Final Results
Atlantis Japan Growth Fund Ld
16 August 2005
FOR IMMEDIATE RELEASE
RELEASED BY HSBC SECURITIES SERVICES (GUERNSEY) LIMITED
ATLANTIS JAPAN GROWTH FUND LIMITED
PRELIMINARY ANNOUNCEMENT - APPROVED BY THE BOARD OF DIRECTORS ON 9TH AUGUST,
2005
THE BOARD OF DIRECTORS OF ATLANTIS JAPAN GROWTH FUND LIMITED ANNOUNCE AUDITED
RESULTS FOR THE YEAR ENDED 30TH APRIL, 2005:
BALANCE SHEET
As at 30th April 2005
(Expressed in United States Dollars)
2005 2004
$'000 $'000
FIXED ASSETS
Investments at market value 469,362 436,729
(cost $336,265,435 (2004 - $278,810,715))
CURRENT ASSETS
Due from brokers 2,385 1,897
Dividends and interest receivable 2,630 1,958
Other debtors and prepayments 36 10
Bank balances 2,431 8,238
7,482 12,103
CURRENT LIABILITIES
Due to brokers 3,683 5,985
Creditors and accrued expenses 704 744
Loans payable 14,315 -
18,702 6,729
NET CURRENT (LIABILITIES)/ASSETS (11,220) 5,374
CREDITORS AMOUNTS FALLING DUE AFTER ONE YEAR
Loans Payable 28,630 40,796
TOTAL NET ASSETS $429,512 $401,307
CAPITAL & RESERVES
Called-up share capital 204 204
Share premium 192,650 192,650
Other reserves 236,658 208,453
TOTAL SHAREHOLDERS' FUNDS $429,512 $401,307
NET ASSET VALUE PER ORDINARY $21.02 $19.64
SHARE
(Based on 20,435,627 (2004 - 20,435,627) ordinary shares and a Net Asset Value
of $429,512,456 (2004 - $401,306,971))
STATEMENT OF TOTAL RETURN
(incorporating the Revenue Account)
For the year ended 30th April 2005
(Expressed in United States Dollars)
Revenue Capital Total
$'000 $'000 $'000
Net gains on investments during the year - 32,028 32,028
Exchange gain/(loss) 95 (1,647) (1,552)
Investment income 5,254 - 5,254
Deposit interest 15 - 15
5,364 30,381 35,745
Investment management fee 5,830 - 5,830
Custodian fees 304 - 304
Administration fees 248 - 248
Registrar and transfer agent fees 35 - 35
Directors' fees and expenses 119 - 119
Interest expense and bank charges 436 - 436
Insurance fees 68 - 68
Audit fee 26 - 26
Printing and advertising fees 46 - 46
Legal and professional fees 12 - 12
Listing fees 41 - 41
Miscellaneous expenses 7 - 7
7,172 - 7,172
(DEFICIT)/RETURN ON ORDINARY
ACTIVITIES BEFORE TAX (1,808) 30,381 28,573
Tax on ordinary activities (368) - (368)
(DEFICIT)/RETURN ATTRIBUTABLE TO
EQUITY SHAREHOLDERS (2,176) 30,381 28,205
(DEFICIT)/RETURN PER
ORDINARY SHARE : $(0.106) $1.486 $1.380
(Based on the weighted average of 20,435,627 Ordinary Shares and the
deficit attributable to Equity Shareholders noted above)
STATEMENT OF TOTAL RETURN
(incorporating the Revenue Account)
For the year ended 30th April 2004
(Expressed in United States Dollars)
Revenue Capital Total
$'000 $'000 $'000
Net gains on investments during the year - 231,751 231,751
Exchange loss - (1,985) (1,985)
Investment income 4,154 - 4,154
Deposit interest 16 - 16
4,170 229,766 233,936
Investment management fee 3,909 - 3,909
Custodian fees 236 - 236
Administration fees 196 - 196
Registrar and transfer agent fees 14 - 14
Directors' fees and expenses 126 - 126
Interest expense and bank charges 346 - 346
Insurance fees 30 - 30
Audit fee 27 - 27
Printing and advertising fees 28 - 28
Legal and professional fees 43 - 43
Listing fees 34 - 34
Miscellaneous expenses 5 - 5
4,994 - 4,994
(DEFICIT)/RETURN ON ORDINARY
ACTIVITIES BEFORE TAX (824) 229,766 228,942
Tax on ordinary activities (430) - (430)
(DEFICIT)/RETURN ATTRIBUTABLE TO
EQUITY SHAREHOLDERS (1,254) 229,766 228,512
(DEFICIT)/RETURN PER
ORDINARY SHARE : $(0.061) $11.243 $11.182
(Based on the weighted average of 20,435,627 Ordinary Shares and the
deficit attributable to Equity Shareholders noted above)
STATEMENT OF CASH FLOWS
For the year ended 30th April 2005
(Expressed in United States Dollars)
2005 2004
$'000 $'000 $'000 $'000
OPERATING ACTIVITIES
Net cash outflow from operating (2,575) (1,323)
activities
SERVICING OF FINANCE
Interest paid (434) (336)
FINANCIAL INVESTMENT
Purchase of investments (224,933) (215,812)
Sale of investments 221,538 211,028
Net cash outflow from investing (3,395) (4,784)
activities
Decrease in cash (6,404) (6,443)
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET DEBT
Decrease in cash as above (6,404) (6,443)
Exchange movements (1,552) (1,985)
Movement in net debt for the (7,956) (8,428)
year
Net debt at 1st May (32,558) (24,130)
Net debt at 30th April (40,514) (32,558)
ATLANTIS JAPAN GROWTH FUND LIMITED
CHAIRMAN'S STATEMENT
FOR THE YEAR ENDED 30TH APRIL 2005
OVERVIEW
Following the strong performance of the Japanese stock market and the Company in
the year to April 2004, the current year to April 2005 has been one of
consolidation of the gains and a continual assessment of the strength of the
recovery in the domestic economy. In a year marked by a relatively benign
political and economic landscape, this has resulted in modest gains for equity
markets worldwide. So too with Japan which has seen largely sideways movements
in the indices. Against this background, your Company has made a satisfactory
return of 12.7 per cent in US Dollar terms for shareholders, 7 per cent from a
gain in the Net Asset Value (the 'NAV') and the remainder resulting from the
move of the share price from a discount to a premium. This compares with a flat
Tokyo First Section Index ('TOPIX') over the period and a return of 17.7% in the
Tokyo 2nd Section (in US Dollars).
* Source: Bloomberg
The heavy weighting in small and medium sized companies has, again, been a major
contributor to the out performance of the Fund against the Tokyo Stock Exchange
index. Whilst the main market has been flat, smaller companies have performed
well again this year, endorsing our Adviser, Ed Merner's view that the best
investment opportunities are to be found in this area of the market.
ATLANTIS JAPAN GROWTH FUND LIMITED
CHAIRMAN'S STATEMENT (continued)
FOR THE YEAR ENDED 30TH APRIL 2005
SHARE PRICE DISCOUNT
The discount or premium on the Fund represents the share price relative to its
net asset value. Along with the stability of the underlying market, the discount
on the shares has remained within a narrow range over the year and had traded at
a small premium at various times. The discount on the Fund averaged 0.73% during
the period with a range of a discount of 6.8% in April 2004 to a premium of 4.9%
in February 2005*.
Recently, the shares have traded at a modest premium reflecting investors'
perception of the prospects for the Japanese stock market and the strong
long-term performance of the Fund.
You have empowered your Board to monitor this discount and repurchase shares if
the discount moves out of line with Funds of a similar nature. Currently, the
discount is not out of line with the peer group consequently, to date, no
repurchases have been made. The Board will continue to monitor this situation
and will take action if necessary.
OUTLOOK
The biggest threat to the Japanese markets are external such as the possible
knock on effects of weakness in the US Economy or on Wall Street or of a hard
landing in China. However, in Japan, the economic situation is very different to
that in the US and the outlook is the strongest it's been for 15 years whilst
the prospects of a hard landing in China are receding. In particular in the
Japanese economy the deflationary forces which have plagued the Japanese economy
in recent years are finally abating, and in the stock market corporate cross
shareholdings are down from 50 per cent in 1999 to 20 per cent now and the yield
on Japanese equities at 1.3 percent has moved above the benchmark bond yield of
1.2 per cent, usually a bullish sign for equities. In addition, many Japanese
companies have the scope to increase dividends further as the average dividend
payout ratio at around 20 per cent is low by international standards.
Despite the gains in the stock market seen since the low of April 2003, the
Tokyo Stock Exchange index is still about 60 per cent below its peak in December
1989. Your Board believes the improvements we are witnessing in the Japanese
economy and for Japanese companies has not yet been fully reflected in share
prices and we are confident that your Company is well positioned to take
advantage of investment opportunities over the coming year.
Finally, I am proud to be able to tell you that for the fourth year running,
Money Observer has, yet again, presented your Company with the Best Japan Trust
Award for 2005.
Tim Guinness
Chairman
June 2005
ATLANTIS JAPAN GROWTH FUND LIMITED
INVESTMENT MANAGER'S REPORT
FOR THE YEAR ENDED 30TH APRIL 2005
PERFORMANCE
During the year ending April 2005, many false starts were seen in the economy
and the stock market. Both advanced, but by less than most anticipated. However,
the stock market did see a good recovery from the lows of last December, as did
the Company, which finished the financial year under review at $21.02 per share,
being a gain of approximately 7.0% in the NAV. This compares with gains of 0.2%
for the Topix index, 17.7% for the Tokyo Second Market Index, and 0.9% for the
Tokyo OTC indices (all figures adjusted to US Dollar basis). Since inception in
May 1996 through to the end of April 2005, the NAV of the Company has risen by
112.1%. This compares to a loss of 33.4% for the Topix index, gains of 55.3% for
the Tokyo Second Market Index and 14.1% for the Tokyo OTC indices over the same
time frame (all figures adjusted to US Dollar basis).
At the end of the financial year under review, the Company had borrowings of
Y4.5 billion ($42.9 million), unchanged from one year earlier, and cash of Y253
million ($2.4 million). Based on the above, the Company is about 10% leveraged,
also basically unchanged from year-ago levels. The Company had no foreign
currency hedges at this time and none are planned. Since nearly all Company
assets are denominated in Yen, a strong Yen has a positive impact on net asset
value in US dollar terms and vice versa. At the end of the year under review,
the Yen stood at Y104.785/US dollar versus Y110.185 one year earlier,
representing a gain in Yen terms of about 5.2%.
MARKET COMMENT
During the year under review the three locomotives of Japanese economic growth
were exports, capital investments, and consumer spending. Exports were
especially strong early on while consumer spending has come more to the fore in
recent months. The favourable operating environment combined with continued
corporate restructuring to push corporate earnings higher, and Japanese
companies finished the fiscal year ended March 2005 with recurring profits up
about 25%, according to preliminary estimates.
Real GDP growth for the fiscal year ended March 2005 was about 1.9% (final
figures are not yet available). The unemployment rate continued to decline
during the year and, with inflation not a problem, interest rates remained at
extremely low levels.
Despite the favourable fundamentals including stronger-than-expected earnings
growth, the Japanese stock market finished the year under review only slightly
higher as gains were moderated by ongoing selling by local banks, selling by
pension funds earlier in the year, and net selling by individual investors, who
have come to account for an increasingly large portion of daily trading.
Overseas investors were net buyers. Local investment trusts were frequent net
sellers early on but have been net buyers in most recent months; the same can be
said for corporations, which continued to unwind cross-shareholdings while at
the same time buying back their own shares.
ATLANTIS JAPAN GROWTH FUND LIMITED
INVESTMENT MANAGER'S REPORT (continued)
FOR THE YEAR ENDED 30TH APRIL 2005
We think the outlook for the coming year is favourable, though as always there
are no guarantees. Looking ahead, we expect continued economic growth, rising
corporate earnings, and low interest rates. With no general elections on the
horizon, the political scene should also be relatively calm. Local pension
accounts, big net sellers in recent years, will hopefully be a neutral force in
the market or perhaps even modest net buyers, while overseas investors and
domestic investment trusts should continue as net buyers. Individuals, now a
major market force, will hopefully be net buyers or, at worst, only small net
sellers. We look for corporations to be net buyers and for banks to be small net
sellers.
At this time, we expect market conditions to remain favourable. Possible risks
include problems in China, a weaker-than-expected US economy or US stock market,
sharply higher oil prices, or unexpected events such as an avian flu epidemic or
terrorist event.
THE COMPANY
Our basic investment strategy, as indicated in previous annual reports, remains
unchanged. The Fund Manager continues to stress a bottom-up approach that
emphasizes individual stock picking rather than sector allocation or
semi-indexing. As always, we focus on prospects for long-term earnings growth at
individual companies. The Tokyo team believes strongly in an active
company-visiting program, which helps us uncover new investment ideas and follow
trends at companies already in the portfolio.
In our company analysis, we focus in particular on the balance sheet, sales
growth potential, profit margin trends, Return on Equity (ROE), free cash flow,
valuations measures (Price Earnings Ratio (PER), Price to Book Ratio (PBR) and
Price Earnings Growth (PEG)), management, attitude toward shareholders, dividend
policy, historic track record, and factors likely to affect sales and earnings
growth over the longer term.
We prefer companies with good long-term earnings growth potential selling on low
Price Earnings (PE), but also invest in some cyclical growth and even in some
recovery-type situations. We have recently been adding a number of
electronics-related companies to the portfolio. However, our largest exposure is
still to the service, retail, and trading sectors, where we continue to find
many undervalued companies with above-average growth potential.
The Manager is underweight and will probably continue to avoid most companies in
'smokestack' industries, seeing these companies as largely ex-growth, with
little or no long-term earnings growth potential.
The Company invests in all of kinds of businesses and companies, and no listed
company is too small or too big to be considered as a potential investment. That
said, we have been finding better value and better growth potential among
smaller and medium-sized companies, though this could change in the future.
ATLANTIS JAPAN GROWTH FUND LIMITED
INVESTMENT MANAGER'S REPORT (continued)
FOR THE YEAR ENDED 30TH APRIL 2005
At the end of the period under review the Company held positions in about 219
different companies, including some very small companies listed on local
exchanges. As a risk control measure we tend to limit our exposure to any one
stock. Thus, even when we make a mistake the damage is usually limited and we
are able to sell our position over time. We will often hold several different
stocks in sectors we favour. For instance, we currently hold several drug store
chains, which operate mostly in different geographic regions. The better drug
store chains are expanding market share, have positive same-store sales growth,
and should be able to grow earnings for at least the next several years; some
are selling at less than 10x estimated earnings and, on a selective basis, are
also attractive on other valuation measures such as Price Earnings Growth (PEG)
and free cash flow.
As in the past years, during the period under review we took profits on some
stocks in the portfolio that we thought had risen too much and had thus become
fully priced or overpriced. As always, we looked to reinvest the proceeds from
such sales in companies with good long-term growth prospects and that still
appeared undervalued. We also sold a number of companies where earnings were not
meeting our expectations or where the company's business model did not seem to
be working.
The Fund Manager plans to remain fully or almost fully invested, normally
limiting cash holdings to only a few percent (including borrowed money). If the
Fund Manager were to turn cautious on the market outlook, the Company's gearing
would be cut to zero and all borrowings repaid. However, since the Fund Manager
is now optimistic on the market outlook, the Company has geared itself up to
around 10%.
Although the yen is likely to fluctuate against the US dollar, the Company's
base currency, over the longer term we look for a sideways-to-stronger yen based
on Japan's continued large trade and current account surpluses and its huge
foreign exchange reserves, which are now the world's largest. In the end, we
feel that our real expertise lies in stock picking and not in guessing
short-term foreign exchange rate trends. Therefore we have no plans to hedge our
foreign exchange risk at this time.
The Company has no exposure to warrants. The Company is not currently holding
any convertible bonds, though we continue to look for attractive investment
opportunities in convertibles.
As in the past, going forward we will emphasize value and growth in our stock
selection, as the Fund Manager aims for long-term capital appreciation.
Atlantis Fund Management (Guernsey) Limited
6th June, 2005
This information is provided by RNS
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