Interim Results

Atlantis Japan Growth Fund Ld 14 January 2005 FOR IMMEDIATE RELEASE RELEASED BY MANAGEMENT INTERNATIONAL (GUERNSEY) LIMITED ATLANTIS JAPAN GROWTH FUND LIMITED PRELIMINARY ANNOUNCEMENT THE BOARD OF DIRECTORS OF ATLANTIS JAPAN GROWTH FUND LIMITED ANNOUNCE UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31ST OCTOBER 2004: BALANCE SHEET As at 31st October 2004 (Expressed in United States Dollars) 2004 2003 $'000 $'000 FIXED ASSETS Investments at market value 397,746 314,734 (cost $309,328,735 (2003 - $221,833,181) CURRENT ASSETS Due from brokers 2,140 1,972 Dividends and interest receivable 1,052 629 Bank balances 10,763 7,722 Prepayments 20 10 13,975 10,333 CURRENT LIABILITIES Due to brokers 3,561 4,242 Creditors and accrued expenses 693 538 Loans payable 14,149 - 18,403 4,780 NET CURRENT (LIABILITIES)/ASSETS (4,428) 5,553 CREDITORS AMOUNTS FALLING DUE AFTER ONE YEAR Loans Payable 28,298 40,876 TOTAL NET ASSETS 365,020 279,411 CAPITAL & RESERVES Called-up share capital 204 204 Share premium 192,650 192,650 Other reserves 172,166 86,557 TOTAL SHAREHOLDERS' FUNDS 365,020 279,411 NET ASSET VALUE PER ORDINARY SHARE $17.86 $13.67 (Based on 20,435,627 (2003 - 20,435,627) ordinary shares and a Net Asset Value of $365,019,620 (2003 - $279,411,000)) UNAUDITED STATEMENT OF TOTAL RETURN (incorporating the Revenue Account) For the six months ended 31st October 2004 (Expressed in United States Dollars) Revenue Capital Total $'000 $'000 $'000 Realised gain on sales of investments - 36,266 36,266 Unrealised depreciation of investments - (69,500) (69,500) Exchange loss - (1,143) (1,143) Investment income 1,729 - 1,729 Deposit interest 10 - 10 1,739 (34,377) (32,638) Investment management fee 2,824 - 2,824 Custodian fees 165 - 165 Administration fees 123 - 123 Registrar and transfer agent fees 23 - 23 Directors' fees and expenses 54 - 54 Interest expense and bank charges 213 - 213 Insurance fees 57 - 57 Audit fee 15 - 15 Printing and advertising fees 28 - 28 Legal and professional fees 5 - 5 Listing fees 14 - 14 Miscellaneous expenses 7 - 7 3,528 - 3,528 DEFICIT ON ORDINARY ACTIVITIES BEFORE TAX (1,789) (34,377) (36,166) Tax on ordinary activities (121) - (121) DEFICIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS (1,910) (34,377) (36,287) DEFICIT PER ORDINARY SHARE : $(0.094) $(1.682) $(1.776) (Based on the weighted average of 20,435,627 Ordinary Shares and the deficit attributable to Equity Shareholders noted above) UNAUDITED STATEMENT OF TOTAL RETURN (incorporating the Revenue Account) For the six months ended 31st October 2003 (Expressed in United States Dollars) Revenue Capital Total $'000 $'000 $'000 Realised loss on sales of investments - 5,372 5,372 Unrealised appreciation of investments - 104,106 104,106 Exchange gain/(loss) 327 (2,210) (1,883) Investment income 1,287 - 1,287 Deposit interest 6 - 6 1,620 107,268 108,888 Investment management fee 1,620 - 1,620 Custodian fees 114 - 114 Administration fees 103 - 103 Registrar and transfer agent fees 7 - 7 Directors' fees and expenses 48 - 48 Interest expense and bank charges 116 - 116 Audit fee 16 - 16 Printing and advertising fees 17 - 17 Legal and professional fees 20 - 20 Listing fees 15 - 15 Miscellaneous expenses 3 - 3 2,079 - 2,079 (DEFICIT)/RETURN ON ORDINARY ACTIVITIES BEFORE TAX (459) 107,268 106,809 Tax on ordinary activities (193) - (193) (DEFICIT)/RETURN ATTRIBUTABLE TO EQUITY SHAREHOLDERS (652) 107,268 106,616 (DEFICIT)/RETURN PER ORDINARY SHARE : $(0.032) $5.249 $5.217 (Based on the weighted average of 20,435,627 Ordinary Shares and the (deficit)/return attributable to Equity Shareholders noted above.) UNAUDITED STATEMENT OF CASH FLOWS For the six months ended 31st October 2004 (Expressed in United States Dollars) 2004 2003 $'000 $'000 $'000 $'000 OPERATING ACTIVITIES Net cash (outflow)/inflow from operating activities (856) 181 SERVICING OF FINANCE Interest paid (209) (116) FINANCIAL INVESTMENT Purchase of investments (125,009) (92,551) Sale of investments 128,091 85,672 Net cash inflow/(outflow) from investing activities 3,082 (6,879) Increase/(Decrease) in cash 2,017 (6,814) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Increase/(decrease) in cash as above 2,017 (6,814) Exchange movements (1,143) (2,210) Movement in net cash/(debt) in the period 874 (9,024) Net debt at 1st May (32,558) (24,130) Net debt at 31st October (31,684) (33,154) ATLANTIS JAPAN GROWTH FUND LIMITED INVESTMENT MANAGER'S REPORT FOR THE SIX MONTHS ENDED 31ST OCTOBER 2004 PERFORMANCE Slower than expected domestic economic growth, rising prices for oil and other commodities, a stronger Yen, and growing uncertainty among local investors combined to push the Tokyo Market lower during the six-month period to 31st October 2004. The Net Asset Value ('NAV') of the Fund ended October at $17.86 per share, down 9.1% from the end of April. In contrast, in US dollar terms, the Tokyo First Section Index ('Topix') finished the period down by 4.9% whilst the Tokyo Second Market declined by 2.7%. Low quality stocks performed relatively well over the period as they caught up with the rest of the market so the Fund underperformed the indices following a period of significant outperformance. Since inception in May 1996, the NAV per share of the Fund has risen by 80% versus a 36.8% decline in the Topix and a 28.4% rise in the Tokyo Second Market Index, in US dollars terms. At the end of the period under review, the Fund had borrowings of Y4.5 billion ($42.5 million) and cash (net of commitments) of about Y985 million ($9.3 million). The Fund is therefore about 9.1% leveraged. The Fund had no foreign currency hedges as of 31 October, so the Fund's value in US dollars benefits fully from any appreciation of the Yen and, conversely, would be hurt if the Yen weakened. During the period under review, the Yen appreciated approximately 3.9% against the US dollar as the exchange rate moved from Y110.185 to Y106.015. There are no outstanding warrants and the number of outstanding shares remains at 20,435,627. MARKET OUTLOOK At the beginning of the period under review, investors in Japan were generally bullish, with spirits buoyed by an improving economy, rising corporate earnings, low share price valuations, and favourable stock market performance in the preceding months. As time passed, however, their enthusiasm was dimmed by a series of disheartening developments, including disappointing quarterly GDP figures, a continued rise in prices for crude oil and other commodities, selling by local investors, profit-taking in smaller stocks, the appreciation of the Yen, and weakness in major overseas stock markets. With enthusiasm among local investors waning, stock prices began to slip lower and by the end of October all major Japanese stock indices were down. The Japanese economy continues to expand, however, and for the current fiscal year ending March 2005 we expect real GDP growth of 3.0-3.5% and for next fiscal year we see growth of around 2%. Corporate earnings should finish this fiscal year sharply higher, aided by both the improving economy and past restructuring. We expect pre-tax earnings growth of 20-25% this fiscal year and look for earning growth of about 15% next fiscal year. Growth at the after-tax profit level should be even higher thanks to the absence of extraordinary losses that weighed down earnings last year. ATLANTIS JAPAN GROWTH FUND LIMITED INVESTMENT MANAGER'S REPORT (continued) FOR THE SIX MONTHS ENDED 31ST OCTOBER 2004 Exports and private sector capital investments are currently the main locomotives of domestic economic growth. Contributions to growth from consumer spending are only slightly positive, with spending having been depressed by cool summer temperatures, a series of typhoons and, most recently, the earthquake in Niigata Prefecture. Automobile sales can be described as flat at best, and sales at department stores and supermarkets have been trending lower. However, there are hopeful signs on the household income front. December bonuses are expected to be higher this year than last, and many companies are making plans to hire additional workers from next April, the traditional beginning of the Japanese fiscal year. Interest rates remain low and do not appear likely to move much higher in the near future. This is, of course, positive for the housing market, which has been stronger than expected. The largest potential negatives we see at this time are high prices for crude oil and other commodities, a slowdown in the world economy, which could eventually hurt Japanese exports, and weakness in overseas stock markets. The ongoing unrest in Iraq and the threat of some type of terrorist attack have also had a negative impact on investor sentiment. Looking at the forces of supply and demand in the Japanese stock market, we find selling by domestic pension funds, including selling related to the return of company-managed funds to the national pension system (or daiko henjo), has almost run its course; by next spring we believe local pension accounts will have completed their selling and may even become net buyers. Selling by banks continues as they work to improve their balance sheets; the largest part of bank selling is now past, however, and from next fiscal year we believe banks will, at worst, be only small net sellers. Japanese corporations continue to unwind cross shareholdings and this will no doubt continue for the next several years. We note, however, that this is being partly or fully offset by corresponding share buybacks. Local investment trusts have been steady net buyers. At this time they are still relatively small but this could change as more banks gear up to promote investment trusts. In the longer term, we believe local investment trusts could grow to have a substantial impact on the market. Japanese individual investors currently account for 40-50% of average daily trading (doing most trading via the Internet) and they have been sellers for most of the year, but we believe individual investors could again become significant net buyers if and when their confidence returns. We think this could happen if the domestic economy shows signs of continued improvement and corporate earnings continue to grow. Overseas investors have been the primary buyers in the Japanese market thus far this year and we believe they will remain net buyers. Overseas investors obviously need some help from local investors, though, and we are hopeful that local buying will eventually pick up. ATLANTIS JAPAN GROWTH FUND LIMITED INVESTMENT MANAGER'S REPORT (continued) FOR THE SIX MONTHS ENDED 31ST OCTOBER 2004 OUR STRATEGY AND THE PORTFOLIO Despite a number of uncertainties including rising oil prices, a stronger Yen, and slowing economic growth in China and elsewhere in the world, we do not consider the current economic climate in Japan to be particularly bad. Indeed, as mentioned previously, we fully expect the Japanese economy to continue expanding, see corporate earnings pushing higher again next fiscal year, and expect interest rates to remain low. At the individual stock level, we are still finding many interesting buy candidates. As before, we usually find the best value and fastest growth among small and medium-sized companies. We find that many of these smaller companies are well managed, focused, and flexible, and are thus able to quickly adapt to changing conditions. The stocks of some are also still undervalued. This is not to say that we do not also consider larger companies. We keep an open mind to opportunities in all areas and still visit a number of larger companies as well. The essence of our approach is bottom-up research, and the mainstay of our research effort is an intensive company-visiting program. We like to visit a wide range of companies, from small to large, and in every kind of industry. Some of our best investments have been in companies in the retail and service industries, where revolutionary changes are now taking place. We also favour companies with strong positions in niche markets with high growth potential, examples of which include new materials and healthcare-related products such as dental equipment. In our stock selection we stress value and growth. We try to project earnings over the next 3-4 years and compare our earnings estimates with broker estimates, when available. We also like to buy companies that are not yet well followed but which we hope will eventually be picked up for coverage by broker analysts and attract the attention of larger funds as the companies grow larger and their market capitalisation expands. We have also been buying a number of cyclical growth stocks and recovery stocks, which we expect to benefit from the ongoing growth in the economy. We have sold off a number of companies that did not meet our earnings expectations or where we lost confidence in the management. Patience is a characteristic of a successful investor, and is especially important when the market is weak or the outlook uncertain. We would like to thank our shareholders for their patience. With our continued emphasis on value and growth, we believe this patience will continue to be rewarded. Atlantis Fund Management (Guernsey) Limited December 2004 This information is provided by RNS The company news service from the London Stock Exchange

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