period.
| 31 October 2019 | 31 October 2018 | 31 October 2017 | ||||
| GBP | GBP | GBP | ||||
| USD | $1.2735 | $1.2778 | $1.3030 | |||
| JPY | ¥139.6658 | ¥144.2005 | ¥145.2804 |
20. CHANGES IN THE PORTFOLIO
A list, specifying for each investment the total purchases and sales which took place during the six month financial period ended 31 October 2019 may be obtained, upon request, at the registered office of the Company.
21. EVENTS DURING THE FINANCIAL PERIOD
The Company adopted new Articles of Association on 12 September 2019. The main changes were:
- amendment of the biannual redemption mechanism to allow the Board to determine, in their discretion, the procedures to be adopted for any redemption;
- the Board may declare dividends and distributions that can be paid out of any reserves of the Company; and
- a regular continuation vote be conducted every four years, commencing at the annual general meeting to be held in 2023.
The following Investment Manager tiered fee structure was approved by the Board on 5 July 2019:
A fee of 1% per cent on the first £125m of net assets, 0.85% on net assets between £125m and £175m and 0.70% on net assets above £175m.
There were no other significant events during the financial period ended 31 October 2019 which require adjustment to or additional disclosure in the Financial Statements.
22. EVENTS AFTER THE FINANCIAL PERIOD
The Directors declared an interim dividend of 2.37p with an ex date of 5 December 2019 in respect of the financial quarter ended 31 October 2019.
There were no other significant events subsequent to the financial period ended 31 October 2019 which require adjustment to or additional disclosure in the Financial Statements.
APPENDIX 1: SUPPLEMENTARY INFORMATION
DISCOUNT MANAGEMENT
During the financial period under review, the Company bought back 313,000 Ordinary shares. At 31 October 2019 there were 4,687,186 Ordinary shares held in Treasury. The discount to NAV per Ordinary share was 11.5% at the end of the financial period compared to 9.8% on 30 April 2019.
PRIIPS KEY INFORMATION DOCUMENT
We are required by the Packaged Retail and Insurance-based Investment Products ("PRIIPs") regulations introduced at the beginning of 2018 to provide investors with a key information document ("KID") which includes performance projections which are the product of prescribed calculations based on the Company's past performance. Whilst the content and format of the KID cannot be amended under the applicable EU regulations, the Board does not believe that these projections are an appropriate or helpful way to assess the Company's future prospects.
Accordingly, the Board urges shareholders also to consider the more complete information set out in these interim report and unaudited financial statements, together with the monthly fact sheets and daily net asset value announcements, when considering an investment in the Company's shares. These documents, together with a link to some useful third party research coverage of the Company are published at www.atlantisjapangrowthfund.com.
Retail distribution of non-mainstream products
The Company currently conducts its affairs so that its shares can be recommended by independent financial advisers to ordinary retail investors in accordance with the FCA's rules in relation to non- mainstream investment products and intends to continue to do so for the foreseeable future. The Company's shares are excluded from the FCA's restrictions which apply to non-mainstream investment products because they are shares in an investment trust.
GENERAL DATA PROTECTION REGULATIONS
Changes to our Data Privacy Notice
We have updated our Privacy Notice to align with the new data privacy law in the European Union, known as the General Data Protection Regulation ("GDPR") to which we are subject. Data protection and the security of your information always has been and remains of paramount importance to us.
Where a data subject's details are provided to the Company as a consequence of an investment in the Company, then the Company, acting as a data controller may itself (or through a third party such as the Administrator, the Registrar or the Investment Manager) process that personal data. When processing such personal data, there may also be times where the Investment Manager will act as a data controller.
Changes to our Data Privacy Notice
You are not required to take any action in respect of this notice, but we encourage you to read our Privacy Notice. Our Privacy Notice can be found on our website, www.atlantisjapangrowthfund.com. In the event that you hold your shares as a nominee, we request that you promptly pass on the details of where to find our Privacy Notice to the underlying investors and/or the beneficial owners.
ALTERNATIVE PERFORMANCE MEASURES
The European Securities and Markets Authority has published guidelines on Alternative Performance Measures ("APMs"). APMs are defined as being a "financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable accounting framework." The guidelines are aimed at promoting the usefulness and transparency of APMs included in regulated information and aim to improve comparability, reliability and/or comprehensibility of APMs. The following APMs are used throughout the interim report, financial statements and notes to the financial statements.
Benchmark total return index
A total return index is a type of equity performance index that tracks both the capital gains of a group of stocks over time, and assumes that any cash distributions, such as dividends, are reinvested back into the index.
Discount
The amount, expressed as a percentage, by which the share price is less than the net asset value ('NAV') per share.
Gearing
Gearing is the borrowing of cash to buy more assets for the portfolio with the aim of making a gain on those assets larger than the cost of the loan. However, if the portfolio doesn't perform well the gain might not cover the costs. The more an investment Company gears, the higher the risk.
Mid-market price
The mid-market price is the mid-point between the buy and the sell prices.
NAV per share
The NAV is the value of the investment Company's asset less its liabilities. The NAV per share is the NAV divided by the number of shares in issue. The difference between the NAV per share and the share price is known as the discount or premium.
Ongoing charges
Ongoing charges are the total expenses including both the investment management fee and other costs but excluding performance fees, expressed as a percentage of NAV.
Premium
The amount, expressed as a percentage, by which the share price is more than the NAV per share.
RETAIL DISTRIBUTION OF NON-MAINSTREAM PRODUCTS
The Company currently conducts its affairs so that its shares can be recommended by Independent Financial Advisers to ordinary retail investors in accordance with the FCA's rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The Company's shares are excluded from the FCA's restrictions which apply to non-mainstream investment products because they are shares in an investment trust.
ADVICE TO SHAREHOLDERS
In recent years investment related scams have become increasingly sophisticated and difficult to spot. We are therefore warning all our shareholders to be cautious so that they can protect themselves and spot the warning signs.
Fraudsters will often:
• contact you out of the blue
• apply pressure to invest quickly
• downplay the risks to your money
• promise tempting returns that sound too good to be true
• say that they are only making the offer available to you
• ask you to not tell anyone else about it
You can avoid investment scams by:
• Rejecting unexpected offers - Scammers usually cold call but contact can also come by email, post, word of mouth or at a seminar. If you have been offered an investment out of the blue, chances are it's a high risk investment or a scam.
• Checking the FCA Warning List - Use the FCA Warning List to check the risks of a potential investment. You can also search to see if the firm is known to be operating without proper FCA authorisation.
• Getting impartial advice - Before investing get impartial advice and don't use an adviser from the firm that contacted you.
If you are suspicious, report it
• You can report the firm or scam to the FCA by contacting their Consumer Helpline on 0800 111 6768 or using their online reporting form.
• If you have lost money in a scam, contact Action Fraud on 0300 123 2040 or www.actionfraud.police.uk
For further helpful information about investment scams and how to avoid them please visit www.fca.org.uk/scamsmart.
MANAGING YOUR SHAREHOLDING ONLINE
If your shareholding is held in your own name you will have been allocated a unique Shareholder Reference Number "SRN" which is quoted on your share certificate. All correspondence in respect of your shareholding should be sent to: Computershare Investor Services (Guernsey) Limited, C/o Queensway House, Hilgrove Street, St Helier, Jersey, JE1 1ES. General shareholder queries can also be sent to info@computershare.co.je.
If you wish to register to manage your shareholding online, you can do so by registering on the Computershare Investor Centre website at www.investorcentre.co.uk/je. Investor Centre can also be used to check your current shareholding balance and confirm the details of any transactions. In addition, Investor Centre allows you to securely update your address and change your payment details for any dividend payments.
To register for Investor Centre you will need to select the 'Register' button on the home page which will direct you to the online registration form. You will then be required to enter 'Atlantis Japan Growth Fund Limited' under the Company name and enter your personal Shareholder Reference Number (SRN). UK & Channel Islands resident shareholders should insert a post code, whereas other shareholders should select the appropriate country. You will also be required to enter a security code and accept the terms and conditions.
For security reasons, an activation code will be sent to your registered postal address, should your holding be valued at over £25,000. In the event that your holding is valued under the threshold, no activation code will be necessary and you will be able to view your account information immediately online.
Dividend Tax Allowance
With effect from 6 April 2016 the dividend tax credit was replaced by an annual tax-free dividend allowance. Dividend income in excess of this allowance will be taxed according to your personal income tax bracket. The Company's Registrar will continue to provide shareholders with confirmation of dividends paid; Shareholders should retain such confirmations to enable them to calculate and report total dividend income received. Shareholders should note that it is their sole responsibility to report any dividend income in excess of their annual tax-free allowance to HMRC.
Further information on changes to dividend tax allowance can be obtained from the HMRC website at: https://www.gov.uk/government/publications/income-tax-changes-to-dividend-taxation.
